Solution Manual for Law for Business, 14th Edition, A.

James Barnes Eric Richards Tim Lemper

Solution Manual for Law for Business, 14th Edition,

A. James Barnes Eric Richards Tim Lemper

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-james-barnes-eric-richards-tim-lemper-2/

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 CHAPTER 8
LICENSING AND INTELLECTUAL PROPERTY
Outline
I. Intellectual Property Rights
A. Patents
Provides its owner with the exclusive right to make, use, or sell an invention or process during the
patent period which is usually 20 years from the date of the filing.
1. Patentable Creations
In the U.S. the following things may be patented: processes, machines, products, composition
of elements, improvements of processes and machines, product designs, and asexually
produced plants.
Example: Association for Molecular Pathology v. Myriad Genetics: The court found that a
naturally occurring DNA segment is a product of nature and not patent eligible merely because
it has been isolated. However, synthetically made DNA is patent eligible because it is not
naturally occurring.
2. Patentability of Incremental Advances
A court must consider the scope and content of the prior art; differences between the prior art
and claims at issue; and the level of ordinary skill in the new art.
3. Standards for Patentability
The U.S. awards patents based on the “first to file” standard used in most nations of the world.
4. Patent Exhaustion
A patent holder’s rights over the patented product generally end once it is sold to a lawful
purchaser. This doctrine, patent exhaustion, gives the buyer or anyone to whom he resells the
article, the right to freely use or resell the article. However, the purchaser of a patentable article
does not have the right to reproduce it under the patent exhaustion doctrine.
5. Patent Infringement
Patent infringement occurs when a person makes, uses, or sells the patented invention without
the patent holder’s authorization.
Example: Apple v. Samsung Electronics: The court found that Apple (having previously
proven patent infringement by Samsung) was entitled to a permanent injunction against the
sale of Samsung’s smartphones in the United States. Apple needed only to prove that certain
features of the Samsung phone related to the infringement and were important to customers
when they were considering the phone and not that the infringing features were the sole reason
for custom interest.
Note: the U.S. Supreme Court reversed the appellate Court’s finding in this case on
December 6, 2016. Justice Sotomayor writing for the Court in 8-0 decision wrote: In
the case of a multicomponent product, the relevant “article of manufacture” for
arriving at a §289 damages award need not be the end product sold to the consumer
but may be only a component of that product.” The Supreme Court declined to rule
on the issue of which “article of manufacture” contributed to the patent infringement
and remanded the case to the Appellate Court to resolve that issue.
6. Extraterritorial Reach of U.S. Patent Law
When an infringement occurs overseas in violation of a company’s patent rights in the foreign
country, the patent holder generally must look to the courts of that nation for redress.
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 B. Trademarks
A trademark is a distinctive word, name, symbol or device used by a business to distinguish its
goods from those of its competitors.
1. Reasons for Legal Protection
Trademarks are given legal protection to assist purchasers in distinguishing among the many
competitors in a particular market. Trademarks must be distinctive to merit legal protection.
Example: Bed’N Linen v. Dutta-Roy: The court found the terms “By Design” and
“bydesignfurniture.com” were eligible for trademark because “By Design” had been used in
connection with the proprietor’s goods or service for longer than five years and was in the
minds of the consuming public associated not with the product but the producer; therefore, the
name had acquired a secondary meaning.
2. The Registration Process
A trademark is not eligible for registration in the absence of prior commercial use.
3. Trademark Rights
The first to use the trademark in commercial use within the U.S. will gain the “first in time
equals first in right” principle.
4. Trademark Infringement
A plaintiff must show (1) it possesses the trademark, (2) the defendant used the mark in
commerce, (3) the defendant’s use of the mark was in connection with a sale, distribution, or
advertising of goods or services, (4) the defendant’s use of the mark will likely confuse
customers.
5. Trademark Dilution
Trademark dilution laws focus on protecting the investment of trademark owners.
Example: Playboy Enterprises v. Netscape Communications: The court found that Netscape’s
use of the trademark for business purposes in commerce diluted Playboy’s trademark.
6. Extraterritorial Reach of U.S. Trademark Laws
While courts have recognized that U.S. trademark law may reach overseas, they have never
adopted a precise test to govern such cases.
Example: McBee v. Delica Co.: The court found that the U.S. court did not have jurisdiction
over this trademark claim because there was no evidence proving American customers actually
saw Delica’s products.
C. Copyrights
A copyright prohibits the unauthorized reproduction of creative works. However, the Copyright
Act expressly excludes protection for “…any idea, procedure, process, system, method of
operation, concept, principle, or discovery, regardless of the form in which it is described,
explained, illustrated, or embodied in such work.”
Example: Bikram’s Yoga College v. Evolation Yoga: The Court held that the plaintiff’s
“graceful flow” sequence is an idea and that Copyright law excludes protection for any such
idea regardless of the form in which it is used within a compilation” or “choreographic” work.
1. Creation and Notice
A copyright exists automatically upon the creation of the work. Authors are not required to
register the creation with the government in order to protect the work, although it is advised.
Example: BMG Music v. Gonzalez: The court found that a copyright infringer is generally
prohibited from reducing its liability by claiming innocent infringement if proper notice has
been given. Here, even though the copyright notice appeared on CDs rather than on the internet
where defendant accessed the music files, she could have learned of the copyright if she has
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 inquired.
2. Copyright Infringement
a. To establish direct copyright infringement, a plaintiff must prove (1) ownership of a valid
copyright and (2) copying of the elements of the work are original unless the actions fall within
the fair use doctrine.
b. Contributory copyright infringement requires the plaintiff to prove (1) direct infringement by
a primary infringer, (2) knowledge of the infringement by the defendant, and (3) material
contribution to the infringement by the defendant.
Example: Authors Guild v. Google: the court found that Google providing digital copies of a
book subject to copyright to libraries did not make Google a contributory copyright infringer
since Google only authorized non-infringing uses. The mere speculative possibility that the
libraries might allow use of their copies in an infringing manner was not sufficient to find that
Google was guilty as alleged.
c. Vicarious copyright infringement requires the plaintiff to prove (1) direct infringement my
primary party, (2) direct financial benefit to the defendant, and (3) the defendant’s right and
ability to supervise the infringers.
Example: Arista Records v. Flea World: The court found that a flea market was liable for
vicarious copyright infringement because it permitted vendors to illegally sell copyrighted
merchandise.
3. Fair Use
A defendant might be able to avoid liability if his use of the copyrighted material falls within
the fair use defense. There are four factors for evaluating whether a use is fair use: (1) purpose
and character of the use; (2) nature of the copyrighted work; (3) amount and substantiality of
portions used; and (4) effect on the market.
Example: Authors Guild v. Google: The court found that Google’s making of a digital copy of
a book to provide a search function is a transformative use which augments public knowledge
by making available information about an author’s book without providing the public with a
substantial substitute for those copyrighted books. The court reasoned also that authors’
derivative rights do not include an exclusive right to supply information of the sort provided by
Google about their works.
4. First Sale Doctrine
The doctrine states that the Copyright Act allows a purchaser of copyrighted material “lawfully
made…without the authority of the copyright, to sell or otherwise dispose of the possession of
that copy.”
See: Kirstsaeng v. John Wiley & Sons: The U.S. Supreme Court has found that the
first sale doctrine permits the owner of a lawfully purchased copyrighted work, even
in a foreign country, to resell it in the U.S. without limitations imposed by the
copyright holder.
D. Trade Secrets
Generally, a trade secret is developed by a firm and includes secret formulas, devices, processes,
techniques, and compilations of information and must provide its owner with competitive
advantage.
1. Maintaining Secrecy
The owner must take reasonable steps to maintain secrecy.
2. Misappropriation
An individual may freely use the trade secrets of another if he discovers them through proper

