The Internet and Developments in the Protection of Intellectual Property Interests

by Lee Carl Bromberg
Bromberg & Sunstein LLP
Boston, Massachusetts
May 22, 1997

Computer Law Update '97
MCLE, Inc. 1997

© 1997 Lee Carl Bromberg

INTRODUCTION

The Internet has added new layers of complexity to the protection of intellectual property interests and has placed a premium on fast action in many situations. The patentability of computer-related inventions is now well established and we are now beginning to see patents with claims relating to Internet usage. See, for example, U.S. Patent No. 5,590,197, Electronic Payment System and Method, directed to a "cyber wallet," a copy of which is annexed as Exhibit 1. The Internet has accelerated globalization of the economy and thus made efforts to harmonize international patent laws more important. Dramatic changes were made to U.S. patent law in 1995 as part of the harmonization effort, and legislative proposals continue to be actively debated in Congress. Partly in response to the felt need for heightened intellectual property protection, legislation has been enacted in 1996 to strengthen anticounterfeiting laws and to make trade secret theft a federal crime. The White House Information Infrastructure Task Force has recommended key amendments to the Copyright Act to make explicit that transmission is a method by which a work may be disseminated to the public. Copyright infringement liability remains a concern of on-line Internet service providers and common carriers and will likely be the subject of further legislative activity. The technique of framing on a web site, by which the user may obtain access to another web site through a window, is one of many ways in which activity on the Internet has posed a challenge under copyright law. In the trademark area, disputes between domain name registrants and trademark owners have proliferated in recent years. In a related development, a web site operator may find that it has become exposed to personal jurisdiction throughout the United States by using its web site in furtherance of its business purposes.

I. PATENTS

1. Patentability of Computer-Related Inventions.

   1. Historical Background. Prior to 1981, the United States Patent and Trademark Office ("PTO") supported by court rulings, rejected software patent applications as directed to nonstatutory subject matter in contravention of 35 U.S.C. sec. 101. Section 101 authorizes a patent to be granted to "any new and useful process, machine, manufacture or composition of matter, or any new and useful improvement thereof," but has been consistently interpreted to exclude laws of nature, natural phenomena, and abstract ideas, including mathematical algorithms. Thus in Gottschalk v. Benson, 409 U.S. 63, 175 U.S.P.Q. 673 (1972) (Douglas, J.) the Supreme Court denied a patent for a method for converting binary-coded decimal expression on the ground that it amounted to a patent on the mathematical algorithm itself.

      The inhospitable climate changed with the Supreme Court's ruling in Diamond v. Diehr, 450 U.S. 175, 209 U.S.P.Q. 1 (1981), which held that a patent claim that contains a mathematical algorithm may still be directed to statutory subject matter. As the Court of Appeals for the Federal Circuit ("CAFC") recently summarized:

      It is first determined whether a mathematical algorithm is recited directly or indirectly in the claim. If so, it is next determined whether the claimed invention as a whole is no more than the algorithm itself; that is, whether the claim is directed to a mathematical algorithm that is not applied to or limited by physical elements or process steps. Such claims are nonstatutory. However, when the mathematical algorithm is applied in one or more steps of an otherwise statutory process claim, or one or more elements of an otherwise statutory apparatus claim, the requirements of section 101 are met.

      Arrhythmia Research Technology Inc. v. Corazonix Corp., 958 F.2d 1053, 22 U.S.P.Q.2d 1033, 1037 (1992). In Arrhythmia the CAFC upheld patent claims directed to a method and apparatus for analyzing electrocardiograph signals to detect heart attack risks. The claims call for mathematical manipulation of electrocardiogram data to detect specific heart activity indicative of increased risk of heart failure. Hence while the claims rely upon mathematical formulae implemented through computer programs, they are nonetheless directed at statutory subject matter because they are directed to measurement of actual heart conditions by particular steps.

      Following the decision in Diamond v. Diehr, the PTO issued guidelines for the examination of patents directed to computer programs. See Manual of Patent Examining Procedure, Chapter 2100 Patentability, Section 2106, Patentable Subject Matter - Mathematical Algorithms or Computer Programs. In 1995, the PTO launched a substantial overhaul of the guidelines and finally issued new Examination Guidelines for Computer-Related Inventions, effective March 29, 1996 (the "Guidelines"). See, Part I.A.3, below. Since the early 1980's and corresponding to the explosive growth of the personal computer industry, the PTO has seen a rising tide of software applications. In recent years, the PTO has issued thousands of software-related patents annually. This rising tide shows no sign of having reached its zenith. Indeed, case law has pointed in the direction of allowance of claims directed to increasingly abstract devices and methods.

   2. Recent Cases. The CAFC handed down a series of important decisions in 1994 and 1995 on determining the presence of patentable subject matter in computer-related inventions, but has had little to say on the subject for the past year. These cases are discussed below. Of interest, however, is the ruling in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 927 F. Supp. 502, 38 U.S.P.Q.2d 1530 (D. Mass. 1996) (Saris, J.). The district court there held that a computerized accounting system for a hub-and-spoke mutual fund investment system whereby mutual funds pool their assets in an investment portfolio organized as a partnership, does not constitute patentable subject matter because it "does nothing other than present and solve a mathematical algorithm," does "not recite any significant pre- or post-solution activity," and does not "measure physical objects or phenomena as in Arrhythmia or Abele nor does it physically convert data into a different form as in Alappat." 38 U.S.P.Q.2d at 1541. The Court discussed and relied upon the PTO's new examination guidelines for computer-related inventions in reaching its determination of lack of statutory subject matter. The Signature Financial appeal was argued before the Federal Circuit in March and a decision is expected this spring or summer. The guidance provided by the CAFC in its 1994 and 1995 decisions is summarized below.

      In In Re Alappat, 33 F.3d 1526, 31 U.S.P.Q.2d 1545 (Fed. Cir. 1994) (en banc), the Federal Circuit reversed a decision of the Board of Patent Appeals and Interferences of the PTO which had upheld rejection of claims as being unpatentable under 35 U.S.C. sec. 101. The case was close; only six of eleven judges supported the majority conclusion that patentable subject matter was present. Three judges took no position and two dissented from the finding of statutory subject matter. The claimed invention related generally to a means for creating a smooth waveform display in a digital oscilloscope by preventing jagged edges ("aliasing") from appearing in the digitalized waveform data displayed on the oscilloscope. The rejected claim 15 read as follows:

      A rasterizer for converting vector list data representing sample magnitudes of an input waveform into anti-aliased pixel illumination intensity data to be displayed on a display comprising:

      (a) means for determining the vertical distance between the endpoints of each of the vectors in the data list;
      (b) means for determining the elevation of a row of pixels that is spanned by the vector;
      (c) means for normalizing the vertical distance and elevation; and
      (d) means for outputting illumination intensity data as a predetermined function of the normalized vertical distance and elevation.

      31 U.S.P.Q.2d at 1553. In reviewing this claim the Court stated that

      the proper inquiry . . . is to see whether the claimed subject matter as a whole is a disembodied mathematical concept, whether categorized as a mathematical formula, mathematical equation, mathematical algorithm, or the like, which in essence represents nothing more than a "law of nature," "natural phenomenon," or "abstract idea."

      Id. at 1557. In concluding that claim 15 did satisfy the requirements of patentable subject matter under Section 101, the Court ruled as follows:

      Although many, or arguably even all, of the means elements recited in claim 15 represent circuitry elements that perform mathematical calculations, which is essentially, true of all digital electrical circuits, the claimed invention as a whole is directed to a combination of interrelated elements which combine to form a machine for converting discreet waveform data samples into anti-aliased pixel illumination intensity data to be displayed on a display means. This is not a disembodied mathematical concept which may be characterized as an "abstract idea," but rather a specific machine to produce a useful, concrete, and tangible result.

      Id. (footnotes omitted).

      Later, in In Re Trovato, 42 F.3d 1376, 33 U.S.P.Q.2d 1194 (Fed. Cir. 1994), the Federal Circuit upheld rejection of patent claims for lack of statutory subject matter under sec. 101. The invention related to the problem of finding the shortest distance between two points, a topic in the computer science field known as graph theory. The patent application attempted to solve the shortest path problem by finding the optimal path between two locations, whether in terms of distance, cost, capacity, time or other criteria. In rejecting the claims for lack of statutory subject matter the Court held that the

      methodical application of arithmetic operations to data placed within a numerical configuration in order to determine the least cost path through a mathematically structured graph amounts only to a generality or disembodied concept, outside the subject matter listed in Section 101.

