Stopping the Presses

Introduction

As we prepare to enter the 21^st Century, creators and owners of intellectual property are obtaining ever increasing means by which to protect their proprietary interests. Technological and legal protections are evolving rapidly to meet the increasing demands of intellectual property owners. As the scope of these protections increase, so to does the potential for abuse.

This paper highlights a novel copyright protection scheme proposed by Dow Chemical Company. While Dow’s plan may indeed provide some protection to copyright owners, Dow can use the very laws designed to “promote the progress of science and the useful arts”[1] for their own benefit. Specifically, Dow may be able to use the developing body of intellectual property law to raise barriers to entry for their competitors.

The Plan

The plastics division of Dow Chemical Company has devised a new approach to combat commercial piracy of copyrighted material that, as of this writing, is still being developed. Dow has submitted a business method patent application for its anti-piracy program they have named MediaShield[2]. MediaShield is designed to protect software and video applications that are physically stored on a transferable medium such as CDs or DVDs. The central component of MediaShield’s promised anti-piracy protection is Dow’s development of a new polymer, Polycyclohexylethylene (PCHE). PCHE is the material with which Dow plans to create the next-generation optical disc.

Dow asserts that the PCHE disc represents a substantial technological improvement over current discs. PCHE is 25% lighter, has significantly increased optical purity, and has the low specific gravity and high dimensional stability required for high volume data transfers. The lower weight allows the disc to be spun faster, while the increased optical grade allows the use of shorter wavelength lasers. The combination of these features provide a lighter, purer medium that is capable of storing and transferring significantly more data than current polycarbonate discs. This increased capacity is crucial given that Dow estimates that the newer high definition digital television will require at least 30 GBs of information in order to play a standard, two-hour long movie. Current discs are simply too heavy and too opaque for the requirements of the next-generation DVD/video playback machines.

Dow recognizes that merely developing the first ‘next-generation’ disc will not ensure their future preeminence in the optical discs market. To better ensure their market position, Dow plans to utilize the increased functional capabilities of PCHE as the basis of a business plan designed to enable content-providers yet another technological means by which they can prevent the commercial piracy of their work. The MediaShield business plan is premised on the belief that all future high definition digital playback devices will demand sufficient megabytes of data that PCHE quality discs will be required for the machines to function. As the only provider of the essential compound required to make PCHE grade discs, Dow intends to jealously guard access to PCHE. Dow plans to sell/license PCHE only for the production of optical discs. Further, Dow will only sell/license PCHE to ‘legitimate’ replicators[3], thereby preventing the widespread unmonitored production of optical discs that is common today. Dow also plans to create an independent legally entity that will compare the amount of PCHE sold to a replicator to the number of discs the replicator produces. “Discrepancies will be reported to enforcement agencies currently employed to manage piracy losses.”[4] Dow also plans to require the licensed replicators to actively participate in the reporting, monitoring, and auditing of PCHE use.

To ensure the future demand for PCHE discs, Dow plans to focus on the ground floor of hardware and format development. Working with manufacturers, Dow hopes to encourage systems designed to require PCHE grade discs in order to function.

The principles underlying MediaShield are simple. Modern commercial pirates have relatively low overhead. Computers have made widespread copying simple, fast, and inexpensive. The discs upon which the content is transferred are inexpensive and easily obtained. Although little can be done about the costs of copying once the content is obtained, Dow plans to eliminate widespread commercial piracy by eliminating the ability to create a physical copy. If Dow is successful in not only controlling the access to PCHE, but also the production of all PCHE quality discs, commercial pirates will be forced to develop their own discs. Given sufficient time and opportunity, the ‘hacker’ community will usually be able to pick just about any digital lock created. It is far less certain, however, whether commercial pirates have the manufacturing and scientific expertise to develop, test, and produce a competing disc.

Notwithstanding Dow’s grand plan, it is important to note that the anti-piracy protection Dow promises applies only to copyrighted material contained on a separate physical copy. The protection is ineffectual for media displayed or transferred electronically. At least in the near future, the sale of physical copies will continue to have certain advantages over electronic transfers that justify the continued sale of content on physical copies.[5] Dow predicts that copyright owners will be reluctant to release their content where commercial piracy is permitted to proliferate. Thus the effectiveness of MediaShield will be an important factor for copyright owners to consider before they allow the sale of physical copies of their work on optical discs. Dow contends that in the future copyright owners will refuse to authorize release of their work on anything but PCHE discs.

The success of MediaShield then depends in large part on the ability of Dow to prevent the widespread distribution of PCHE quality discs. To help achieve this goal, Dow will seek to prevent the introduction of competing discs in the market. If successful, the ability to curb the commercial pirating of their customers’ copyrighted works will be enhanced. More importantly for Dow, however, is that by delaying or preventing their competitors from entering the optical disc market they will earn significant returns on their investment.

