Category Archives: Technology

A Primer on Open Source Licenses & the Creative Commons

by Joseph D. Poole

In the last fifty years, with ever increasing speed, computers have changed the way we do business, listen to music, watch television, interact with each other socially, and the way we look at the world in general. At the core of this technology is code or software that tells ever more complex machines to do ever more complex things. The reason this complexity continues to increase is that none of this code is created in a vacuum.

In some cases, the code is so rudimentary that it is not protectable by copyright or patent.[1] However, just as a word or phrase is not subject to copyright, but a book or even an article in a magazine is, so too is more advanced software protected by intellectual property rights. But just as books are made of smaller chunks (i.e. words and sentences that individually may not be protected), code is often based on the code that came before it. The major difference is that code is (far more so than a book) comprised of mathematic formulas. It is more analogous to compare code to contracts, in which the language has a functional purpose.

As programs exponentially grew in complexity over the years, it was not feasible to recreate every aspect of code from binary or basic. “Reinventing the wheel,” as it were, was just as unrealistic and impractical in the programming sense as it is in the legal sense.[2] Thus, programmers sought ways to legitimately use libraries of code created by themselves and others and to share those libraries. In some cases, this was done within a single company, but as start-up software companies rose and fell, libraries that would survive the dangerous life cycle of the turbulent dotcom/dotbomb era were required. Software developers and designers also saw the advantages of efficient bug detection via software libraries, adhering to the mantra that “given enough eyeballs, all bugs are shallow.”[3]

Enter the open source movement: Software for everyone! However, authors of code generally do not want to give away all of their copyright to their works; they merely want to give others access to their works, and they use licenses to do so. The term “open source software” is generally used for any source code made available via license to study, change, and distribute the software at no cost to anyone and for any purpose.[4]

There are many licenses that fall within that definition. Not all of these licenses are created equally however. The largest variance between them is the degree to which they practice “copyleft” as opposed to “permissive” principles.  “Copyleft” is a term used to describe the requirement that “if changes are made to a program’s code, and the changed program is distributed outside an organization, the source code containing the changes must likewise be distributed.” Permissive licenses do not require the modified source code to be distributed or contributed back to the open-source community. Below is a discussion of some of the more common open source licenses, and how the code and the content contained in certain programs are treated differently.

OPEN SOURCE LICENSES

The most common open source licenses that this article will be examining are GPL, LGPL, BSD, Apache, and MIT. GPL is the most “copyleft,” followed by LGPL, but the others are far more permissive. Until recently, GPL was the most widely used open-source license. However, that is changing and now the open-source community has shifted largely to permissive licenses. The most popular community open source projects in recent years have used permissive licenses. Whether “copyleft” or permissive, open-source licensing does require proper attribution (showing where the code came from). How that attribution must occur depends on the license.

  • GNU General Public License (“GPL”)/AGPL GPL is a “viral” license in that any source code that interacts with code distributed under a GPL license must similarly be distributed under a GPL license. A developer can copy, modify, distribute, and even sell the code. However, as they are required to offer the code for free and clearly display the GPL license permitting others to use the code for free, it is unlikely that a developer under a GPL license would ever receive an asking price for the code itself.[5] One way around this is to distribute the GPL licensed software as a service. Affero GPL or AGPL is a variation of GPL designed to shore up this loophole, making it even more “copyleft” than GPL licenses.
  • GNU Lesser General Public License (“LGPL”) LGPL is usually used for software libraries. The software that uses the libraries does not need to be redistributed under the GPL or LGPL licenses, however, any changes to the software of the libraries themselves must be released under and LGPL license. This license is a key shift from the strict “copyleft” licenses AGPL and GPL to something that developers can use on commercial projects without being forced to distribute the source code of those projects under GPL licenses.
  • BSD Licesnes BSD covers a family of permissive open-source licenses, but two stand out: the New BSD License/Modified BSD License, and the Simplified BSD License/FreeBSD License. Both allow developers to use the source code and distribute it without requiring them to distribute the underlying source code. The main difference between the New BSD License and the Simplified BSD License is where the attribution must occur. Both require attribution in the source code files and the documentation for the program, but the New BSD License restricts the use of contributors’ names for endorsement of the derived work without the contributors’ specific provision, and the Simplified BSD license does not. There is also a four clause BSD license that requires attribution in all marketing materials of the program (including every ad and commercial), but that license is no longer widely used.
  • Apache Licenses Apache licenses are used in such open-source license projects as OpenStack, Hadoop, and Android. They are not as simple as BSD, and cover many terms that simpler licenses do not. For example, Apache licenses clearly identify a term and territory (perpetual and worldwide), identify use of the code as fee and royalty free, notify that the license is non-exclusive, and that the grant is irrevocable. Furthermore, Apache licenses attempt to address certain patent issues that other licenses do not.
  • MIT License The MIT license, by contrast, is one of the shortest licenses, and consequently one of the broadest. It is used in such open-source projects as JQuery, Hudson/Jenkins, and nodejs. Essentially, as long as you give proper attribution, you can use MIT licensed code for whatever you want. This makes it a very easy license to use for developers who want to contribute code that can be used on commercial projects.