      Id. at 1198. Distinguishing its ruling in Alappat, the Court noted that the Alappat

      application disclosed a specific hardware embodiment. There we extensively relied upon the hardware listed in the specification, including arithmetic logic circuits, barrel shifters and the read only memory in reaching the result that the claimed invention constituted patent eligible subject matter. . . . Specific note was also made of the combination of claimed elements from which the inventor formed a machine.

      Id. at 1200. The Court concluded that Trovato's claims provide only "a systemic way in which to compute a number representing the shortest path. A new way to calculate a number cannot be recognized as statutory subject matter." Id. It is interesting to note that the three-judge panel in the Trovato case had one judge from each group - majority, dissent, no position - in the Alappat en banc ruling.

      Surprisingly, on en banc reconsideration, the Court vacated the Trovato ruling. In Re Trovato, 60 F.3d 807, 35 U.S.P.Q.2d 1570 (CAFC 1995). Citing the fact that the Board had rejected Trovato's claims prior to the decision in Alappat, and noting the proposed new guidelines issued by the PTO for computer-implemented inventions, the per curiam order vacated the Panel ruling and the Board decision as well, and "remanded for reconsideration in light of Alappat and any guidelines adopted by the Patent and Trademark Office for examination of computer-implemented inventions." Judge Nies, joined by Judge Michel in dissent, indignantly noted that the PTO guidelines had not even been issued yet and that they would in any event have to "yield to precedent from this Court and the Supreme Court, i.e., the law, on Section 101" (emphasis in original). The dissenters are no doubt correct that the majority ruling is both highly unconventional and lacking in judicial propriety. However, the ruling also reflects the readiness of the CAFC to embrace a new and welcoming approach to the patentability of computer-related inventions as set forth in the PTO's proposed guidelines.

      The Federal Circuit had earlier found nonstatutory subject matter in In Re Schrader, 22 F.3d 290, 30 U.S.P.Q.2d 1455 (Fed. Cir. 1994). The claims in Schrader were directed to a method for determining the optimal combination of competitive bids on related items, such as tracts of land, usually, but not necessary, performed with the aid of a computer. The majority opinion found a mathematical algorithm implicit in the claim language and the absence of any "physical change, effect or result" in the grouping or regrouping of bids. 30 U.S.P.Q.2d at 1458. Judge Newman filed a dissent in which she contended that "Schrader's method [for determining optimal bids] involves more than method steps or theories or plans," and in which she scolded the majority for imposing "fresh uncertainty" on the determination of statutory subject matter. Id. at 1460-61. In In Re Warmerdam, 33 F.3d 1354, 31 U.S.P.Q.2d 1754 (Fed. Cir. 1994), claims directed to a method for locating the medial axis of an object and creating a bubble hierarchy in order to control the motion of a machine (e.g., a robotic machine) in such manner as to avoid collision with the identified object were rejected on the ground that "[t]hese steps describe nothing more than the manipulation of basic mathematical constructs, the paradigmatic 'abstract idea.'" 31 U.S.P.Q.2d at 1759.

      A related case of interest is In Re Lowry, 32 F.3d 1579, 32 U.S.P.Q.2d 1031 (Fed. Cir. 1994). There patent claims directed to a data structure for a data processing system had been rejected by the Board of Patent Appeals and Interferences under the "printed matter" doctrine. In reversing, the Federal Circuit stated:

      The printed matter cases have no factual relevance where "the invention as defined by the claims requires that the information be processed not by the mind but by a machine, the computer" Id. (emphasis in original). Lowry's data structures, which according to Lowry greatly facilitate data management by data processing systems, are processed by a machine. Indeed, they are not accessible other than through sophisticated software systems. The printed matter cases have no factual relevance here.

      Nor are the data structures analogous to printed matter. Lowry's ADOs do not represent merely underlying data in a database. ADOs contain both information used by the application programs and information regarding their physical interrelationships within a memory. Lowry's claims dictate how application programs manage information. Thus, Lowry's claims define functional characteristics of the memory.

      Contrary to the PTO's assertion, Lowry does not claim merely the information content of a memory. Lowry's data structures, while including data resident in a database, depend only functionally on information content. While the information content affects the actual sequence of bits stored in accordance with Lowry's data structures, the claims require specific electronic structural elements which impart a physical organization on the information stored in memory. Lowry's invention manages information. As Lowry notes, the data structures provide increased computing efficiency.

      A later Board rejection of applicant's computer program product claims on the basis of the printed matter doctrine was vacated on appeal when the Commissioner of Patents and Trademarks stipulated "that computer programs embodied in a tangible medium, such as floppy diskettes, are patentable subject matter under 35 U.S.C. sec. 101 and must be examined under 35 U.S.C. secs. 102 and 103." In Re Beauregard, 35 U.S.P.Q.2d 1381, 1384 (Fed. Cir. 1995) (Archer, C.J.).

   3. Patent Office Guidelines for Computer-Related Inventions. Guidelines were proposed May 30, 1995, and finally promulgated by publication in the Official Gazette of the Patent and Trademark Office on March 26, 1996. A copy of the final guidelines is attached as Exhibit 2. The guidelines provide a procedure for examining patent applications directed to computer related inventions.

      The first step is to construe the claimed invention. Before focusing on statutory requirements, the examiner is to understand the technology in terms of its practical application, review the application in terms of the specific embodiments disclosed, and then review the claims. Guidelines, Section II.

      Next, the examiner conducts a thorough search of the prior art, reviewing both U.S. and foreign patents and non-patent literature. Guidelines, Section III.

      Only after these steps is the examiner to determine whether the claimed invention constitutes statutory subject matter under 35 U.S.C. sec. 101. In making such a determination, the examiner is to classify each claim into one or more statutory or non-statutory categories. If the invention described in the written description is statutory but the claims define subject matter that is not, the examiner is to reject the claims as non-statutory but identify features of the invention that would render the claimed subject matter statutory if claimed. Guidelines, Section IV(B). Comment: although examiners may fail to follow these guidelines, they indicate a much more user-friendly attitude on the part of the PTO.

      Nonstatutory subject matter includes data structures that are not claimed as embodied in computer-readable media; similarly computer programs claimed as computer listings per se are not statutory. Guidelines, Section IV(B)(1)(a). On the other hand, the recitation of a computer program as an element of an otherwise statutory claim does not render the claim non-statutory. Moreover, a claimed computer-readable medium encoded with a computer program is statutory. Id. Practice Tip: Until now, the patent strategy for protecting software therefore was to file an application with claims primarily to a device running the software and secondarily to a method performed using the computer while running the software. A software patent issued with claims of these types would cover the operation of a computer running the software, but would not directly cover the sale of the software. A company by selling software could be found liable only as a "contributory infringer" for assisting the end user in the infringing activity of using the software in a computer. Under this rule of the guidelines, a digital storage medium (such as a floppy diskette) in which software is encoded can now be the subject of a patent, so a company selling software could be found directly liable for infringement of such a patent. Hence, patent attorneys should consider adding claims directed to this type of subject matter.

      Descriptive material (including music or photographs) that cannot exhibit any functional interrelationship with the way in which computing processes are performed is not statutory. Guidelines, Section IV(B)(1)(b). Claims that recite nothing but the physical characteristics of a form of energy, such as a frequency, voltage, or the strength of a magnetic field are non-statutory. Guidelines, Section IV(B)(1)(c).

