2.11 Intellectual Property Issues

Intellectual property includes copyrights, trademarks, domain names, patents, trade secrets, and nondisclosure agreements. In general, the same laws and accepted business practices apply online as in traditional business, but while the Internet has rendered some matters difficult to interpret, police and enforce, it has also strengthened others.

Sensible agreements are needed to allocate intellectual property to specific persons, institutions and businesses . Digital products are easy to copy, and can therefore make or lose large amounts of money. Contracts allow sharing of opportunities and transfer of risk, and need careful scrutiny by specialist lawyers who are knowledgeable, skilled and experienced. {1}

This section provides only a broad outline. Detailed guides exist, and companies will need to take legal advice on occasion.


Copyright exists to protect intellectual property. There needs to be some (if only modest) originality. The main points are: {2}

1. Copyright applies to text, software, film, musical and dramatic expression, choreography, architecture and much else of a man-made, creative nature. {1}
2. By copyright is meant the right to reproduce, to rent or sell copies, to perform, display, or play the work in public, and to create works based on the work in question.{1}
3. Protection applies for 75 years after the original creation (later extended to 95 years for corporate-owned work, and to life plus 70 years for individual creations.) {6}
4. Facts and ideas cannot be copyright-protected, but their expression can and is.
5. Copyright is automatically the author's the moment the work is created, but registered copyright gives advantages in litigation against infringement — strengthens the case and may get attorney's fees awarded. Damages can be awarded even if not proved. {1}
6. Copyright of works made by a company employee ('works made for hire') commonly belongs to the company.
7. Copyright of works made by an independent contractor will belong to the contractor if a nonexclusive clause applies. (California law requires independent contractors to be treated as company employees, however, when it's necessary to engage a company, not an individual, and get the copyright properly assigned.) That contractor (or his or her heirs) has the right to revoke the transfer or license 35 years after publication or 40 years after the transfer or license grant, whichever comes first. {1}
8. Once copyright is sold (e.g. for a novel), the original seller looses control over whom that copy can be sold on to (first sale rule).
9. Copyright may apply to databases, but only to the arrangement in the database, not the content itself — unless protected by digital management rights (see below).
10. Even providing links to copyright-infringed material (as Napster did) is illegal. {1}
11. The 'notice-and-take-down' provision offers some 'safeharbor' against inadvertent copyright infringement under Section 512 © the DMCA (see below): offender agrees to promptly take down any copyrighted material they're alerted to. (The company must register an agent for this purpose with the US Copyright Office.) The 'safeharbor' does not apply to other countries. {1}
12. Copyright applies even if the original is greatly modified, when indeed multiple infringements may apply. (But often flouted in background music to YouTube contributions, etc., which employ Section 512 © the DMCA as a defense.)
13. A computer program code is copyrighted, but companies can legally produce an equivalent program by independently deriving the code (a so-called 'clean room' operation) but not by reverse engineering. {1}
14. Increasing publicity and owner's sales is no defense against copyright infringement.
15. Compensation is often based on the court's view of the financial damage inflicted plus fees arising.

Public Domain

Works not subject to copyright are in 'the public domain.' Anyone can copy, distribute, and make derivatives of such works freely and without permission. The public domain includes works on which the copyright has expired, US government works, and works assigned by the copyright owner to the public domain.

Fair Use

So that material can be used in reviews and for educational purposes, the laws of copyright are ameliorated in what is called 'fair use', which very broadly applies in the following circumstances. Copyright is relaxed when original material: {3}

1. Is used for reviews or non-commercial purposes.
2. Does not damage the interests of the copyright holder.
3. Is properly attributed.
4. Consists of less original material: factual reports and news stories will be less protected than a film or novel.
5. Comprises a small part of the original source (generally no more than a paragraph of a book, or short video clip).

Unfortunately, copyright and fair usage are shadowy areas, immensely complicated in detail, {1} and the usual advice is to avoid later problems by getting permission in writing from those legally holding the copyright.

Some argue that copyright enriches promoters and middle men more than original creators, {4} and/or the commercialization of creative expression in 'neutral' media is a repeated history of monopoly control. {21} {22}

Moral Rights

France and countries signatory to the Berne Convention recognize 'moral rights', which include the right to have a copyrighted work accurately attributed to the author, even if published anonymously, and/or its economic benefit voided. Moral rights are not transferable — only the author and his/her heirs can assert them — but allow the author to object to any distortion, mutilation or other derogatory action in relation to the work which would be prejudicial to his/her honor.

US Digital Millennium Copyright Act

The DMCA of 1998 grew out of the growing needs of the music industry, and had four parts:

1. Circumventing digital protection or digital management rights was illegal.
2. ISPs must remove sites infringing copyright, and search engines block access to them.
3. One copy of software could be made for backup purposes.
4. Miscellaneous: added:

a. Duties to the Copyright Office.
b. Provisions for broadcasters' ephemeral copies.
c. Provisions to facilitate distance education.
d. Provisions to allow libraries to keep copies for internal use.
e. Provisions relating to collective bargaining and transfer of movie rights.

Penalties were severe: fines up to $500,000 or 5 years imprisonment for a first offense.

