From Internet Legal Forms for Business by J. Dianne Brinson and Mark F. Radcliffe.

Part I   |    Part II   |    Part III

Determining What Rights You Need

To shield you from an infringement suit, your license must authorize every type of use that you will be making of the licensed work. Consequently, you need to determine how you will be using the work and what rights you need before you seek the license. A license is no protection for uses not authorized in the license.

Example: Web Publisher obtained a license to reproduce Photographer's photograph of the Golden Gate bridge in a Web site. Although the license did not authorize Publisher to alter the photograph, Publisher manipulated the image to eliminate cars and pedestrians and create an uncluttered image of the bridge. If Photographer sued Publisher for unauthorized exercise of the modification right, Publisher's license would be no defense.

Using a licensed work in ways not authorized in the license may be material breach of the license agreement. If it is, the licensor can terminate the license. In the previous example, Developer's alteration of the photograph is probably a material breach of Developer's license agreement with Photographer. If Photographer terminates the license, Developer will no longer have even the right granted to Developer in the license.

Other Intellectual Property Laws

While copyright law is the most important intellectual property law for Internet users, you need to know enough about patent, trademark, and trade secrets law to avoid infringing intellectual property rights owned by others and to be able to take advantage of the protection these laws provide.

Patent Law

Patent law protects inventions and processes ("utility" patents) and ornamental designs ("design" patents). Inventions and processes protected by utility patents can be electrical, mechanical, or chemical in nature. Internet-related works protectible by utility patents include communications protocols, data compression techniques, interfaces, encryption techniques, online payment systems, and information processing and retrieval technologies. Examples of works protected by design patents are a design for the sole of running shoes, a design for sterling silver tableware, and a design for a water fountain.

Obtaining Patent Protection

There are strict requirements for the grant of utility patents and design patents. To qualify for a utility patent, an invention must be new, useful, and "nonobvious." To meet the novelty requirement, the invention must not have been known or used by others in this country before the applicant invented it, and it also must not have been patented or described in a printed publication in the U.S. or a foreign country before the applicant invented it. The policy behind the novelty requirement is that a patent is issued in exchange for the inventor's disclosure to the public of the details of his invention. If the inventor's work is not novel, the inventor is not adding to the public knowledge, so the inventor should not be granted a patent.

To meet the nonobviousness requirement, the invention must be sufficiently different from existing technology and knowledge so that, at the time the invention was made, the invention as a whole would not have been obvious to a person having ordinary skill in that field. The policy behind this requirement is that patents should only be granted for real advances, not for mere technical tinkering or modifications of existing inventions.

It is difficult to obtain a utility patent. Even if the invention or process meets the requirements of novelty, utility, and nonobviousness, a patent will not be granted if the invention was patented or described in a printed publication in the U.S. or a foreign country more than one year before the application date, or if the invention was in public use or on sale in the U.S. for more than one year before the application date.

Scope of Protection

A patent owner has the right to exclude others from importing, making, using, or selling the patented invention or design in the United States during the term of the patent. Anyone who imports, makes, uses, or sells a patented invention or design within the United States during the term of the patent without permission from the patent owner is an infringer -- even if he or she did not copy the patented invention or design or even know about it.

Example: Developer's staff members, working on their own, developed a software program for manipulating images in Developer's multimedia works. Although Developer's staff didn't know it, Inventor has a patent on that method of image manipulation. Developer's use of the software program infringes Inventor's patent.

Utility patents filed before June 8, 1995 were granted for a period of 17 years and later were extended for the greater of 17 years after issuance or 20 years after filing. All utility patents filed on or after June 8, 1995 have a term of 20 years from filing, but this term may be extended under certain circumstances. Design patents are granted for a period of 14 years. Once the patent on an invention or design has expired, anyone is free to make, use, or sell the invention or design.

Trademark Law

Trademarks and service marks are words, names, symbols, or devices used by manufacturers of goods and providers of services to identify their goods and services, and to distinguish their goods and services from goods manufactured and sold by others.