CREATIVE COMMONS

Open-source licenses are designed to address code, not media. Images, sound, and animation would not be able to properly handle the attributions required under open-source licensing. However, there are many communities that share the same open-source spirit in desiring to share their creative works with others for their use. The Creative Commons (“CC”) thus offers a variety of licenses specifically designed to allow creators to allow their creative works to be used by others. Generally all CC licenses require attribution. Additionally, there are three factors that can be modified, depending on the rights a creator wants to grant or restrict:

  • Share Alike. A work with a “Share Alike” CC license allows for modification of the work and the creation of derivatives, but those derivative works must be licensed under the same license. This is a viral license that follows the work and its derivatives, akin to the “copyleft” licenses discussed above. However, as CC licenses are modular, Share Alike does not in and of itself prevent commercial use.
  • Non-Commercial. A work with this restriction cannot be used for commercial purposes. The CC have attempted to define what a non-commercial use is, identifying commercial uses as those that are “primarily intended for or directed toward commercial advantage or private monetary compensation.” There is also a report published by the CC to help clarify what does and what does not count as commercial.
  • No Derivative Works. This restriction prevents subsequent users from modifying, remixing, tweaking, or otherwise changing the work. If a creator is concerned that their work could be misused, then this restriction makes sense. Share Alike and No Derivative Works are mutually exclusive restrictions, as Share Alike applies exclusively to derivative works.

CC licenses are not designed for software, and generally should not be used for software. However, they do provide plain English and full legal versions of their licenses which allows them to be easily used and understood. This makes them very useful for the collaborative creative projects that have been taking the new media sphere by storm. For those who want to combine creative works and coding, proper use of creative commons licenses separate from the open-source licenses for the underlying code should allow creators to properly protect or distribute their works as they see fit.


[1] See 17 U.S.C. § 102 (defining copyrightable subject matter); 35 U.S.C. §§ 101-103 (defining patentable subject matter as something novel, useful, and non-obvious); see also In re Comiskey, 499 F.3d 1365, 1376-77 (Fed. Cir. 2007) (identifying abstract ideas as non-patentable subject matter).

[2] The equations that make up a section of code have a specific purpose, just as legal language does. The major difference is that altering the terms of a contract is part of the nature of contract drafting (via varying levels of negotiations between two parties), whereas altering code is not as natural; code is often created by a single programmer or team with a common purpose.

[3] Raymond, Eric S., The Cathedral and the Bazaar 30 (1999) (“Linus Law”).

[4] St. Laurent, Andrew M. Understanding Open Source and Free Software Licensing 4 (O’Reilly Media 2008).

[5] See Cameron Chapman, A Short Guide to Open-Source and Similar Licenses, Smashing Magazine (March 24, 2010).

 

Joseph D. Poole is a Los Angeles based attorney working in the areas of intellectual property law and entertainment law.

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The Supreme Court’s Denial of Patent Protection for Human Genes

By Katie Podein

In a recent unanimous ruling, the U.S. Supreme Court held that human genes are not patentable… or at least not natural human genes.  Although all nine Justices said that naturally occurring, isolated biological material is not patentable, their ruling was still a compromise in that it allowed for the possibility of a patent on the synthetic version of the genetic material.

Back in 2009, a coalition of researchers, genetic counselors, cancer survivors, breast cancer support groups, and scientific associations filed suit against Myriad Genetics, a Utah biotechnology company, challenging the company’s patent of genes BRCA1 and BRCA2.  Myriad discovered and isolated the two genes, BRCA 1 and BRCA 2, which are highly associated with hereditary breast and ovarian cancer. Myriad patented its discovery, allowing the company a monopoly over the use, research, diagnostics and treatment of the genes.  Myriad was also the only company that could perform tests for potential abnormalities.  In April 2013, the Supreme Court began the trial on whether researchers and scientists are able to claim human DNA as their intellectual property.  Specially, the issue focused on whether “products of nature” can be treated the same as “human-made” inventions in order for the individuals and companies who have isolated the specific genes to have the exclusive intellectual property rights to these genes.

