Full Outline: Computer Law Course


This outline summarizes what I said, what I think I said, and what I ought to have said, so inconsistencies with your notes are not necessarily evidence of error.


I. Why is computer law interesting?

A. Because computers are interesting gadgets?

B. Because the world is changing, in part because of new technology? Examples:

1. I will argue that encryption is the most important privacy issue of the decade.

2. Virtual reality changes our world and raises legal questions.

3. Nanotechnology may radically change the world, makes cars copyrightable.

C. Because there are jobs in them thar hills

1. There are lots of firms, lots of litigation, licensing, etc. in the computer industry.

2. Lawyers trained twenty years ago compete with you in most areas, but ...

3. Most of them do not know a lot about computers--an opportunity for you.

D. Because it is a test of how law develops

II. How does law develop?

A. Reasoning by analogy: how does the new problem fit into the old categories?

B. Evolving to fit some function: efficiency or politically profitable redistribution, or ...

C. Legislation to push A into B.

D. Intellectual property: What is a program? What part of the program is it? i.e.

1. Is a program an invention, a writing, a machine part, ...

2. Is what qualifies for some sort of protection the source code, the object code, the structure, ...

E. Contracting--what are you buying? Goods, services, ...

1. When you contract for custom programming, are you buying a program or

2. Buying the service of programming your computer, and

3. Who owns the intellectual property, and can resell the program to others?

4. The legal and tax treatment of goods and services are often different.

F. Computer crime, computer theft. What is it analogous to?

1. If I "break into" your computer by calling it up and beeping at it is that...

a. Breaking and entering? Phone calls usually do not qualify.

b. Fraud? I didn't talk to anyone. Can one defraud a computer?

2. If I program a bank's computer to transfer money to my account, is that ...?

III.Source Code vs Object code:

A. Appropriate protection by analogy--source more protectable

1. Source code is written and read by human beings, looks sort of like english.

2. Object code looks like "001011100101", written by and for machines.

B. By function--object needs protection more

1. Source code can usually be kept secret,

2. Object code is what you put on a disk and sell--to people who can then copy it.

3. Exception: Published source code in magazines, etc.

a. It is being distributed to teach the readers about programming and

b. Really is part of a writing in the literal sense of the term.

IV. Scenes a faire exception: Baker v Selden

A. If there is only one way of expressing an idea, you cannot use a copyright on that that expression to prevent other people from expressing the same idea:

1. Southern plantation as an expression for pre-bellum south

2. Heroine tied to a railroad track, ...

B. This is sometimes described as the merger of idea and expression.

C. But one could argue that what you are protecting is not an idea but a standard.

1. There are lots of ways one could sympolize pre-Bellum South; Margaret Mitchell just devised a standard way of doing so which others free ride on.

2. Ought standards be unprotected so others can use them, maintain consistency, or

3. Protected so that the inventors are rewarded?

4. Stay tuned.

V. Apple v Franklin teaches that:

A. Object code is now copyrightable (at least since 1980 amendments)

1.although it is not readable by a human being, but ...

2.Neither is a film or magnetic tape

3. The case clearly overrules White-Smith (player piano)

B. Merger argument does not apply if the "idea" Franklin cannot express without copying is compatibility.

C. Tech notes on case:

1. Reentry points: A programmer may want to go to any of various different parts of the system program, and have it start from there, thus using part of it (the part after where he enters). The more such entry points there are, the harder it is to write newcode that functions just like the old--since it has to be identical not only in how it works, but in how it works if you start running it at memory location 9123 or if you start at memory location 9317 or ... .

2. A program might be located on: disk, ROM, microcode.

VI. NEC v Intel

A.Is microcode protected? NEC argues it is a machine part.

B. Bits of it are unoriginal, but so what--so are individual sentences in a novel.

C. Merger applies to infringement, not copyrightability (says this court)

D. Videotapes and phonorecords are equivalent to an application, not microcode!

1. They are separate items, not part of the player, and more important ...

2. They generate something a human being sees--and it is the performance, not the embodyment, that is the intellectual property.