      Two types of statutory product claims are identified. One type is directed to any machine or article of manufacture that embodies a specific process; such a claim is statutory if and only if the process is statutory. Guidelines, Section IV(B)(2)(a)(i). Another type is directed to a specific machine or article of manufacture; such a claim must identify a memory and the specific software that provides the functionality stored in the memory. Guidelines, Section IV(B)(2)(a)(ii)

      A computer-related process claim is statutory if it falls into one of two categories. The first category applies if the claimed process results in a physical transformation outside the computer for which a practical application in the technological arts is disclosed or obvious to a skilled artisan. Examples of this category include processes where there is post-computer process activity (such as curing rubber under computer control) or pre-computer process activity (such as the transformation of measurements on physical objects into computer data before being processed). Guidelines, Section IV(B)(2)(b)(i). The second category applies if the process is limited by the claim to a practical application of an idea or algorithm within the technological arts (such as a method of controlling parallel processors to accomplish multi-tasking of several computing tasks to maximize computing efficiency). Guidelines, Section IV(B)(2)(b)(ii). On the other hand, a computer-related process claim is not statutory if it involves solely mathematical operations without some claimed practical application or simply the manipulation of abstract ideas (such as a bid or a bubble hierarchy) without some claimed practical application. Guidelines, Section IV(B)(2)(c), (d), and (e).

      After evaluating the claims for statutory subject matter, the examiner is to evaluate the claims of the application, interpreted in light of the disclosure, for compliance with the requirements for definiteness under 35 U.S.C. sec. 112, second paragraph. Guidelines, Section V(A). Thereafter the application is evaluated for compliance with 35 U.S.C. sec. 112, first paragraph, to ascertain that there is an adequate written description, that the description permits a person of ordinary skill in the field of the invention to practice the claimed invention without undue experimentation, and that the application includes a description of the best mode for carrying out the invention. Guidelines Section V(B). Thereafter the application is examined for novelty and non-obviousness under 35 U.S.C. secs. 102 and 103 respectively, Guidelines, Section VI, and the results of all of these activities by the examiner are then communicated, Guidelines, Section VII.

      In general, the Guidelines reflect a willingness to evaluate applications for patent protection of computer-related inventions without reference to the old shibboleths of nonstatutory subject matter. Hence a computer or other programmable apparatus whose actions are directed by a computer program is potentially patentable as a machine. A computer readable storage medium (like a floppy diskette) configured with a program or data that can be used to direct a computer to function in a particular manner is potentially patentable as an article of manufacture. And a series of specific operational steps to be performed on or with the aid of a computer is potentially patentable as a process. At the same time, the Guidelines promise a refreshing new rigor in the examination of computer-related applications by focussing more attention on identifying the invention as set forth in the claims. The Guidelines further specify that examiners must measure the claimed invention against the requirements of sec. 112 that the claims set out and circumscribe the invention with a reasonable degree of precision and particularity, and that there be an adequate written description of the claimed invention, as well as an enabling disclosure. Finally, the Guidelines require an assessment of the claimed computer-related invention in the light of the prior art under the anticipation standards of sec. 102 and the obviousness standards of sec. 103.

   4. European Patent Office Guidelines. Similar guidelines for examination of computer-related inventions have been adopted by the European Patent Office. See Aaronian, Patent News (Usenet E-Mail), dated September 4, 1996, retrieved from DejaNews web site (at http://www.dejanews.com/), attached as Exhibit 3. Note, however, that a digital storage medium encoded with a computer program is viewed as unpatentable.

   5. Finding Prior Art for the PTO. There is often a hazard under patent law that a company engaged in business in good faith will be accused of violating a broad, often early-filed, patent governing the company's operations. For example, Compton's New Media patent, number 5,421,671 (issued August 31, 1993), for multimedia search and retrieval systems, had such broad claims as to cause a hue and cry in the computer industry. The PTO instituted reexamination proceedings on its own initiative, resulting in rejection of all claims.

      The issue of adequate sources of prior art in general and for computer-related inventions in particular is a recurrent theme. See for example, comments of staff members of the Federal Trade Commission on the PTO's Proposed Examination Guidelines for Computer-Implemented Inventions: a less stringent subject matter test "would mean greater reliance on the novelty and nonobviousness tests to weed out inappropriate patents. The PTO has recognized that there are currently practical problems in relying on the novelty and nonobviousness tests to allow patents for truly innovative ideas while rejecting the mundane." 50 BNA Patent, Trademark & Copyright Journal ("BNA PTCJ") 630-631 (October 5, 1995).

      The PTO held a hearing May 31, 1996, on its technical documentation strategy. A transcript of testimony of Jeffrey Forman, from IBM Corporation, representing American Intellectual Property Law Association (AIPLA), and of James Y. Loving, from IBM and representing IBM, is attached as Exhibit 4. On behalf of the AIPLA, Forman stated that in October, 1995 the PTO decided to stop adding non-US patent documents to the examiners' search files and to reduce the resources for maintaining and improving the U.S. patent classification system. This system, Forman stated, is superior to all other classification systems for patent searching, and the AIPLA opposed the reduction in resources devoted to maintaining the classification system.

      In discussing (among other things) the May 31, 1996 hearing on June 6, 1996, before the House Subcommittee on Technology, PTO Commissioner Lehman asserted that "we are under orders to reduce the size of government and that means putting our resources where they are most needed;" "if Congress is not going to give us more 'bodies,' I am going to have to take some people out of the 'archaic' classification area and move them into other areas." Report of hearing in 52 BNA PTCJ 201 (June 13, 1996).

      The Software Patent Institute (SPI) Database of Software Technologies has been established to help document to the PTO and others software prior art that is otherwise not generally available. SPI maintains a web page on the Internet at http://www.spi.org. Members of SPI include Apple Computer, Adobe Systems Incorporated, IBM Corporation, Novell, Inc., Microsoft Corporation, Software Publishers Association, and the University of Michigan, as well as patent law firms. SPI states that as of September 21, 1996, it has over 100,000 records (each record relating to a single work, such as an article or paper) covering 1300 documents (each document being an item such as a book that exists in physically distinct form). Comment: the growing size of this database may increase its importance over time.

      Early in 1997, IBM established its IBM Patent Server website, which permits searching and retrieval of over two million patents dating back to 1971. Images of drawings now go back seventeen years and will be expanded further. This general patent search website should assist in the identification of prior art for all subject areas, including computer-related inventions. The IBM Patent Server address is http://www.ibm.com/patent.

2. International Patent Harmonization Prompts Changes in United States Patent Law.

   Legislation to implement the General Agreement on Tariffs and Trade ("GATT"), Subtitle C of Title 5 of the Uruguay Round Agreements Act ("the Act"), Public Law 103-465, 108 Stat. 40982 et seq., engineered substantial changes in United States patent law. Most importantly, on and after June 8, 1995, the patent term is now twenty years from earliest effective filing date, and a provisional application, a new device, may now be employed. Continuing international harmonization efforts have led to the proposal of controversial new changes and have provoked lively debate about certain long-standing rules of United States patent law.

   1. Twenty-Year Term. The Act changes the former seventeen-year term from issuance to a twenty-year term from earliest effective filing date, by amending 35 U.S.C. sec. 154(a)(2). The twenty-year term from filing date now matches the duration of patents in most foreign countries. GATT actually required only a minimum term of twenty years from filing. The twenty-year term that was enacted results from an agreement with Japan under which Japan agreed to change its law to permit the initial filing of patent applications in English and to allow for the correction of translations into Japanese. 51 BNA PTCJ 7-9 (November 2, 1995). One reason for the change in U.S. law is to preclude issuance of "submarine" patents that have been pending sometimes for decades prior to issuance, at which point they have a duration of seventeen years.

      The twenty-year term from filing date can be extended up to five years for delays in prosecution that are due to appeals in the PTO and to judicial review. 35 U.S.C. sec. 154(b). Patent term extension remains available under 35 U.S.C. sec. 156 for regulatory (i.e., FDA) review.

      Patents issuing on applications filed on or before June 7, 1995, have a duration that is the greater of seventeen years from issuance or twenty years from the earliest filing date in the chain. 35 U.S.C. sec. 154(c). This provision has the effect of lengthening the term of many already issued patents. According to the PTO, the average period of pendency for patent applications are: 22.2 months for electrical inventions, 17.7 months for mechanical inventions, 19.7 months for chemical inventions, and 21 months for biotech inventions. Hence many pre-June 7, 1995 patents will be extended beyond seventeen years from issuance.

      Independent inventor organizations have prompted the filing of legislation in Congress which would change the patent term to the greater of seventeen years from issuance or twenty years from filing. Such a provision would resurrect the specter of "submarine" patents. Senator Hatch has introduced another bill, S1540, which would permit extensions of patent term for "unusual administrative delay" up to ten years, but still measure the start of the term from filing.