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 channels such as reverse engineering. An individual is liable for disclosing or using a trade
secret if she (1) acquired it by improper means; (2) obtained it from one who acquired it by
improper means; (3) breached a duty of confidentiality regarding the secret; or (4) acquired it
from someone who breached a duty of confidentiality regarding the secret.
Example: Seneca Companies v. Midway Industrial Supply: the court reasoned that the owner
of a trade secret may request monetary damages when there is a “misappropriation” of such
trade secret if it was acquired by improper means (including from or through a person who had
utilized improper means to acquire it.) The owner need not allege that the defendant actually
used its trade secret to state a claim. (The extent to which a defendant uses a misappropriated
trade secret becomes relevant only when determining damages.)
II. Technology Transfer Agreements
Technology transfer occurs when a business licenses its intellectual property to another.
A. Nature of Licensing
The licensing agreement permits an intellectually property owner to grant another the use of the
protected technology in return for compensation.
1. Parties to the Licensing Agreement
The licensor owns the property and permits the licensee to use the property. The license itself
cannot exceed the life of the intellectual property.
Example: Kimble v. Marvel Entertainment: The court held that all rights granted by license
from a patentee terminate when the patent itself expires.
2. The Need to License
In order to be successful, an intellectual property owner may have few options other than
licensing it technology to others.
B. Advantage of Licensing
Numerous benefits are provided to both the licensor and the licensee. Licensors receive royalty
payments and market presence. Licensees gain access to products and ideas that otherwise might
not be available and may gain a competitive advantage.
C. Risks of Licensing
Perhaps the greatest risk is that the licensee, after gaining access to the licensor’s technology, will
sever the licensing relationship and become a competitor.
D. Negotiating the Agreement
Licensing agreements, including global agreements, require meticulous planning and a great deal of
flexibility.
1. Principal Considerations
Licensing agreements require careful partner selection.
2. Limits on Negotiating Authority
Foreign host countries frequently refuse to enforce contractual provisions granting liberal
termination rights to the licensor. In the United States, many states have laws protecting the
rights of licensees.