E. Was the new chip an improvement under the license agmt? NEC did not offer Intel license fees for it.

F. We will get to why NEC won later--reverse engineering.

VII. Does the existing law make sense?

A. By analogy?

1.Source code is a writing, even if it is on a floppy disk. So far, so good.

2.is the object code for an application like film or magnetic tape? Maybe--but ...

a.Interactive, Williams v Artic argument--play mode of video game is partly the work of the player.

b. An application program need not be aimed at a human--it might control a chemical factory.

3.The object code for system software is part of a machine, for a machine, like a cam. No way is it a writing..

B.By function: What is the difference between copyright and patent?

1.We have two different legal regimes for two different classes of intellectual property. What, if any, are the different features that justify the legal differences? Imagine we are in about 1800--why would we protect writings and inventions differently?

2. Writings are

a.easy to reproduce

b.easy to prove copying--chunks of my book are or are not verbatim the same as chunks of yours.

c. unlikely to invent independently

3.Inventions are maybe a, not b, not c.

a. The lines defining ideas are fuzzy--does my idea really use part of yours?

b. When you patent your invention, you make it harder for me to make inventions.

4. Copyright is easy to get, long lived, minimal originality and value required.

5. Patent is hard, short, only for substantial innovations

6. If every trivial invention is easily patentable, progress stops!

C. Programs fit in the writings box. So do complicated cams! but ...

1. The argument grows weaker as range of protection expands beyond literal copying.

2.Writings--copying plot or other features may infringe. Superman won an infringement suit against another comicbook superhero with similar characteristics..

3. Programs--consider a clone--a program written from scratch to look and work like a popular program.. VIII. What else belongs in the writings box?

A. If we could use a machine to copy a machine, cheaply and easily, then we would want copyright for prototypes.

B. Mask works act

1. A chip is a tiny, complicated, collection of transistors, connections, etc.

a. It is produced optically, not mechanically, photo-etching or photo-depositing

b. Like Michelangelo's rule for sculpting an elephant: take a block of marble and remove all the superfluous pieces. (or "all the pieces that do not look like an elephant.")

2. By photographing my chip, layer by layer, you save a lot in the cost of making your identical chip.

3. Therefore special protection.

4. Note that copying in order to copy the idea is legal (para 906a)

5. "Underlying program which the chip represents ..." The textbook authors apparently do not understand the technology. A chip might have microcode on it, but it is a machine, not a program.[--- Unable To Translate Graphic ---]


C. Plug mold statutes:

1.Some physical objects can be used to make copies of themselves.

2. Florida tried to control the use of boat hulls in this way via a statute

3. Shot down under pre-emption--if it is done, it should be done federally.

4. The same thing is done for automobile spare parts.

D. Asexual reproduction of plants--special statute to define property rights.

E. So legislation has been filling in the spaces.

F. Nanotechnology: If we could (when we can?) build things atom by atom, instead of in crude assemblies of trillions of atoms each, we might be able to analyze an automobile then reproduce it exactly. If so, it would make sense to grant copyright on prototypes.

IX. Brooktree v AMD

A.Is the new chip copying or independent invention?

B.Is the standard "substantially identical" or "substantially similar"?

1.Without a paper trail to prove independent engineering, it is "similar"

2. With paper trail, it is "identical"

C. Would it be legal to photograph a chip, change a few details, sketch new version and use that as your new mask work?

1.The act does not specify photo copying, so you would probably still be infringing, but ...

2. the act does specifically permit studying some else's chip to get ideas about how to make such...

3. As by AMD counting transistors on Brooktree's chip, then taking it from there?

X. Williams v Artic

A.Is the program fixed, given that only bits play at a time? Just like a movie or tape.