Protecting PCHE - Trade Secret or Patent?

It is important to note that Dow plans to patent not only PCHE itself, but also to patent MediaShield as an anti-piracy business method. For Dow’s anti-piracy plan be effective, they must be able to prevent or limit the introduction into the market of similar quality optical discs. Preventing the introduction of other PCHE quality discs not only bolsters the anti-piracy campaign, it also ensures Dow’s control of the next-generation optical disc market. If Dow is able to earn significant returns on its sales of PCHE, competing plastic manufacturers all over the world will have ample incentive to design and market their own next-generation optical discs. Once the market is flooded with competing discs, the anti-piracy protections promised by MediaShield become illusory at best. The introduction of competing discs will also adversely effect Dow’s profits. Thus, Dow has ample incentive to attempt to prevent the widespread creation and dissemination of competing discs.

The Patent Claims:

A) Composition of Matter -

One means to achieve this goal is to patent PCHE. The resin is a ‘composition of matter’ and thus is a patentable subject matter per 35 U.S.C. §101. Further, PCHE meets the three threshold requirements of 35 U.S.C. §§101-103. PCHE is ‘novel’ in that it is not now known or available anywhere. PCHE is ‘useful’ in that it has practical utility as described by Dow. Finally, PCHE is ‘non-obvious’ in that the materials and processes used to create it would not be obvious to one skilled in the art of plastics design and manufacture. Thus there is little doubt that Dow will be able to patent PCHE as a composition of matter.

B) Business Method -

In addition to the composition of matter patent, Dow will also likely seek a patent for MediaShield as a means for preventing commercial piracy of copyrighted works. This ‘business method’ patent offers more extensive protection than a patent on PCHE alone. The business method patent seeks to preclude not only the use of PCHE and its derivatives, but the use of PCHE in conjunction with all of the other steps claimed in the anti-piracy process. The validity and enforcability of business method patents is far less clear, and will be discussed in greater detail later.

Patent protection has several important limitations. Each of the ‘patents’ is comprised of a number of claims. The claims represent the ‘metes and bounds’ of the patent. A finding of infringement “requires a one-to-one correspondence between the elements of a claim and an infringing structure or method. If any element of a claim is missing from the accused structure, then there is no literal infringement”[6] Thus, if IMATION develops its own protection scheme patterned after Dow’s, but omits one element (i.e. the independent legal entity), then there is no infringement.

Another problem is that the protection will lapse after 20 years after Dow’s application is filed. After the term of the patent has lapsed, any firm with the capability to manufacture the resin can begin production of PCHE. Thus if one creates a copyrightable work in 2019 and places it on a PCHE disk, the protection will lapse the following year. These limits have consequences for the copyright owners Dow intends to protect. Although the copyright owner is protected for a term of up to 90 years plus the life of the author, MediaShield’s anti-piracy protection becomesineffective just 20 years after the submission of Dow’s patent application.

Trade Secret:

Alternatively, Dow can opt to maintain the formula for PCHE as a trade secret. In so doing, Dow need not disclose the ‘best method’ for making PCHE. Competitors will be forced to continue to invest capital in research and development of a competing resin. While competitors are scrambling to design their own resin, Dow can contractually bind all of the major content providers to release their work only on PCHE discs. Thus, competitors would not only be facing additional capital investments to develop a competing resin, but their expected rate of return once a competing product is developed will be diminished given Dow’s contracts with the content providers. Although attempts by a patent holder to prevent the introduction of competing products often run afoul of the ‘patent misuse doctrine’[7], products treated as trade secrets are not so limited.

Despite some of the advantages offered by trade secret protection, Dow has elected to patent both PCHE and MediaShield. In addition to the protections offered via patent and contract law, Dow will likely attempt to limit the introduction of competing discs through the developing body of copyright protection law. Specifically, both the concept of contributory copyright infringement and the anti-circumvention device provisions of the Digital Millennium Copyright Act provide additional means to challenge potential competitors. The widespread availability of copyright protections can be used by Dow to raise the costs of producing competing discs and thus present additional barriers to entry for prospective competitors.

Legal Issues

The Competitor - IMATION:

IMATION is a hypothetical plastics manufacturer based in the Netherlands. IMATION competes worldwide with Dow Plastics. Sometime after Dow has released their PCHE discs, IMATION announces their intention to release a competing disc that will match the performance characteristic of the PCHE disc, but at a substantially lower price. Dow has successfully obtained a composition of matter patent for PCHE as well as a business method patent for MediaShield. IMATION’s discs are made of an independently created resin. IMATION does not indicate whether they plan to follow the same strict licensing guidelines used by Dow.

