A while back, attorneys for Apple concocted a creative argument for why jailbreaking your iPhone constituted an infringement of the copyrights in the device’s software, based on the anti-circumvention provisions of the Digital Millennium Copyright Act (more familiarly known as the “DMCA”).  The Library of Congress (as the body that promulgates regulations for enforcement of the Copyright Act) has today proposed an exemption to liability that specifically puts the kibosh on Apple’s legal theory.

In parts I and II of this series, we discussed the importance of setting up an IP holding company where all of your IP is held.  We also provided some pretty good examples of the kinds of things that could happen if your IP is not properly titled in your IP holding company, or if you comingle your IP holding company with other assets.  That leads us to this post – a brief overview of the requirements that MUST be followed in order to properly protect your IP and shield it from other liabilities.

As we recommended in our previous post, you should set up an LLC that has the purpose of holding your IP and licensing the IP for use by others.  This can actually be a rather simple process here in Florida.  The website for the Florida Department of State Division of Corporations is sunbiz.org.  The filing forms for setting up your LLC are available for printing or, if you have an account set up already, you can simply electronically file the forms.  As noted, this can be a simple process, but one that is somewhat easy to do improperly as well. When all else fails, seek the advice of an attorney.

It is especially important to seek some advice of an attorney when starting an LLC that has multiple members.  For example, suppose you have an investor and part of the “deal” is that you will give the investor some percentage of the IP.  The best way to accomplish that is to form an LLC in which both you and the investor are members.  The “deal” will be outlined by the operating agreement that you will enter into when the LLC is formed.  Operating agreements can be somewhat simple, but if they do not address many of the issues that you may encounter in the future, then you can almost always guarantee one certainty – you will be paying a great deal of money to an attorney at a later time in order to sort out ownership, for example, of your IP.  Translation – you will likely be litigating a contractual issue if some dispute arises as to the “deal” and the operating agreement of the LLC doesn’t address how that dispute should be resolved.

After the LLC is set up, it is essential that you open a bank account in the name of the LLC, and be sure that all of the liabilities of the LLC are paid from that bank account… and only from that bank account.  A common mistake of some individuals is to set up the LLC, but still pay for the IP with personal funds, or with the funds of another company.  That leaves the door open to an argument that the corporate veil should be pierced.  In other words, if the corporate requirements are not properly followed, then all your work can be for naught, i.e., a court could find that your IP is not solely held by the company and that your personal liability is co-mingled with any liability created by your IP (see examples in previous post – IP Holding Companies, Part II).

It is also important to hold annual meetings, take minutes, and keep up with the mandatory annual reports necessary to maintain your LLC.  It is not uncommon for us to hear that people did not hold an annual meeting because they are a single member LLC – “what am I going to do, meet with myself?”  YES!  The meeting minutes will read something like “a meeting of the officers was held and no action was taken.”  Simple enough, right.  A good reference of the corporate requirements can be found Chapter 600 of the Florida Statutes.  When all else fails, call an attorney and make sure you are going down the right path.  A consultation fee on the front end can often times save you litigation fees on the back end.

In a previous post, we discussed the importance of forming an intellectual property holding company to own your IP.  That previous post established that starting an IP holding company is necessary.  This post will focus on the details.

Talk to any lawyer, and one of their primary goals for their clients is managing their liabilities.  This generally includes separating assets so that liabilities do not cross over.  For example, suppose you own your IP personally, i.e., it is titled in your name personally.  Now imagine that a thief breaks into your house, slips on your floor, sues you for having a slippery floor, and somehow gets a judgment against you (here is a story about a burglar that sued the homeowner that shot him).  What happens if your homeowner’s insurance does not cover the judgment?  The crazy thief is going to look somewhere for the deficiency and will probably engage in some post-judgment discovery to find out what you own.  During the discovery, the crazy thief may find a bank account or two, but eventually, the thief’s attorney is going to uncover a patent that you own.  Turns out that you started a company last year that manufactures products covered by the patents, but the company does not pay you a royalty, and there is no agreement in place between you and the company.  Guess what — You can bet that the crazy thief’s attorney is now going to seek ownership of that patent to satisfy the judgment.  There is a strong chance that the crazy thief’s attorney will be able to get your patent transferred to his client.

Any guesses on the first thing that the crazy thief does once he has ownership in the patent?  That’s right; he will now demand that you pay royalties for manufacturing the product that is covered by the patent.  If you do not agree to the royalty, the next step is filing a patent infringement suit in Federal Court.  Do you see how this is spiraling downward now?