B. Is the program, each time it is run, a work jointly authored with the player?

1. Making the company's sole copyright invalid?

2. Court does not buy it--there are many elements that are the same each time it is played.

3. And that argument would apply to the play mode but not the attract mode--which was also copied.

XI. Beyond literal copying

A. Structure (the innards)

1. Recompiling the same source doe with a different compiler is an extreme case of copying structure.

2. Using your experience from writing A to design B is at the other extreme.

B. Look and feel (what the user sees)

C. Baker v Selden:

1. The case: Is it about idea vs expression or about merger?

2. The book can be copyrighted, the accounting system can not, what about the blank form?

3. Not copyrightable, since controlling the form gives control over the system--merger. (Whelan court)

4. But Lotus court claims the pont of the case was that the method was not copyrightable.

XII.Whelan v Jaslow

A.Facts of the case

1.Dentalab produced by Ms Whelan for Jaslow in EDL, marketed by Jaslow

2. Dentcom was then produced in BASIC by Rand Jaslow, who had the source code for Dentalab.

B. Jaslow defense

1. He was unlisted coauthor.

2. Dentalab belonged to him, not Whelan

a. That would require that it be written by employee in scope of employment or

b. That Whelan, as subcontractor, explicitly agreed that the program would belong to Jaslow

c. Neither of which seems to have happened.

3. Dentcom did not infringe Dentalab

C. District Court

1. dumped 1,2.

2. Access + Substantial similarity dumps 3.

3. Note that Jaslow's access was to the source code, similarity was in source code.

D. Appeals court defense of its decision:

1.Most of the work is development of structure and logic, debugging (?), documentation, maintainance.

2. Coding is a small part. (But note that if you redo the coding, you also redo much of the debugging!)

3. So in order to protect the valuable part, copyright must protect structure and logic.

4. This is a functional not analogical argument. Not the law is but the law should be, therefore is ...

E. Some problems with their argument:

1. Should this sort of protection be provided by a patent?

2. If you apply this argument to the facts of Baker v Selden, do you conclude that the accounting system should have been copyrightable? Most of the work was probably in developing it.

3.Court says that the effort required to recode is irrelevent. But the court's argument (see D1 above) depends on it. If recoding is hard, then the original owner has pretty good protection for his original effort.

F. Dealing with the Synercom argument:

1. The court argues that the purpose (running a dental lab) is part of the idea.

2. Bottom line: Detailed structure is expression not idea. Protected.

3. The purpose is the idea, everything else not essential is the expression. Does this fit Baker v Selden? Wasn't the purpose there to keep accounts, not a particular way of doing so?

G. Jaslow probably copied Dentalab because it worked, not to get compatibility--not many dental labs would have converted from a program using a big computer (Dentalab) to one using a small computer (Dentcom), so compatibility was probably not very important. What was being copied was sequence and organization, not look and feel. Jaslow was pirating a creation, not a standard.


I. Synercom v University Computing Co.

A. History: Structural Analysis program for building structures--will they fall down?

1. A program and manual were in the public domain.

2. Various companies provided support (training etc.), the use of their hardware, ...

3. Synercom improved the manual, simplified the input formats, modified software, all for ease of use.

4. Synercom copyrighted their manual, published their input formats with a copyright notice.

5. Spent c. $500,000 on training customers to work with their software, etc.

6. EDI based their program on a different public domain structural analysis program.

7. EDI wrote a pre-processor that made it wholly compatible with theSyncercom formats and charged a lower price than Synercom.

8. UCC and EDI published a manual (2 versions) largely lifted from Synercom's.

B. Formats: Forms can communicate information (a code book, for example)

1. Formats do express--they communicate what data to place where and how.

2. Formats are copyrightable if the ideas are separate from the expression, but ...

3. EDI appropriated the idea (that sequence and organization of the input data)

4. If it is expression, what is the idea it expresses?

5. The court offers the automobile H shift as a parallel example--which suggests that this is a deliberate refusal to provide copyright protection for a standard..

C. Manuals:

1.Synercom's manuals contained some material from previous public domain writings,

2. but also much original material. Protected.

D.Conclusion: A standard is not protected. Direct conflict with Lotus.