The Supreme Court found that Myriad did not create or invent anything for purposes of patent law. “Myriad did not create or alter any of the genetic information encoded in the BRCA1 and BRCA2 genes,” Justice Clarence Thomas said in writing for the Court.  “[Myriad] found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention,” Justice Thomas further clarified.  In the ruling, the Supreme Court also supported the Obama administration’s position that although DNA is not patentable by itself, Complementary DNA, or “cDNA” can be.  Complementary DNA is artificially synthesized from the genetic template and engineered to produce gene clones.  Justice Thomas stated that “cDNA does not present the same obstacles to patentability as naturally occurring, isolated DNA segments.”

This compromise ruling does not come as a shock to the public since the Justices have previously expressed their hesitance to allow for patents on human genes and have noted the profound impact it would have on pharmaceuticals and genetically modified crops.  However, one surprise in the ruling was that all but one Justice signed off on the ruling; Justice Anton Scalia wrote a separate opinion agreeing with all parts of the opinion except Part I-A, the paragraph that describes what genes are, what they do and how they’re created.  Scalia wrote, “I am unable to affirm those details on my own knowledge or even my own belief.”

Regardless of Scalia’s understanding or belief of genes, this ruling has already had a major impact on the medical community.  Immediately after the ruling, at least three companies and two university labs said that they would now begin offering genetic testing in the field of breast cancer.  In addition to the expected expansion of companies’ abilities to offer genetic testing, the patient costs of these tests are also expected to fall.  Dr. Harry Ostrer, a professor at Albert Einstein College of Medicine and director of genetic and genomic testing at Montefiore Medical Center in New York said, “I’m thrilled.  We can offer BRCA 1 and 2 testing to low-income women without concerns about how it will be paid for.”   Furthermore, scientists will be able to research the BRCA genes without fear of being sued.

Even Myriad found solace in the ruling. Peter D. Meldrum, president and chief executive officer of Myriad, said the company believed that the court “appropriately upheld our claims on cDNA.”  He also stated that the ruling “underscored the patent eligibility of our method claims, ensuring strong intellectual property protection for our BRACAnalysis test moving forward.”

 

Katie Podein is an associate attorney at Yang & Wang, P.C, practicing Intellectual Property and Business Law.  The firm’s practice includes patent; trademark; trade dress; trade secret; copyright; internet & new media; brand protection; and general corporate, organizational, and business law matters.

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Patent Exhaustion and the Curious Case of Bowman v. Monsanto

by Azita Mirzaian

For months, patent law scholars and biotech companies alike have awaited the U.S. Supreme Court’s decision in Bowman v. Monsanto, a case that arose from a dispute between an Indiana farmer and agribusiness giant Monsanto.  The Bowman decision was expected to addresses a very key question pertaining to patent law: whether or not “patent exhaustion” limits the rights of patent holders by eliminating the right to control or prohibit use of an invention after an authorized sale.  More specifically, the decision was expected to address “patent exhaustion” as it applies to self-replicating technologies such as seeds.

On May 13, 2013 the U.S. Supreme Court finally issued its much-anticipated decision, but ultimately tailored it so narrowly that the Court essentially just re-affirmed the doctrine of patent exhaustion as it currently stands.

The Doctrine of Patent Exhaustion

Patent exhaustion, a long-standing concept in patent law, can serve as a valid defense to patent infringement claims.  Patent exhaustion is the concept that if a patent-holder authorizes a first sale of a patented product or an article that embodies an invention, that authorized sale exhausts the patent-holder’s rights in the article sold.

In 1942, in United States v. Univis Lens Co., the U.S. Supreme Court held that patent exhaustion applies to authorized sales, notwithstanding any post-sale restrictions that the patent-holder wishes to place on end-purchasers.  In the 1992 case Mallinckrodt, Inc. v. Medipart, Inc., the Federal Circuit created a “conditional sale” exception to patent exhaustion, finding that exhaustion applies only to an authorized an unconditional sale – in other words, if a sale or license is expressly conditional, then patent exhaustion does not apply.  The Mallinckrodt case has been viewed by some as a questionable decision that is inconsistent with the U.S. Supreme Court’s precedent regarding patent exhaustion.

Monsanto’s Case against Bowman

In this case, Monsanto developed and patented (via several patents) a certain biotechnology whereby a gene was transferred into seeds in order to make the seeds resistant to an herbicide that Monsanto manufactures called Roundup.  These “Roundup-Ready” seeds can be planted and will produce crops that, when sprayed with the Roundup herbicide, will remain undamaged.  Monsanto authorizes sales of these Roundup-Ready seeds to farmers who agree to Monsanto’s Technology Agreement, which prohibits farmers from, among other things, using the seeds in more than one season, supplying the seeds to others for planting, and saving crops produced from the seeds for replanting.  Monsanto’s restrictions on the uses of the seeds are a direct result of the self-replicating nature of its patented biotechnology; Roundup resistance is not only displayed in the genetically-altered first-generation seeds, but in subsequent generations of seeds produced from the first-generation seeds.