   2. Provisional Applications. Provisional applications represent a new and valuable legal tool contained in the new legislation, available as of June 8, 1995. A provisional application has minimal filing requirements. It need only disclose the subject matter of the invention, but need not set forth claims, or even be signed by the inventor. 35 U.S.C. sec. 111(b). The filing fee is $150.00, 35 U.S.C. sec. 41(a)(1)(C), or $75.00 for independent inventors, non-profit organizations, and small businesses. 35 U.S.C. sec. 41(h). A provisional application will not be examined for patentability, 35 U.S.C. sec. 11(b)(8), placed in an interference, or made the subject of a statutory invention registration. A provisional application is deemed abandoned twelve months after its filing date and is not revivable. 35 U.S.C. sec. 111(b)(5).

      The sole purpose of the provisional application is to permit the establishment of an early filing date; a U.S. or foreign application filed within one year of the date of the provisional application can claim the benefit of the provisional filing date, with respect to common subject matter that has been adequately disclosed in the provisional application. 35 U.S.C. sec. 119(e)(1).

      The availability of provisional applications points to a new and potentially more economical strategy for securing an early priority date in connection with the development of new technology of uncertain commercial value. Thus a client having a product development program may file a series of provisional applications over the course of nearly a year, culminating, in the twelfth month after the first filing, in a regular United States application and an international application under the Patent Cooperation Treaty, each claiming priority based on all of the previously-filed provisional applications. This strategy will only succeed, of course, if the provisional application(s) relied upon provide disclosure in sufficient detail to permit a person of ordinary skill in the art to practice the technology that is claimed in the regular application and including the best mode contemplated by the inventor of carrying out the invention. 35 U.S.C. sec. 119(e)(1), referencing 35 U.S.C. sec. 112, first paragraph. Thus, even though a provisional application is devoid of most formal requirements and does not require claims defining the invention, it is essential that the provisional application provide a thorough disclosure meeting the requirements of the first paragraph of sec. 112 in order to support the claims later prepared for the regular application filed within twelve months thereafter.

   3. First to Invent. The United States is the only major industrial country that decides inventorship contests on the basis of who was the first to invent rather than on the basis of who was the first to file a patent application. Under United States patent law, proof of acts constituting invention before the filing date of the patent application will establish the earlier date as the priority date. Formerly, U.S. patent law permitted only U.S.-based inventors to prove a date of invention before the filing date of the application. The NAFTA treaty extended this opportunity to activities in Canada and Mexico as well. Under the GATT amendments, inventors in GATT countries are also put on an equal basis with U.S.-based inventors. The Act amends 35 U.S.C. sec. 104 to permit a domiciliary of a "WTO member country" (as well as of a NAFTA country or of the United States) to show acts of invention in the country of domicile for purposes of avoiding prior art references that are used by the PTO in rejecting an application under 35 U.S.C. secs. 102 and 103.

      Hence to protect their U.S. patent rights, inventors in WTO and NAFTA countries - as well as in the U.S. - should now keep careful written records documenting the conception and reduction to practice of their inventions. The records should be dated and corroborated, preferably by one or more witnesses who understand the invention. The witnesses should, after reviewing the written disclosure of the invention, date and sign each page of the records beneath a notation "witnessed and understood" or words to that effect. Preferably the records are kept as pages in a permanently bound notebook (an inexpensive spiral bound notebook will do) to assure their integrity. Written documentation of invention is important not only to defeat a conflicting claimant, but also to overcome certain potential prior art references in PTO proceedings.

      Note, however, that while the Act purported to put U.S. and foreign inventors on an even footing, it did not amend 35 U.S.C. sec. 102(g), which provides that a person is not entitled to a patent if "before the applicant's invention thereof the invention was made in this country by another who had not abandoned, suppressed, or concealed it" (emphasis added). A resolution of the apparent potential conflict may have to await judicial attention.

      While the dramatic changes in U.S. patent law resulting from the GATT amendments have prompted other legislative proposals for changing the U.S. patent system in the interest of international harmonization, there has to date been no proposal to determine U.S. inventorship contests on the basis of first to file rather than first to invent.

3. 1996 Legislation.

   1. Federal Laboratories and Private Research Partners. National Technology Transfer and Technology Act of 1995, PL 104-113, HR 2196, signed by the President March 7, 1996, concerns federal laboratories operating under a Cooperative Research and Development Agreement with a private research partner. Under prior law, the federal laboratory had the right to claim ownership of jointly developed technology. The legislation grants to the private research partner the right to obtain an exclusive license to the technology and provides federal laboratory scientists with specified amounts of royalty income. 15 U.S.C. secs. 3710a and c as amended. 51 BNA PTCJ 577.

   2. Attorney Fees. PL 104-38, HR 632, signed by the President on October 19, 1996, grants to small entities (independent inventors, non-profit organizations, and companies having fewer than 500 employees) the opportunity to obtain attorneys' fees and expert witness fees in patent infringement suits against the government. 52 BNA PTCJ 695 (October 24, 1996).

   3. Medical Procedures. A new law, PL 104-208, sec. 616, signed September 30, 1996, limits enforcement of medical procedures patents by precluding infringement lawsuits against a physician and his or her "related health care entity" with respect to use of a patented medical surgical procedure. However, the law does not apply to the use of a patented machine, manufacture or composition of matter, the practice of a patented use of a composition of matter, or the practice of a process in violation of a biotechnology patent. The law also does not apply to patents issued before the date of its enactment. See, 52 BNA PTCJ 597, 612 (October 3, 1996).

4. 1997 Pending Legislation.

   1. Eighteen Month Publication. Under current United States patent law, all U.S. patent applications remain secret until the patent issues. All major industrial countries other than the Untied States provide for publication of a patent application eighteen months after its effective filing date. As part of an agreement with Japan, legislation had been introduced in Congress to provide for publication of United States applications eighteen months after filing and expanded third party participation in reexamination proceedings. In return, Japan agreed to change its law to eliminate a procedure by which third parties can oppose the grant of a patent before issuance and also to implement a procedure to provide for accelerated examination of patent applications. 51 BNA PTCJ 7-9 (November 2, 1995). The U.S. legislation has been resisted by organized independent inventors and has not yet been enacted.

      Keep in mind that U.S. patent applicants who pursue foreign patents directly or under the Patent Cooperation Treaty already have their applications published at eighteen months.

   2. Twenty-First Century Patent System Improvement Act (HR 400). An omnibus patent reform bill (HR 3460) was approved by the House Judiciary Committee last summer but never reached the floor of the House. An updated version, titled "The Twenty-First Century Patent System Improvement Act (HR 400) was introduced January 9, 1997. HR 400 provides: (a) patent applications would be published 18 months after filing, but independent inventors would have a right to delay publication until three months after the first action by the PTO on the application; (b) the right of participation of third parties in re-examination proceedings would be expanded; (c) patent owners would have a right to collect a reasonable royalty for patent infringement occurring after publication but before issuance; (d) the duration of a patent would be extended for delay up to 10 years attributable to an interference proceeding with another application, a government secrecy order, appellate review, or unusual delay by the PTO in issuing the patent; (e) prior users of an invention patented by another would enjoy a royalty-free license to practice the invention; (f) invention developers would be regulated; and (g) the PTO would be reorganized as a government corporation under the policy guidance of the Secretary of Commerce but independent of the Commerce Department. 53 BNA PTCJ 187, 197-229 (January 16, 1997).

   3. Prior Use Defense. Under present law, 35 U.S.C. sec. 102(g), the prior inventor who has "abandoned, suppressed or concealed" his invention can be found to infringe a patent granted to a later inventor who promptly filed an application for the same invention. One therefore follows the trade secret route under the peril not only of theft or independent development by third parties, but also of infringing a patent granted to another for one's own invention. Under Title II of HR 400, a good faith independent developer and prior user of patented technology would have a defense to an infringement action and would get a royalty-free license to use the technology and any non-infringing improvements. The use must be commercial and must occur before the effective filing date of the application for the patent.