E. Whelan v Jaslow versus Synercom v University Computing Co.

1.Whelan could have been distinguished as protecting invention, where Synercom failed to protect a standard.

2. or as depending on the difference between copyrighting formats and copyrighting programs, but ...

3.Was overruled--the Synercom question (what is the idea?) was answered--or so the Whelan court claims.

4. The answer is that the purpose of the software (running a dental laboratory) was the idea. Is this convincing?


II. Lotus v Paperback Software International

A. History

1. Visicalc first expressed the idea of a spreadsheet (on Apple II and other early machines)

2. Lotus adapted the Visicalc idea to the IBM PC and made some minor improvements. Great success.

3. Paperback (and others) cloned Lotus--they wrote programs that were easy to use if you already knew Lotus 123, although they also had additional features.

4. Lotus sued.

B. Court's view

1. A work can be analyzed on a continuum of abstraction (Hand)

a. What is idea at one level of abstraction is expression at the next level up, so ...

b. there is no clear line between idea and expression.

2. Whatever is idea, anything necessary or almost necessary to express it is not protectable, save perhaps against exact copying.

3. The idea of a spreadsheet is obvious, according to the judge(?!?).

a. On the contrary, an important and non obvious invention,

b. Which perhaps should have been patented, but ...

c. Was made at a time when it was pretty clear that software could not be patented.

4. Moving cursor, L shape, are almost necessary to express the idea of a spreadsheet

a.They are not used in Excel, which is one of Lotus 12e's main competitors, but ...

b. It was written to run on different hardware (Macintosh--or, now, high end Dos machines running windows)

c. Does this mean that the "idea" the expression merges with is "spreadsheet idea on hardware X."

5. / key is one of only a few obvious alternatives, so not copyrightable.

6. Structure, sequence and organization of menu command system are copyrightable.

a. Does this really parallel Whelan v Jaslow?

b. No. What is being copied is a standard, not a design for the internals of the software.

7. Conclusion: Menu tree is copyrightable, substantial, "the aspect that has made 1-2-3 so popular."???

C. Facts of software clones: Are the facts the judge assumes actually true?

1. Are there any successful software clones, from before this (recent) case established that they violated the copyright on the program they imitated?

2. Were these clones successful (no--at least, not yet at the time they got sued).

3. Is it really that easy to rewrite the code, get as good results?

4. Is the first mover advantage enough to maintain most of Lotus's market position?

5. Note that in several later cases, the imitation was written for a different platform (different computer, or video game rather than arcade game) than the original.

D. Should we allow them?

1. Clones maintain compatibility w/o license negotiations, add new features, but ....

2. Alternatively, the copyright owner could license clones that were real improvements, and still get some reward as an incentive for having developed the original standard.

3. Which would also let him control thedeveloping standard, or ...

4. Like Lotus, the original program could allow third party add-ins to provide new features.

E. What about user-configurable clones? Borland tried it (also lost)

III. Review:

A. Law by analogy or by function--the case for copyright of programs

B. Expanding beyond literal copying

1. Whelan v Jaslow--copying internal structure and organization violates copyright

2. Synercom v UCC--Input formats (standard) not protected because of merger (what is the idea?)

3. Lotus vs Paperback--Menu tree (a standard) is protected

4. Should we protect standards?

a. No--that forces everyone to be inompatible

b. Yes--reward the creation of good standards?

c. Yes--let the creator control the standard.

5. Elasticity of supply of standards (or anything else) affects answer.

a. If good standards are cheap to invent, then we will get lots without much reward,

b. And will save all the costs of negotiating license agreements.

c. If good standards are hard to produce, we need substantial rewards to produce them.

d. "The Fable of the Keys" is evidence that, without intellectual property protection, a pretty good standard got produced (contrary to the popular version of the Qwerty/Dvorak story).

e. Perhaps the Macintosh interface is an example the other way, where a very complicated, expensive, and useful standard was developed only because Apple had effective ownership?

f. In what sense did they own it?

