Property - Economics

Chapter 9
Intellectual Property
• Intellectual effort, not by
physical labor
• Reputation (goodwill) is one
part of intellectual property
• Intangible property
• Lawsuits involve infringement • Major forms include:
in violation of the owner’s right
– Trademarks
• Damages include monetary
– Copyrights
and injunction
– Patents
• Counterfeit and fraudulent use
– Trade secrets
of this property costs business
tens of billions of dollars a year
• A commercial symbol
– design, logo, phrase, distinctive mark, name or
– “brand name” (i.e. Nike and others)
– protected by the Lanham Act
– Classifications:
• arbitrary and fanciful (most favored –
• suggestive (not as favored – Dairy Queen)
• descriptive not as favored – but Holiday Inn
and Yellow Pages have protection
• Generic – no protection (nylon, zipper)
Online: Pay of $335 for each class of goods using a mark
Submission of copy of mark (a specimen)
Description of the goods that will use the mark
Declaration that applicant has no knowledge that mark will
conflict with other marks
• Good for 10 years, then renew
• International protection of marks encouraged by
International Bureau of the World Intellectual Property
Organization (WIPO) via the Madrid Protocol
• Through “Madrid System” a trademark holder from most
countries can file an existing trademark for international
registration. Less costly than registering in each country
Infringement, Dilution and Cybersquatting
• Infringement
– Confusion of origin of goods by improper use of trademark
– Essentially stealing another’s good name
– Lanham Act allows lawsuits for infringement
• Dilution
– Rights further expanded through The Trademark Dilution Act
– Injunction against those blurring or tarnishing famous trademarks
• Cybersquatting
– Trademark is improperly used in a domain name
– Restricted by the Anticybersquatting Consumer Protection Act
• Defenses
– Fair use (mention of mark in comparative advertising)
– Non-commercial use (parody or editorial commentary)
– News reporting or educational use
Audi AG v. D’Amato
• D’Amato registered domain name
• Sold goods and services with Audi logos.
• Site used various Audi trademarks – Audi, Quattro &
Audi Four Ring Logo.
• Claimed to have permission from an Audi dealership
salesman. (Even if he did, Audi dealerships don’t have
rights to grant use of Audi trademarks.)
• Audi sued D’Amato for infringement, dilution and
cybersquatting of its three famous trademarks.
• District Court: Held for Audi. Issued injunction against
D’Amato, his website and domain name.
• D’Amato appealed.
Audi AG v. D’Amato
• HELD: Affirmed. D’Amato infringed.
• “Likelihood of confusion” must be shown to obtain equitable relief
(here a permanent injunction).
• Disclaimer on website of association with Audi does not absolve
D’Amato of liability.
• Directing consumers to his website and later disavowing affiliation
with Audi is too late. He created “initial interest confusion” – an
infringement under the Lanham Act.
• He stated on the website that he had a signed agreement with Audi,
which was not true.
• Website merely having hyperlinks to goods (hats/shirts) creates a
commercial effect that damages Audi.
• Dilution law also offended – integrity and distinctiveness of mark is
infringed upon.
• Audi spent millions on its trademarks to be known worldwide.
• D’Amato used the marks in commercially related activities.
• The marks used were identical to Audi’s.
• Under Anticybersquatting Consumer Protection Act (ACPA),
requirements have been met showing Amato was in bad faith to profit
from Audi’s mark.
• Copying or imitating of a mark without authority to do so.
• Passing off goods as if they were original.
• Problems with universities, Major League Baseball and
well-known companies: Nike and Disney.
• Levi’s has seized millions of pairs of counterfeit pants all
over the world.
• Even if people are told that the counterfeit goods are
counterfeit (no one fooled), the trademark counterfeited.
• Lanham Act allows private parties to obtain search-andseizure orders to grab counterfeit goods.
• Private investigators look for imitations; provide U.S.
Attorney with evidence; and U.S. Attorney either takes
actions or approves a party’s right to obtain a warrant to
seize goods.
• Goods can be used as evidence in lawsuits.