5. Litigation-Related Developments

   Since intellectual property rights have no value unless they are enforceable, an effective business strategy must include consideration of plans for enforcing and defending intellectual property rights. Patent infringement litigation has achieved new prominence and vigor over the past fifteen years as the CAFC, established in 1981 to provide a single appellate voice on patent issues, has issued ruling after ruling which materially strengthens the rights of patent holders. Damages awards for patent infringement measured in tens of millions of dollars, and in some cases, in hundreds of millions of dollars, have underscored the tremendous commercial value of patents. For a company faced with a potential infringer or accused of infringing patents held by another, an effective approach to litigation is a necessary component of business strategy. Key appellate rulings handed down over the past year will have an important impact on every patent dispute and on planning for the enforcement of patent rights.

   A company with substantial international activities will obviously also have to concern itself with patent disputes in foreign jurisdictions. While every case is likely to present unique issues, it is essential for management to rely upon their United States patent counsel to secure effective local representation in the foreign jurisdiction and to coordinate litigation strategy consistent with the business objectives of management.

   The United States Supreme Court handed down two rulings of great significance to patent law and the conduct of patent litigation in the past year. The Supreme Court unanimously affirmed the en banc ruling by the CAFC that claim interpretation is an issue for the court and not for the jury. Markman v. Westview Instruments, Inc., 116 S. Ct. 1384, 38 U.S.P.Q.2d 1461 (1996). In an opinion by Justice David Souter, the Supreme Court rejected the contention that the Seventh Amendment requires jury participation in claim interpretation and held that judges are better equipped to determine the meaning of patent terms. In the decision below, Markman v. Westview Instruments, Inc., 53 F.3d 1967, 34 U.S.P.Q.2d 1321 (CAFC 1995) (en banc), cert. granted, ___ U.S. ___, 116 S.Ct. 40 (1995), the Court, by an eight to three majority, held that "in a case tried to a jury, the court has the power and obligation to construe as a matter of law the meaning of language used in the patent claim" and that the "construction given the claims is reviewed de novo on appeal." 34 U.S.P.Q.2d at 1329. Extrinsic evidence may be used by the court to reach a correct conclusion as to the meaning of the claim language, but, according to the majority, such extrinsic evidence would be reviewed by the court in its discretion and would not constitute the creation of a factual issue for jury determination.

   The Markman ruling generates difficult procedural issues in a patent infringement action. Should the court hold a "Markman" hearing with both sides presenting "extrinsic" evidence, leading to a court-announced interpretation of the claims? Should the court's claim construction be reserved for the jury charge conference after all evidence has been presented? Trial courts have tried varying approaches but the dilemma remains. An early interpretation of the claims by the court will provide guidance in the conduct of the trial. On the other hand, the court may question its early claim interpretation on the basis of the fuller record presented at trial. However, it may be impossible as a practical matter to deal with claim construction at the jury charge conference, given time pressures and other considerations. For example, the party whose claim construction supported by expert testimony has been rejected at the charge conference may find its case irreparably damaged before the jury retires to deliberate.

   In the case of Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 39 U.S.P.Q.2d 1573 (CAFC 1996), the Federal Circuit distinguished between intrinsic evidence, comprising the claims, specification and prosecution history of the patent, and extrinsic evidence, such as the testimony of experts. In Vitronics the court held that where the intrinsic evidence is unambiguous, resort may not be had to extrinsic evidence.

   The second ruling of great significance by the United States Supreme Court was handed down on March 3, 1997. In Warner-Jenkinson Company, Inc. v. Hilton Davis Chemical Co., ___ S. Ct. ___, 41 U.S.P.Q.2d 1865 (1997) (Thomas, J.), the Supreme Court upheld the doctrine of equivalents but ruled that it can be applied only if each element of a patent claim has an equivalent in the item that is accused of infringement and that the doctrine cannot simply be applied "to the invention as a whole." In addition, the court strengthened the rule of "prosecution history estoppel." When the claims of a patent include wording that has been changed during prosecution from the wording first introduced in the application process, the change in the wording will be presumed to relate to patentability, unless the patent owner can show otherwise. The patent owner would be prevented from recapturing via the doctrine of equivalents subject matter given up during prosecution as a result of the wording change. The Supreme Court declined to rule explicitly on the question whether the doctrine of equivalents should be applied by the judge or the jury. It did state however that its previous Markman decision is not inconsistent with the ruling below by the CAFC that the doctrine of equivalents is a question for the jury. The impact of the Supreme Court's ruling is that the doctrine of equivalents will remain, for the present, a question for the jury under Federal Circuit authority. In addition, greater attention to the language in patent claims will be required as a result of the element-by-element equivalents requirement. Similarly, the prosecution history of a patent will be more frequently invoked and scrutinized in connection with the prosecution history estoppel defense.

II. COPYRIGHTS

1. Report of Working Group on Intellectual Property Rights for the White House Information Infrastructure Task Force.

   The White House Information Infrastructure Task Force ("IITF") was established by the Clinton administration to formulate policies and programs that will promote development of the National Information Infrastructure ("NII"). The Working Group on Intellectual Property Rights was established within the IITF to make recommendations on any changes to U.S. intellectual property law deemed appropriate to promotion of the NII. The Working Group, chaired by Assistant Secretary of Commerce and Commissioner of Patents and Trademarks Bruce A. Lehman, submitted its final report, following extensive hearings, on September 5, 1995. The full text of the report is available from the Patent and Trademark Office by telephone (703/305-8341) or, in a variety of formats, via its Web site on the Internet - http://www.uspto.gov.

   The Working Group viewed U.S. patent, trademark and trade secret laws as generally adequate to handle development of the NII, but recommended certain key amendments of copyright law:

   1. Clarify Existing Law to Include Transmission as a Method by Which a Work May Be Disseminated to the Public. One of the exclusive rights granted to the copyright owner is the right to distribute copies of the work to the public. Hence it is suggested to amend 17 U.S.C. sec. 106 to read that the copyright owner "has the exclusive rights to do and to authorize . . . (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, [or] by rental, lease, or lending, or by transmission."

      Conforming amendments would be made, among other things, to the definition of "publication" of a work in 17 U.S.C. sec. 101 to include a distribution to the public "by sale or other transfer of ownership, or by rental, lease, or lending, or by transmission. In addition, the definition of "transmit" in the same section would include the following new sentence: "To 'transmit' a reproduction is to distribute it by any device or process whereby a copy or phonorecord of the work is fixed beyond the place from which it was sent."

      Unauthorized importation that is achieved by transmission would be explicitly proscribed as an infringement under 17 U.S.C. sec. 602.

   2. Establish a Public Performance Right for Sound Recordings. Although 17 U.S.C. sec. 106(1) grants the copyright owner the exclusive right to reproduce phonorecords (sound recordings) and sec.106(3) grants the copyright owner the exclusive right to distribute sound recordings, the performance right in sec. 106(4) does not extend to sound recordings. The Working Group points out the disparity in giving a performance right to copyright owners of musical works (who, for example, have a right to a royalty when a sound recording of a performance of their composition is broadcast) but not to copyright owners of sound recordings (who in the example would get no royalty). "The digital communications revolution - the creation of advanced information infrastructures - is erasing the distinctions among different categories of protected works and the uses made of them." For this reason, sound recording rights should not be singled out for reduced protection.

   3. Enhance the Exemption for Library Copies. Digital copies by libraries should be permitted under specific circumstances, and up to three copies should be permitted. Accordingly, the Working Group has proposed an amendment to 17 U.S.C. sec. 108.

   4. Visually Impaired Exemption. The Working Group would add a new provision sec. 108A, which is patterned after Australian law, to create an exemption to the exclusive rights of 17 U.S.C.sec. 106 for the creation and distribution of special editions for the visually impaired. The exemption would not be available if the copyright owner has himself entered the market with an edition for the visually impaired.

   5. Make it a Criminal Offense under the Copyright Act to Infringe a Copyright Even When Not for Private Gain If a Value Threshold Has Been Exceeded. In the case of United States v. LaMacchia, 871 F. Supp. 535, 33 U.S.P.Q.2d 1978 (D. Mass. 1994), it was held that an MIT student who provided a bulletin board accessible via the Internet from which could be downloaded unauthorized copies of commercial software was not in violation, among other things, of any criminal provisions of the copyright law, because his activities were not conducted for financial gain. (LaMacchia would not, however, be able to avoid civil liability on this theory.) The Working Group supports S 1122 (introduced August 4, 1995), which would make it a criminal offense to willfully infringe a copyright by reproducing or distributing copies having a retail value of $5,000 or more. Such a law would criminalize LaMacchia's conduct.