(1) They lost the case--but perhaps their threat kept Windows from being a closer imitation.

(2) What did the relevant law seem to be when the Macintosh interface was originated?

(3) Was the real protection that justified producing the Mac interface legal or

(4) technical--an 8088 chip was not powerful enough to run it but a Motorola 68000 was.

(5) Which is why Apple only got worried when Dos machines got powerful.

6. How are standards handled on the present marketplace?

a. Many are public domain (shift-cursor, S for save, \ , double click)

b. Formats are unprotected

(1)(Maclink, Software bridge, etc.)

(2) Because of Synercom or ...

(3) Because owner does not want to?

(4) Are there any cases since Synercom?

c. Exact clones are presumably banned by Lotus v PB.

7. Consider language as a standard.

a. No protection? (except trademark!)

b. Complicated, flexible, but suboptimal? (at least English spelling is suboptimal)

IV. Telemarketing Resources v. Symantec

A. Infringer had set the standard--Symantec is like Lotus, not Paperback!

B. Plaintiff claimed the newest Symantec outliner imitated their competing program.

C. Clearly this is not a standard issue--PC-Outline was not a standard.

D. Did symantec steal ideas? The court thinks everything they used from PC-Outline was either current practice or functional or both.

V. The commons problem. Letting people spend resources claiming property:

A. Over fishing: By catching fish, I reduce next year's catch. If there are many independent fisherman, each correctly ignores the effect on the others in deciding how many fish to catch.

B. Pollution: I bear only a small part of the cost imposed by my pollution, so pollute even when the cost of pollution control would be less than the total damage done.

C. Homesteading: If settlers get ownership of land by farming it, the land is settled inefficiently early. Indeed, the entire value of the land is dissipated (in the simple case of lots of identical potential settlers) in the process of claiming it.

D. There is no problem if there is an essentially unlimited amount of land (or whatever) to be claimed.

1. Arguably, this is the case for ordinary writings--there are far more novels that could be written than ever will be.

2. But not the case for inventions--my patent may seriously restrict what you can invent and use.

3. Broadly defined software copyright may be an intermediate case, but

4. Copyright protection of standards is probably like writings--there are lots of possible menu trees.

VI. Feist v. Rural Telephone

A. Facts, like ideas, are not protected

1. Because they are discovered rather than created or ...

2. Because there is no commons problem with expressions, but is with facts (like inventions?)

B. A compilation is protected if there is any originality to selection etc., but ...

C. There isn't here, so it is not protected.

VII. West Publishing Company v Mead Data Central, Inc.

A. Court opinions cannot be copyrighted by West

B. Additional West material (headnotes) can be

C. What about pagination? Info about what West put where.

1. Is it just an attempt to copyright page numbers or ...

2. To copyright an arrangement of uncopyrightable material which took sizable effort? But ...

3.The citations to first pages absorb almost all of the added value from the arrangement!

a. West permits those citations--does what is left involve significant originality?

b. No--but the citations are permitted under fair use, not because the arrangement is not copyrighted.

c. So perhaps West can use the arrangement in proving sufficient originality, even though the copyright will only be used to protect the page numbers.

4. Oliver's additions--did the pagination involve human choice? If not, then it should not be protected.

VIII. Atari v Oman: Copyright office refused to register Breakout (a video game).

A. Copyright office's arguments:

1.The examiner disected the game into separate elements, each of which failed to possess sufficient originality to be copyrightable,

2. The game in progress is created by the player, not by Atari

3. Breakout contains no expression separable from the game itself, so is not copyrightable.

B. Court's reply

1. The whole may be greater than the sum of parts--copyright act refers to a "series of related images..."

a. So it is the whole game, not the separate images, that must be judged for creativity.

b. After all, any image on a computer screen or a printed page is made up of lots of dots--and the individual dots are not sufficiently original to be copyrightable.

