White SW Computer Law
Intellectual Property, Information Technology & Telecommunications Lawyers
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INTELLECTUAL PROPERTY EXPLOITATION STRATEGIES

Steve White, Principal - White SW Computer Law

Conducting business on the Internet is global and involves many issues that should be considered before commencing Internet trading to minimise exposure to potential legal problems.

1. CHOOSING A DOMAIN NAME

Choosing a domain name involves similar issues to choosing a business, company or product name. However, a domain name will be accessible around the globe and there is always a possibility that a business overseas may raise an objection to the domain name use, if they consider the goods and services offered at the web site to be similar to their own. This is of particular concern when using “.com” domain names, which are the most sought after.

Each domain name registry has its own dispute resolution policy, which must be invoked when two parties claim the right to use a particular domain name. For example, the “.com” policy may be viewed at the web site www.icann.org and has been subject to frequent revision. By registering, maintaining a registration or renewing a registration, a domain name holder is held to warrant that, amongst other things, to their knowledge, the registration of the domain name will not infringe upon or otherwise violate the rights of any third party; that they are not registering the domain name for an unlawful purpose; and that they will not knowingly use the domain name in violation of any applicable laws or regulations. It is the domain name owner's responsibility to determine whether their domain name registration infringes or violates someone else's rights.

The dispute resolution policy for Australian “.com.au” domain names may be found at the web site www.ina.com.au . The dispute policy applies to both declined “com.au” domain name applications and disputes involving existing “.com.au” domain names. The dispute resolution procedure involves a three stage process:

  1. The originator of the dispute sends notice of the dispute in writing to the administrator
  2. The originator, the administrator and any third parties must attempt to settle the dispute by negotiation and conciliation.
  3. If negotiation and conciliation fail to settle the dispute, the parties agree to refer the dispute to a commercial disputes centre. All parties must agree to be bound by the ruling of the arbitrator. The costs of the dispute are borne by the originator.

Although many domain names have been procured on a speculative basis and some have changed hands for large sums, the Courts, particularly in the US, have taken a dim view to cybersquatting. The US has also recently introduced anti-cybersquatting legislation.

The US has seen many recent cases of parties registering domain names which suggest an affiliation with a well known corporation which they hope to sell to the corporation in question. As found in Panavision International v Toeppen this practice can violate the US Federal Trademark Dilution Act. Mr Toeppen was ordered to stop using the trademarks “Panavision” and “Panaflex” as domain names and to transfer the registrations of the domain names “panavision.com” and “panaflex.com” to Panavision International. Interestingly, Toeppen who is a resident of Illinois was sued in a California Court as his infringement was directed at a Californian business.

The UK decision in British Telecommunications and Ors v One in a Million and Ors followed recent US decisions in finding that the registration of famous trade marks as domain names and their use would constitute a trade mark infringement even though the marks were not used by the defendant. The relevant marks were: marksandspencer.com; marksandspencer.com.uk; j-sainsbury.com; sainsburys.com; ladbrokes.com; virgin.org, bt.org; and cellnet.net.

The Court ordered that One in a Million be restrained from the use or sale of the domain names in question and be compelled to assign the domain names to the plaintiffs, the trade mark owners. Even though the domain names in question included a number of non-UK names (in that they did not end in the .uk suffix) the Court found that actions involving these names occurring in the UK fell within its jurisdiction.

In the UK matter of Pitman Training Ltd and Anor v Nominet UK and Anor, two businesses which originated from a break up of the Pitman business both claimed they had the right to own the domain name “pitman.co.uk”. Pearson was the first to register the domain name as its own. During the time when Pearson's web site was being developed, unknown to it, its registration was transferred to PTL. Both PTL and Pearson spent money advertising their web sites.

When Pearson realised its domain name registration had been transferred, it persuaded Nominet, the body responsible for registering domain names in the UK to reassign the domain name to Pearson. PTL commenced legal proceedings against both Pearson and Nominet to regain control of the domain name. PTL was unsuccessful as not only had it been the second party to apply for the domain name, it was also bound by reason of the original break up and sale agreement to only use the word pitman in conjunction with the word training, unlike Pearson which was able to use the word pitman alone.

The list of disputes goes on and on. Recent disputes of interest of included www.worldwrestlingfoundation.com, (which was resolved by arbitration with WIPO) and www.teenmag.com (in which a publisher took action against a pornography site with a similar name to the well known teenage publication).