Example: The trademark Quicken is used by Intuit Inc. to identify Intuit's personal finance software and distinguish that software from other vendors' software.

For trademarks used in commerce, federal trademark protection is available under the federal trademark statute, the Lanham Act. Many states have trademark registration statutes that resemble the Lanham Act, and all states protect unregistered trademarks under the common law (nonstatutory law) of trademarks.

Availability of Protection

Trademark protection is available for words, names, symbols, or devices that are capable of distinguishing the owner's goods or services from the goods or services of others. A trademark that merely describes a class of goods rather than distinguishing the trademark owner's goods from goods provided by others is not protectible.

Example: The word "corn flakes" is not protectible as a trademark for cereal because that term describes a type of cereal that is sold by a number of cereal manufacturers rather than distinguishing one cereal manufacturer's goods.

A trademark that so resembles a trademark already in use in the U.S. as to be likely to cause confusion or mistake is not protectible. In addition, trademarks that are "descriptive" of the functions, quality, or character of the goods or services have special requirements before they will be protected.

Obtaining Protection

The most effective trademark protection is obtained by filing a trademark registration application in the Patent and Trademark Office. Federal law also protects unregistered trademarks, but such protection is limited to the geographic area in which the mark is actually being used. State trademark protection under common law is obtained simply by adopting a trademark and using it in connection with goods or services. This protection is limited to the geographic area in which the trademark is actually being used. State statutory protection is obtained by filing an application with the state trademark office.

Scope of Protection

Trademark law in general, whether federal or state, protects a trademark owner's commercial identity (goodwill, reputation, and investment in advertising) by giving the trademark owner the exclusive right to use the trademark on the type of goods or services for which the owner is using the trademark. Any person who uses a trademark in connection with goods or services in a way that is likely to cause confusion is an infringer. Trademark owners can obtain injunctions against the confusing use of their trademarks by others, and they can collect damages for infringement.

Example: Small Multimedia Company is selling a line of interactive training works under the trademark Personal Tutor. If Giant Multimedia Company starts selling interactive training works under the trademark Personal Tutor, purchasers may think that Giant's works come from the same source as Small Multimedia's works. Giant is infringing Small's trademark.

Using Third-Party Trademarks

You should be careful to avoid using or showing other companies' trademarks on your Web site or in your online products without the owners' permission. A trademark owner may object to being associated with your company or your products.

In naming your own products, choose trademarks that do not infringe another company's trademark or trade name.

The relationship between trademarks and domain names is discussed in Form 12.

Trade Secret Law

A trade secret is information of any sort that is valuable to its owner, not generally known, and that has been kept secret by the owner. Trade secrets are generally protected only under state law. Although a trade secret need not be unique in the patent law sense, information that is generally known is not protected under trade secrets law. Patent applicants generally rely on trade secret law to protect their inventions while the patent applications are pending. Inventions and processes that are not patentable can be protected under trade secret law.

The following types of technical and business information are examples of material that can be protected by trade secret law: customer lists, instructional methods, manufacturing processes, and methods of developing software.

Obtaining Protection

Trade secret protection attaches automatically when information of value to the owner is kept secret by the owner.

A trade secret owner has the right to keep others from misappropriating and using the trade secret. Sometimes the misappropriation is a result of industrial espionage. Many trade secret cases involve people who have taken their former employers' trade secrets for use in new businesses or for new employers.

Trade secret owners have recourse only against misappropriation. Discovery of protected information through independent research or reverse engineering (taking a product apart to see how it works) is not misappropriation.

Trade secret protection endures so long as the requirements for protection -- generally, value to the owner and secrecy -- continue to be met. The protection is lost if the owner fails to take reasonable steps to keep the information secret. Measures to maintain secrecy include such steps as: marking documents as confidential, restricting employees' and outsiders' access to materials, and requiring employees and independent contractors to sign confidentiality agreements. Several of the forms in this book contain confidentiality provisions.

Privacy And Defamation Law

In this section, we'll discuss the privacy and publicity laws, what restrictions privacy law puts on employer monitoring of employee email and Internet use, and defamation law.