Simply transferring your IP into an IP holding company, however, is not enough.  It is essential to keep everything separated.  Here’s the next example of how the crazy thief’s attorney will try to get a hold of your IP.  Suppose you did place the patent in a holding company.  Also suppose, however, that you have paid for every expense associated with that company out of your personal bank account or, even worse, with funds from the company that manufactures the product that is protected by the company.  Now you have comingled all your funds, and a court will likely find that you have used your IP holding company as your “alter-ego” thereby allowing the crazy thief’s attorney to “pierce the corporate veil” and start collection efforts against your IP holding company.

The moral of the story is that not only is it important to keep all of your IP separated from anything else that you may own, but it is also important to make sure it is done properly.  This will include taking the steps of forming a corporate entity (in FL, we recommend an LLC), starting a bank account for that company, paying for your IP expenses out of that bank account only, holding annual meetings (yes, even if you are the only member of the LLC, you need to hold an annual meeting, which will be discussed in another post), and generally ensuring that you never comingle the property of the IP holding company with any other property.

If you’re running your own small business, and you don’t have a holding company for your intellectual property, you should make an appointment to have your head examined.  Creating a separate entity, solely for the purpose of owning your IP, is the quickest, easiest, and cheapest way to insure the goodwill associated with your business.

I realize that the subject matter of this post is a bit drier than what you may have grown to expect from Tactical IP, but I’m hoping that at least a few of our readers are here for free tips on how to make their intellectual property work for them.  With that in mind, I’ll try to keep this light and painless.

Liability protection is the name of the game when it comes to creating business entities.  Think of it like an insurance policy.  If you do it right, assets can be protected from creditors, including judgment creditors who may have prevailed in a lawsuit.  As far as the law is concerned, a properly created and maintained business entity is a separate “person” from its owners and employees.  The benefit of that treatment is that, if the property created and maintained business entity incurs debts or gets sued, its assets are the only things that may be taken — not the assets of its owners.  Let’s look at an example to really hammer this point home.

In our example, you own and run your own courier service.  You have a couple of employees and a corresponding number of pickup/delivery vans.  You’ve been extremely successful, turning a good profit, and you’ve been able to afford all of the toys and accoutrement that success should provide.  In our first variation, let’s say that you are operating as a sole proprietor, using a DBA (“doing business as”) name — “Black Hat Couriers.”  You own everything in your own name, or using your DBA name — the vans, all of your office equipment, etc.  Now suppose one day, while making a delivery run, one of your employees is driving a little carelessly and, as a result, is involved in a collision where several people are injured.  You are insured, so you’re not too worried — that is until you get sued and the jury comes back with an award that goes well beyond your policy limits.  Guess what happens now.  All of those toys and accoutrement, your summer house with the pool, your boat, your Porsche — kiss ‘em goodbye.

Now let’s look at an alternative scenario.  You listened to your buddy, who happens to be an attorney, and you formed your business as a Limited Liability Company (LLC).  This time, you’re calling the business “Black Hat Couriers, LLC.”  Now, you are a Managing Member of the LLC, and the business has its own assets that do not belong to you.  The vans are titled in the name of the business.  You used the LLC’s credit card to purchase that office equipment, and you pay the bill out of the LLC’s checking account.  You do everything possible to treat the LLC as if it was a separate entity from you.  The boat, the summer house, the Porsche — all of these things you purchased with your own money, which was paid out to you as income from the LLC.  Now, when the LLC’s insurance policy is insufficient to cover the jury award in that vehicular negligence suit, you get to keep your stuff.  The LLC is the only party responsible for paying the judgment.  Now that we understand a little bit about how a business entity provides a liability shield for assets, let’s take it a step further.

Say you’ve developed a really strong brand in running your courier service.  You have a website, which is reachable through a domain name that incorporates your business name.  You’ve registered for a state trademark, and you’ve started doing pickups and deliveries across the closest state line, so you have registered the federal trademark too.  You’ve learned your lesson about listening to your attorney friend, so you have even registered copyrights in the colorful fliers and advertisements that you have developed.  Life is good.  All of that branding, however, comprises intellectual property assets that may be in danger when that driver starts texting his girlfriend about after-work dinner plans doing 60mph on the highway.  How do we protect them?  Here’s a hint — check the title of this post.