2. WEB SITE DEVELOPMENT

Before the developer has been engaged, the following points, amongst others, should be considered for inclusion in the web site development agreement:

Intellectual Property Ownership. Does the customer want to own the intellectual property relevant to the web site development. If the web site is developed by a contractor, the copyright will not be assigned to the customer unless the developer signs an assignment of copyright. If the customer wants to have future control over the web site, for example changing their web site hosting provider, it is essential to own the intellectual property in the web site.

In addition to copyright, the customer should consider all other forms of intellectual property, including trade marks. If the customer is not the intellectual property owner, their web site developer may be able to reproduce the customer.s web site design for another customer.

Further, owning the intellectual property and not having possession the source code can be a very frustrating and potentially disastrous situation. Escrow should be considered when the developer is not prepared to supply the source code.

Confidential Information. The development and maintenance of a web site may involve the disclosure of confidential information by the customer to the developer, for example, customer information regarding impending product releases. The customer should ensure that the development agreement includes a clause governing the use and disclosure of confidential information.

If the web site will involve a complex design which could be adapted easily for direct competitors, the customer should consider including a clause which prevents the developer from using a similar design for another customer in the same industry.

Intellectual Property Indemnity. The web site developer should provide the customer with an Intellectual Property indemnity. If materials are incorporated into the customer.s site which infringe a third party's intellectual property rights, that third party may commence legal proceedings against the customer for loss and damage caused by the customer's use of their materials. The customer should ensure that the developer indemnifies it against such a claim.

Insurance. The customer should consider whether they want their developer to have professional indemnity insurance and if so whether their policy will provide adequate protection for software development. If the developer does not have professional indemnity insurance, an indemnity with respect to intellectual property may be of little significance if the developer is unable to provide the customer with adequate financial compensation.

The extent of coverage offered by insurance policies and the statutory protection provided by the Trade Practices Act 1974 ( “TPA” ) to those involved in the sale and purchase of goods and services depends upon, amongst other things, whether goods or services are being provided and whether or not the customer is a “consumer” of goods or services. The definition of “consumer” under the TPA includes a purchaser of goods or services for less than $40,000 or alternatively a purchaser of goods or services which are of a kind ordinarily acquired for personal, domestic or household use or consumption.

The categorisation of computer software as goods or services for relief under the TPA is not clearly defined and may fall into either category, although recent case law tends to suggest that it will be considered to be a service. Some insurance policies may limit the coverage of the policy to either the supply goods or the supply of services. If a policy is limited in its coverage to loss and damage arising from the supply of goods, it may not be adequate to cover the activities of a web site developer. If web site development is considered to be a supply of services, different protection is afforded by the TPA to the consumer than if the supply of such software is considered to be a supply of goods. The customer should consider whether the scope of the warranties offered by the developer is adequate for its needs.

3. FRAMING, HYPERLINKING AND META TAGS

Web site design allows easy interaction between web sites to such an extent that a complete web page may be incorporated from another party's web site into your own. The ease of copying materials has lead to many claims of IP infringement.

Through the use of frames, materials from a web sites may be imported into another site. This form of linking is considered to be a possible source of copyright and trade mark infringement. Customers should consider prohibiting their developer from framing any third party materials to avoid the legal ramifications which may arise from this form of reproduction.

It is always advisable to obtain permission from the owner of a web site before linking to their web site. The customer should clarify with the developer that all links have been approved by the target web sites' owners. The dangers of using content from another party's web site without their permission is examined in the US case of Ticketmaster Corporation v Microsoft Corporation. Microsoft linked one of its web sites ( http://seattle.sidewalk.com) to the Ticketmaster web site ( http://www.ticketmaster.com). Ticketmaster claimed that this linking enhanced the value of Microsoft's web site while diminishing the value of Ticketmaster's web site by, amongst other things: depriving Ticketmaster of advertising opportunities; publishing erroneous information; and diluting the value of Ticketmaster's relationship with MasterCard, a major advertiser. Ticketmaster pressed claims for, amongst others, trade mark infringement and misleading and deceptive conduct.

Data Mining disputes are also becoming more popular. Data mining involves copying data from one site and reproducing it on another. For instance, queries can be set out to extract information from another site and report it on your site. A number of sites which contain large amounts of data are very concerned about this. For example, Telstra is currently in dispute over the ownership of its White Pages entries and whether or not copyright exists. Privacy disputes can also arise with the FTC taking action in a number of matters where data appears to have been used inappropriately with respect to cookies and other information collection devices.

Disputes can also arise when one party spams another's customers to entice the business to their site, for instance E-Bay recently commenced and settled litigation with Reverse Auction is such a case. Another interesting case is that of icravetv.com which involves rebroadcasting of various programs which is very similar to the disputes in Australia with respect to the rebroadcast of live to air television over cable.