Privacy and Publicity

Most states in the United States recognize that individuals have a right of privacy. The right of privacy gives an individual a legal claim against someone who intrudes on the individual's physical solitude or seclusion, and against those who publicly disclose private facts. Remedies for invasion of privacy include injunctions against continued intrusion and damages for mental distress.

A related right, the right of publicity, gives the individual the right to control his name, face, image, signature, or voice for commercial purposes. Almost half the states in the United States recognize that individuals have a right of publicity.

Example: Web Developer took a picture of actor Clint Eastwood standing on a street corner in Carmel. Developer used the picture on Developer's marketing Web site. Unless Eastwood gave Developer permission to use Eastwood's image, Developer's use of the image violated Eastwood's right of publicity (even though Developer, as "author" of the photo, owned the copyright in the photo).

You can avoid violating privacy/publicity rights by getting releases from individuals before using text, photographs, or video clips that include those individuals' names, faces, images, or voices for commercial purposes. Some writers, photographers, and video producers routinely obtain releases, but don't assume that this is the case. In Forms 2 and 3, we remind you to consider whether releases are needed. A release is included in this book (Form 5).

Newspapers and news magazines have a "media use" privilege to publish names or images in connection with reporting a newsworthy event. The "media use" privilege has been held to apply to documentaries and other nonprint media, so presumably it applies to the Internet as well. Also, generally you do not need a release to use a photograph of an individual for noncommercial purposes -- to illustrate a point in a factual article, for example. However, if you use the same photograph to sell a product, you do need a release. If you are uncertain about whether your use is commercial, you should obtain the release.

In some states, an individual's right of publicity terminates when the individual dies. In other states, the right passes to the heirs of the deceased original owner. Don't use the name, voice, face, or image of a deceased celebrity -- Marilyn Monroe or Martin Luther King, Jr., for example -- without checking applicable state law.

Employer Monitoring of Employee Email

Generally, employer monitoring of employees' email and Internet use does not violate the employees' right to privacy if done for legitimate business purposes. The question is whether the employer's need to monitor outweighs the employee's reasonable expectation of privacy. Employers who engage in monitoring should make it clear to their employees, in a written policy such as this book's Internet Use Policy (see Form 9), that employees should not expect to be free from monitoring.

Defamation Law

Defamation law (also known as libel law) protects an individual against the dissemination of falsehoods about that individual. To be actionable, the falsehood must injure his or her reputation or subject the individual to hatred, contempt, or ridicule. A public figure or official must prove that the publisher or broadcaster made the statement either knowing it was false or entertaining serious doubts about its truth. A private individual only has to prove that the publisher or broadcaster acted negligently in failing to ascertain that the statement was false. The higher burden for public figures and officials flows from the First Amendment.

Here are some tips for avoiding the use of defamatory material:

  • Original material. If you plan to use any statements that could injure someone's reputation, make certain that you can prove that the statements are true. There is often a big difference between "knowing" that something is true and being able to prove that it is true. Journalists are taught to be particularly careful about statements concerning arrests and convictions and statements concerning professionals' qualifications and ethics.
  • Photographs. With digital editing software, it is now easy to edit and merge photographs. Avoid using an edited image that falsely associates an individual with controversial or unsavory events, places, or people. Using an altered image that puts a person in a "false light" -- for example, a photograph created by merging a photograph of an elected official with a photograph of a Mafia figure -- will expose you to liability for both libel and breach of privacy.
  • Licensed material. If licensed materials include potentially libelous material, don't use the material. If you use it, even though the material didn't originate with you, you could have liability for libel. We remind you about defamation law in Forms 2 and 3.

Corporations can recover damages for defamation. Many executives are zealous about protecting their corporation's reputation. If you make statements that might damage a corporation's reputation, make sure the statements are true.

An employer can be liable for defamatory statements made by employees within the scope of the employment. An employer's Internet Use Policy (see Form 9) should remind employees that they should not post defamatory material on the Internet or company intranet.