   6. Prohibit Distribution of Devices to Defeat Copyright Protection. The Working Group proposes a new chapter in the Copyright Act to prohibit the unauthorized distribution of any device that has the primary purpose or effect of defeating a physical copyright protection device. The purpose of the chapter is to encourage the development and use of physical copyright protection devices, such as the serial copy management devices on consumer DAT recorders, which prevent the creation of second-generation digital copies of a recording. A related provision in the new chapter would, at least in some cases, effectively prohibit the use of such a device, by making it unlawful to knowingly remove or alter any copyright management information. Note, however, that one way to tamper may similarly involve making copies in which such information has not been transferred. Query whether such circumstances amount to having "removed" the information.

2. Legislation in Areas Addressed by the Working Group.

   1. Sweeping Changes Blocked. Following the Working Group's report, identical bills were introduced in the Senate (S 1284) and in the House (HR 2441) addressing the Working Group's recommendations concerning (i) transmission as a method of dissemination, (ii) enhancing the exemption for library copies, (iii) creating an exemption for the creation and distribution of special editions for the visually impaired, and (iv) adding a new chapter to the Copyright Act to prohibit unauthorized distribution of any device having the primary purpose or effect of defeating a physical copyright protection device. Joint hearings were held on November 15, 1995, during which the bills were generally well received. 51 BNA PTCJ at 102 et seq. (November 23, 1995). These bills, however, did not reach the Senate and House floors during the 104th Congress. 52 BNA PTCJ 643 (October 10, 1996).

      The legislation designed to implement the Working Group's recommendations was blocked by concern by on-line Internet service providers and common carriers about infringement liability, controversy on the prohibition of devices designed to defeat copyright protection, and disputes over fair use rules. See 53 BNA PTCJ 284 (February 6, 1997). But certain provisions were enacted.

      The public performance right for sound recordings was partially addressed in S. 227, which was enacted and signed by the President, as Public Law 104-39 on November 1, 1995. 51 BNA PTCJ 45-46 (November 9, 1995). The law creates a new exclusive right under 17 U.S.C. sec. 106(6) to perform the work publicly by means of a digital audio transmission. However, non-subscription transmissions are made exempt under a new provision, 17 U.S.C. sec. 114(d). Constraints are imposed by sec. 114(d)(3) on the grant of exclusive rights to interactive services to address concerns of music copyright holders that the recording industry might have too much leverage in negotiating terms. Compulsory licensing and royalty arrangements are spelled out in 17 U.S.C. sec. 114(e) and thereafter.

      Exemptions for the visually impaired were provided in a new section 121 of Title 17, which was signed into law in September 1996.

   2. Anticounterfeiting Laws Strengthened. S 1122, discussed above, making criminal the willful infringement of a copyright by reproducing or distributing copies having a retail value of $5,000 or more, was not enacted in the 104th Congress. Nevertheless, criminal penalties were added in other areas. The Anticounterfeiting Consumer Protection Act of 1966, PL 104-153, S 1136, signed July 2, 1996, makes engaging in counterfeiting activities (relating to sound recordings, computer programs, and motion pictures) a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. sec. 1961. In addition, 18 U.S.C. sec. 2318 is amended to make criminal the trafficking in counterfeit labels on computer program packaging and documentation and the trafficking in counterfeit labels on record and film labels. Section 35 of the Lanham Act, 15 U.S.C. sec. 1117, is amended to provide statutory damages from $500 to $100,000 per counterfeit trademark for each type of offending goods, and in the case of a willful violation, up to $1 million per counterfeit trademark. 52 BNA PTCJ 219 (June 20, 1996).

   3. Trade Secret Theft a Federal Crime. The Economic Espionage Act of 1996, PL 104-294, HR 3723, signed October 11, 1996, makes it a federal crime to steal a trade secret for the benefit of a foreign government, foreign instrumentality or foreign agent, 18 U.S.C. sec. 1831. The law also makes it a federal crime to steal a trade secret related to or included in a product in interstate or foreign commerce for the benefit of someone other than the owner of the trade secret. 18 U.S.C. sec. 1832. In a statement released on the date of signing the President said that the new law "strengthens protection for our National Information Infrastructure by eliminating gaps in the criminal laws covering attacks against computers and the information they contain." 52 BNA PTCJ 676 (October 17, 1996).

3. Legislative Activity Regarding Protection of Databases.

   1. Legislation Rejected. Copyright protection of databases is limited as a result of the decision in Feist Publications v. Rural Telephone Service Co. Inc., 499 U.S. 340, 18 U.S.P.Q.2d 1275 (1991), which expressly rejected the "sweat of the brow" theory of copyright formerly articulated as a basis for protecting activity associated with the acquisition and development of information. Accordingly, HR 3531 was introduced in May, 1996, by Rep. Moorhead to create an entirely new form of protection for databases. The European Union already has issued a directive, to be fully implemented in 1998, extending protection of databases in Europe; however, U.S.-originated databases will not be extended protection in Europe, since European databases (and indeed all databases) are not similarly protected under current U.S. law. 52 BNA PTCJ 141 (May 30, 1996). This bill was subject to vocal criticism and was not enacted during the 104th Congress. PTO Commissioner Lehman has promised public hearings before the submission of any further legislative proposal. 53 BNA PTCJ 284 (February 6, 1997).

   2. WIPO Proposals. Meanwhile the World Intellectual Property Organization ("WIPO"), Geneva, Switzerland, has developed three draft international agreements. As characterized by the United States Patent and Trademark Office, they are as follows

      1. A Protocol to the Berne Convention for the Protection of Literary and Artistic Works, which would modernize the Berne Convention to take into account new forms of expression and new uses of copyrighted works that have evolved due to technological developments since the Berne Convention's most recent revision in 1971.

      2. A New Instrument for the Protection of Performers and Producers of Phonograms, which would improve international standards of protection for sound recordings, and protect the rights of certain performers in respect of their live performances.

      3. A Treaty for the Sui Generis Protection of Databases, which would ensure adequate incentives to invest in creating databases, through a new type of protection that would safeguard databases against destruction of their commercial value.

4. D. Significant Recent Cases.

   1. Lotus V. Borland Restricts Copyright Protection for Software. Lotus v. Borland, 49 F.3d 807, 34 U.S.P.Q.2d 1014 (1st Cir. 1995), affirmed by an equally divided court, 116 S. Ct. 804, 133 L.Ed.2d 610, 64 U.S.L.W. 4059 (January 16, 1996) refused copyright protection to the hierarchy of menu commands used by Lotus 1-2-3, the famous spreadsheet program. In developing its rival Quattro Pro spreadsheet program, Borland did not copy any computer code from the Lotus program, but included an emulation mode in which Quattro Pro could be operated by the same keystrokes as Lotus 1-2-3. Following a loss at trial on the issue of copyright liability, Borland removed the emulation mode from Quattro Pro, but retained a "Key Reader" permitting Quattro Pro to interpret "macros" (a stored sequence of keystrokes for performing multiple operations automatically) written for 1-2-3; therefore Quattro Pro still retained a portion of the menu command hierarchy.

      The First Circuit held that literal copying of the command hierarchy cannot be evaluated by the abstraction-filtration-comparison test developed in Computer Assoc. Int'l v. Altai, Inc., 982 F.2d 693, 23 U.S.P.Q.2d 241 (2d Cir. 1992), because it encourages a finding of base level copying of copyrightable subject matter, whereas here the issue is whether the admittedly copied matter is protectable by copyright. The First Circuit found the command structure to be a "method of operation," analogous to buttons on a video cassette recorder, that is not protectable under copyright law pursuant to 17 U.S.C. sec. 102(b). The concurring opinion by J. Boudin noted that patent protection has different requirements, and that affording protection to the Lotus command hierarchy, a de facto standard, would effectively preclude competition. Accordingly, the question for him was not whether Borland should prevail, but rather on what basis.

