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John Farmer's Column 2008
Published in the Richmond Times-Dispatch Is Domain Name Front Running Real? Has this ever happened to you? You check out a domain name for possible registration. You don't register it immediately because you want to think about whether it's the right domain name for your need. A few days later, you decide it's the right one and attempt to register it. But it's now taken. You wonder whether someone was able to monitor your earlier interest and registered it because of your interest. While there is no conclusive proof this activity exists, just its possible existence has caused enough controversy to spawn a name for it - domain name "front running." Recent Studies Express Doubt Two organizations recently examined whether front running exists and have expressed skepticism. A committee of the Internet Corporation for Assigned Names and Numbers (ICANN), which governs the domain name system, issued a report in October 2007. The committee could not determine whether front running really happens. The committee pointed out that the high volume of daily domain name registrations, especially by short-term speculators, could be causing the occasional coincidence where person #1 searches for a domain name but does not register it immediately and person #2 happens to register it shortly thereafter. The committee also identified technological means by which one might be able to engage in front running but could not find proof of such activity occurring. Ultimately, the ICANN committee asked for detailed reports of possible front running instances so it could scrutinize more data. Nominet also examined the issue in a November 2007 report. It runs the registry for .uk domain names. It also found no proof of front running and expressed strong skepticism that it exists. Nominet reminded us that "domainers" account for a high volume of domain name registrations and a large majority of new registrations. Domainers scoop up bushels of available domain names that might attract traffic due to their simplicity or past use. Domainers attempt to "monetize" domain names that attract traffic by selling pay-per-view and pay-per-click advertising on computer-generated, template websites. Network Solutions Takes Action A leading domain name registrar, Network Solutions, recently took action on this issue in a controversial way. This month, Network Solutions implemented a policy where, if you search for a dotcom domain name on its website, Network Solutions will keep the domain name from being reserved via another domain name registrar (such as by Register.com) for four days. Interestingly, during the four-day hold, the domain name will be available for registration at Network Solutions by anyone, not just the person who did the triggering availability check. One can look at the Network Solutions policy as benevolent or malevolent. In the benevolent view, Network Solutions charges relatively high prices - $35 per domain name for a one-year registration. That price is too high for most kinds of domain name speculation, including front runners if they exist, so you'll probably be able to get the domain name within the four-day hold period if you wish. In the malevolent view, Network Solutions is engaging in front running under the pretext of guarding against unproven front running by others. You can register any dotcom domain name at a cheaper per-year price from other reputable brokers. The Network Solutions lockdown forces you to pay Network Solutions' high price or take the chance the name will be taken as soon as the Network Solutions hold expires. If you believe front running exists, you'll be concerned that the hold itself might alert the bad guys to pounce when the hold expires, so you'll feel pressure to pay the high price. How to Protect Yourself I don't know if front running exists. Regardless, millions of domain names are registered by domainers every month for possible monetization, so there's a good chance the domain name that's available today may be gone tomorrow by coincidence. I recommend using a cheap but reputable domain name registrar to search for potential domain names. If you find an attractive domain name, buy it on the spot or, at the least, in the same browsing session. Don't take the chance that the domain name will be around when you make up your mind in a couple of hours or days. For example, your can register a dotcom domain name for one year on GoDaddy.com for $10.19. That sum is nothing compared to what you would pay to a dotcom domain name broker for a taken name or to a lawyer to try to take the domain name away on legal grounds. If you choose to save your money while you contemplate the purchase, that's your freedom, but don't whine when the domain name is gone later. On the Web, he who hesitates often loses. By John Farmer ©2008 Leading-Edge Law Group, PLC. All rights reserved. ____________________________________________________________ Published in the Richmond Times-Dispatch Diffusing Landmines in Software Licenses Most businesses don't try to negotiate license agreements for commercial software they purchase. That's too bad, because many of those agreements are negotiable and contain legal landmines. Most licenses for software intended solely for business usage are negotiable. How far you will get comes down to leverage. Below I discuss four (of many) "landmine" issues in software licenses - issues that aren't obvious but deserve attention by software customers ("licensees" in legal lingo): #1 - The Documentation Trap. The software vendor (the "licensor" in legalese) will promise that the software will function as described in the "documentation." Usually no one knows exactly what documents constitute the "documentation." Worse yet, you often don't see any software "documentation" until after you sign the deal. Also, these documents evolve over time and are written to protect the vendor. Solution: Create a complete and clear written description of everything you expect out of the software. Make this description an exhibit to your software license agreement. Call it collectively the "Specifications." The Specifications might be tens or even hundreds of pages long, and probably will be composed of multiple documents. The vendor should give you a warranty that its software will meet the Specifications. Collectively, the Specifications should describe important software attributes, such as functionality, performance specifications, compatibilities and interoperability. #2 - The Upgrade Trick. For most commercial software, in addition to paying an upfront license fee, you pay an annual fee for "support and maintenance." Support entitles you to get help with some software problems, usually by telephone and email. Maintenance entitles you to some but not all future revisions to the software. Nearly all software licensors include bug fixes and minor upgrades in what you get for your maintenance payment, but not major upgrades. So what's to keep the licensor from arbitrarily calling the next software release a major upgrade and demanding more money? Nothing except the licensor's sense of propriety. Solution: Get the licensor to give to you, at no additional charge, every new version of the software that comes out during the time you continue to pay for software maintenance regardless of whether it's called a "major release" or any other name. On a related note, contractually require that, if any significant functionality is stripped from the software and placed in a separate product, that the vendor will also give you a license to the separate product at no additional license fee and no additional support and maintenance fee. #3 - Use by Contractors. On the customer's side, almost all information technology departments are crawling with contractors (i.e., non-employee workers). Also, IT departments commonly use outsourcer contractor personnel to supplement or replace its IT staff. But do your software licenses permit you to allow these contractor personnel to use the licensed software on your company's behalf? If your license does not address this issue, it might be copyright infringement and breach of contract for you to permit contractor usage. Solution: Get written permission in the software license to permit your contractors (including outsourcers) to use the software on your business's behalf. You will need to promise that the contractors will not use the software for any other purpose and to take financial responsibility for any breach of that obligation. You may also be required to have such contractors sign confidentiality terms that protect the software. #4 - Non-Production Copies of Software. Most software licenses will allow you to make one additional copy of the software for archival - to use in case you damage or destroy the copy you use in production. Some licenses also permit making an extra copy for remote usage by the same person who is the workplace desktop user - so that the software can be used at work or away. Beyond that, the license agreement usually prohibits making additional copies without purchasing additional licenses. But there are other uses that shouldn't result in extra license fees. During Y2K preparations in the late 90's, some software vendors required customers to pay to make extra copies of software to use only for Y2K testing. Solution: The limitation on the number of copies of the licensed software that the customer can make ought to apply only to copies used productively. Try to obtain the ability to make an unlimited number of copies to be used for testing and training, and for backup systems including a software archive. Nearly all vendors have the power to give such latitude, so beware of software salesmen who try to nickel-and-dime you for extra license fees here. Practically speaking, the only situation where the licensor might not be able to fully accommodate you is if there is third-party software embedded in the licensor's software and the licensor has to pay a per-copy royalty to its licensor for that third-party software. By John Farmer ©2008 Leading-Edge Law Group, PLC. All rights reserved. ____________________________________________________________ Published in the Richmond Times-Dispatch Be Paranoid About Patent Application Time Deadlines How long can you wait before seeking a patent on your new invention? A recent federal court of appeals decision demonstrates the difficulty of calculating with certainty how much time you have. My advice? Be paranoid that the deadline may be sooner than you think. File your patent application as soon as possible. Under U.S. law, any one of three activities will bar an inventor from obtaining a patent, and will invalidate an issued patent, if the activity occurs more than one year before the inventor applies for a patent. In other words, doing any of these activities starts a one-year clock. After that year, your patent application becomes "time barred." Even if you get a patent, which could happen because the patent examiner might not know of the clock-starting activity, the patent will be invalid because it was time barred. These clock-starting activities are:
So for example, if you offered your invention (perhaps your better mousetrap) for sale on January 1, 2008, then you have until January 1, 2009 to apply for a U.S. patent. After that date, you are barred from patenting your invention in the U.S. If you nevertheless apply after January 1, 2009 and get a patent, it's invalid. By comparison, U.S. law is forgiving to inventors. In most other countries, activities that merely start a one-year clock in the U.S. are patent killers in those countries. These other countries do not have our 12-month grace period. Thus, in most other countries, you must apply for a patent before engaging in the clock-starting activities listed above. One saving grace is that filing a U.S. patent application usually entitles you to file a corresponding application in a foreign country within one year, provided you didn't do any of the clock-starters before you filed your U.S. application. This time limitation on patenting law runs contrary to the desires of many inventors. They often want to see if an invention has commercial value before spending $10,000 to $20,000 on a patent attorney. Yet, many inventors wait too late and lose their invention rights. Worse yet, often you don't find out until you are in litigation whether you waited too late. That's because the federal law on patenting time bars is murky. Legal tomes have been written analyzing where the lines are drawn. The federal court of appeals that is responsible for patent law - the Court of Appeals for the Federal Circuit - often issues new decisions adding to the time-bar law. Experimental Use Exception The recent decision I mentioned at the beginning of this column was issued by the Federal Circuit in February 2008. It concerned the application of the "experimental use exception" to these time bars. Basically, this exception provides that, if you engage in one of the time-barring activities (e.g., offering an invention for sale, using it in public), the activity does not start the one-year clock running if the purpose of your activity was to experiment with the invention in order to perfect it. In this case, the inventor received a patent on a sewing machine that attaches gussets to mattresses. The Federal Circuit ruled the patent was invalid because, more than one year before applying for the patent, the applicant had sold 50 machines to a mattress manufacturer so the manufacturer could determine whether the machines fit the bill. The Federal Circuit held this sale wasn't covered by the experimental use exception because the inventor itself wasn't conducting or controlling the testing and because the inventor offered to mass produce the machines. The customer's testing performed to see if the invention met its needs didn't qualify as an experimental use. Yet, as two of the three judges on the case noted, federal law is too cloudy concerning if and when the experimental use exception will prevent imposition of a patenting time-bar. These judges pointed out that some case law can be read to say that the experimental use exception disappears once the inventor offers for sale or uses publicly a working prototype of the invention, even if that sale or use is strictly for the purpose of honing the invention. Don't worry about understanding exactly what the court held. Even the court is unsure of the law here. That's the point. The moral to this story is that, because of the legal uncertainty over what events will start your one-year clock running, you should always assume you need to file your patent application ASAP. Any additional day might be a day too late. By John Farmer ©2008 Leading-Edge Law Group, PLC. All rights reserved. ____________________________________________________________ Published in the Richmond Times-Dispatch Trademark Rules for Website Owners are Evolving An important, recent federal appellate court decision addresses the legality of using a competitor's trademarks in hidden website text called "metatags." The decision also ordered further study on whether trademark owners should continue to automatically get injunctions stopping use of infringing trademarks by others. How Metatags Work Metatags consist of text, embedded in a website, that is not visible to the web surfer but helps the website accomplish its mission. They are used to give your website a title (the text you see at the top of your web browser screen, above the toolbars). They also are used to provide a description of your website's mission. Some search engines use all or part of that description in search results that list your website. In the 1990s, metatags also were a way to tweak your website to improve its ranking in search engine results. Search engines would read metatags in deciding whether and where to include your site in the results. Thus, if you sell trail-running gear, you might stuff your metatags with the brands you sell, such as Montrail and Patagonia. You can see the metatags for a website by right clicking on the body of a website and choosing "view source." If you are aggressive, you might stuff your metatags with the trademarks of your competitor, hoping a web search for your competitor's product will include your website high in the search results. Metatags and Trademarks In a recent court decision, a maker of medical devices placed in its website metatags the trademarked names of a competitor's products. The competitor sued alleging trademark infringement. The trial court found that this metatag usage had caused the defendant device maker's website to show up in search engine results just under the plaintiff's website when the plaintiff's trademarks were used as search terms. It also found that this metatag usage caused the plaintiff's trademarks to appear in the search result listing for the defendant device maker. The trial court held that this constituted trademark infringement because it found consumers were likely to be confused by the defendant's search engine listing. For reasons I discuss below, the appellate court affirmed this ruling but sent the case back to the trial court for more analysis regarding what the plaintiff's remedy should be. Regardless of that outcome, the defendant is in serious trouble. Possible remedies include recovery of all of the profits the defendant earned during the time of infringement, plus a possible tripling of these damages, plus possible recovery by the plaintiff of its attorneys' fees. In any event, there are lessons to be learned:
Injunctions in Trademark Cases In a surprise ruling, the appellate court sent the case back to the trial court with instructions to examine whether an injunction against trademark infringing activity should be issued automatically whenever a trademark owner wins an infringement lawsuit. The court did so because of a recent Supreme Court case called eBay v. MercExchange, which held that winners of patent infringement lawsuits should not automatically get injunctions stopping infringement. The Supreme Court set forth a multifactor test to use for evaluating whether an injunction should issue. It held that, in some cases, it is enough to pay money damages while permitting the patent infringement to continue. Traditionally, in trademark cases, if a plaintiff proves a likelihood of confusion caused by the defendant, the plaintiff automatically gets an injunction stopping the infringing activity. Yet, the concerns regarding patents that led to the Supreme Court's ruling in the eBay case don't exist in trademark law. With patents, there have been concerns that winning patent plaintiffs were given too much financial leverage in settlement negotiations by the previous, automatic-injunction rule. Should a patent owner be able to shut down an infringing product when the patent covers only a small element of the product, especially when the patent owner has been willing to sell a patent license to any willing customer? Also, there have been concerns over the quality of many patents issued recently. Neither of these concerns exist for winning trademark plaintiffs. We'll face some legal discombobulation while the courts sort out the impact of eBay on trademark cases but, probably, winners of trademark cases will continue to get automatic injunctions. By John Farmer ©2008 Leading-Edge Law Group, PLC. All rights reserved. ___________________________________________________________ Published in the Richmond Times-Dispatch Can You Use What You Remember in Your New Job? If you leave your employer, can you use in your next job confidential information you remember from your old job, even if you don't take anything in writing? A recent decision by the Ohio Supreme Court holds that using memorized trade-secret information can get you in legal trouble. In the Ohio case, an employee had memorized part of his employer's client list, which the employer had kept as a trade secret. The employee then quit and started a competing company. He used the memorized information to contact and lure away 15 clients of his old employer. The former employer sued claiming trade secret theft. The former employee lost in the trial court and the Ohio Supreme Court affirmed the decision. It held that trade secrets are stolen (which is illegal) by memorizing trade secret information and using it later. You don't have to steal written materials to be a trade secret thief. This decision created a buzz in legal circles. Do you have to get a lobotomy to avoid legal jeopardy in a new job? For practical reasons, employers shouldn't rely much on this decision, and employees shouldn't be that fearful of it. Trade Secret Basics To see why, you must know basic trade secret law. A trade secret exists when the holder of information has taken reasonable steps to keep it secret and such secrecy makes the information valuable. The company that owns a trade secret can sue to stop its dissemination. Classic examples of potential trade secrets are client lists, internal financial information and manufacturing processes. I emphasize "potential" because no type of information is automatically a trade secret. If you don't take reasonable steps to keep it confidential, it's not a trade secret. Back to the Ohio case. The Ohio Supreme Court held the client list was a trade secret but didn't detail what actions the employer had taken to keep it confidential. Was the list distributed internally only on a need-to-know basis? Was it kept in a password-protected computer file or locked file cabinet? Did everyone who saw it sign a confidentiality agreement? While you don't necessarily have to do all of those things to make the client list a trade secret, those are common-sense protections. Yet, many companies fail to protect sensitive information adequately. Also, most courts (including Virginia) hold that using information you remember about customers of your old employer to serve your new employer is fine provided the remembered information isn't a trade secret (and provided you have not signed a non-compete or customer non-solicitation agreement). This leads to a fine distinction: Even if a former employer successfully treated its whole client list as a trade secret, that doesn't necessarily mean the identity of each client is a secret. Unless each client signed an agreement to keep its status as client confidential, then there's a strong argument that a defecting employee can use what he just happens to remember about clients of his old employer as long as he does not try to memorize and use the whole client list. Tough Case for Employers While memorizing the whole client list (or any other trade secret) for later use is illegal in theory in Virginia, Ohio and many other states, how will the former employer ever prove such memorization took place? Absent smoking-gun evidence, these will be tough cases for employers. Also, many courts will hesitate to rule for an employer because the employer could have taken steps to prevent the situation. The employer