Advanced Business Law BPP 433 C OMPETITORS Advanced Business Law (BPP433/85) 2007 Winter Quarter Week 8 Instructor: David Oliveiri

Advanced Business Law BPP 433

CCOMPETITORSOMPETITORS

Advanced Business Law (BPP433/85)

2007 Winter Quarter

Week 8

Instructor: David Oliveiri


Learning Objectives

Who Are Competitors? What Is Their Relationship To Our Operations?

Just What Legal Rules Define Our Rights and Obligations Toward Competitors?

Managerial Implications – Constraints, Risks, Opportunities


The Law of Intellectual Property and Antitrust: Business Contexts

Creating Comparative Advantage

Obtaining Comparative Advantage

Sustaining Comparative Advantage

…Against Competitors (Known)

…Against Potential Competitors (Known + Unknown)


The Law of Intellectual Property and Antitrust – More Specifically

Entering and Participating in Markets (Antitrust Law)

Protecting Intellectual Property (Patents, Trademarks, Copyrights, Trade Secrets) [Facts: Estimated 2000 Lost Revenues From Software Piracy ($3B –

US; $2B - Japan; $2B – Germany); CHI Research tracks patent citations to value companies (IBM, Steelcase)]

Preventing Product, Service, & Business Misidentification (Trademarks, Trade Names) [Facts: Interbrand Best Global Brands 2005 – Coca-Cola $67.5B –

64% of Market Cap; Microsoft $59.9B – 22% of Market Cap; Kodak $4.9B -- #62 on List]


Economic Rationale

Regulation Preserves “Even Playing Field”Encourages Pure CompetitionMaximizes Consumer WelfareMinimizes “Free Riders”

Regulation Preserves Incentive to InnovateInnovation Over Time Ensures GrowthBut Innovation is Costly to Produce, Inexpensive to CopyAbsent Regulation, Innovation Price Driven Down to Cost of Copying and Innovation Supply Decreases

WSJ 11/9/05 – Protecting Ideas is Crucial for U.S. Business – “Intellectual property…has become the leading product of the U.S. economy… [C]ountries such as China and Brazil – which now have weak intellectual property protection – wil strengthen those protections as they become more innovative and recognize the need to protect their own creations.”

VS.VS.


Sources of Law

US Constitution – “Congress shall have the power…to promote the progress of science and the useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

Statutes – Relatively Speaking, “Specific” Rights– Federal – Pre-Emptive Patent, Copyright Law– Federal – Non-Pre-Emptive Trademark & Antitrust Law– State Statutes – Non-Pre-Emptive Areas

State Common Law – Relatively Speaking, “Proveable” Rights– Tortious Interference– Unfair Competition– Breach of Contract

What Is Protected?-- Contractual Trade Relations + Non-Contractual/Public Trade Relations


Let’s Start First With Intellectual Property – Patents


Patents

Definition: “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” 35 USC Section 101 (1789).

Facts: – Over 6 million patents issued in US – 165,485 in 2005 (rise in

software patents);

– Monroe County has been ranked as high as 14th in the US based upon per-capita patents issued;

– Samuel Hopkins is the named inventor on the first patent granted July 31, 1790; he is buried in Pittsford’s Pioneer Burying Ground;

– Xerox has been issued over 17,000 patents since 1933.


Types of Patents – Plants, Designs, Devices, Processes, Methods

[Examples: Golden Delicious apples, a golf club design, tire tread design, unique backoffice process, drugs, xerographic copiers, cameras]

How to Get a Patent – Only by Filing with US Patent and Trademark Office (USPTO)

Term – 20/17 Years; Lose Benefits if No Filing After Public Exposure for 1 Year!

Who Owns Patents? – Inventors– Discoverors– Employers (By Assignment)– Federal Government– Any Transferee or Purchaser (Writing, Filing) – NOT LICENSEE!

Patents


Patent Rights

Right to “exclude others from making, using, offering for sale, or selling…”

Right to exclude others from “importing” into the US

BUT … Statute does not grant right to make, use, offer for sale, sell…Anyone can do this…Therefore, patent grant does not insulate an inventor from competing goods or even a competitor’s lawsuit once an invention is marketed or sold.

•Daily Record 3/25/03 – Inadequate Patent Description Foils U of R Infringement Case Against G.D. Searle & Co.