Trade Dress
Protected by Lanham Act
Concerns the “look and feel” of products and service
Size, shape color, texture, graphics, etc.
Must be “inherently distinctive”
• i.e. Roar of lion – trade dress for MGM
– Two Pesos v. Taco Cabana: One Tex-Mex restaurant
could not copy its competitor’s unique décor.
– Wal-Mart v. Samara Bros.: No infringement by Wal-Mart
on Samara’s design of children clothing, although
designs were similar. Protection received if trade dress
is distinctive and has secondary meaning.
• Secondary Meaning: Primary significance of mark or
trade dress is recognition of the source of product
rather than the product itself.
Other Marks
• Service Marks
– Apply to services, not
– Law is similar as for
– Ex: International Silk
Assn. uses the motto:
“Only silk is silk”
– Ex: Burger King’s
“Home of the
• Certification Mark
– Word, symbol, device or
any combination of
– Used to certify regional
or other geographic
>“Made in Montana”
– May also be type of
material used, mode of
manufacture, quality,
accuracy or other
>“Union Made in the USA”
Trade Names
• Name of company or a business
• Some products, such as Coca-Cola, have same
trademark as the trade name of producer
• Cannot be registered under the Lanham Act
• Protected by common law
• Protection applies to areas in which name has meaning
– National protection cannot be claimed unless there
might be confusion
– Ex: because Coca-Cola is known worldwide, no one
may use trade name in any business. E.g., cannot
open Coca-Cola Motel.
• Reputation of a firm that gives value to
trademarks and other forms of intellectual
• Prized asset of many firms
• Gain trust of many customers = Goodwill
• Benefit of advantage of having an established
business and secured customers
• Upon sale of business, goodwill can be
• Often closely tied to trademark or brand name
Copyright ©
• Copyright Act of 1976
• Rights of literary property
recognized by law
• Books, written works, etc.
• Easy to get; registration process
• Works must be original
• Life of author plus 70 years or 95
years for business copyrights
• Gives owner exclusive right to:
publish or distribute
display in public
perform in pubic
prepare derivative works based on
Infringement and Fair Use in Copyright
• Fair use - “for purposes such as criticism, comment, news
reporting, teaching, . . . scholarship, or research”
• Four Factors of “fair use”
– purpose and character of copying
– nature of work
– extent of copying
– effect of copying on market
• Damages for violations focus on economic loss to ©
• In some areas (federal law) activity may be tied to mail or
wire fraud – felony convictions include fines/prison
• People always looking for alternatives for file sharing
Maverick Recording Co. v. Harper
Media Sentry looks for infringements of media via Internet.
Discovered Harper using file-sharing program.
Shared files (songs) by peer-to-peer network (LimeWire).
MediaSentry downloaded files, capturing and sharing
metadata for each file.
After suit was filed by copyright owners, plaintiffs were
allowed to examine Harper’s computer.
Forensic experts ID’ed all file sharing, even those “erased”.
Plaintiffs moved for summary judgment on copyright
claims for 37 audio files.
Court granted judgment & injunction for further action.
Harper said infringements were “innocent” under copyright
law; trial court agreed with that lesser level of violation.
It set damages at $200/violation.
Plaintiffs appealed, saying she’s not “innocent” violator
and damages should be statute minimum of $750/violation.
Maverick Recording Co. v. Harper
HELD: Harper is not an innocent infringer.
Affirmed district court’s copyright liability.
Reversed its finding of “innocent” infringer.
Remanded for further proceedings.
No doubt that Harper downloaded copyrighted material.
Harper contended that she was too young and naïve to
understand copyrights on music.
Her arguments are insufficient.
Her knowledge is irrelevant under the Copyright Act.
Plaintiffs are entitled to statutory damages.
Must be awarded $750/infringement minimum.
• Exclusive right to make, use, or
sell a product for 20 years
• Anyone who “invents or
discovers any new and useful
process, machine, manufacture,
or composition of matter, or any
new and useful improvement
thereof, may obtain a patent”
• Strong protection during life of
• Rapid technology changes may
limit usefulness.