2. What is the relevant creativity threshold?

a. Ordinary requirement for copyright is minimal creativity

b. Derivative works may require substantial creativity, but ...

c. But breakout is not based on prior games, so it is not derivative, so minimal creativity suffices.

3. Precedent holds that a particular video game is expressionnot idea, so it is copyrightable.

C. Note the relevance of dissection to the later case of Apple v Microsoft.

1. Apple argued that the overall look and feel of the interface was protected.

2. The judge dissected the interface into a lot of separate bits and

3. Concluded that virtually all were either insufficiently original or already licensed to Microsoft.

4. But consider (later case) that the whole being judged ought not to include pieces already in the public domain--which provides a defense of the Apple v Microsoft court's decision.

IX. Midway v Artic:

A. Speedup board for Galaxian--is it contributory infringement?

1. Playing a record faster probably is not, but there is little demand for doing so.

2. There is demand for a speeded up game, therefore ...

3. Copyright owners cannot be assumed to implicitly authorise the licensee to speed up the game, and

4. Preparing derivative works is included in the owner's rights.

5. Ergo contributory infringement.

6. Is this really an argument about whether something is a derivative work (speeded up record no, speeded up video game yes) or about whether the right to make the derivative work is implicitly included in the license (with both being derivative works)?

B. Contributory infringement--why it matters.

1. Dawson Cemical Co. v. Rohm & Haas Co.

a.Rohm & Haas held a process patent on using Propanil as an herbicide in growing rice.

b. Propanil itself was unpatented.

c. Rohm & Haas licensed farmers who bought Propanil from them to use the process, and

d. Sued Dawson for contributory infringement for selling Propanil to rice farmers (with instructions on how to use it).

e. Legally, Rohm & Haas could have sued farmers for using their patented process, but in practice it was a lot easier to enforce their rights against competing sellers of Propanil.

f. Their case depended on the fact that Propanil was a "non-staple" article--no other substantial uses.

2. Sony case: The suit against manufacturers of VCRs failed because there were substantial non-infringing uses.



September 15th


I. Review and amplification of the case for and against intellectual property protection:

A. Arguments for:

1. It gives an incentive to create valuable intellectual property

2. By creating rights in intellectual property, it gives the owner the incentive and ability to manage it.

a. Edmund Kitch's "prospect theory" of patents. A patent is analogous to a prospector's claim

b. In addition to rewarding discovery, it creates a property right in exploiting the discovery.

(1) The prospect can mine and know he owns the ore within a certain region.

(2) The patent holder can pay for and coordinate further research to increase the value of his invention.

3. Transaction cost problem in negotiatingfor the use of intellectual property.

a. Where intellectual property is not protected, it is hard to produce and coordinate it via contract.

b. How do I sell you an idea without giving it away in the process?

c. So, if the arguments under A are not compelling, we may be better

B. Arguments against:

1. Patent race. Inventing something is valuable, inventing it a day before your competitor would have invented it is not. But the reward goes to the first inventor, so there is an incentive to invent it earlier than it is worth inventing.

2. It is hard to draw clear boundary lines around intellectual property, so where it is protected it is still hard to deal with it be contract.

3. Hence, if the arguments under A are not compelling, you may be better off with no protection and everyone free to use the intellectual property. That is how we mostly handle language, for example.

II. Lewis Galoob Toys v Ninendo Game Genie add-on to Nintendo

A. Lets individual users alter the play of the game.

B. Nintendo claims that the altered game is a derivative work and infringes (see above)

C. Court holds that ...

1. Not a derivative work.

2. If it is, making it is fair use for consumers.

3. Use of Nintendo in developing game genie does not infringe.

D. Is this inconsistent with Midway v Artic? The court says ...

1. Not a commercial use, so not a public performance ([[paragraph]] 106(4))

2. But this assumes that Midway v Artic was based on [[paragraph]] 106(4) not [[paragraph]] 106(2)! False.

3. The modified game is not a derivative work because it cannot exist on its own.

a. The definition in [[paragraph]] 101 does not say anything about this, but ...

b. None of the examples given are modifications of legal copies.

c. A non-computer equivalent would be marking up a book in a useful way, then reselling it.