Digital Economy Act

The equivalent UK act of 2010 extended copyholders' rights, many thought unreasonably and possibly with unintended consequences. {5}

Many EU countries have similar laws. {1}


The recently dropped (at least for the present) Stop Online Piracy Act (SOPA) was designed to remove sites that allegedly 'engage in, enable or facilitate' copyright infringement. {25} The bill was supported by the United States Chamber of Commerce, the Motion Picture Association of America, the American Federation of Musicians, the Directors Guild of America, the Screen Actors Guild and drug companies wanting to close down online pharmacies that undercut US sales. Against it were ranged most Internet companies, arguing that, as currently drafted, the law amounts to censorship, allowing US jurisdiction to take action against any site used by a US consumer, either in America or abroad, for practically any reason. {26}


Internet piracy is still a problem for music companies, of course, who are particularly anxious about 'cyberlockers', an online service used to store and share large files. RapidLibrary, Megaupload (closed in January 2012, with prosecutions pending) and Megavideo together were enjoying more than 21 billion visits/year, and some of their storage may indeed be pirated. {19} Apple's cloud storage service is another threat to an industry that needs a better business model. {20}


Patents loom large in the Internet world. In 2005, Ariba Inc., a maker of ecommerce software, lost a patent infringement suit and paid $67 million to its smaller competitor, ePlus Inc. In 2001, NTP, Inc. successfully sued Research in Motion Ltd. (RIM), the maker of Blackberry devices, for $612 million. {1}

Patents, by protecting the features and processes that make things work, include ideas, and have to be framed exactly, a process that needs considerable legal, commercial and technical experience. Any invention granted a patent must be genuinely original, non-obvious, and not evident in any prior art or practice. Patents in the US cover any process, machine, manufacture, or composition of matter. Should anyone make, sell, or import products incorporating a patented invention or use a patented method without the patent holder's permission, the law grants the patent holder the right to sue the that person. Willful infringement can lead to payment of treble damages, i.e. the actual cost of patent damage determined by the court multiplied by three.

Obtaining a patent (called patent prosecution) can be a lengthy procedure. Highly specialized legal help is generally needed to file an application at the US Patent and Trademark Office (USPTO), and the cost for the two year plus procedure commonly exceeds $30,000. Three tests apply. The claimed invention must be:

1. Useful, i.e. not merely theoretical, however brilliant.
2. Novel: if the same invention can be found in earlier work ('prior art') then the claim is rejected.
3. A genuine advance: the trivial or self-evident is excluded.

Rules vary somewhat with country, {12} and Europe, for example, does not readily grant patents in for software- or computer- operated business methods. {1} In Europe these must be industrially applicable. {10}

The matter is technical, and a software program cannot be patented per se, only one or more inventions that could be used in many different software programs. In fact, US lawyers recognize three types of claims would normally be included in a utility patent involving digital technology:
1. A method claim defined as performing a set of programmed operations on stated computer hardware components.
2. An apparatus claim detailing the computer hardware components executing a set of programmed operations.
3. An article-of-manufacture claim defining the computer medium containing such programmed instructions and which can be installed and used in such a computer system.

Business methods can also be patented in the US. Three of the many thousands protecting ecommerce methods:

1. Interactive Coupon Network owns a patent on a method of issuing and tracking use of coupons over the Internet.
2. Priceline.com owns a patent on a method for operating 'reverse auctions'.
3. Home Gambling Network owns a patent on a method for remote 'real-time' gambling.

Patents are best framed and understood by lawyers. An abstract of United States Patent Number US 7,000,180 (Flash technology) entitled 'Methods, Systems, And Processes For The Design And Creation Of Rich-Media Applications Via The Internet' issued on February 14, 2006 with 83 claims that encompass a wide range of rich-media Internet applications, methods, systems, and processes runs: {11}

A host computer, containing processes for creating rich-media applications, is accessed from a remote user computer system via an Internet connection. User account information and rich-media component specifications are uploaded over the Internet . . .for a specific user account. Rich-media applications are created, deleted, or modified in a user account, with rich-media components added to, modified in, or deleted from the rich-media application based on information contained in a user request. After creation, the rich-media application is viewed or saved on the host computer system, or downloaded to the user computer system over the Internet.

Fees have to be paid at intervals to maintain a patent, which can provide protection for a maximum of 20 years.

Many want to see the patent granting process made quicker and less costly. Particularly disliked are speculative companies ('patent trolls') that buy up poorly-described patents and use them to sue big companies for infringements. Apple, Microsoft, Nokia and others, for example, had to pay $4.5 billion for Nortel's largely unhelpful patent portfolio. {14}


A trademark (trade mark outside the US) is a distinctive sign used by an individual, business organization, or other legal entity to identify goods or services to consumers and distinguish them from those of other entities. A trademark is typically a name, word, phrase, logo, symbol, design, image, or a combination of such elements.