Learning Objectives
1. You should understand the reasons for protecting intellectual property.
2. You should know the four basic types of intellectual property.
3. You should know what types of intellectual property a patent is used to protect, the standards for

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 patentability and how patent infringement occurs.
4. You should know what types of intellectual property a trademark is used to protect, the requirements
necessary for a trademark, and how a trademark is registered.
5. You should know what types of intellectual property a copyright is used to protect, how to create a
copyright, and the different types of copyright infringement.
6. You should understand how the fair use doctrine affects a copyright protected form of property.
7. You should understand how a trade secret differs from the other forms of protection for intellectual
property and the requirements of a trade secret.
8. You should understand why a business might chose to license the use of its intellectual property to
another.
9. You should know the parties to a license.
10. You should understand the risks of granting a license and how licensors attempt to protect themselves.
Learning Hints
1. Intellectual property law was established to protect creative individuals and businesses. These laws
encourage creativity, and thus support a competitive market, by protecting the inventors.
2. Intellectual property is divided into four parts to better address the needs of specific forms of
intellectual property. Patents are used to protect inventions and processes. Trademarks are used to
distinguish one business from another, which in turn protects the consumer from purchasing “knock-
off” products unknowingly. Copyrights are used to protect written work such as music, writings,
artwork, and movies. Trade secrets must be developed by a firm in the course of business and the owner
must take reasonable steps to maintain the secrecy.
3. Patents protect intellectual property for a period of 20 years from the date of filing. Trademarks protect
intellectual property only until the distinguishing mark becomes generic. Copyrights protect written
intellectual property for a period of time. Only trade secrets grant possible perpetual protection.
4. The fair use doctrine permits certain types of professions to use copyrighted materials of others without
committing copyright infringement. For example, a professor may legally photocopy a piece of written
work and distribute it in a classroom for educational purposes.
5. Copyright material need not be registered with the government to be protected just as a trade secret is
not registered with government.
6. A licensing agreement is a contract. Businesses or individuals may choose to license the use of their
intellectual property to increase revenue. Some businesses and individuals may not have the necessary
capital to produce the products and may choose to license it to others. By licensing intellectual
property, an inventor or writer may collect royalties from the licensee.
7. Awarding licenses to intellectual property is risky for the licensor. The licensor is in essence sharing
knowledge with the licensee. The licensee may terminate the licensing agreement and use the
licensor’s intellectual property to become a competitor.
8. Most licensing agreements are detailed in nature to protect both the licensor and licensee. These
agreements typically include a granting clause which details the scope of the license. The licensee may
require a warranty from the licensor that the licensor will not grant another licensing agreement to a
competitor of the licensee. Licensor may require that the licensee guarantee that he will not share the
intellectual property with a third party.
9. In return for sharing its intellectual property, the licensor will be compensated by the licensee.
Compensation may be made in one lump sum payment or in smaller incremental payments.
10. Most licensing agreements state how the license will terminate and under which circumstances either of
the parties may be discharged from the agreement.