This paper addresses some of the legal challenges that IMATION will face from Dow and individual copyright owners. The first section will consider whether IMATION’s new discs violate either of Dow’s patents. The second section addresses whether the new discs violate the anti-device provisions of the DMCA. Section three concerns whether current rulings concerning contributory and vicarious copyright infringement restrict the introduction of the new discs. The final section considers whether current law should be changed in order to address this and other similar situations.

Patent Infringement

Composition of Matter Claim - PCHE:

Assuming that IMATION independently creates a resin that has separate and distinct qualities from PCHE, they would be able to obtain their own patent for their resin. Even absent an application for a patent, IMATION can only be held liable for infringement if they create a PCHE based resin using the same or equivalent means provided by Dow. Merely creating a resin which performs the same function as PCHE is not infringement. This is especially true if IMATION’s resin has different qualities and characteristics than PCHE. At present then, no claim of patent infringement against IMATION is sustainable.

Business Method Claim - MediaShield:

Until the recent decision in State Street v. Signature Financial, 149 F.3d. 1368 (Fed. Cir., 1998), methods of doing business were generally considered unpatentable subject matter. Along with discoveries of nature, mere ideas, and mathematical algorithms, so-called business methods were categorically excluded from consideration for patent protection. State Street held that the mere categorization of a claim as a business method was not determinative. Rather, the fundamental question is whether the method or process in question results in a transformation or conversion of the subject matter upon which it operates. State Street involved a computer program which took reams of financial data and manipulated it so that the resulting information was of use to the user. Even though the transformation was accomplished by applying algorithms to the data, the court held that the transformation that resulted was patentable. Prior to this decision, a process using only algorithms would not qualify as patentable subject matter.

The State Street decision has opened the door to a wide range of claims concerning business methods. There is little doubt that Dow will seek to exploit this apparent broadening of the statutory subject matter in order to patent MediaShield. Although a patent may ultimately issue, the enforcability of the patent is highly suspect. MediaShield fails the State Street requirement

that the process transform or convert the subject matter. Here the subject matter of the process is PCHE, and Dow’s plans to closely monitor its use in no way transforms or converts PCHE. Unlike the data in State Street, PCHE is in no way made more useful or effective after MediaShield is applied.

Dow may argue that it meets the State Street requirement because the subject matter has been transformed from an unprotected to a protected format. However, the decision in State Street focused on the physical transformation or conversion of the data. There the data itself actually changed physical form in that it was rearranged into a more useful format. Dow’s method does not interact with, much less change the physical characteristics of the subject matter placed on its discs.

More fundamentally, there is nothing about MediaShield that is novel or non-obvious. MediaShield’s anti-piracy business method claim is similar to an early 20^th Century case involving an anti-embezzlement business method designed to prevent waiters from stealing from restaurant owners. In Hotel Security Checking v. Lorraine, 160 F. 467 (2d. Cir., 1908), a restaurant owner patented a method designed to prevent waiters from pocketing all of the proceeds paid by customers. The waiters were apparently taking customers orders, delivering the food, then collecting the bill. Unfortunately, some of the waiters were not submitting the paid receipts to the house and thus kept all of the proceeds for themselves. Much like MediaShield’s independent monitoring agency, the patented system combated the embezzlement by employing a head-waiter to track all of the food obtained from the kitchen by each waiter. The total value of the food obtained by an individual waiter was recorded and then compared to the amount of receipts submitted. If the waiter was embezzling funds, the total receipts submitted would be less than the amount of food taken from the kitchen.

The court in Hotel Security invalidated the patent on the grounds that the anti-embezzlement method was neither novel nor non-obvious. Although the case is routinely cited as the basis for the ‘business method’ exception to patentable subject matter, the holding is actually based on obviousness and lack of novelty.[8] Although Dow may ultimately succeed in obtaining a patent for MediaShield, it is unlikely that it will be enforceable against IMATION. Like the anti-embezzlement method in Hotel Security, there is little that is novel or non-obvious about Dow’s plan to closely monitor the release and use of PCHE. Further, MediaShield fails to transform or convert PCHE as required by State Street.[9]

As a result, the protections afforded by patent law do not ensure the ultimate success of MediaShield. In part, this is due to the fact that patent protection has been carefully developed to minimize the harmful effects on competition. The expanding protections of copyright law in general, and the DMCA in particular, may better serve Dow’s interests.

DMCA § 1201(b)(1)

The Digital Millennium Copyright Act represents an effort by Congress to balance the need to enforce copyright while still affording widespread access to information in the digital age.[10] In an apparent concession that much of copyright protection in the near future will be provided by technological protection measures controlled by the copyright owners themselves, the DMCA seeks to protect copyright owners by prohibiting circumvention of measures that control access to the copyright holders work. More importantly for IMATION, the DMCA also bans devices whose primary purpose is to enable circumvention of technical protection systems. §1201 of the DMCA provides that:

“ (b) ADDITIONAL VIOLATIONS.–(1) No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that–

(A) is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof;

(B) has only limited commercially significant purpose or use other than to circumvent protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof;...[11]

When considering whether the introduction of a competing disc is prohibited by the §1201(b)(1), two threshold issues must be addressed. First, is MediaShield a technological protection measure as contemplated by the drafters of the DMCA. Second, is the mere production of a competing disc an act of circumvention as defined in the statute.