In 2002, Indiana farmer Vernon Bowman purchased some of Monsanto’s Roundup-Ready soybean seeds for his first-crop harvest and signed a Technology Agreement that restricted his use of the seeds.  In accordance with the Technology Agreement that he signed, he did not save seeds from his first-crop harvest.  Around that same time, Bowman also purchased some considerably cheaper “commodity” seeds from a local grain elevator to use for his second-crop soybeans – these commodity seeds were a mixture of seeds from various sources, including Monsanto.  From year to year, Bowman saved seeds harvested from this second-crop harvest and replanted them, noticing that they were Roundup resistant.

Eventually, Monsanto accused Bowman of saving seeds in violation of the Technology Agreement that he had signed.  Bowman argued that he had only saved and replanted the commodity seeds from the grain elevator (an established and common practice among farmers), not the seeds from the first-crop harvest of Roundup-Ready seeds that were covered by the Technology Agreement.  Nonetheless, in 2007, Monsanto sued Bowman, alleging infringement of two of the patents that cover its Roundup-Ready seed technology.

In 2009, the District Court for the Southern District of Indiana granted Monsanto’s motion for summary judgment on patent infringement, stating that, “despite [Mr.] Bowman’s compelling policy arguments addressing the monopolizing effect of the introduction of patented genetic modifications to seed producing plants on an entire crop species, he has not overcome the patent law precedent which breaks in favor of Monsanto[.]”  The District Court awarded damages in the amount of $84,456 to Monsanto.

In 2011, the Court of Appeals for the Federal Circuit affirmed the District Court’s decision. The Court rejected the argument that patent exhaustion permitted Bowman to save and replant commodity seeds, holding that by using the commodity seeds for a natural and foreseeable purpose (planting), he “created a newly infringing article.”  Furthermore, the Court stated that the “fact that a patented technology can replicate itself does not give the purchaser the right to use replicated copies of the technology.”  The Court’s conclusion that farmers have “the right to use commodity seeds… for any other conceivable use, [but] they cannot ‘replicate’ Monsanto’s patented technology by planting it in the ground to create newly infringing” articles, is somewhat curious, given that the most obvious, primary thing to do with a seed is plant it.  The Court of Appeals’ decision was partially based on the “conditional sale” exception to patent exhaustion.

The Supreme Court’s Decision

The applicability of patent exhaustion to self-replicating patented technologies raised a novel question for the U.S. Supreme Court.  The Court’s grant of certiorari caught the attention of patent law scholars and biotech companies alike, who all wondered if the Court could potentially eliminate patent exhaustion as a viable defense to patent infringement claims pertaining to self-replicating technologies.

On May 13, 2013, the Supreme Court issued its decision in the case, which, while unanimous, was narrowly tailored enough that it didn’t have the sweeping effect on patent law that many were expecting.  The Court affirmed the decisions of the District Court and the Court of Appeals, ruling that Bowman infringed on Monsanto’s patents.  It rejected Bowman’s patent exhaustion argument, clarifying that in this case, because Bowman made copies of the patented technology (the seeds), the doctrine of patent exhaustion didn’t protect his actions; the doctrine of patent exhaustion only applies to the article that was lawfully purchased or obtained.

The Court raised the concern that “if the purchaser of [a sold] article could make and sell endless copies, the patent would effectively protect the invention for just a single sale,” thereby drastically reducing the value of patents and dis-incentivizing the research and development of new technologies.

The Court was not swayed by what it referred to as Bowman’s “blame the bean” defense – the argument that because beans self-replicate, a farmer does not control the reproduction of the patented article.   Ultimately, in addressing the self-replicating nature of seeds and the potential implications for other self-replicating technologies, the Court seemed to intentionally avoid making any sweeping decisions, stating, “We recognize that such inventions are becoming ever more prevalent, complex, and diverse.  In another case, the article’s self-replication might occur outside the purchaser’s control.  Or it might be a necessary but incidental step in using the item for another purpose…  We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances.”

Azita Mirzaian is an attorney at Pierce Law Group LLP, where she practices law with a focus on entertainment law, intellectual property law, and contractual disputes.  Her areas of interest include copyright matters, trademark matters, and right of publicity matters.  She also has a strong interest in food-related law.