If you create a new business entity — lets call it “Black Hat Intellectual Holdings, LLC” — and let the new entity own all of those intellectual property assets, when that plaintiff’s attorney starts selling off the assets of “Black Hat Couriers, LLC” to collect his contingency fee, you can rest assured that you won’t lose the benefit of your branding efforts.  Since “Black Hat Couriers, LLC” was only licensing the IP from “Black Hat Intellectual Holdings, LLC,” you can always create a new LLC and license the same IP to the new company, if “Black Hat Couriers, LLC” becomes bankrupt after paying the judgment.

Wanna franchise?  No problem.  “Black Hat Intellectual Holdings, LLC” can license the trademarks and copyrights to your brother-in-law who wants to open up shop two states away.

Decided to sell the business?  No problem.  You may even decide that you want to keep “Black Hat Intellectual Holdings, LLC” for ongoing licensing revenue paid by the guy who bought “Black Hat Couriers, LLC.”  Otherwise, if you decide to transfer the IP as well, there’s no break in the continuity of ownership for your domain registry.  Your trademarks all maintain a consistent priority, and the new owner enjoys all the benefits of your prior use.

Given the relatively low cost and effort in creating a business entity, it’s hard to understand why more small business owners don’t take advantage of the powerful asset protections that can be had therefrom.  I guess most people look at it as an expense they can skip, but it’s pretty clear that those are the corners you really can’t afford to cut — penny wise and pound foolish, as they say.

The opening day of the 2010 Winter Olympics was marked with tragedy when 21-year-old Georgian luger, Nodar Kumaritashvili, was involved in a fatal crash during a training run. The horrific event dampened the spirit of the international competition and colored the mood at the opening ceremonies later that night. As anyone would expect, the International Olympic Committee (IOC) sprung into action, responding to the accident with a multi-point plan:

• Shut down the luge track to prevent any more deaths… check.
• Conduct an internal investigation… check.
• Let an “independent” authority do its own investigation… check.
• Make immediate modifications to the luge track to stop future accidents… check.
• Make a press release, expressing regret, but denying all responsibility… check.

All perfectly acceptable anticipated responses. So why is this an IP story, you ask? Well, when the above-described actions failed to push this embarrassing catastrophe under the rug, the IOC turned to their attorneys, asking what else could be done to hush the whole thing up. Video clips of Kumaritashvili losing control of his sled and crashing into a steel pole were popping up all over the internets, repeatedly showing the world what happened. The answer from their legal team: Those people are violating our copyright in that clip! We can use the Digital Millennium Copyright Act (DMCA) to have that material removed from the web — so no one else will see it!

Now, giving the IOC the benefit of the doubt, I’m sure their intentions in suppressing the accident footage were honorable. Don’t misunderstand me. I recognize that what happened was horrible, and Kumaritashvili’s family and teammates are likely still reeling from the impact of it all. If they have to see that clip everywhere they turn on the web, that’s not ideal — especially if any of the commentary employing the clip was in poor taste, which I’m sure some of it was.

Even where all of this is true, U.S. copyright law was not implemented to choke off the flow of facts and news reporting. In fact, § 107 of the Copyright Act specifically limits a copyright owner’s rights in these kinds of situations. The IOC cannot use DMCA takedown notices to silence the speech it does not like. In fact, sending those notices may end up costing the IOC, unless they can successfully make the case that they considered whether use of the clips could be fair use before making their demands. Just ask the artist currently known as Prince. This will be tough argument for the IOC, considering this isn’t the first time they’ve tried to misuse their copyrights.

Unfortunately, groups like the IOC don’t recognize that the appropriate response to inappropriate speech is not to look for the most expedient suppression mechanism — it’s more speech. The marketplace of ideas is perfectly capable of recognizing which commentary is a legitimate dissemination of news about the tragedy and which ones are morbidly childish. Sending out demand letters that essentially state “you have to pay if you want to show our Faces of Death video” is equally deplorable, no matter what the IOC’s intentions actually were.

So unless you go to bed at 8PM (which I wish I did) or you don’t have a television, you have probably heard that Conan O’Brien’s attempt at hosting the coveted 11:30 time slot for NBC’s late night talk show will be short lived.  NBC is bumping Conan and going back to Jay Leno.  Personally, I used to watch Leno as I was falling asleep and found his skits to be somewhat humorous – Jaywalking, Battle of the Jaywalk Allstars, Headlines, etc.  I never really stayed up late enough to watch Conan’s skits, but I am somewhat familiar with them – the talking picture thing, Triumph the Insult Dog (one of my personal favorites), etc.

