Archive for August, 2011

Copyright Infringement and The Vanishing Corporate Veil

Friday, August 26th, 2011

copyrightProtecting oneself from personal liability is top on the list when a business owner forms a corporation or similar entity.  Lawyers and courts refer to this protection as the “corporate veil”.  Be careful, though, because your corporate veil is not armor clad.  Larry Chasin, president of Ideal Diamond Solutions, Inc. (IDS), learned this the hard way when a competitor, Blue Nile, Inc. (Blue Nile), sued him and his company for copyright infringement.  Apparently, IDS, which provided e-commerce solutions for jewelry stores, maintained certain websites on which were displayed images of diamonds and other jewelry copied directly from Blue Nile’s web site.  Blue Nile, an online jewelry and diamond retailer, sued Chasin for copyright infringement and other claims in the U.S. District Court for the Western District of Washington in Seattle.  Blue Nile, Inc. v. Ideal Diamond Solutions, Inc., et al., No. C10-380Z (August 3, 2011). [link]

Chasin argued against his being held liable for copyright infringement: his was a small company, he had no role in creating the infringing websites, and he had no knowledge that the content was copyrighted by Blue Nile.  The court listened but was unconvinced, noting that Chasin was the man in charge: Chasin was the “brainchild” and he “controlled the corporate affairs.”  According to the court, he may have been an innocent infringer — that is, without knowledge that images were infringing — but lack of knowledge did not protect him from liability (although it may be relevant to damages).  The court wrote,

Copyright is a strict liability tort; therefore there is no corporate veil and all individuals who participate are jointly and severally liable . . . It is well established that a corporate officer will be liable as a joint tortfeasor with the Corporation in a copyright infringement case where the officer was the dominant influence in the Corporation, and determined the policies which resulted in infringement.

The Blue Nile case teaches important lessons for both the copyright holder and the user of copyrighted materials.  For the holder, it demonstrates the importance of registering your copyrights.  Copyright Registration gave Blue Nile the right to sue in federal court and to collect statutory damages (and attorneys fees).  For users of copyrighted material, Blue Nile also carries an important warning.  Corporate officers, whether your company is big or small, may be personally liable for the infringing activities of the company.  If you are using content created by others be sure that you have the appropriate rights to copy it.  If you don’t know, hire a copyright lawyer to advise you.

–Adam G. Garson, Esq.

BROKEN! (PAT.PEND.)

Friday, August 26th, 2011

USPTO SealThe United States’ patent system is broken.  It should be fixed.  Doing so will improve America’s competitive position in the world.  Bad patents should not be granted.  Patents should be examined more quickly.  Inventors should be encouraged to invent new technologies and get them to market.

It would be difficult to find anyone to disagree with these sentiments.  And yet, the pending “reform” legislation now before the United States Senate does little, if anything to address the defects in the patent system, and instead introduces new laws that in many respects, are a patchwork of give-aways to large donors and foreign corporations at the expense of small inventors and university-based researchers.  In short, it is Patent Reform that is, itself, broken.

During the Constitutional Convention in 1787, the delegates witnessed a demonstration of a new steamboat on the Delaware River, and realized that promoting technical progress would propel the future of the United States.  They added the Patents and Copyrights Clause to the draft of the Constitution days later, and it was Thomas Jefferson who issued the first patent.  At the time, few nations had any legal protections for inventors.  Today, over 7 million US patents later, a large percentage of new patent applications come from foreign inventors, and Congress has been convinced that patents should be awarded, not to the first to invent, but to the first to run into the Patent Office – the standard used by most of the other countries, but never before by the US.  The only benefit of such a change is the goal of “harmonization” of patent laws – in other words, it’s the “Eat at Joe’s” standard (if 20 million roaches eat there, it must be good!)

The pending legislation is rife with land-grabs, give-aways, and theft of the fees paid by inventors to have their applications examined, and will do little to either decrease the time it takes to get a patent, or increase the quality of patents.  It will, however, make it prohibitively expensive for individual inventors, small businesses, and universities to protect their inventions, or to profit from them – and this will be a boon to large US and multinational corporations, which have long-believed that it is a nuisance for them to have to deal with inventors and researchers, or to pay royalties for using their inventions.

Those involved with the patent bill point out that it has been a long time in the making – legislation was first introduced nearly six years ago, and it is time that it passed.  This argument amounts to urging us to eat a meal that is tainted, simply because the cook has worked so very hard on its preparation.  It is no argument at all.  If it comes to his desk, the President should see the bill for what it is – fatally flawed, and a catastrophic departure from over 200 years of American success in innovation – and he should veto it.  Truly repairing our patent system is a job that requires not only fixing the bureaucracy of the Patent Office, but fixing the way that patents are litigated to provide prompt and efficient justice – both for inventors and those who wish to build on earlier inventions.  It appears that as in so many other areas, this Congress is just not up to the challenge.

– Lawrence A. Husick, Esq.

When Is Computer Software An Unpatentable Mental Process?

Friday, August 26th, 2011

PhrenologyOn August 16, 2011, the Federal Circuit Court of Appeals in CyberSource v Retail Decisions concluded that a claim to a method for detecting Internet fraud was not patentable.  The court also concluded that a claim to computer memory storing software to implement the method also was not patentable.  The Federal Circuit treated the claim to computer memory as no different from the unpatentable method claim.

Under this and other decisions, if a method of doing something can be performed as a mental process entirely within a person’s head, the method is “abstract” and not patentable regardless of how valuable, useful, novel or unobvious the method may be.  A computer programmed to implement the unpatentable method also is not patentable.

Does this mean that your computer-implemented invention is an abstract mental process and unpatentable?  If your invention requires specific systems and hardware, such as the Internet, a GPS receiver, or a computer capable of comparing an image pixel-by-pixel to a noise mask, then your invention should pass muster.  If your invention is one that could be performed entirely in a person’s head, then talk to us.  We can help avoid the effects of the CyberSource decision

–Robert Yarbrough, Esq.