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Supreme Court To Decide On The Patentability Of Human Genes

By Katie Podein & Tommy Wang

Should researchers and scientists be able to claim human DNA as their intellectual property? That is the question the U.S. Supreme Court must now decide after recently hearing oral arguments in the case of Association for Molecular Pathology v. Myriad Genetics. Robert Barnes of the Washington Post reported that the Justices expressed trepidation as they listened to the parties’ explanations of patent law and the complexities of biochemistry.  The overriding hesitation by the Supreme Court may be due to the fact that this decision not only has the potential to have profound impact on pharmaceuticals and genetically modified crops, but also has the potential shape the future of medical and genetic research.

In 2009, a coalition of researchers, genetic counselors, cancer survivors, breast cancer support groups, and scientific associations filed suit against Myriad Genetics, a Utah biotechnology company, challenging the company’s patent of genes known as BRCA1 and BRCA2.  Myriad discovered and isolated the two genes, which are highly associated with hereditary breast and ovarian cancer. Myriad patented its discovery and the company now has a twenty-year monopoly over the use, research, diagnostics, and treatment of the genes.

The general rule for registering for a patent with the USPTO is that the discovery or idea cannot be a product of nature or a law of nature. No matter how difficult or costly the discovery, a product of nature is ineligible for patent protection. However, to date, the USPTO has granted patents on at least 4,000 human genes to the companies, universities and researchers who have discovered and decoded them.

Despite the large number of patents for human genes, many in the medical profession do not favor patents on DNA.  The group of researchers and scientists who filed the Myriad Genetics lawsuit claim that Myriad’s patents claim rights to genes, which are a product of nature and therefore are not patentable.  Opponents also contend that patents, such as Myriad’s patents for BRCA1 and BRCA2, improperly put constraints on medical research and diagnostic testing.  They view patents for genes as an attempt to monopolize and block future exploration in the field of genetics and personalized medicine.

Myriad, on the other hand, supports the patents, arguing that the company has isolated these specific genes and thus they are a product of human ingenuity, not nature.  Myriad’s lawyer, Gregory Castanias, claims that without “the incentives offered by a strong and stable intellectual property system,” companies like Myriad may not receive the capital and support necessary to develop new treatments and introduce them to the medical field.

One possible resolution to the debate is to look to see how other countries handle the issue.  Most countries grant patents on genes but with specific exceptions to them, allowing researchers and diagnostic developers to use the genes freely.  Although this seems like a basic and logical solution, the process would be arduous for the Supreme Court, as they would have to enlist the help of Congress to change the current Patent Laws.

The Supreme Court’s decision will also determine the effect of patenting human DNA and generics has on scientific research and its patients.  Even the Justices verbalized the heavy burden of the decision during oral argument. In questioning whether the Court had to immediately decide on this issue, Justice Samuel A. Alito Jr. appropriately framed the question, “Why should we jump in … and decide the broadest question possible?”

 

Katie Podein is an associate attorney at Yang & Wang, P.C, practicing Intellectual Property and Business Law.  The firm’s practice includes patent; trademark; trade dress; trade secret; copyright; internet & new media; brand protection; and general corporate, organizational, and business law matters.

Tommy Wang is a registered patent attorney and partner at Yang & Wang, P.C.  He currently practices Intellectual Property Law, including Patent, Trademark, and Copyright,  and Business Law in Southern California and East Asia.  His patent practice specializes in securing patents in the medical device, biochemical sciences and life sciences field.

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FTC Strengthens Kids’ Privacy, Gives Parents Greater Control

by Kevin Mills

Privacy continues to evolve into one of the most important legal issues of this decade.  While we as Americans are wary of the government collecting our private information, we are comparatively complacent regarding private information collected by private businesses.  It’s a dangerous conundrum.  After all, the government is created for our benefit and is ultimately accountable to us, but private business, on the other hand, has no such inherent accountability and is dedicated to its own self-interest.

The Federal Trade Commission (“FTC”) plays an important role in protecting the privacy of persons using the internet.  The FTC has just recently adopted changes to its Children’s Online Privacy Protection Act (“COPPA”) to strengthen privacy protections for children and give parents greater control over the personal information that websites and online services may collect from children under thirteen.  The information in this article, largely taken from the FTC itself, explains these changes.

Congress passed COPPA in 1998.  It requires that operators of websites or online services that are either directed to children under thirteen or have actual knowledge that they are collecting personal information from children under thirteen give notice to parents and get their verifiable consent before collecting, using, or disclosing such personal information, and keep secure the information they collect from children.  It also prohibits these operators from conditioning children’s participation in activities on the collection of more personal information than is reasonably necessary for them to participate.  COPPA contains a “safe harbor” provision that allows industry groups or others to seek FTC approval of self-regulatory guidelines.