Due to the massive proliferation of web sites and the resulting competition to attract potential visitors to the customer's site, in preference to numerous other similar sites, the developer may employ various techniques to maximise the popularity of the customer's web site. One method used is to include meta tags on the pages that constitute the web site.

Meta tags are analysed by the search engines, but are not visible in the normal viewing layout of a web site page. Commonly, Meta tags will include subject headings that visitors may use to find the information contained on the web site. The customer should carefully monitor the meta tags which are used for their web site, not only to determine the relevance but also to avoid potential legal liability.

An American law firm, Oppedahl & Larson LLP, which offers information in regard to intellectual property law on its web site, issued a complaint against a number of domain name owners who used the words “Oppedahl” and “Larson” in their meta tags. Effectively the domain name owners were alleged to be profiting from the reputation of Oppedahl & Larson and diverting visitors who were attempting to visit the Oppedahl & Larson site to their own sites instead.

4. IP ENFORCEMENT

Traditional IP laws do not adapt easily to the Internet environment. It is possible that a business in country A operates its web site using computers located in country B and sells goods to a customer in country C. Which jurisdiction governs the transaction?

Similarly, IP infringement is made increasingly easy via the Internet by which multiple copies of works may be distributed instantaneously to multiple jurisdictions.

Locating the Defendant. Use should be made of the search engine sites and third party providers to locate the defendant. Further information in relation to the identity of the defendants can be found at sites such as www.aunic.net and www.networksolutions.com.

Jurisdiction. A recent US decision with respect to legal jurisdiction and the Internet, Cybersell Inc v Cybersell Inc and Ors suggests that if your Web Site acts only as a means of advertising or as a source of information, the US Courts will not be able to assert jurisdiction. If, however, you sell goods and/or services over the Internet, it is possible that a US resident or business could issue legal proceeding in the US against you or your business. To reduce the risk of such litigation, you should consider having a requirement that the potential customer submits to the laws of Australia governing the agreement before the transaction has been completed.

Trade marks. The customer should consider the use of trade marks on the web site. The fact that a trade mark is registered in Australia, does not mean that it will not infringe other parties' trade marks outside Australia. In 1981 in USA, Playboy Enterprises Inc obtained an injunction against Chuckleberry Publishing Inc and Tattilo Edtrice SpA to prevent them from selling their magazine Playmen in the US. The injunction prevented Tattilo from using the trade marks “Playboy” or “Playmen” or any other confusingly similar word in conjunction with the sale or distribution of English language publications and related products in the US.

Fifteen years later in Playboy Enterprises Inc v Chuckleberry Publishing Inc & Others, the court found that by offering access to American customers via the Internet, Tattilo was in contempt of Court by breaching the injunction. Tattilo was ordered to: shut down its Internet site in Italy or refrain from taking new subscriptions from US residents, invalidate user names and passwords previously purchased by US residents and refund the remainder of their subscriptions, pay to Playboy, all gross profits earned from its Internet services provided to US residents, revise its Internet site to indicate that no subscriptions are available to US residents, pay Playboy's legal costs and pay US$1,000 per day until it complies with this order.

Other recent cases include Disney's dispute with Go.com and the registered trade mark owner of Goto.

Trade Practices Act 1974 (TPA). Two sections of the TPA, which frequently come into dispute in relation to Internet trading are:

s 52 - A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

s 53( c ) - A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services represent that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have.

Various issues discussed above, including the use of domain names and trade marks may give rise to claims for misleading and deceptive conduct or passing off in a similar way to the use of similar business names or logos.

These sections have received judicial consideration and approval in relation to internet trading. In the Australian matter of ACCC v Internic Technology Pty Ltd, an FCA Part IV class claim was dismissed due to the need to cross examine each class member as to whether or not he or she had been deceived by the web site which had a disclaimer on each page. The proceeding continued on declaration and injunctive relief alone and was subsequently settled.

These TPA sections and trade mark law will continue to be the most widely used provisions in e-commerce, as they are in non-electronic based commerce.

5. CONCLUSION

Internet trading poses some interesting legal questions that are yet to be decided by the Australian Courts. Provided that the client is made aware of these risks, it becomes a commercial decision as to whether to make the move to e-business. Current legislative developments, for instance in relation to copyright, will need to be monitored to ensure that your clients remain well informed as to their rights and obligations when trading on the Internet.

STEVE WHITE
WHITE SW COMPUTER LAW
MARCH 2001

www.computerlaw.com.au

© White SW Computer Law 2001

This article is a guide only and should not be used as a substitute for proper legal advice, readers should make their own enquiries and seek appropriate legal advice.


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