Is MediaShield a technological protection measure?:

The DMCA provides that a technological measure effectively protects a copyright owner if it prevents, restricts, or otherwise limits the exercise of a right of a copyright owner.[12] MediaShield is clearly a measure designed to protect the copyright owners’ right to reproduce copies of their work. The real question, which is not addressed in the text of the DMCA, is whether MediaShield is a technological measure.

There is no simple answer to this question. IMATION can plausibly argue that the only technology involved in MediaShield is PCHE, and PCHE by itself protects nothing. The protection afforded by MediaShield is the strict monitoring and reporting of the use of PCHE. The protection therefore, stems from Dow’s business practices and not a technological measure.

Dow will contend that such an analysis represents a far too narrow and literal interpretation of the DMCA. Without the technological advance offered by PCHE, its anti-piracy protection would not be possible. PCHE is a critical technological component of its copyright protection system. It would be unfair and contrary to the clear mandate of the DMCA to isolate crucial components of any protection system, label them non-technological, then assert that the prohibitions of the DMCA are not applicable.

Is the manufacture of a competing resin ‘circumvention’?:

The DMCA attempts to resolve this question by qualifying that “to ‘circumvent protection afforded by a technological measure’ means avoiding, bypassing, removing, deactivating, or otherwise impairing a technological measure.”[13] However, this definition does little to resolve the question as to whether the manufacture of a competing disc, the mere introduction of which will make Dow’s protection measures ineffectual, is enough to warrant the penalties of the DMCA anti-circumvention device prohibitions.

Once again, IMATION will favor a narrower reading of the DMCA. Their product in no way impairs the technology used by Dow. Their optical discs do not interact with the PCHE discs, and thus cannot be seen to have avoided, bypassed, or otherwise impaired.

In contrast, Dow will ask the court to interpret to follow the plain meaning of the DMCA. The DMCA was designed to protect content providers who utilized technological protections to prevent the theft of their works. MediaShield is just such a measure. IMATION’s discs threaten to destroy these protections without providing a commensurate benefit.

The resolution of both of these ‘threshold questions’ is far from clear. In resolving the conflict, courts will likely view IMATION’s purpose for entering the market as the determining factor. Thus, the ultimate outcome may well hinge on the testimony of the principles regarding their motives for developing and marketing the competing discs.

What is the purpose of IMATION’s new disc?:

The anti-device provisions of the DMCA prohibit products, devices, components, or technologies that are either (A) primarily designed for the purpose of circumvention, or (B) have only a limited commercially significant purpose other than circumvention.[14] Thus the central question in this dispute concerns the purpose of IMATION’s new disc. The answer to this question is fact intensive, and each side will be forced to present evidence as to both the nature and the composition of the market for the competing optical disc. Such fact-intensive decisions make the success of a summary judgement motion less likely. Thus even if Dow ultimately loses, the litigation will likely be protracted and impose large costs in terms of both money and time on IMATION.

IMATION’s arguments concerning the purpose of their competing discs are readily apparent and easily supported. IMATION will contend that they are simply providing consumers with a competing product, thereby giving users of the next-generation optical discs a choice. Their disc is designed to meet the technological specifications required by high-definition digital playback machines. The effectiveness of Dow’s anti-piracy business method is of no importance to IMATION. Their discs in no way interact with, much less disable, Dow’s PCHE discs. Further, the use of IMATION’S discs in no effects the quality or performance of the PCHE disc.

Further, IMATION will point to the legislative intent of the DMCA. Congress included the anti-device provisions so as to outlaw so-called ‘black box’ devices which are designed for the sole purpose of circumventing a technological protection measure. The competing discs are in no way comparable to the ‘black boxes’ Congress sought to outlaw. The discs provide much needed competition in the optical disc market. Far from having limited commercial significance, the new discs represent competition in a market dominated by a single product and thus devoid of effective competition.

Dow, along with the major copyright industries that helped get the anti-device measure included in the DMCA,[15] would argue against such a narrow reading of the anti-device provisions of the DMCA. Dow will point out that they have entered into long term supply contracts with all of the legitimate replicators. Further, the replicators are all active participants in the MediaShield anti-piracy program, and thus have no use for IMATION’s discs. Even if there is some demand for the discs by noncommercial IP producers and home users, Dow will argue that the vast majority of users will be commercial pirates.