In 2010, the FTC initiated a review to ensure that COPPA keeps up with evolving technology and changes in the way children use and access the internet, including the increased use of mobile devices and social networking.

The final amendments:

  • modify the list of “personal information” that cannot be collected without parental notice and consent, clarifying that this category includes geolocation information, photographs, and videos;
  • offer companies a streamlined, voluntary, and transparent approval process for new ways of getting parental consent;
  • close a loophole that allowed child-directed apps and websites to permit third parties to collect personal information from children through plug-ins without parental notice and consent;
  • extend coverage in some of those cases so that the third parties doing the additional collection also have to comply with COPPA;
  • extend COPPA to cover persistent identifiers that can recognize users over time and across different websites or online services, such as IP addresses and mobile device IDs;
  • strengthen data security protections by requiring that covered website operators and online service providers take reasonable steps to release children’s personal information only to companies that are capable of keeping it secure and confidential;
  • require that covered website operators adopt reasonable procedures for data retention and deletion; and
  • strengthen the FTC’s oversight of self-regulatory safe harbor programs.

Definitions

The Final Rule includes these modified definitions:

  • The definition of an “operator” has been updated to make clear that COPPA covers a child-directed site or service that integrates outside services, such as plug-ins or advertising networks, that collect personal information from its visitors.  This definition does not extend liability to platforms, such as Google Play or the App Store, when such platforms merely offer the public access to child-directed apps.
  • The definition of a “website or online service directed to children” is expanded to include plug-ins or ad networks that have actual knowledge that they are collecting personal information through a child-directed website or online service. In addition, in contrast to sites and services whose primary target audience is children, and who must presume all users are children, sites and services that target children only as a secondary audience or to a lesser degree may differentiate among users, and will be required to provide notice and obtain parental consent only for those users who identify themselves as being younger than thirteen.
  • The definition of “personal information” now also includes geolocation information, as well as photos, videos, and audio files that contain a child’s image or voice.
  • The definition of “personal information requiring parental notice and consent before collection” now includes “persistent identifiers” that can be used to recognize users over time and across different websites or online services. However, no parental notice and consent is required when an operator collects a persistent identifier for the sole purpose of supporting the website or online service’s internal operations, such as contextual advertising, frequency capping, legal compliance, site analysis, and network communications. Without parental consent, such information may never be used or disclosed to contact a specific individual, including through behavioral advertising, to amass a profile on a specific individual, or for any other purpose.
  • The definition of “collection of personal information” has been changed so that operators may allow children to participate in interactive communities without parental consent, so long as the operators take reasonable measures to delete all or virtually all of the children’s personal information before it is made public.

Parental Notice

The amended Final Rule revises the parental notice provisions to help ensure that operators’ privacy policies, and the direct notices they must give parents before collecting children’s personal information, are concise and timely.

Parental Consent Mechanisms

The Final Rule changes add several new methods that operators can use to obtain verifiable parental consent: electronic scans of signed parental consent forms; video-conferencing; use of government-issued identification; and alternative payment systems, such as debit cards and electronic payment systems, provided they meet certain criteria.

The amendments retain email plus as an acceptable consent method for operators that collect personal information only for internal use.  Under this method, operators that collect children’s personal information for internal use only may obtain verifiable parental consent with an email from the parent, as long as the operator confirms consent by sending a delayed email confirmation to the parent, or by calling or sending a letter to the parent.

To encourage the development of new consent methods, the FTC establishes a voluntary 120-day notice and comment process so parties can seek approval of a particular consent method.  Operators participating in an FTC-approved safe-harbor program may use any consent method approved by the program.

Confidentiality and Security Requirements

COPPA requires operators to take reasonable steps to make sure that children’s personal information is released only to service providers and third parties that are capable of maintaining the confidentiality, security, and integrity of such information, and who assure that they will do so.  COPPA also requires operators to retain children’s personal information for only as long as is reasonably necessary, and to protect against unauthorized access or use while the information is being disposed of.

Safe Harbors

The FTC seeks to strengthen its oversight of the approved self-regulatory “safe harbor programs” by requiring them to audit their members and report annually to the FTC the aggregated results of those audits.

These changes will go into effect on July 1, 2013.

Kevin Mills is an owner of the law firm of Kaye & Mills where his practice focuses on advising clients with transactions across a full range of issues in entertainment, media, technology, Internet and general business. His practice encompasses copyright; trademark; trade dress; trade secret; brand protection; content creation, protection and distribution; and general corporate, organizational and business matters.