4. Fair use exception:

a. Non-commercial (but not educational?)

b. published (also true for Midway)

c. User can use the whole thing, because user owns the right to use it

d. No harm, because

(1) Clearly not a substitute (suppression, as by an unfavorable review, does not count as harm)

(2) Damage to potential re-releases unlikely--fast changing industry.

(3) No evidence that Game Genie made games less attractive (if it did, why would customers buy it?)

(4) Protection of Nintendo culture? But Nintendo itself markets products that make high scores easier.

5. What do Nintendo and Midway really want in this cases? Why are they suing people who make products that increase the value of what they themselves are selling?



September 16


III. Contributory infringement--why it matters.

A. Dawson Cemical Co. v. Rohm & Haas Co.

1.Rohm & Haas held a process patent on using Propanil as an herbicide in growing rice.

2. Propanil itself was unpatented.

3. Rohm & Haas licensed farmers who bought Propanil from them to use the process, and

4. Sued Dawson for contributory infringement for selling Propanil to rice farmers (with instructions on how to use it).

5. Legally, Rohm & Haas could have sued farmers for using their patented process, but in practice it was a lot easier to enforce their rights against competing sellers of Propanil.

6. Their case depended on the fact that Propanil was a "non-staple" article--no other substantial uses.

B. Sony case: The suit against manufacturers of VCRs failed because there were substantial non-infringing uses.

C. Nintendo could have sold games with a contract by which the buyer agreed not to use third party peripherals such as the Game Genie.

1. There might have been anti-trust problems for that particular contract--although Rohm & Haas defeated a challenge, on antitrust grounds, to their refusal to license their process to other sellers of Propanil.

2. The more general problem is how to get a valid contract with mass retail sale. How informed can a 14 year old in a toy store be?

D.Attempts to use copyright to better enforce otherwise valid rights

1.A record was licensed to be given away as part of a promotional campaign for another product. The records were sold instead. The seller violated his contract but was acquitted of copyright infringement, since he had been licensed.

2. Dowling v. United States: records made in violation of copyright law were transported across state lines. Is this a violation of the National Stolen Property Act--does the intellectual property in the records count as stolen property, value more than $5000? No.

3. General point--the technology of enforcing your rights interacts with law. It matters not only whether you have a right to stop someone doing something but also what sort of a right it is, since some rights are more readily enforced than others.


IV. What do Nintendo and Midway want?

A. Why it matters--if they win, they can make money both on selling their product and on licensing the right to make the speed up board, Game Genie, etc.

B. Why it does not matter--the add-ons are useless without the game, which they own, so they can get all of the profit by appropriately setting the price on the game.

1. Put differently, a high licensing fee for the add-on reduces the value to customers of the game, thus reduces what they will pay for it, so Nintendo would loose at one end what it gained at the other.

2. Midway and Nintendo should prefer a competitive market to produce add-ons at minimal cost, maximizing the value of the game--which they own.

3. This is the same argument used in modern anti-trust to explain why vertical integration does not give someone who has a monopoly at one stage of the production process "two profits instead of one."

C. Why it might matter--discriminatory pricing:

1. A monopolist would like, if possible, to charge different prices to different customers. For example:

a. charge more for a hardcover than a paperback (beyond cost difference), because hardcover customers are the ones who really want the book and will not be deterred by a somewhat higher price.

b.the British edition of a book is often less expensive than the U.S. edition--and may not be exported to the U.S. British readers, on average, are poorer than American readers.

2. The potential customers for a Game Genie are the enthusiasts. By selling a Game Genie at a high price and the games at a low price, Nintendo gets both the enthusiasts and the cheapskates as customers--at appropriately adjusted prices.

V.Paragraph 109: Why can books be rented, but not programs or sound recordings? Because it is expensive to copy books, cheap to copy the others.