As you probably know, the NBC late night debacle has been pretty contentious.  My personal favorite was during Conan’s monologue a few nights ago when he was noting that hosting the Tonight Show, even for a short period of time, was the fulfillment of a lifelong dream.  He went on to give some advice to the kids out there – “you can do whatever you want to do… so long as Jay Leno doesn’t want to do it too.”

The drama only got better when NBC told Conan that they are retaining the rights to all of the intellectual property generated by the show.  NBC owns the intellectual property and probably learned a lesson from the Dave Letterman debacle years ago.  When Dave “left” making room for Jay, he went to CBS and picked right up where he left off, including all the skits he had been doing on NBC.  I’ll bet that Conan contracted these rights away, never thinking that he was going to get railroaded by NBC.

Is it a good move?  That depends on which side of the table you are sitting on.  From Conan’s point of view, of course not – it’s a crappy move that is just another screwing being handed to him by NBC.  From NBC’s perspective – it is a great business move.  If they do not find a place for Conan on NBC, then they have eliminated, or at least strongly limited, a big competitor.  Who is the real loser in this scenario?  The fans!  If Conan leaves NBC, which seems to be almost a certainty, then you can rest assured that many of those characters and skits will never be seen again.  They will be put on some dusty shelf in the NBC dungeon.  Here’s the best part – Conan is one of the most brilliant comedic minds of our time.  He was a writer for “Saturday Night Live” (back when it was good) and one of the original writers for “The Simpsons” (one of my personal favorites).  The folks at Tactical IP wish Conan the very best and hope that he is able to get on with his life after coming to a measly multi-million dollar settlement with NBC.

After getting the go-ahead from the Ninth Circuit earlier this year on her “That’s Hot!” trademark infringement case against Hallmark, hotel heiress Paris Hilton has apparently signed up (although unwillingly) for another intellectual property lesson.  This time, she’s going to be studying design patents.  Her professor, a footwear designer called Gwyneth Shoes, claims that its design patent has been infringed by Ms. Hilton’s kicks.  (Source.)

If you look closely, you can see the heart.

Design patent protection is similar to copyright protection, in that the alleged infringer is in trouble if they’ve produced something that is substantially similar to the protected design.  However, while the government simply gives out copyright registrations, upon request, design patents are only awarded after an examination is done and it has been determined that the proposed design is novel (i.e., no one else has previously designed a product like this).

Gwyneth’s design

The prize for successfully prosecuting a design patent application?  Complete national monopoly for 14 years.  Since copyright protection lasts for a minimum of 70 years, some people would argue that a design patent is hardly worth the effort and cost.  The problem with that logic is that copyrights come with a whole boatload of limitations, leaving room for potential defendants to get away free.  As a key example, fair use and independent creation are no defense to a charge of design patent infringement.  Just ask Paris Hilton, who undoubtedly has just learned about this little wrinkle from her attorney.

It is a well known axiom of U.S. intellectual property law that there is no protection afforded to mere ideas.  In order to employ the force and power of our legal system to enforce your intellectual property rights, you must have something more concrete than an idea.  In patent law, for example, you must have reduced your invention to practice (although constructive reduction to practice can be used to satisfy the requirement).  In trademark law, you must have actually used your mark in association with goods or services.  In the realm of copyrights, an author must fix her expression in a tangible form before the government will recognize any exclusive rights.

The bottom line is that you can’t sue anyone for “stealing your idea” or “taking that movie plot you thought of.”  This concept is hard for some to grasp, and every so often, a big player in the IP world may take advantage of this common misunderstanding.  While perusing sites that sell graphic tees (one of my favorite forms of communication – e.g., here, here, or here), I came across an example of this that I think is worth sharing.

It seems that Ian Bogost, a video game professional, associate professor, blogger, and amateur t-shirt designer, decided that it would be clever to put a Spanish phrase, “Por favor manténgase alejado de las puertas,” on a t-shirt, adjacent to various theme park graphics.  If you’ve spent any time in a Disney theme park, you may recognize the foreign equivalent for “Please stand clear of doors,” which can be heard over and over on the monorail, as the automated recording paternally berates passengers.

When Mr. Bogost put his t-shirts up for sale on Zazzle, one of his designs was quickly yanked from the virtual shelves.  He was told that it was due to copyright infringement.  The response to his requests for additional information came as follows:

The Disney castle concept is the protected intellectual property of Disney Inc. and may not be used on Zazzle products without permission, regardless of who the original artist or photographer may be.  We are sorry for any inconveniences this may have caused. (Source.)