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Technology’s Impact on Fashion Law, and the Basics of the Innovative Design Piracy Act

by Victoria Watkins, Esq.

The fashion industry has never been so impacted by technology as it is today.  With technology advancing at warp speed, the ease of sharing information has quickly increased. Now, sitting front row at a fashion show not only provides a great seat, but it also provides one with the opportunity to take pictures of the garments – photos that can instantly be sent to an artist who can use them to prep knock-off garments for immediate manufacturing.  These knock-off garments could be on their way to the rack before the media coverage of the fashion show is over.  This “runway-to-rack” method, which is often employed by fast-fashion brands that are popular with young shoppers, is a detriment to the designers showing their upcoming designs; the fast-fashion brand can get the knock-off garments on the market faster, leaving the original work to look like a copy.

Opinions are split regarding this complex relationship between high fashion and low-cost, ready-to-wear fashion.

Some believe that there is no competition between high fashion brands and ready-to-wear fast-fashion brands because of the separation of buyers; consumers will decide what they want to buy at high fashion prices, and what they deem fast-fashion worthy.  So for example, having a knock-off version of a Chanel dress sold at Forever 21 will hurt no one, because the Chanel shopper would never buy the Forever 21 version of the dress, and the Forever 21 shopper would never buy the Chanel version of the dress.  Thus, neither Chanel nor Forever 21 is injured by the availability of the knock-off dress in the market, and both make their desired profits (but this is not how the Chanel designer would see it). 

Others believe that the availability of a knock-off garment is hugely detrimental to the high fashion brand that originated the garment’s design; the creator’s name in the market will be adversely affected by the confusion that may be caused by the existence of the knock-off (this is especially common when the creator is a rising designer).  The knock-off can result in brand dilution and the devaluation of the high fashion brand’s trademarks.

Because fashion design misappropriation is so quick and easy in this age of technology,  and because the profits from counterfeits are in the billions, designers must vigilantly monitor their creations in order to protect them from misappropriation.  Designers can utilize copyright to protect their patterns, prints, and ornamental designs (such as original belt buckle designs), and can utilize patents to protect their processes (utility functions, like stone washing jeans).   But the best form of protection for fashion designers today is actually trademark.  Trademarks never expire as long as they are being used in the market, and they show their protective nature to consumers at every point of public encounter.  A properly-utilized trademark notifies consumers of the source of the goods and of the quality they should expect from the goods.  Proper and consistent use of a brand’s trademark will help consumers spot fakes.  Placing the brand with its trademark in the appropriate channels requires heavy vigilance, particularly today, in the era of the “instant internet.”  With technology acting as both a friend and foe of designers, trademarks can be a key to keeping products from being copied.

Recently, there has been an effort to expand the applicability of copyright protection in the fashion industry.  Just this past September, U.S. Senator Charles Schumer filed the Innovative Design Piracy Act (IDPA).  This bill is a successor to prior efforts to offer federal copyright protection to unique fashion designs.  The aim of the IDPA legislation is to protect designers (high fashion designers, as well as those who are just starting out) from the Chanel/Forever 21 situation discussed earlier.  The IDPA legislation would offer three years of protection for fashion designs meeting a high bar of creativity.  While opponents of the IDPA legislation claim that this kind of copyright protection would lead to a flood of litigation, proponents claim that it would work to combat the billion-dollar counterfeit fashion industry.  Surely there’s great benefit in the latter. 

Greater copyright protection for fashion designs would help curb the online knock-off market, as many retailers of knock-offs would be quickly hit with $5,000 – $10,000 penalties.  Designers could more easily monitor and protect their designs, especially once awareness about the IDPA and its provisions became widespread.  As of now, the IDPA bill has reached the U.S. Senate floor and it could see a vote before the end of this Legislative Session.  It would then face a hearing and vote in the House of Representatives.

As technology continues to make our lives easier in many ways, it works just as fast at presenting challenges in many facets of life, leisure, and business.  In a world where we’re all connected instantly, savvy fashion lawyers who are familiar with the benefits and detriments of technology and social media are more crucial to the fashion industry than ever.

 

Victoria Watkins is a legislative attorney for the City of Chicago.  She also writes B.A.F.F.L.E.D., a lifestyle blog, highlighting fashion, law, entertainment, beauty, and so much more.

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Filed under Copyrights, Technology, Trademarks

Taxing Digital Transactions and Virtual Goods

by Joseph D. Poole

In the last few years, an ever-increasing number of states have sought to tax internet-based transactions.  Generally, a company that has a “brick and mortar” presence in a state must withhold sales tax from all purchases that residents of that state make, whether those purchases are made in a store or online.  However, a state cannot require a company to withhold taxes when there is no such “brick and mortar” presence in the state.  This rule can be and generally is applied to digital downloads.  However, new legislation in the U.S. Senate could enable states to impose an obligation to withhold sales tax on companies that don’t have any physical presence in the states.