could have required its employee to sign a non-compete, or at least an agreement to not solicit current customers. Courts will be wary of giving employers de facto non-competes they never obtained by negotiation with their employees. So what are the take-aways for employers and employees? For employers, do not rely on the Ohio case to save you from competition by departing employees. Use written employment agreements to protect your trade secrets, and try to include non-competes and customer non-solicitation provisions in them. There is a laundry list of other things you should do to protect trade secrets, but that's a column for another day. For employees, you should "walk out naked." Don't take any information from your old employer, either on paper or electronically. Unless you signed a non-compete or a customer non-solicitation agreement, you should be fine seeking business from the customers of your old employer in most cases. Just don't create any smoking-gun evidence that you tried to memorize trade secret information, such as client lists, before departing the old shop. By John Farmer ©2008 Leading-Edge Law Group, PLC. All rights reserved. Published in the Richmond Times-Dispatch Supreme Court Gives Patents Another Haircut Earlier this month, the U.S. Supreme Court issued the most anticipated intellectual property decision of the year - Quanta Computer v. LG Electronics. It concerns a doctrine called "patent exhaustion." While much of the ruling is "inside baseball" for intellectual property attorneys, it's worthwhile to understand the case's implications for the value of patents. What the Case Held To set the stage, here's the ruling in a nutshell: When you sell something covered by a patent you own, you generally "exhaust" your patent rights by making the sale. Thus, you can't later sue the purchaser, or someone else who follows the purchaser in the stream of commerce, for patent infringement. In this case, the plaintiff, LG Electronics, owned patents related to computer chips. It licensed these patents to a computer chip maker - Intel. Pursuant to that license, Intel made chips and sold them to computer makers such as Quanta. LG tried to milk more revenue from its patents by holding open, in its agreement with Intel, its ability to also demand patent license payments from any computer manufacturer (such as Quanta) who bought chips from Intel. This practice is called "multi-tier licensing" because the patent owner tries to obtain a patent license fee at various stages in the manufacturing and distribution pathway. Under this practice, in theory, LG could have demanded license fees from the chip maker, the computer assembler, the computer distributor, the retailer and the end purchaser (perhaps you). Quanta refused to buy a patent license from LG, so LG sued Quanta claiming patent infringement. The Supreme Court ruled LG had exhausted its patent rights by permitting Intel to sell chips that embody the patented technology, so LG could not require patent license payments from companies that follow Intel in the stream of commerce, such as Intel's computer-maker customers. In its ruling, the Supreme Court foreclosed a possible end-run on patent exhaustion. Some of LG's patents were on a method for processing data rather than on a tangible device. LG argued a method patent isn't exhausted when you sell something (here, a computer chip) that uses the patented method. Thus, LG argued that everyone following Intel in the stream of commerce needs to obtain a license to use LG's patented method, even if it buys the chips. The Supreme Court rejected this argument, holding that selling an item that embodies the patented method exhausts those patent rights. The Supreme Court didn't slam the door on multi-tier licensing, however. It held open the possibility that the patent owner could use its contracts with its licensees (the companies that pay to use the patented technology) to preclude patent exhaustion byexpressly requiring each company in the manufacturing and distribution chain to pay an additional patent license fee. Yet, as explained below, the Court made doing so more difficult. Implications for Business So what impact does this case have?
By John Farmer ©2008 Leading-Edge Law Group, PLC. All rights reserved. ____________________________________________________________ Published in the Richmond Times-Dispatch How to Form a Good Relationship with a Good Lawyer I realize forming a good relationship with a good lawyer sounds to many like trying to befriend a pit viper. Yet, whether your lawyer is good can mean the difference between business success and failure. Few lawyers are top quality. Good lawyers tend to have plenty of work. They also have an above-average craving to forge client relationships that allow them to fully utilize their top legal skills. Client Manners Matter Whether you are a client who is easy and rewarding to work with can determine whether you obtain top-notch lawyering:
How to be a Favored Client How do you form a good client-lawyer relationship? Consider these tips:
None of this advice means you must surrender control to your lawyer, or that any lawyer is justified in being a prima donna. A good lawyer knows that he gives only advice and that legal decisions are ultimately business or personal decisions to be made by the client. You just want such a lawyer to make your legal needs the top priority when the inbox is full and vacation is just a few days away. By John Farmer ©2008 Leading-Edge Law Group, PLC. All rights reserved. ____________________________________________________________ Your use of this Web site constitutes acceptance of our terms of use and privacy policy even if you choose not to view them. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. | |