Trademarks are an important part of branding, and cost companies considerable time and money to promote and maintain. Trademarks therefore protect the public by ensuring an expected quality or type of goods or services is delivered, and protect the trademark owner against piracy or misappropriation. There are certain rules. Trademarks cannot be registered if they: {16}

1. Describe the goods or services or any characteristics of them.
2. Have become customary in that line of trade.
3. Are not distinctive.
4. Are three-dimensional in shape, or if that shape per se adds function or value.
5. Include a specially protected emblem, are offensive, against the law, or deceptive.

The Internet has provided opportunities to exploit trademark rights, but also improved the chances of detection. It is usual to first check that the trademark proposed is not identical or confusingly similar to a trademark in current use by searching: {1}

1. Computerized database of federal trademark registrations and applications.
2. Computerized database of state trademark registrations and applications.
3. Legal databases (to see whether trademarks have shown up in litigation).
4. Domain names and web searching Trade directories.

Trademark owners can sue if: {18}

1. The public is confused by unlicensed linking of a name or company with a recognized trademark (trademark infringement).
2. A domain indicative of recognized trademark is used with the intent to extort money from the legal owners of that trademark (cybersquatting).
3. Traffic is diverted to a site that purports to represent a trademark (cyberpiracy).
4. A site in any way damages or tarnishes a trademark. (trademark dilution).

Fair use and parody provide some defense, but courts may award damages based on intent, defendant's profits, plaintiff's damages and legal costs involved. {15} The width of protection varies with the country concerned. Trademarks registered in the US have no protection abroad as such, but can be covered by employing the additional Madrid Protocol, which operates in some 80 countries, including the US and the EU. {1}

Trademarks may lose their protection when they become synonymous with the product itself, a process lawyers call genericide. To prevent this happening, companies generally:

1. Ensure product description and and trademark look different, e.g. 'APPLEWORKS Word Processing Program.'
2. Use the trademark as an adjective, never as a noun or a verb, i.e. 'Microsoft Excel Spreadsheet Program' rather than 'Microsoft Excel.'
3. Use a trademark notice, i.e. AcmeProgram. Trademarks can be co-branded, or licensed to another company for its use on the licensee's products. {1}

Trademarks are important assets when companies are sold, as sale includes product rights and 'customer goodwill'.

Brands are simply the names of trademarks, and may be referred to, but not traded under.


1. What are the three types of intellectual property that relate to websites and the Internet generally? Distinguish between them.
2. What is copyright and fair use? What are the acts currently applying, and their main provisions?
3. Outline how patents apply and are obtained. Find an Internet patent and explain what it protects.

Sources and Further Reading

1. The IT/Digital Legal Companion: A Comprehensive Business Guide to Software, Internet, and IP Law Includes Contract and Web Forms by Gene K. Landy and Amy J. Mastrobattista. Syngress. June 2008. A fairly comprehensive guide in plain English.
2. The Digital Millennium Copyright Act. UCLA Online Institute for Cyberspace Law and Policy. October 1998. Summary, with links to the Act.
3. Copyright Law and Fair Use. Stanford University. Useful but more for teachers.
4. Was copyright invented by writers and artists, to protect themselves? QuestionCopyright. FAQ with correspondence.
5. Copyright benefits the arts. David Bowden (ed.) Debating Matters. January 2011. Compilation of arguments, for and against.
6. Copyright Term Extension Act. TechLawJournal. Extended copyright terms in the United States by 20 years.
7. Patent. Cornell University Law School. Five main requirements.
8. Patents: Frequently Asked Questions (FAQs). WIPO. Good overview.
9. Intellectual Property Office. IPO. UK's central office for patents, trade marks, designs and copyright.
10. How to apply for a European patent. EPO. Introduction, summarizing 11 steps.
11. Important Internet Patent Issues. IPFactor Blog. February 2006.
12. International and Comparative Law Perspectives on Internet Patents by Toshiko Takenaka. MTTLR. May 2001.
13. Selected E-Commerce patents by James Love. ListsEssential.Org. February 2000.
14. The cost of patent trolls by Felix Salmon. Reuters. July 2011.
15. Overview of Trademark Law. Harvard Law School. Good summary with additional online sources.
16. What is a trade mark (or brand)? IPO. One of several pages on UK trademarks and their provisions.
17. United States Patent and Trademark Office. USPTO. Gateway to US Government site with helpful text and videos.
18. Trademarks on the Internet. BitLaw. 2010.
19. How 'Cyberlockers' Became the Biggest Problem in Piracy by Joe Mullin. Paid Content. January 2011.
20. Groundhog Decade Hollywood is about to repeat the catastrophic mistakes of the music industry by Bill Wyman. Slate. July 2011.
21. The Master Switch: The Rise and Fall of Information Empires by Tim Wu. Knopf. November 2010.
22. Digital rights management. Wikipedia. Pros and cons, technically and in practice.
23. Trademark Versus Brand by Muhammad Al-Shammari. Arab News. May 2007.
24. The Spoilsmen: How Congress Corrupted Patent Reform by Zach Carter. Huffington Post. September 2011.
25. All About SOPA, the Bill That Wants to Cripple Your Internet by Adam Dachis. Lifehacker. November 2011.
26. News Technology Piracy Sopa condemned by web giants as 'internet blacklist bill' by Dominic Rushe. Guardian. November 2011.