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NewsletterThe Dispatch Fall 1996 In this issue: Shrinkwrapped Software Licenses Validated Must buyers of computer software obey the terms of shrinkwrap licenses? For more than a decade, software vendors have relied on user license agreements included under the shrinkwrap covering of software packages. Yet, there has been a growing uncertainty about the validity of the shrinkwrap approach. Shrinkwrap licenses are intended to protect vendor property interests in software from unauthorized copying, installation, commercial use, or modification. License provisions also include warranty and damages disclaimers. In ordinary practice, there is a notice on the outside of the retail package, a complete statement of the license inside the package (often in the "Read Me" file on the installation disk or CD), and a provision for return and refund in the event the consumer declines the terms of the license agreement. As a practical matter, however, consumers do not have an opportunity to review or agree to the terms of the license prior to purchase. In ProCD v Zeidenberg, 86 F.3d 1147 (7th Cir. 1996), a buyer purchased several copies of the consumer version of ProCD's nationwide telephone database application program, ignored the shrinkwrap license restrictions and loaded the database application onto an Internet server. At a cost of about $450, the buyer acquired and commercialized an application which had cost ProCD more than $10 million to create. A federal district court in Wisconsin rejected ProCD's lawsuit to enforce its license agreement. Inasmuch as the shrinkwrap license could not have been agreed to at the point of sale, the court reasoned that the license restrictions were not part of the contract of sale. It refused to enforce the license. The Court of Appeals reversed. It declared that Article 2 of the Uniform Commercial Code does not require agreement to all terms at the point of sale, provided the buyer has a reasonable opportunity to inspect and accept or reject the goods after purchase. Where, as here, the shrinkwrap license provided an opportunity-for rejection and refund, it was entirely lawful under the Uniform Commercial Code. The Court also noted that a range of similar transactions take place in contemporary commerce. These include warranty provisions packaged in consumer appliance sales transactions, insurance agreements where the specific terms are disclosed well after a summary binder has been issued, and airline or other travel tickets where the complete terms of sale are disclosed after the point of sale. To reject this approach to consumer dealings would be to "return transactions to the horse and buggy age". The decision in this case is particularly significant because databases are difficult to protect under copyright law after Feist Publications v Rural Telephone Co., 499 U. S. 340 (1991). ProCD v. Zeidenberg says that the Heist case does not preclude protection under the Uniform Commercial Code. Of course, software vendors should proceed with caution. It remains for other courts to consider and ratify the Seventh Circuit's analysis. It is important to understand also that the ProCD Court limited its decision to high volume, consumer transactions. The Court did not address more limited commercial sales transactions where the scope and substance of pre-sale negotiations may well negate any attempt to enforce a license which has not been agreed to prior to sale.
Kerry Timbers concentrates in copyright, trademark, and patent litigation. Trademark Perils Trademarks and service marks are valuable property interests. They identify and distinguish products and services in the marketplace and frequently carry significant, intangible value associated quality, integrity, innovation, or goodwill. Generally, protection of trademarks and service marks is a straightforward process under the federal Trademark Act and companion state laws. However, careful compliance with the registration process is essential. Recently, the United States Trademark Trial and Appeal Board (TTAB) invalidated and revoked a trademark registration because of an applicant's failure to comply with the express requirements of federal laws. USA Detergents, Inc. obtained federal registration of the mark, SUPER SCRUB, for a detergent cleaner which was positioned against a similar product marketed by the Clorox Company under the registered mark, SOFT SCRUB®. Subsequently, Clorox petitioned to cancel the SUPER SCRUB registration claiming, in part that USA Detergent has assigned its application for the mark to a creditor, Chemical Bank, under a security agreement and prior to filing a statement of use under the Trademark Act. Section 10 of the law, 15 U.S.C. sec. 1060, includes an anti-trafficking provision which bars assignments prior to filing a statement of use, except to the successor of an on-going business. In its decision, the TTAB recognized that the assignment was an inadvertent mistake but ruled, nevertheless, that the security agreement with Chemical Bank constitute an outright assignment. The Clorox Co. v. Chemical Bank, 40 U.S.P.Q.2d 1098, 1996 TTAB LEXIS 15, 1996 WL 434243. The TTAB declared that the business successor exception did not apply and that the assignment violated section 10. In this case of first impression, the TTAB held that not only was the assignment invalid, but the invalid assignment voided the trademark application and the resulting registration. The implications of this decision arc far-ranging. It puts at risk security agreements, trademark assignments, and application for trademark registration, and could result in the cancellation of trademark registrations that have been in existence for years. In light of the Clorox case, any holder of an assignment interest in a trademark application or registration dated after November 1989 (when section 10 of the Trademark Act was amended) should have the title history review for ratification or corrective action. Similarly, there should be heightened caution in drafting financial transactions where interest in marks are included as security. Of course, future cases may alter the TTAB's interpretation of section 10; in the meantime, great care should be used to avoid the potential for a Clorox dispute.
Judith Stern prosecutes trademarks and copyrights and litigates intellectual property disputes. Limitations on Medical Procedure Patents Congress has moved to limit patent rights for medical procedures with the enactment of a new law restricting infringement claims. The new law amends Title 35 and precludes infringement lawsuits against a physician or other professional health care provider and his or her "related health care entity" with respect to use of a patented, medical or surgical procedure. PL 104-208, sec. 616 (September 20, 1996). However, the law does not change patent protections for medical or surgical techniques which incorporate patented machines,, drugs, medical devices, or biotechnology or novel uses of biological or chemical compositions. Nor does the new law offer protection to manufacturers of items specially made for use in a patented procedure. This law arose out of a concern for the impact of patents on physicians. Concern was elevated to a fervent pitch by a lawsuit filed by Dr. Samuel Pallin against another surgeon. Dr. Pallin obtained a patent for a cataract procedure. His cataract incision is made in a manner which does not require a surgical stitch for proper healing. Dr. Pallin sued to recover royalties for his use of his "no-stitch" cataract surgery. Medical professionals throughout the United States were appalled by this lawsuit and at the prospect of defending a cascade of similar claims. While the new law protects physicians and other professional health care providers from infringement litigation, it also protects their related medical facilities. Perhaps, ironically, in this time of large, vertically integrated health care institutions, they will also be protected from litigation to enforce medical procedure patents. Given that the law is limited to medical procedures, it still permits an infringement claim against a physician or medical facility for unlawful use of a patented machine, device, or composition or a patented biotechnology process, including any process involving altering of genetic material or cell fusion procedures that form specific proteins. Also, processes involving chemical or biological compositions that have contributed to the patentability of the process remain subject to infringement claims. Finally, all patent remedies remain against a physician or other health care professional whose work for a drug or medical device manufacturer is related to the "development, manufacture, sale, importation or distribution of a machine, manufacture, or composition of matter or the provision of pharmacy or clinical laboratory services". Clearly, these exceptions and the complexity of distinguishing them from protected medical procedures will generate further litigation. Those seeking to patent medical procedures will attain the fullest level of patent rights by incorporating a composition of matter in a new device within the procedure. As such, it is expected that the patent system will continue to reward inventors of medical procedures despite the new law.
Bob Asher practices patent law before the courts and the Patent and Trademark Office. The Dispatch is not legal advice. For legal assistance or further information, please call the lawyer with whom you regularly deal at our firm or the authors of these articles. |