Dow will further argue that even if introduction of unregulated discs into the market encourages some competition, it will also enable widespread illegal copying. Thus, even if IMATION’s purported claims to be interested in competing only in the ‘legitimate’ replicator market are true, the substantial likelihood of illegal use would warrant banning the new discs. If not an outright ban, Dow would argue that IMATION must follow similar tracking and reporting standards as set forth in MediaShield. Further still, IMATION should be required to sell only to ‘legitimate’ replicators. Dow will contend that they welcome healthy competition, but the protection of the copyright owners must remain paramount. Allowing unregulated release on IMATION’s discs would harm copyright owners far in excess of any potential benefits from increased competition in the disc market.

The Penalties:

Although it is far from clear whether Dow or other copyright owners would be successful in maintaining an action against IMATION under the DMCA, it is important to note that the penalties provided for in the statute are severe. Thus, even if IMATION is confident that they will ultimately prevail, the threat of substantial civil and criminal sanctions will likely give potential competitors pause.

Criminal Offenses and Penalties -

Section 1204(a) provides that–

“ Any person who violates section 1201 or 1202 willfully and for purposes of commercial advantage or private financial gain–

(1) shall be fined not more than $500,000 or imprisoned for not more than 5 years, or both, for the first offense; and

(2) shall be fined not more than $1,000,000 or imprisoned for not more than 10 years, or both, for any subsequent offense.”

Under accepted principles of criminal law, the ‘willful’ component expressed above refers not to the mere act of manufacturing the discs, but rather the production of the discs with the intent to circumvent Dow’s technological protection system. Thus, testimony of IMATION’s president or CEO asserting that the purpose of producing the discs was to compete with Dow in the legitimate replicator market should be sufficient to escape criminal liability.[16] However, even if a conviction would be unlikely absent the adequate mens rea, there is still ample probable cause to bring criminal charges. The political implications of such a case cannot be ignored. The defendants here are ‘foreigners’ charged with stealing from American companies. The fact that PCHE was developed in Dow’s Dusseldorf, Germany facility may very well escape the prosecutor’s attention.

Civil Remedies

Even assuming no criminal charges are brought, section 1203 of the DMCA offers substantial civil remedies. Any person injured by a violation of either §1201 or §1202 may file an action in U.S. District Court. Once in district court, the judge may; (1) grant a temporary or permanent injunction, (2) impound, at any time, any device the court has reasonable cause to believe was involved in a violation, (3) award either actual or statutory damages (the latter being between $200 - $2,500 per act of circumvention), (4)(5) recovery of costs and attorney’s fees to the prevailing party, (6) order the remedial modification or destruction of any device impounded or in the possession of the violator.[17]

The severity of the remedies, including the seizure and destruction of the offending discs will undoubtably factor in IMATION’s decision whether to enter the market. Although over time the scope of the DMCA may likely limit IMATION’s liability exposure, those parties who are the first to explore the scope and breath of the DMCA’s prohibitions face substantial risks.

Standing:

Another interesting question left unanswered by the DMCA is who has standing to bring a lawsuit against the alleged circumventor. The plain language of §1203 refers to “any person injured”. This would seem to include Dow, who could argue that its MediaShield anti-piracy technological protection system will be ineffectual in the face of the widespread distribution of unregulated discs. The legitimate replicators could also sue, arguing that the proliferation of commercially pirated versions of movies will necessarily lower the demand for legitimate copies, and thus lower the demand for their services. Finally, the individual copyright owners could maintain a cause of action given that the proliferation of pirated copies will undoubtedly cause them severe and irreparable harm. Thus, IMATION faces not one, but potentially dozens of potential lawsuits should they elect to enter the market.

The issue of who has standing to sue under the DMCA is not entirely clear. Although not technically part of the statute, the Clinton administration issued a ‘green paper’ contending that only the copyright owners, and not the makers of the protective technology, would have standing to sue under the anti-circumvention provisions of the DMCA.[18] This argument seems intuitively correct, given that one would think you would need to own a copyright in order to sue under the Digital Millennium Copyright Act. Even if standing is limited to copyright owners, IMATION still faces the potential of numerous lawsuits.

Non-DMCA Attacks; Contributory and Vicarious Copyright Infringement

In addition to the statutorily based causes of action provided by the DMCA, copyright owners can pursue common law principles of contributory and/or vicarious copyright infringement against IMATION. Section 1201(c)(2) of the DMCA provides, “Nothing in this section shall enlarge or diminish vicarious or contributory liability for copyright infringement in connection with any technology, product, service, device, component, or part thereof.” Thus, courts are left to the emerging doctrines of copyright law to handle these questions.