The above statement is legally incorrect.  Disney may have several registered copyrights in various depictions of a castle.  They more than likely have multiple trademark registrations that include a castle design.  They may even own the copyright in the architectural plans that were used to construct the castles that appear in their theme parks.  But no one owns the concept of a castle.  It is free for all the world to use.

Now, as an attorney, I have a duty to qualify that last statement.  While the concept of a castle may be free for all the world to use, you will want to consider your risk tolerance when you do so.  If you draw your own castle, and it looks too much like the Disney castle, they can certainly accuse you of copyright infringement – and when I say “accuse,” I mean “sue.”  They may not win, but they can certainly make life rough for you until they lose.  Disney can also “accuse” you of trademark infringement, or more likely, trademark dilution.

My guess here is that Zazzle got some communication from Disney, which threatened all of these causes of action, if Zazzle didn’t remove Mr. Bogost’s t-shirt design.  More than likely, Disney used some language that wasn’t quite so questionable, and Zazzle either misunderstood or misquoted them in responding to Mr. Bogost.  Could be that Zazzle has had a previous run in with Disney, over a completely different t-shirt design, and Zazzle has taken a proactive approach to avoiding similar disputes in the future.  Either way, that company’s not going to stick its neck out on Mr. Bogost’s account – it just doesn’t make business sense to do such a thing.  And Disney knows this.  As a result, they succeed in asserting that they own the “concept” of a castle – a dubious claim at best, from an academic perspective.

United States copyright law protects original works of authorship that have been fixed in any tangible medium of expression.  Pretty much anything that you can write down or record is automatically protected from direct copying without your permission.  Everything from that flier for your company’s last promotion to the business plan that you spent weeks drafting in preparation for that product launch is covered.  As long as it’s original, and as long as you took the time to get it down on paper, you’ve got copyright protection.

The “originality” requirement of our copyright statute is a very low hurdle.  As long as you created it, and as long as it has the smallest amount of creativity, then a work of authorship qualifies for automatic protection.  Only the most basic and unoriginal material is considered ineligible for protection.  For example, the United States Supreme Court has ruled that alphabetized lists of names and contact information (e.g., phonebooks) are not original enough to be protected by copyright.  Also, anything that can only be expressed in a limited number of ways, e.g., contest rules or contract terms, will not be afforded protection.  Anything else is fair game.

Where many people run into trouble is the “fixation” requirement.  There is no protection for unexpressed ideas.  The statutory language is careful to point out that there is no limitation on what medium must be employed, but unless the expression is fixed in such a way that it can be duplicated, then you cannot stop someone else from getting it down and claiming their own expression.

With a couple of exceptions, initial ownership of copyright belongs to the person, or persons, who create a work of authorship.  In most cases, the protection starts from the moment of creation and lasts until 70 years after the author’s death.  Where an employee creates a work of authorship within the scope of her employment, this is known as a “work made for hire,” and the company is considered to be the “author” of the work.  However, since companies can potentially live forever, the life-plus-70 rule fails on works made for hire.  In these cases, protection lasts for 95 years from the date of first publication, or 120 years from the date of creation, whichever ends first.

As I’ve been pointing out all along, copyright protection exists automatically.  To use the word that Congress chose, protection “subsists” in the work upon creation — meaning that the author does not have to do anything special, apart from creating the work, to obtain the protection of the federal government.  However, depending on how you would like to use your protection, registration with the United States Copyright Office may be required.  For example, if you ever want to sue someone who has wrongfully copied your protected work, without a registration, you would not be able to obtain statutory damages or recover your attorneys’ fees.  Registration is a simple and fairly inexpensive process, and it can be done online for most works.  Everything you need can be found on the Copyright Office’s website.

A few last things that you should know about copyright are the major limitations to protection that exist.  There are some situations where you cannot sue someone for behavior that may seem like infringement.  For example, unlike patents or trademarks, independent creation is a defense to a claim of infringement.  This means that, even if someone duplicates your copyrighted work exactly, as long as she did it on her own, without actually copying your work, she cannot be successfully sued for infringement.  Copyright protection is only meant to protect an author from “wrongful appropriation.”  Additionally, the copyright statute specifically limits liability for so-called “fair use” of copyrighted materials.  This means that copyright protection cannot be used to prevent someone from copying your work for such things as criticism, news reporting, or research.

Copyright protection provides an important mechanism for ensuring that your business can reap the proper reward from materials that could be copied by an unscrupulous rival.  As an example, companies that invest thousands of man-hours in developing a software product would be unlikely to begin such a project knowing that a competitor could just steal the resulting lines of code without recourse.