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True-False
In the blank provided, put "T" if the statement is True or "F" if the statement is False.
_____ 1. An individual is not eligible to register for a patent.
_____ 2. Failure to receive a certification of a copyright from the U.S. government will render that
copyright unenforceable.
_____ 3. The major advantage of a patent is that it deprives competitors from using the invention
without the patent holder’s consent.
_____ 4. The U.S. awards patent privileges based on a first to invent standard.
_____ 5. The NIKE swoosh is an example of a trademark.
_____ 6. A trademark does not need to be used in commercial use before the U.S. government will grant
trademark protection.
_____ 7. The U.S. government requires all copyright protected material to be registered.
_____ 8. The copyright period for a work created after 1978 is 75 years.
_____ 9. Downloading songs from the Internet and storing them on a hard drive is copyright
infringement if compensation is not paid.
_____ 10. It is rare for the owner of intellectual property to grant a license for another to use that
intellectual property in commerce.
Multiple Choice
Circle the best answer.
1. Which of the following creates a temporary monopoly to encourage the development of new
technologies?
a. Trademark
b. Patent
c. Copyright
d. Trade Secret

2. Which of the following is used by a business to distinguish it’s product from competitor
products?
a. Trademark
b. Patent
c. Copyright
d. Trade Secret

3. Which of the following is registered for a ten year term but may be filed repeatedly upon
expiration?
a. Trademark
b. Patent
c. Copyright
d. Trade Secret

4. Which of the following types of intellectual property protection may exist perpetually?
a. Patent
b. Copyright
c. Trade Secrets
d. All of the above.

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5. The fair use doctrine applies to which of the following forms of protection?
a. Patents
b. Copyrights
c. Trademarks
d. All of the above
6. Which of the following statements is true when applied to vicarious copyright infringement?
a. The plaintiff does not have to be the primary infringer
b. The plaintiff does not have to financially gain from the infringement.
c. The plaintiff must not have the ability to supervise the infringers.
d. The plaintiff must expressing instruct the infringers to use the copyrighted material.
7. Years ago, Betty wrote a song and played it for her roommates. Sue, a roommate at the time, has
recorded the song on a CD which is available for purchase. Betty never registered her song the
government. Which of the following statements is most correct?
a. Sue is not liable for copyright infringement because Betty never had the song officially copyright
protected.
b. Sue can quickly register the song with the government. Under the “first in time equals first in
rights” Sue will be granted the copyright.
c. Betty can quickly register the song with the government. Under the “first to invent” standard,
Betty will be granted the copyright.
d. Sue is liable for copyright infringement.
8. Upon entering English class, your professor hands you a photocopy of an article found in the local
paper. Your professor is guilty of:
a. Direct copyright infringement
b. Vicarious copyright infringement
c. Both direct and vicarious copyright infringement
d. Neither direct nor vicarious copyright infringement

9. Which of the following statements is NOT true regarding trademarks?

a. Trademarks protect the consumer.
b. Trademarks protect businesses.
c. Trademark protection laws are easily enforced overseas.
d. Trademark protection may be lost if the term becomes too generic.
10. Which of the following are usually NOT included in a licensing agreement?
a. The scope of the license.
b. The type of compensation to be paid by the licensor to the licensee.
c. Warranties from the licensor to the licensee.
d. A confidentiality clause.
Short Essay
1. Alex, an amateur biologist, combined the seeds of two plants to create a new type of plant. How may
Alex protect his intellectual property?

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Solution Manual for Law for Business, 14th Edition, A. James Barnes Eric Richards Tim Lemper

2. Explain why a business would rather use the protection granted to trade secrets as opposed to a patent.

3. Brad and Jen have developed a new idea for a product but lack the capital necessary to produce the
product or open a business. Discuss the options available to Brad and Jen at this point.

4. What is the difference between the "first to invent" standard and the "first in time equals first in right"
standard?

5. Jimmy found a site on the Internet that gives away songs for free. Jimmy downloaded 20 songs and
saved them on his hard drive. The songs varied from classical to blues to hip hop. Five of the songs
were more than 150 years old. Discuss if Jimmy is liable for copyright infringement.

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