Vicarious Liability:

Vicarious copyright infringement stems from the common law theory of respondeat superior. The theory holds, in essence, that a principle is liable for the acts of its agent - regardless of whether the principle knew or consented to its agent’s acts. In order to find IMATION liable for vicarious infringement, a plaintiff must prove, 1) that IMATION had the right or ability to supervise the infringing activity, and 2) that IMATION had a direct financial interest in the infringing activities.[19]

The majority of cases involving vicarious copyright infringement involve landlord-tenant cases where the tenant is guilty of selling infringing works and the landlord either directly or indirectly benefits. Importantly, the plaintiff need not prove that the landlord had knowledge of the infringing sales. As applied to IMATION’s discs, an important factual predicate is the nature of the terms and conditions they impose on the sale or lease of their discs. If IMATION merely sells the discs without condition and retain no control over their use, a claim of vicarious liability will not be sustained. However, the more IMATION attempts to limit the purchaser’s use of the discs, the greater their supervision, and thus the greater the potential of vicarious liability. If IMATION sells its discs subject to the same terms that Dow proposes, including monitoring and reporting requirements, a court may find that they have retained the ‘right of supervision’. Once established that IMATION has retained the right to supervise, establishing that they directly benefit from sales of illegal copies is all but certain.

Such an outcome presents IMATION with a difficult choice. The more they attempt to protect individual copyright owner’s intellectual property rights, the greater the civil penalties they face if they fail. Considering just the threat of vicarious liability alone, IMATION would do well to offer the discs without condition or question to anyone willing to pay for them.

Contributory Copyright Infringement:

In contrast to vicarious infringement, contributory copyright infringement stems from the concept that any person who knowingly participates in a tortious activity will be held jointly and severally liable for any resulting harm caused to the plaintiff.[20] In order to establish the prima facia case of contributory infringement, plaintiff must establish that IMATION had, 1) knowledge of the infringing activity, and 2) induced, caused, or materially contributed to the infringing conduct of another.[21]

The seminal case dealing with contributory copyright infringement in the technical arena is Sony v. Universal, 464 US 417 (1984). In that case, Universal owned the copyrights on several publically broadcast television programs and sued the makers of Betamax video tape recorders alleging contributory infringement. Universal also sued a home user of the VCR who had used the machine to copy a television program. The United States Supreme Court reversed the lower court’s findings, holding that the homeowner’s copying was ‘fair use’, and that Sony had not contributorily infringed. The Court maintained that because the machines were capable of ‘substantial non-infringing uses’, and the mere fact that VCRs may also be used for illegal copying is not enough to find the manufacturer liable for contributory infringement.

A key factual component of the decision was the finding that the home copying of the program was ‘fair use’. The Court found that the machines were primarily used by individuals for legal copying. Punishing Sony for the acts of those that elect to copy illegally, the Court reasoned, would effectively eliminate the publics’ ability to legally copy the programs. To eliminate such widespread legal use, Universal would need to show more than the machines are merely capable of illegal copying.

The decision in Sony affords potential defendants such as IMATION great protection against contributory infringement claims. After Sony, IMATION need only prove a ‘substantial non-infringing use’ in order to be insulated from liability. Dow will undoubtedly argue that given their long-term supply contracts with all of the ‘legitimate’ replicators, the new discs can only be used for illegal commercial copying. Copyright owners can bolster Dow’s argument by asserting that they require their replicators to use only PCHE discs because of the anti-piracy protection Dow affords. If they discovered that a replicator was using another disc, the copyright owners would likely refuse to do business with that replicator. If valid, such contentions offer strong evidence in favor of Dow.

However, if IMATION can establish that there are legitimate consumers of these discs in addition to commercial replicators, they will likely be immune from liability for contributory copyright infringement. IMATION may also plan to promote an anti-piracy program similar to Dow’s, but at a significantly lower price. Even if all of the legitimate replicators are currently under contract with Dow, this does not prevent some replicators from ultimately signing with IMATION. IMATION also may market to home users who wish to back up important files to disc, or to businesses who wish physical backups of their hard drives.

A similar dispute regarding ‘substantial non-infringing use’ was recently illustrated in A&M Records v. Abdallah , 948 F.Supp. 1449 (CD Cal. 1996). In Abdallah, the maker of time-loaded audio cassettes was found liable for contributory infringement. In distinguishing its result from Sony, the court focused on the nature of the ‘time-loaded’ cassettes. Time-loaded cassettes contain a variable amount of tape depending on the customer’s needs. The primary advantage of these tapes is that they eliminated the excess tape either before or after the recorded material that is common with standard length tapes. Thus, if an infringer wanted to copy a commercial record lasting 102 minutes, he would order a 102 minute long tape from the defendant. In contrast, a standard 120 minute tape would leave 18 minutes of slack tape.