Background

In 1992, the US Supreme Court held that a state could not require a company to withhold sales or use taxes if the company did not have a physical “nexus” with the state.  Generally, in these instances, the residents of a state are supposed to declare the goods they purchased from out of state and (depending on the tax) pay the tax to the state themselves.  Most states are highly skeptical regarding whether or not their residents comply with such requirements.

In Quill Corp. v. North Dakota, North Dakota tried to impose a use tax on Quill Corp. (“Quill”), a seller of office equipment and supplies.  Quill had no physical presence in North Dakota but sold more than a million dollars a year in office equipment in the state via mail order catalogs.

The Supreme Court noted that while Quill benefited from the economic climate that North Dakota fostered, these actions did not justify North Dakota burdening interstate commerce in violation of the Commerce Clause of the U.S. Constitution.

Generally, the Supreme Court will find that a tax is not in violation of the Commerce Clause so long as the tax “(1) is applied to an activity with a substantial nexus with the taxing State, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to the services provided by the State.”  The nexus requirement is a “means for limiting state burdens on interstate commerce” and thus requires a physical presence within the state.

Some states have gotten around the nexus requirement by pursuing online retailers that pay state residents commissions – however, this has led to tensions between online retailers and states, with some retailers threatening to eliminate those contacts that create the nexuses.

Proposed Legislation

Because the basis for the limitation on sales and use tax comes from the Commerce Clause, an act of the U.S. Congress could remove said limitation.  Within the past year, two such bills have been introduced in Congress:  the Marketplace Fairness Act proposes to permit states to collect taxes from online retailers that gross $500,000 or more in annual sales, and the Marketplace Equity Act proposes to permit the same but only for businesses that gross up to $1,000,000.

Stores that have “brick and mortar” presences in every state while simultaneously doing significant online sales have lobbied hard for legislation like the Marketplace Fairness Act.  Companies like Wal-Mart, Best Buy, and Home Depot argue that taxing their online sales while not taxing the online sales of Amazon, Overstock.com, and eBay place them at a significant disadvantage in the online marketplace and that this unreasonably deprives states of revenues.  While “brick and mortar” stores acknowledge that they use more of a state’s infrastructure (police, fire, etc.) than online stores and that they enjoy certain substantial advantages over online stores (such as community presence, immediate stock, and easy returns), they maintain that treating them differently than online-only stores in the virtual marketplace is unfair.

Traditionally, online retailers have fought efforts to impose on them obligations to collect sales and use taxes.  Most of the major online retailers have come out against the Marketplace Fairness Act and the Marketplace Equity Act.  They point out that, given the burdens involved in observing the various tax laws of fifty different states, at the very least, the cutoff for applicability of such legislation should be $10,000,000 in gross revenue.

Amazon, on the other hand, uses a commission system that creates a nexus sufficient to satisfy the Quill standard, and thus has been struggling with various states regarding its online transactions for some time now.  As a result, Amazon now supports the Marketplace Fairness Act, but only if all smaller retailers will be held to the same standards.

The Effect of Proposed Legislation on Digital Transactions

Digital transactions include anything from digital downloads of movies and music, to microtransactions in video games.  Many of these purchases are already being taxed in some states.  However, one of the limits on the taxation of such purchases has been the lack of a nexus for companies with no physical presence in a state.

Should the Marketplace Fairness Act become law, companies that deal strictly in direct digital media (e.g., music, movies, downloadable content) could be taxed in a new way.  This added burden could be highly problematic for independent developers and could limit distribution paths to only those capable of handling the overhead associated with dealing with the various tax systems of different states.

Furthermore, if digital transactions become taxable, interesting questions will arise with regard to the taxation of microtransactions such as those that are common in video games. Nowadays, most video games utilize microtransactions whereby players can pay actual money for virtual items within the games.  Without Quill, it seems solely up to the individual states to determine which digital products they will tax and which they will exempt.  However, in an age of microtransactions, where game developers are making money from selling virtual goods, it may be only a matter of time before people will be required to pay real taxes for virtual items that they are purchasing with real money.

Whether or not the Marketplace Fairness Act or the Marketplace Equity Act become law, no one disputes the fact that the marketplace is changing.  States will continue to try to collect revenues from any possible source – even more so in these difficult economic times.

Joseph D. Poole is an associate at Pierce Law Group LLP and works in the areas of entertainment law and intellectual property law.

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Filed under Internet Law, Technology