      Comment: The problem with the rationale of the First Circuit is that the command structure results from the structure of the Lotus 1-2-3 software itself, and is not simply a set of buttons placed on a distinct software mechanism. Hence the rationale of the court could be used to deny protection, for example, to any compiler (a software program, implementing a computer language, that converts higher level instructions into computer-readable instructions). Indeed, the rationale could be used to deny protection to any software. At bottom, however, may lie an unwillingness to grant patent-like protection under the copyright statute. This rationale is not likely to adversely impact use of copyright for protecting against more direct copying of computer software. For example, Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330, 36 U.S.P.Q.2d 1028 (9th Cir. 1995) (independent computer service firm engaged in copying of operating system and service software to make repairs does not have fair use defense). But compare MiTek Holdings Inc. v. Arce Engineering Co., 89 F.3d 1548 (11th Cir. August 5, 1996) (menu and submenu command tree structure of computer program held uncopyrightable); Mitel Inc. v. Iqtel Inc., 896 F. Supp. 1050 (D. Col. August 23, 1995) (command codes used in a call controller, to provide access to its functions, are not protectable either being a process under 17 U.S.C. sec. 102 or viewed under scenes a fair doctrine, since the elements in question are dictated by external factors, namely that the codes are required for market accessibility; compatibility mode in defendant's call controller does not infringe).

   2. Shrink Wrap License Upheld. ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. June 20, 1996). In the face of questionable protection of databases under copyright law by virtue of Feist, supra, the Seventh Circuit held that a compendium of telephone directory listings in a CD-ROM database (which had been placed on an Internet website by defendant) was entitled to protection under state contract law. In particular, the Seventh Circuit held that section 301(a) of the copyright law does not preempt protection against misappropriation of the factual matter in the CD-ROM and that the state's Uniform Commercial Code provides that an enforceable contract was formed under terms of the shrink-wrapped license provided with the CD-ROM, even though the consumer does not see the complete license terms until after purchase of the package. On the Internet, click-wrap license enforceability would appear to follow from this holding. Comment: were sui generis protection available for databases, then the stakes in enforcing the shrink-wrap license would be much lower, since a separate cause of action would exist for misappropriation of the database; until such protection is available, the preemption question is certain to be revisited by other courts. On the Internet, however, the click-wrap license, would appear to provide both a contract and evidence to prove the misappropriation.

   3. New York State Misappropriation Claim Asserted by NBA Rejected as Preempted by the Copyright Act. In National Basketball Ass'n v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997), the United States Court of Appeals for the Second Circuit vacated an injunction granted below on the ground that a New York State misappropriation claim asserted by the NBA was preempted by the Copyright Act, 17 U.S.C. sec. 301. Motorola's SportsTrax paging device has a 1½ inch by 1½ inch screen on which it displays information concerning NBA games in progress, including, the teams playing, score changes, team in possession of the ball, the quarter of the game and time remaining in the quarter. The information is updated every 2 or 3 minutes. The information is supplied by reporters watching the games on television or listening on radio and then keying into a personal computer changes in the information. The information is relayed by modem to a host computer, which compiles, analyses and formats the data for retransmission to a common carrier, which then sends it via satellite to various networks that in turn emit the signal received by the individual SportsTrax pagers. While finding "that a properly narrowed INS 'hot news' misappropriation claim survives preemption because it fails the general scope requirement," the court found the NBA's claim "preempted" when Congress extended copyright protection to simultaneously recorded broadcasts. The court concluded that the NBA's attempt to assert a hot news INS-type claim failed because the NBA has three different informational products: (1) live basketball games; (2) transmitting live descriptions of games; and (3) collecting and retransmitting strictly factual information about the games. Concluded the court:

      The NBA has failed to show any competitive effect whatsoever from SportsTrax on the first and second products and the lack of any free-riding by SportsTrax on the third.

      105 F.3d at 853. The Second Circuit's decision in this case indicates that, despite the speed of Internet transactions, state law misappropriation claims relating to uncopyrightable material will have difficulty avoiding preemption under sec. 301 of the Copyright Act.

   4. Web Site Frames and Copyright. In 1996, the Netscape Navigator introduced a proprietary feature called framing which has since been included in the standard HTML specification. A web author employs framing to divide a web page into many windows that may operate independently of each other. Web authors may incorporate material from remote sites into local web pages by means of this feature, and thus allow a viewer to view a remote site through a window while still remaining connected to the base site. The URL displayed in the browser is the URL of the base site and not of the site in the frame. Moreover, the base site can incorporate material from the site within the frame and surround it with advertising, commentary, decoration and the like. In Washington Post Co. v. Total News, Inc., 97 Civ. 1190 (S.D.N.Y., Complaint filed February 20, 1997), the Washington Post and other news publishers allege that the framing practices of Total News, Inc. constitute copyright infringement, violation of the Lanham Act and violation of New York State Statutes. The plaintiffs accuse the defendant of:

      The Internet equivalent of pirating copyrighted material from a variety of famous newspapers, magazines or television news programs; packaging those stories to advertisers as part of a competitive publication or program produced by defendant; and pocketing the advertising revenue generated by their unauthorized use of that material.

      The ruling in Greenwich Workshop Inc. v. Timber Creations Inc., 932 F. Supp. 1210, 39 U.S.P.Q.2d 2006 (C.D. Cal. 1996) would appear to support the claim of copyright infringement. There defendants had cut prints out of an art book, mounted them on canvas and displayed them in frames as works of art to hang on the wall. The court held that this constituted the creation of unauthorized infringing derivative works, citing Mirage Editions, Inc. v. Albuquerque A.R.T. Co., 856 F.2d 1341, 8 U.S.P.Q.2d 1171 (9th Cir. 1988) (copyrighted cards mounted on ceramic tiles). A contrary result was reached in Lee v. Deck the Walls, Inc., 925 F. Supp. 576, 40 U.S.P.Q.2d 1112 (N.D. Ill. 1996), where the mounting of copyrighted drawings on ceramic tiles was held not to produce infringing derivative works.

      In the Washington Post Co. v. Total News, Inc. case, the plaintiffs would appear to have the stronger side of the copyright argument. It is difficult to see how the unauthorized wholesale appropriation of copyrighted material and its incorporation into the defendant's web site as part of a larger display controlled by the defendant to its commercial advantage will be able to escape liability under the Copyright Act.

III TRADEMARKS

The Internet has had a profound effect on trademarks and trademark law. In prior years the establishment of a nationwide mark was generally thought of as a process taking place over a period of years and involving millions of dollars in advertising expenditures. But the world wide web has accelerated the process and changed the rules. The Internet has made certain trade names unheard of a year or two ago famous around the world. Consider, for example, Netscape or Yahoo. Web sites have become an essential marketing tool. While the ability to communicate with a worldwide audience instantaneously has extended the reach of a trademark, it has also exposed the trademark owner to regulation and potential litigation throughout the country and in foreign jurisdictions as well. Th heightened speed of commercial information flow engendered by the Internet has reinforced the importance of careful and swift trademark searching, selection and policing activities. Developments over the past year have demonstrated that a company making commercial use of the Internet will likely be exposed to jurisdiction in many different states, that domain names will ordinarily be required to yield to the rights of senior trademark owners, and that an effective program for the development and protection of trademark rights has assumed increasing importance in the global economy.

1. Internet Domain Names and Trademarks.

   1. Domain Name Registration System. The Internet domain name registration system, which began by breezily handing out domain names on a first-come first-serve basis, has recently become more sensitive to trademark implications and has begun to implement some safeguards. However, disputes about rights to a name are still left for the courts. Internet domain name registration is handled by Network Solutions Inc. ("NSI") of Herndon, Virginia, on contract from the National Science Foundation. NSI operates the Internet Information Center ("InterNIC"), which operates the domain name registration system in the United States.

      The current procedures for registration of domain names and for disputes employed by NSI in acting as the InterNIC domain name registrar are attached as Exhibit 5. NSI will register a requested domain name so long as the identical domain name has not been previously assigned. NSI registers domain names on a first-come first-serve basis.

