IP hot buttons in 2007

As 2007 gears up, some intellectual property trends and hot issues are emerging.
For example, “extraterritoriality” – the application of United States intellectual property laws abroad – is likely to become a significant issue to watch in 2007 due to the explosive continuing development of global computer networks. This development raises many unanswered questions.
To cite one particular case, early last year two high tech firms, Research in Motion (RIM) and NTP, settled a bitterly fought patent infringement case regarding the Blackberry device. RIM, the maker of the Blackberry, paid $612.5 million to avoid an injunction that might have brought its entire business to a halt.
A key issue in the case was that servers involved in the Blackberry system are located in Canada, where NTP did not have patent rights. Despite arguments made by several third parties (including the government of Canada), the Federal Circuit Court of Appeals upheld the injunction against RIM’s service and the U.S. Supreme Court refused to hear the case, resulting in the large settlement payment.
The U.S. Supreme Court is now considering another extraterritoriality case involving AT&T’s lawsuit against Microsoft. In the case, Microsoft was found to infringe AT&T’s patent on speech-coding technology.
The Supreme Court is considering whether AT&T is entitled to damages for foreign export sales as well as domestic sales. The answer to that question could be worth more than $1 billion to Microsoft.
Microsoft and several “friends of the court” argue there can be no liability for foreign sales because all of the copies of the software in question are manufactured abroad. The Supreme Court heard oral arguments in the case in late February and will likely decide the case later this year.
The result of this and other pending extraterritoriality cases may have a major impact on both defensive and offensive IP law business strategies. The effects will be felt not only in the software industry, but also likely in biotechnology, where patented DNA, like computer code, may be shipped abroad for copying.

Inducement
Another key area to watch in 2007 will be the law of “inducement” – both in the copyright and patent context.
Induced infringement occurs where a party does not directly infringe a copyright or patent, but rather takes affirmative steps to foster infringement by others.
In 2005, the Supreme Court took on peer-to-peer file-sharing technology for the first time when it rendered its landmark decision in the Grokster case, creating a new inducement theory of liability for copyright infringement borrowed from patent law.
The court focused on the need to present evidence of purposeful, culpable conduct to demonstrate that the defendant induced others to infringe. In Grokster, the court agreed with the entertainment industry that the requisite intent had been shown, and ultimately Grokster was shut down as a result of the decision.
We are only just beginning to see the impact of the Grokster case on both copyright and patent law.
In December 2006, the Federal Circuit Court of Appeals relied heavily on the Grokster decision in a patent case involving a medical device. In DSU Medical v. JMS, court convened en banc to consider the level of intent a patent owner would need to show to prove the defendant had induced others to infringe.
Prior to DSU, there were two conflicting lines of cases. In one line of cases, courts had held it was only necessary to show a defendant had an intent to induce acts that turned out to be infringing.
In another line of cases, the courts had held a patent owner had to show a defendant actually intended to induce others to infringe.
Following the Grokster decision, the Federal Circuit held that inducement could only occur if the defendant specifically intended to induce others to commit patent infringement.
In early March, media giant Viacom sued Google for its video-sharing YouTube service, claiming YouTube should be liable for copyright infringement that occurs when users of the service share videos without permission.
If that case moves forward, the Grokster case will likely play an important role in determining the result.
As more cases are decided in both the copyright and patent area in the wake of Grokster, we are likely to see technology companies adopt strategies and business models that will provide them with the maximum protection from inducement liability. Grokster and DSU are starting to provide a roadmap for such companies.

Legal online sales
Finally, now that Grokster and the other main peer-to-peer file sharing services have been shut down, we are also beginning to see robust development of legal online music and movie sales. Although the iTunes Music Store has been the most successful to date – primarily with music and to a lesser extent with TV shows and movies – several other business models are coming to market.
These models include “all you can eat” type subscription services as well as free ad-supported content. Yet another model is the vast amount of noncommercial online dissemination of video and music on sites like YouTube and MySpace. We are even beginning to see a burgeoning market for user-created content in entirely virtual worlds like the virtual reality game Second Life.

Digital Rights Management
A last important area to watch in the developing online media industry is Digital Rights Management (DRM).
Courts have generally been willing to impose liability under the Digital Millennium Copyright Act (DMCA) against parties who attempt to break digital copy protection schemes. We are, however, starting to see startup companies developing business models that allow consumers to circumvent DRM in order to move protected media from one device to another, an act that has traditionally been considered to fall under the “fair use” provisions of the Copyright Act.
Whether such business models will survive will depend largely on how the DMCA is interpreted as well as the Grokster decision.
Meanwhile, companies like Amazon.com and Yahoo! are venturing into DRM-free media distribution, betting that the increased flexibility of unencumbered media formats will lure consumers from the iTunes Music Store. Even Apple’s Steve Jobs has made public statements supporting DRM-free content distribution.
It remains to be seen, however, whether the media companies will buy into any of these alternatives and make their content available.
Adam Kessel is a litigator at Wolf, Greenfield, & Sacks, P.C. in Boston. He handles patent, trademark, and copyright infringement cases, as well as domain name disputes and Internet-related cases. He has also drafted and prosecuted software, chemical, and biotech patent applications. Prior to becoming an attorney, he worked as a computer programmer for over 15 years. He can be reached at [email protected] or 617.646.8360.