• But expensive,
technical and timeconsuming process
• Since patent divulges
all info to
competitors, some
prefer trade secrets
See Nystrom v. Trex Company, Inc.
Nystrom v. Trex Company
• Nystrom owns a two-truck, two-man lumber yard.
Received patent for “A board for use in constructing a
flooring surface for exterior use [such as a deck] . . .
manufactured to have a . . . convex top surface which
sheds water and at the same time is comfortable to walk
on. . . .”
• Nystrom sued Trex (large mfgr. of exterior decking planks
made from composites of wood fibers & recycled plastic)
for infringing.
• Trex’s defense: their planks are not cut from logs, and
that Nystrom’s patent “board” means that made only from
• District Court: Summary judgment for Trex.
• Key parts of the patent invalid. Dismissed Nystrom’s
claim. Nystrom appealed.
Nystrom v. Trex Company
• U.S. Ct. of Appeals: Summary judgment for noninfringement is reversed.
• Opinion centered on the meaning of the word
“board”. Nystrom says that “board” is not limited to
“wood cut from log” and in his patent he did not
disclaim boards made from materials other than
logs, such as products made from plastic.
• Nystrom called his invention “a decking board.”
• “Board” can encompass materials made from wood
and other rigid materials as well.
• Trex infringed in making the “board” in a convex top
surface that is shaped by manufacturing.
Trade Secrets
• Coca-Cola has held secret the formula for Coke for
over 100 years – a patent would not provide such
lengthy protection
• Most trade secret lawsuits are common law actions of
stealing & using secrets
• Prosecutors can also press criminal charges
• Protection in other countries is difficult
• Information is a trade secret if:
– it is not known by the competition
– business would lose advantage if competition were
to obtain it
– owner has taken reasonable steps to protect the
secret from disclosure
Hicklin Engineering, L.C. v.
R.J. Bartell
• Bartell worked as an independent contractor for Axi-Line, a division
of Hicklin.
• He designed & made testing equipment for vehicle transmissions.
• Bartell formed a competing business that sells transmission testing
• Hicklin sued Bartell for violation of trade secret.
• Judge held for Bartell. Hicklin appealed.
• HELD: Judgment vacated and case remanded.
• On remand parties and trier of fact will need to separate Hicklin’s
contributions from Bartell’s contributions.
• Determine what data was Hicklin trade secrets; if Bartell knew
information was confidential; and pin down the use of Bartell made
of trade secrets.
• District court can then select an appropriate remedy.
Economic Espionage
• Usually trade secrets based on common law and
enforced by litigation claiming misappropriation;
violations of a secret; or violations of secrecy
• Economic Espionage Act of 1996 concerns theft of
commercial trade secret:
– “Whoever, with intent to convert a trade secret, that is related to
or included in a product that is produced for or placed in
interstate or foreign commerce to the economic benefit of
anyone other than the owner thereof, and intending or knowing
that the offense will injure any owner of that trade secret,” is
subject to prosecution
• Punishment for a person can be up to 10 years in prison
• Firms may face fine up to $5 million + damages
United States v. Yang
Lee, native of Taiwan; worked in research for Avery (adhesive mfgr.)
Lee visited Taiwan; approached by Yang & his daughter about providing
info. to their Taiwanese adhesives company.
Lee agreed; was paid $25,000/ year for confidential info about new Avery
FBI uncovered arrangement; confronted Lee who agreed to participate in
sting operation to help arrest Yang.
Yangs visited U.S.; Lee met with them; discussed confidential info.; meeting
was filmed. Yangs arrested; convicted; fined $5 million.
They appealed, saying materials used in sting operation were not actual
trade secrets, so they could not have violated the law.
HELD: Convictions affirmed.
Under the Model Penal Code, defendant’s guilt turns on the “circumstances
as he believes them to be.”
Court held government was not required to prove what the defendant sought
to steal was in fact a trade secret; only that defendant believed it to be one.
This was a “mutual understanding to try to accomplish a common and
unlawful plan.”
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