•New York Times 12/20/05 – Indian Drug Maker Says It Will Keep Attacking Patents Despite Pfizer Loss


Patents – Managing Infringement Risks

If You Own a Patent -- Before Selling Products

If You Don’t Own a Patent -- Before Buying or Licensing a Patent to Incorporate in Products and Services

“Right-to-Use” Analysis – Patent Attorney

Intellectual Property Infringement Insurance vs. Self-Insurance

New Technology Examples– Software – Increasingly Sought Protection; Mathematical Algorithm/Tangible

Process Result Issue; Case-By-Case Resolution Balancing Access/Incentive– Biotechnology – Most Sought Protection; Issue of Patenting Life; Case-By-

Case Balancing Access to Basic Biological Building Blocks

Patent Reform? High Volume, Backlog at USPTO, Police “Patent Trolls”?


Copyright

What is a Copyright?– Definition: Copyright protection is available for “original works of

authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. Works of authorship include … literary works… musical works, including any accompanying words… dramatic works, including any accompanying music … pantomimes and choreographic works … pictorial, graphic, and sculptural works … motion pictures and other audiovisual works … sound recordings … and architectural works.” 17 USC Section 102.

[Exception: “In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” 17 USC Section 102.][Another Exception: Fair Use Doctrine]


Copyrightable?

Yesterday, all my troubles seemed so far awayNow it looks as though they're here to stayOh, I believe in yesterday.

The Novel in my desk!!

ST – Q1, Q5 (S&R 40 – P1)


Copyright

Exclusive Rights of Copyright Holder– Reproduce Work – Any Media (Book, Audio CD, Movie, …) – Prepare Derivative Works (“Rocky VI”)– Distribute Copies– Perform Work Publicly– Display Work Publicly

Who Can Own– Author– Employer (Statutory Works for Hire, Contractual Agreements)– A Transferee or Purchaser (Copyright Office, UCC State)

Term: – Generally (Post-1978), Life of Author + 70 Years – Works for Hire – 95 Years (Sonny Bono Copyright Extension Act)

Registration– Any Time within Life of Copyright– Not Essential for Protection, But Necessary for Infringement Suit


Managing Copyright Infringement Risks

Copyright Search; Attorney Opinion Letter


Copyright Assignment, Transfer, License, “Works for Hire”

No Single International Copyright Law – Rights Depend on Laws of Individual Countries, Treaties (Berne Convention)

New Technology Examples– Software – Often Registered as “Literary Works”; Courts Frequently

Deny Copyright Protections

– Biotechnology – No Specific Copyright Protection

– Internet – MP3.Com and Napster Cases; Digital Millenium Copyright Act of 1998; Website Protection

ST – Q10


Trademark


Definition: A word, phrase, symbol or design which identifies and distinguishes a source of goods or services

Examples: – Words or Names (Lexus, Blackberry,…)– Symbols (Nike “swoosh,” Xerox’s stylized “X”, …)– Initials (IBM, CNN, …)– Phrases, Slogans (“Have it your way!” “Got Milk!,”…)– Product Packaging and Configuration (Coke Bottle, Apple Computer,…)– Store Design and Décor (McDonald’s Golden Arches,…)– Color (Kodak’s yellow, red, and black design motif,…)– Sounds (NBC Chimes, …)

Exceptions:– Marks Likely to Confuse (“Charbucks Coffee”)– Generic Marks (Dry Ice, Aspirin, Honey Brown Ale!)

Is a Brand Name a Trademark? Is a Trade Name a Trademark?

Trademark


Exclusive Rights of Trademark Holder – Protection Against Identical or Confusingly Similar Marks

Who Can Own– Generally, Business Owner– Transferee, Purchaser (USPTO, UCC)

Term– 10 Years + Renewals (“Ivory Soap” – 1879)– Affidavit of Continuing Use Required in Year 5-6– Abandonment Limits Term

Registration– Federal Filing with USPTO Preferred – National Scope, Provided Use in

Interstate or Foreign Commerce– Federal Infringement Enforcement/Remedies ST – Q7 (S&R

40 – P11)

Trademark


Degree of Trademark Protection

STRONG

WEAK

Fanciful Arbitrary Suggestive Descriptive Generic

LESS CONFUSION MORE CONFUSION

“Xerox” “Camel “London Fog “Speedy “Corn

“Exxon” Cigarettes” Raincoats” Delivery” Flakes”

“Apple “Chicken of “Dependable “Shredded

Computers” Sea Tuna” Storage” Wheat”


Managing Infringement Risks

Trademark Search; Attorney Opinion Letter


Trademark Assignment, Transfer, License

New Technologies -- Internet– “Uniform Domain Name Dispute Resolution Policy”

– “Anticybersquatting Consumer Protection Act”


Trade Secrets

Definition – “A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” Uniform Trade Secrets Act (40 States).