Abdallah argued that many of his customers ordered time-loaded tapes to record non-copyrighted material such as home performances and the like. The court rejected the notion that merely because the tapes had non-infringing uses the defendant was immune from liability under Sony. The court noted the vast majority of time-loaded tapes were used for pirating, and that the defendant actively pursued and promoted the commercial piracy by its customers.

A determining factor for whether the protection afforded by Sony is applicable centers on whether the item in question is a staple commodity of commerce. If the product is a staple, then it likely has ‘substantial non-infringing use’, and is protected by Sony. If it is not a staple, then it is not immune from claims of contributory infringement. The VCRs in Sony were considered staples, while the time loaded cassettes in Abdallah were not.

Thus, the key factual question for the court in the IMATION case is whether the discs are a staple good. Although Dow will argue strongly that they have only a limited use, it is unlikely that they will prevail. Polycarbonate discs are similar to standard length cassettes. Only if IMATION altered their discs in some way to allow or encourage commercial piracy will a claim of contributory infringement be sustained.

Licensee Liability

Dow’s proposed MediaShield anti-piracy plan includes requiring replicators to agree to a host of terms and conditions concerning the use and sale of PCHE. These conditions presumably include monitoring the replicators themselves to ensure that the content that they copy is indeed valid. This level of control raises several interesting questions concerning the liability of both Dow and the replicators in the event that there is a dispute regarding whether the content to be replicated is itself valid copyrightable material.

Consider the following hypothetical example;

Suppose a film producer approaches George Lucas and requests a license to create what the producer describes as a parody of ‘The Phantom Menace’. Mr. Lucas, for a host of reasons, refuses to license the derivative work. The producer goes ahead anyway and creates the film using most, if not all, of the important characters and plot devices found in the original movie. The target audience for the producer’s movie are primarily film students and patrons of small art theaters. As a result, the film is released ‘straight to video’. Producer approaches Reliable Replicator requesting 10,000 copies of the movie on PCHE discs. Reliable agrees to fill the order. George Lucas, who also uses Reliable Replicator to copy his movies to disc, hears of the plan and is incensed. Noting that his organization orders no less than 600,000 copies a year from Reliable, Lucas demands that Reliable refuse to replicate what he considers a pirated derivative work of ‘The Phantom Menace’.

If Reliable goes ahead and replicates producer’s movie, both they and Dow will likely be sued for contributory infringement by Lucas. Given that Lucas put them on notice of the alleged infringement, and both Dow and Reliable can be said to have materially contributed to the infringement by providing the discs, the prima facia elements of contributory infringement have been established.[22] The threat of the lawsuit combined with the economic clout of Mr. Lucas will likely cause both Dow and Reliable to refuse to copy the producers film.

The refusal to contract with Producer raises serious concerns regarding the access to markets of smaller, non-mainstream authors and producers. Even if Producer could get a summary judgement declaring that the movie was a parody and thus protected by the fair use doctrine, it is unlikely that Reliable or Dow would copy the parody and risk alienating one of its largest customers.

Given his influence, George Lucas could conceivably seek to prevent or delay the release of a competing ‘space’ movie that was scheduled for release at the same time as his movie. The consolidated power of Dow and George Lucas, obtained at least in part from federal copyright legislation, could have a significant negative impact on the free exchange of ideas that are the cornerstone of modern copyright and intellectual jurisprudence.

The Misuse Defense:

The potential influence of Dow and George Lucas are not without limitations. The seldom used, but valid theory of copyright misuse may give large content providers pause before actively opposing the introduction of competing or critical works. Copyright misuse is a logical extension of the patent misuse doctrine established in Morton Salt v. G.S. Suppinger, 314 US 488 (1942). In Morton Salt Suppinger obtained a patent for a salt dispensing machine, then sued Morton Salt alleging that Morton’s machine infringed their patent. Without addressing the substantive claim of infringement, the Supreme Court noted that Suppinger’s requirement that all users of his machine use only salt tablets produced by a Suppinger subsidiary constituted an illegal tying arrangement. That is, the requirement that users of the patented machine purchase an unpatented commodity represented an illegal effort by Suppinger to expand the government granted monopoly in salt dispensing machines. Invoking the equitable doctrine of ‘unclean hands’, the Court held that Suppinger’s otherwise valid patent was unenforceable during the period that they pursued the illegal tying arrangement. Only after Suppinger proved they were no longer ‘misusing’ their patent could they bring an action for patent infringement.

The doctrine of copyright misuse was established in Lasercomb America v. Reynolds, 911 F.2d 970 (4^th cir., 1990). In Lasercomb, the copyright owner licensed its software program to the defendant on the condition that the licensee not attempt to design their own competing program for 99 years. This attempt to prevent the design of a non-infringing competing program was seen as an inequitable attempt to extend the life of the copyright granted to Lasercomb beyond the statutorily granted period. The court held that the license was evidence of misuse, and therefore refused to consider Lasercomb’s claims of copyright infringement.

