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Experts Insights: Intellectual property

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Recent changes in patent and copy right laws, as well as talks of new privacy laws for the Internet, have created potential legal minefields that business owners, artists and anyone who is using the Internet needs to be aware of. The Daily Transcript asked three local attorneys to share their expertise in these important sectors of intellectual property law, and how these laws may affect us.

The America Invents Act (Senate Bill 23), adopted by the U.S. Senate on March 8, by a 95-5 vote, seeks to reform patent law with the most significant reforms creating a first inventor-to-file system in the U.S. and a revolving fund for financing the PTO, ending diversion of the fees paid by patent applicants to the PTO. How will this bill, and its key reforms, affect local businesses?

Michael M. Rosen

Principal

Fish & Richardson P.C.

Legislative patent reform, it seems, is the antithesis of death and taxes: it’s anything but certain.

During the past six years, Congress has struggled mightily to update our centuries-old patent-law regime. Each congressional term, the legislative session has begun with great momentum that inevitably petered out in the face of opposition from various interest groups, as well as more pressing concerns such as the market crash, that end up inducing lawmakers to shelve patent legislation.

But this time around, Congress has (once again) come closer than ever to enacting a patent reform bill. In early March, the Senate passed S.23 — the “America Invents Act”— by a sweeping 95-5 margin. The legislation significantly narrows the scope of earlier bills, centering around a few key provisions: switching the U.S. from a first-to-invent to a first-to-file system; establishing new post-grant review procedures; curbing plaintiffs’ rights in so-called “false patent marking” cases; and fortifying the U.S. Patent and Trademark Office’s authority over the fees it levies on applicants. Gone are virtually all litigation-related reforms, as well as changes pertaining to jury damages verdicts

So how would the bill, which is now being marked up in the House, affect San Diego-area businesses?

The switch to a first-to-file system — the regime used pretty much everywhere in the world besides the U.S. — may make it more difficult for smaller companies, including local biotech or telecom startups, to keep up with larger corporations having dedicated intellectual property units that churn out patents on a regular basis. Those big entities may well win the race to the Patent Office to make their filings. Yet even under the new legislation, a “derivation proceeding” would empower smaller companies to challenge patents obtained by their larger competitors if they derive from an earlier invention.

In addition, one proposed House modification would expand the scope of the “prior use defense” to patent infringement from mere methods of doing or conducting business to any technological area, with certain exceptions for universities and other non-profits. The nature of these carve-outs for educational institutions may have a significant impact upon the various academic outfits in the area, including UCSD, SDSU, the Salk Institute, and many others like them.

Of course, until the ink is dry from President Obama’s signature on legislation passed by both Houses, all bets are off. Yet local businesses should carefully monitor the goings-on in Washington, however uncertain they may be.

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The year 2013 will mark the first year that authors can take advantage of the 1976 Copyright Act’s Section 203 termination provision, which will in all likelihood spark a series of termination notices by artists seeking to regain rights previously granted to record labels, book publishers, advertising agencies and other content owners. What challenges/opportunities will this present for attorneys and business owners?

John Kim

Managing Principal

IP Legal Advisers, P.C. Unproven authors and artists have traditionally held very little bargaining power when negotiating transfers of their copyrights to big publishers. The inequality in bargaining power stems from the fact that the authors have no idea how valuable their work will be in the future, and publishers can offer them whatever contract terms they see fit. If the authors did not agree, their work would never see the light of day. In 1976, Congress enacted a number of provisions to provide more balance to these transfer negotiations, including 17. U.S.C. § 203.

§203, which took effect in 1978, allows anyone who transfers their copyrights after January 1, 1978 to cancel that transfer 35 years later, subject to a variety of requirements. Congress envisioned that § 203 would allow copyright transferors to cancel their transfers after 35 years and renegotiate the agreements with more favorable terms because the authors would be armed with much more information about the value of their copyrights at this later point in time.

Many scholars believed that an author could not voluntarily waive the termination rights in §203. And according to the language of the statute, they had a good argument because the statute provides that “termination...may be effected notwithstanding any agreement to the contrary.” In other words, an author could terminate a copyright transfer even though he or she agreed contractually not to terminate it. So, it came as a surprise to many when the U.S. Court of Appeals for the 9th Circuit found that at least in some circumstances, two parties could contract around the termination provisions. Specifically, the court explained in Milne v. Stephen Slesinger, Inc., 430 F.3d 1036 (9th Cir. 2005), that Congress did not intend to prevent the parties from voluntarily agreeing to terminate an existing grant and create a new one.

Although contrary to the literal meaning of the statute, I believe this result vindicates the underlying policies that Congress had in mind when it passed this revision to the Copyright Act. By allowing parties to waive future termination rights, the 9th Circuit has afforded contracting parties more flexibility in their contractual negotiations. While it is true that authors can benefit by waiting 35 years, terminating under § 203, and renegotiating, they could also benefit by using § 203 as a bargaining chip. Specifically, what I foresee is that authors will simply use the threat of termination to demand more favorable terms from publishers. This assumes, however, that the 9th Circuit decision in Milne is not overruled by the Supreme Court or Congress. Without this decision, authors are left without the ability to waive this future termination right, and publishers would never consent to renegotiations.

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With social networking now a powerful Internet tool, federal regulators are moving to limit how social networking sites can exploit personal information. In fact, Google is now in the limelight, and recently agreed to strict new measures to protect the privacy of its users. Facebook too, has been hit with class-actions over privacy settings. What issues will emerge from these cases, and what types of privacy laws are already in place relative to social networking sites?

Melissa Woo

Partner

Best Best & Krieger, LLP

Millions of people use social networking sites each day to broadcast their personal information, but do not realize that their personal information could be provided to third parties. The Google and Facebook cases will lead to greater scrutiny and regulation of Internet businesses by both the state legislature and federal regulators and ultimately, the creation of Internet privacy laws. In particular, these examples will likely establish privacy standards for social networks and more generally, Internet businesses, which thrive on tracking Internet usage habits and collecting and utilizing consumer data, either for themselves or to sell to third party advertisers or application developers, when these businesses have traditionally been free from regulation.

Until recently, there have been very few Internet privacy laws in place. While not specific to social networking sites, in California, the Civil Code requires that all nonfinancial businesses must disclose to customers the type of personal information that it shares or sells to a third party for marketing purposes or for compensation. In addition, these businesses may give customers the ability to opt out of having their personal information shared by the posting of a privacy statement. California also has an on-line privacy protection act codified in the Business and Professions Code, which requires that any person or business that collects personal information from a website or online service for commercial purposes, post a conspicuous privacy policy which identifies the type of information that is collected and with whom the information may be shared.

Most recently, a bill commonly known as the "do not track" legislation, has been introduced in California which would require that Internet businesses that collect personal information and track browsing habits inform consumers of their practice, and provide consumers with the ability to opt out. Companies that fail to comply with the regulation would be subject to civil lawsuits. A similar bill was been introduced in Congress. Some search engines have already allowed web browsers to opt out of being tracked.

Internet privacy laws will alter the manner in which Internet companies conduct their businesses. These companies will undoubtedly incur legal costs to have attorneys carefully craft privacy policies and many could be subjected to consumer lawsuits arising out of violations of their own privacy policies.

-Compiled By Sydnie Moore

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