Categories– Technical Trade Secrets [Examples: Formulas, Processes, Software,

Manufacturing Specs]– Business Trade Secrets [Strategic Plans, Customer Lists, Pricing Plans,

Sales Compensation Plans, Marketing Plans]

Term – Indefinite (…Until Secret “Disclosed”)

Management of Risks– “Reverse Engineering” OK– Contracts – Non-Disclosure, Non-Solicitation Agreements– Self-Insure (Protect Websites, Emails Against “Disclosure”)– Transfer of Rights

ST – Q2, Q6 (S&R 40 – P4)


Intellectual PropertyWhat is Protected

Rights Protected

Duration

Federally Protected

Requirements forProtection

Trade Secrets Trade Marks Copyright Patents

Information Mark Work of authorship Invention

Use or sell Use or sell Reproduce, preparederivative works,distribute, perform,or display

Make, use, or sell

Until disclosed Until abandoned Usually author’s life

plus 70 years

For utility and plant

patents, 20 yearsfrom application; 14 years for designpatents

No Yes Yes Yes

Valuable secret Distinctive Original and fixed Novel, useful, andnon-obvious


Antitrust


An Evolving Enforcement Philosophy (Drawn from Gellhorn, Kovacic, Antitrust Law and Economics (1994, West Publishing))

Decentralization Over Economic Efficiency; Hostile View of Mergers and Vertical Contractual Restrictions (1960’s to Early 70’s)

More Permissive Trend Emerges; Economics-Based (Mid To Late 70’s to Late 80’s. By 1986, Efficiency-Based Analysis Accepted Widely In Federal Courts)

Today, Some Uncertainty – Since Late 80’s Federal/State (and International) Enforcement Agencies Have Been More Pro-Active

NYT 12/27/05 – A Crackdown on Cartels By European Regulators [French Competition Council] – Some Call for Jail Time for Price-Fixing

Antitrust


Primarily, Federal Statutes

Sherman Antitrust Act of 1890– “Contract, Combination, Conspiracy in Restraint of Trade” Illegal– Participants – “Every Person” – Guilty of Felony

Clayton and Federal Trade Commission Acts of 1914 – Declared Specific Practices Illegal– Price Discrimination– Tying/Exclusive Dealing Contracts– Mergers/Acquisitions of Competing Companies– Interlocking Directorates of Competing Companies

Others – Robinson, Patman; Hart, Scott, Rodino

Antitrust


Managerial Implications of Antitrust Laws – Conduct to Scrutinize

Company Acting Alone– Achieving Monopoly (Illegal If Predatory Exclusionary Conduct)– Predatory Pricing (Per Se Illegal If Monopoly Profits)– Denying Essential Facility (Per Se Illegal)– Price Discrimination (Illegal Unless Meeting Competition)

Horizontal Agreements (Direct Market Share Play)– Price-Fixing (Per Se Illegal)– Dividing Markets (Per Se Illegal)– Group Boycotts (Rule of Reason)– Mergers (Depends -- Anticompetitive Effects?)

Vertical Agreements (Up/Down Chain of Production/Distribution)– Maximum Retail Price Maintenance (Rule of Reason)– Other Forms Price-Fixing (Per Se Illegal)– Dividing Markets (Rule of Reason)– Mergers (Depends -- Anticompetitive Effects?; Less Troubling Than

Horizontal)– Tying Products (OK Unless Market Power From Tying)


Bottom Lines; Q&A

Relationships With Competitors and Potential Competitors Highly Regulated – Federal and State Law

Purpose of Intellectual Property Laws: Reward Innovation, Protect Against Confusion, Increase Copying Costs

Purpose of Antitrust Laws: Ensure Even Competitive Playing Field

Intellectual Property Laws and Antitrust laws Can Help Businesses Create and Sustain Competitive Advantage

Intellectual Property Filings Don’t Guarantee Property Rights – But Instead Provide Right to Sue for Enforcement

Documents

Advanced Business Law BPP 433 C OMPETITORS Advanced Business Law (BPP433/85) 2007 Winter Quarter Week 8 Instructor: David Oliveiri