Whether system operators, online service providers, Internet access providers, and Chat Room providers should be held liable when defamatory content is posted by users has been debated. In one case, Prodigy was held liable as a publisher for allegedly defamatory statements posted by an unknown Prodigy subscriber on Prodigy's financial bulletin board. The plaintiff later withdrew the suit in exchange for a statement that Prodigy was sorry that the messages had been posted. Legislation enacted by Congress as part of the Communications Decency Act appears to resolve the issue for service providers by stating that "[n]o provider or user of an interactive computer service shall be treated as the pubisher or speaker of any information provided by another information content provider." Nonetheless, if you post user submissions on your Web site, your rules for users should include a prohibition against posting defamatory material (see Form 4 and 8).

Contracts Law

A contract is a legally enforceable agreement between two or more parties. The core of most contracts is a set of mutual promises (in legal terminology, "consideration"). The promises made by the parties define the rights and obligations of the parties.

Contracts are enforceable in the courts. If one party meets its contractual obligations and the other party doesn't ("breaches the contract"), the nonbreaching party is entitled to receive relief through the courts.

Generally, the remedy for breach of contract is money damages that will put the nonbreaching party in the position it would have enjoyed if the contract had been performed. Under special circumstances, a court will order the breaching party to perform its contractual obligations.

In this country and most others, businesses have significant flexibility in setting the terms of their contracts. Contracts are, in a sense, private law created by the agreement of the parties. The rights and obligations of the parties are determined by the contract's terms, subject to limits imposed by relevant statutes.

Corporations have the power to enter into contracts. They make contracts through the acts of their agents, officers, and employees. Whether a particular employee has the power to bind the corporation to a contract is determined by an area of law called agency law or corporate law. If you doubt whether an individual with whom you are dealing has authority to enter into a contract with you, insist that the contract be reviewed and signed by the corporation's president.

A corporation has a separate legal existence from its founders, officers, and employees. Generally, the individuals associated with a corporation are not themselves responsible for the corporation's debts or liabilities, including liability for breach of contract.

Offer and Acceptance

A contract is formed when one party (the "offeror") makes an offer which is accepted by the other party (the "offeree"). An offer -- a proposal to form a contract -- can be as simple as the words, "I'll wash your car for you for $15." An acceptance -- the offeree's assent to the terms of the offer -- can be as simple as, "You've got a deal." Sometimes acceptance can be shown by conduct rather than by words. It seems logical that clicking on a "Yes, I want it" icon on a Web site's order screen can signify acceptance, as can sending an email. However, there are no cases yet on electronic contract formation, so this issues has not been decided.

Sales Law

In every state except Louisiana, a statute known as Article Two of the Uniform Commercial Code (UCC) applies to all contracts for the sale of goods.

In those states that have adopted Article Two, the rules of Article Two displace general contract law for all transactions in goods. Goods are defined as "all things (including specially manufactured goods) which are movable." Although Article Two currently does not apply to copyright licensing and contracts for services, many courts apply Article Two's provisions by analogy in disputes involving these kinds of contracts.

Ironically, Article Two of the UCC is not entirely uniform from state to state. California's version, for example, differs slightly from New York's version.

In international transactions, Article Two may be superseded by the United Nations Convention on the International Sale of Goods. This Convention applies to a transaction if both parties are located in countries that have joined the Convention, unless the parties have agreed that the Convention will not apply. The United States belongs to the Convention, as do many important commercial nations.

Some of Article Two's provisions apply only to "merchants." A merchant is defined in Article Two as "a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction…" If you are selling goods on the Internet, you are probably a merchant for those goods.

License Notice
This article is an excerpt from the book Internet Legal Forms for Business by J. Dianne Brinson and Mark F. Radcliffe (Copyright 2000 by Brinson and Radcliffe). The article is used on this site with the authors' permission. You may copy the article for personal or educational use, as long as all copies include the author and title source information at the beginning and this License Notice at the end. The article may not be modified or displayed on other Web sites or intranets without the written permission of the authors.