   2. Domain Name Dipute Policy. Under NSI's domain name dispute policy, the owner of a trademark that is identical to a domain name may challenge the award of the domain name if the trademark has been registered with the United States Patent and Trademark Office. Under NSI's policy, NSI will not attempt to determine the domain name registrant's rights or the scope of the trademark owner's purported rights. So long as the trademark owner presents NSI with a certified copy of the trademark registration which shows that it is identical to the registrant's domain name, a successful challenge has been made. If registrant refuses to relinquish the domain name and cannot produce a certified copy of a trademark registration for an identical mark that was obtained prior to the date the dispute commenced and with a date of first use earlier than the challenger's, then NSI will place the disputed domain name on hold status, pending resolution of the dispute. During an indefinite suspension period, NSI will not permit use of the domain name by any party unless and until it receives a court order stating which party to the dispute is entitled to the domain name, or upon receipt of satisfactory evidence from the parties of resolution of the dispute. A domain name registrant who has been challenged may head off action by NSI placing the domain name on hold by filing suit and providing NSI with a copy of the file-stamped complaint during the thirty-day response time triggered by receipt of NSI's dispute notification letter. In short, NSI seeks a position of neutrality in situations where domain name registrations clash with trademark rights.

   3. Recent Cases. In general, the results of litigation to date have demonstrated that trademark law will still apply in cyberspace as in the rest of reality. Thus use of a domain name that incorporates a famous trademark constitutes use in commerce and violates the newly-enacted federal anti-dilution statute in sec. 43(c) of the Lanham Act, 15 U.S.C. sec. 1125(c). Panavision International L.P. v. Toeppen, 945 F. Supp. 1296, 40 U.S.P.Q.2d 1908 (C.D. Cal. 1996); Intermatic Inc. v. Toeppen, 40 U.S.P.Q.2d 1412 (N.D. Ill. 1996). In both these cases, the defendant was a "cybersquatter," who would first reserve a domain name and then seek to profit by reselling it to the trademark owner or other interested party. To similar effect, Act Media, Inc. v. Active Media International, Inc., 1996 WL 466527 (N.D. Ill. 1996) (actmedia.com) and Hasbro, Inc. v. Internet Entertainment Group, Ltd., 1996 WL 84853 (W.D. Wash. 1996) (candyland.com). Where the trademark is not famous, the anti-dilution statute will be unavailable and the trademark owner will have to prove that defendant's use of its trademark as a domain name on the Internet generates a likelihood of confusion under traditional trademark law standards. See, e.g., Intermatic, Inc., 40 U.S.P.Q.2d at 1417-1419

   4. New Top Level Domains Proposed. The International Ad Hoc Committee ("IAHC") formed at the initiative of The Internet Society has proposed the establishment of new generic top level domains ("gTLD") and procedures to deal with the rash of disputes between trademark owners and domain name holders. IAHC proposes seven new gTLDs: .firm (businesses); .store (goods for purchase); .web (www-related activities); .arts (cultural activities); .rec (recreation and entertainment); .info (information services); and .nom (personal nomenclature). IAHC proposes domain name challenge panels composed of international experts administered by the World Intellectual Property Organization to resolve disputes and procedures to enhance recognition of existing trademark rights. See, 2 BNA Electronic Information Policy and Law at 152-54 (February 7, 1997).

2. Personal Jurisdiction and the Internet.

   A defendant who operates an active web site and either enters into contracts in foreign jurisdictions or uses the Internet to transfer information is likely to be subject to personal jurisdiction in those foreign states. In Digital Equipment Corporation v. Altavista Technology, Inc., 1997 WL 136437 (D. Mass., March 12, 1997), Judge Gernter sets forth a comprehensive discussion of the issues presented in establishing personal jurisdiction in cyberspace in a trademark dispute. In finding that it had personal jurisdiction, the district court:

   evaluated the totality of [defendant's] minimum contacts with Massachusetts - a contract with a Massachusetts corporation, reflecting an agreement to apply Massachusetts law, soliciting business through its web site, including Massachusetts business and three sales to Massachusetts residents, etc.

   The court noted that personal jurisdiction had been found in four other cases involving maintenance of a web site on the Internet. See, Panavision Int'l L.P. v. Toeppen, 938 F. Supp. 616, 622-23 (C.D. Cal. 1996); Inset Systems, Inc. v. Instruction Set, Inc., 937 F. Supp. 161, 163-65 (D. Conn. 1996); Maritz, Inc. v. Cybergold, Inc., 1996 US Dist. LEXIS 14978 at 6-7 (E.D. Mo., August 19, 1996); Edias Software International v. Basis International Ltd., 947 F. Supp. 413, 419-20 (D. Ariz. 1996).

   In CompuServe Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996), The Sixth Circuit Court of Appeals held that a subscriber to the CompuServe on-line service who resides in Texas can be subject to personal jurisdiction in Ohio, where CompuServe has its corporate headquarters. The subscriber used CompuServe for marketing his shareware and was sued for declaratory judgment by CompuServe after a trademark dispute arose. The court held that the subscriber purposefully availed himself of the privileges of doing business in Ohio through his shareware marketing and that due process was not offended by allowing in personam jurisdiction in Ohio.

   A different result was reached in Bensusan Restaurant Corp. v. King, 937 F. Supp. 295, 299 (S.D.N.Y. 1996), where a local club in Missouri maintained a web site advertising itself and was sued by a club with the same name in New York. There, however, the solicitation activity conducted on the web site was aimed at only a local audience, which had to come to the club or contact the club for tickets and to attend events. In finding lack of personal jurisdiction, the New York District Court determined that the defendant's web site activity was not intended to reach a national audience and had no effect on New York citizens.

   In sum, the above cases demonstrate that personal jurisdiction is likely to be found over any web site operator who uses the Internet to transfer information into foreign state jurisdictions in furtherance of its business activities.

3. INTA Disputes PTO Reorganization Plan.

   In testimony before the House Judiciary Subcommittee on Intellectual Property on February 28, 1997, Mary Ann Alford, President of the International Trademark Association ("INTA"), called for legislation establishing an independent U.S. trademark office. Ms. Alford complained that under the Clinton administration, copyright and patent-related issues have assumed greater importance within the U.S. PTO than trademark issues, and that "trademark issues have been downgraded from second class to third class intellectual property citizenship within the U.S. PTO." Ms. Alford pointed out that in a global economy the United States should be working to improve and strengthen its trademark program, instead of permitting it to be weakened. The INTA proposal calls for an independent trademark office that would be 100% user fee funded and thus cost the taxpayers nothing. See, 52 INTA Bulletin at 1 (April 1, 1997).

Exhibit 1

This exhibit is U.S. Patent No. 5,590,197 for an Electronic Payment System and Method, which was issued on December 31, 1996. It may be viewed on the IBM Patent Server (a database of U.S. patents dating back to January 5, 1971) or obtained from Bromberg & Sunstein upon request (request Exhibit 1 to Bromberg, The Internet and Developments in the Protection of Intellectual Property Interests (1997)).

Exhibit 2

This exhibit is the Examination Guidelines for Computer-Related Inventions, which was published in the March 26, 1996 edition of the Official Gazette at 1184 OG 87-100. It may be requested from the U.S. Patent and Trademark Office or Bromberg & Sunstein (request Exhibit 2 to Bromberg, The Internet and Developments in the Protection of Intellectual Property Interests (1997)).

Exhibit 3

This exhibit consists of an email message from Gregory Aharonian dated September 4, 1996 concerning software patent guidelines from the European Patent Office. A copy of the E-Mail can be obtained from Bromberg & Sunstein (request Exhibit 3 to Bromberg, The Internet and Developments in the Protection of Intellectual Property Interests (1997)). See also the home page of the European Patent Office.

Exhibit 4

This exhibit is the testimony of Jeffrey Forman before the U.S. Patent and Trademark Office on May 31, 1996. It is available from Bromberg & Sunstein upon request (request Exhibit 4 to Bromberg, The Internet and Developments in the Protection of Intellectual Property Interests (1997)).

Exhibit 5

This exhibit consists of the procedures for registering and contesting domain names promulgated by Network Solutions, Inc. (NSI), and is available from Bromberg & Sunstein upon request (request Exhibit 5 to Bromberg, The Internet and Developments in the Protection of Intellectual Property Interests (1997)). NSI's current domain name policies may also be viewed at NSI's home page.

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