Whether an individual producer could maintain an action against George Lucas for copyright misuse under the facts given remains to be seen.[23] However, the underlying premise behind the misuse doctrine of both patent and copyright is an effort to limit the adverse effect upon the public interest created by the government’s grants of exclusive rights to authors and inventors.

Conclusion

The hypothetical conflict between Dow and IMATION is designed to illustrate some of the potential dangers surrounding the trend towards increased protection of intellectual property rights. Although the actual outcome may ultimately favor IMATION, the costs of obtaining final victory will be substantial. Further still, it is entirely plausible that a lower court, feeling compelled to a literal interpretation of the novel issues concerning the DMCA, would rule that IMATION’s discs are indeed violations of the anti-circumvention provisions.

As they cliche goes, time is money, and the longer Dow can delay their competitors entry into this market the longer they can expect to earn high returns. Dow will have ample incentive to use the DMCA’s anti-device provisions and other intellectual property laws to attack potential competitors before they introduce their products to the market. Thus, even if Dow’s management recognized the ultimate futility of their lawsuits, the return on their investment (in terms of the legal costs of suing IMATION) may well warrant bringing the action. Any delay, whether it be in the release of IMATION’s disc, difficulty in IMATION securing capital for its research and development of the new disc, or in the hesitancy of IMATION’s management to be the first to challenge Dow’s assertion that MediaShield is a technological protection measure, all enure to the benefit of Dow.

Intellectual property laws have historically attempted to balance the need to reward authors and inventors for their works while encouraging the free flow of information. The limited duration of the grants and the fair use doctrine are prime examples of this balancing approach. The goal has always been to adequately compensate creativity without stifling the publics’ access to this information. The combination of the DMCA’s anti-device provisions and Dow’s MediaShield program threaten to upset this balance. For the first time since the advent of the printing press, the ability to completely control the ability to copy a work may rest with the author and their agents. Along with this power comes the specter of giant corporate interests actively limiting the ability of competing or critical works from getting ‘to press’.

[2]see February 22, 2000 press release announcing MediaShield program to fight commercial piracy.]

[3] A replicator refers to the legal entity responsible for both the manufacture of optical discs from the PCHE provided by Dow and the transfer of content onto the disc itself. Thus if a copyright owner wanted 100,000 copies of their movie for commercial distribution, the replicator would be responsible for creating the discs and for placing the content on the disc.]

[4] see Debbie Galante Block, Rallying the Disc Patrol: Protection Schemes for CD and DVD, EMedia Professional, (Dec. 1998).

[5]see Eric Schlachter, Renaissance in Cyberspace, 12 Berkeley Tech.L.J. 15, 43, (1997).

[6] see Terry McMahon, Anatomy of a Patent Case, Intellectual Property Litigation Techniques (Santa Clara Univ., Spring 2000).

[7] see infra, Patent Misuse Doctrine, p. 26.

[8]see Rinaldo Del Gallo, Are “Methods of Doing Business” Finally Out of Business as a Statutory Rejection?, 38 IDEA:J.L.&Tech. 403.

[9]see also Loews Drive-In Theaters v. Park-In Theaters, 174 F.2d. 547 (rejecting patent for drive-in movie theaters; noting that although idea was novel, physical means to accomplish open-air theater was neither novel nor non-obvious).

[10]see generally, Pamela Samuelson, Intellectual Property And The Digital Economy: Why The Anti-Circumvention Regulations Need To Be Revised, 14 Berkeley Technology Law Journal 519, Spring 1999.

[11] see 17 U.S.C.A. §1201(b)(1).

[12] see Id. §1201(b)(2)(B).

[13] see Id. §1201(b)(2)(A).

[14]. see 17 U.S.C.A. §1201(b)(1)(A) and (B).

[15] see Samuelson, 14 Berkeley Tech. L.J. 519 (describing the battle in Congress over the anti-circumvention provisions of the DMCA as a battle between Hollywood and Silicon Valley).

[16] see Id. at 550

[17] see 17 U.S.C.A. §1203(b)(1)-(6).

[18] see Samuelson, FN 168 (discussing standing under the DMCA)

[19] see Melville and David Nimmer, Nimmer on Copyrights, §1204(A)(1) at 1270-72, (1995).

[20] see Neil Boorstyn, Boorstyn on Copyright, §10.06[2] at 10-21 (1994).

[21] see Gershwin Publishing v. Columbia Artists Management, 443 F.2d 1159, 1162 (1994).

[22] see supra Contributory Infringement, p.21.

[23] see Carole K. Jeffrey, Copyright Misuse: A Defense Whose Time Has Come?, 27-JUN Colo.Law 143, 145 (discussing affirmative use misuse doctrine).