VI. Atari v JS&A

A. A device to copy Atari game cartridges--is selling it contributory infringement?

1. JS&A argues that archival copying is permitted and counts as a substantial non-infringing use.

a. Does the archival copying exception apply to cartridges?

b. If so, is it a substantial use? Note that the cost of the blank cartridge is a substantial fraction of the cost of the game cartridge, so it is not clear that making backup copies isa sensible gamble.

2. JS&A argues that copying its own games, which it permits, is a substantial non-infringing use..

B. [[paragraph]] 117 exception says "archival," does not explain

1. CONTU report explains "to guard it against ... mechanical or electrical failure."

2. ROMs, unlike RAMs or disks, cannot be reprogrammed or erased.

3. JS&A describes physical dangers, which apply to records, books, ... for which there is no archival exception.

C. Court concludes that the PROM blaster probably should be enjoined.

1. Archival exception does not apply because ROM cartridge have not been shown to be subject to the sort of risks the exception was intended to guard against.

2. Copying JS&A programs is not a substantial use.

VII. Micro-Spark v. Amtype Corp.

A. Facts of the case:

1.The magazine "Nibble" contains programs, also sells them on disk.

2. Amtype "typing service" is provided only to Nibble owners

a. Amtype requires the customers to say they are "Nibble" subscribers and, more important,

b. Does not provide instructions for the programs--so without "Nibble" they are not very useful.

3. Amtype only types each program once, undersells Nibble on the disk.

B. Is this authorised under either essential step or archival exception?

1. "Essential step" is interpreted by the court as loading into RAM.

2. Archival exception does not apply because printed copy is not vulnerable to mechanical or electrical failure (as above).

C. Amtype loses. Should they?

VIII. Formalities:

A. How do you label a magnetic field? Why?

1. Either on the medium or on the message

2. Do it to deter infringers and to prevent an innocent infringement defense.

B. How do you deposit it?

1. Large chunk of source code, or ...

2. If it contains trade secrets, then

a. 25/25 minus less than half blocked out or

b. 10/10 complete or .... (other options) or

c. object code can be deposited, but copyright office then makes no determination of copyrightable authorship

3. Note that these problems arise because copyright is being used to protect something more like an invention than a writing. In patent law the combination of patent and trade secret is strongly discouraged; why is the equivalent not true here?

C. Why bother to register?

1. Must register or at least try to before infringement action

2. If copyright is refused you can sue, but must tell the copyright office so that they can join the action.

3. No statutory damages or attorney's fees for pre-registration infringement, except

4. If registration is within 3 months of publication.

IX. Johnson v Uniden

A. Facts: Uniden's software must be compatible with Johnson's to fulfill its purpose.

1. "Idea" is "software that works with Johnson system"

2. So the argument is about copying internals, not look and feel.

3.This kind of compatibility (software with software) is becoming an increasingly important issue

4. As part of the whole "open system," OOP development.

B. Problem--not literal copying because processor different.

C.Evidence of copying rather than independent creation is ...

1. Doing things in ways that made sense for Johnson but not for Uniden

2. Doing things identically when there were many alternative ways

3. Reproducing fossil code

4. Reproducing mistakes

D. Claim that Johnson program is not copyrightable because not original

1. Builds on previous work, but ...

2. Contains substantial original stuff.

E. As in Whelan, there is infringement here.

X. Atari v North American Philips (Pac-man case)

A. Question: How similar must a video game be to infringe?

B. Similar enough so

1.an ordinary rational observer would conclude

2. material of substance and value taken

3.dissection disfavored but "the copyright laws preclude appropriation of only those elements of the work that are covered by the copyright."

C. Idea is a general description of the game, not protected

D. Stuff that is common to lots of games is not protected under scenes a faire

E. But remaining details are sufficient to give infringement.

1. Similarity in gobbler and ghost monsters

2. Existence of differences insufficient if games substantially similar in others respects

3. Especially since video players are undiscriminating???

4. Some changes are merely TV vs arcade.

5. Salesmen referred to it as a Pac-man game, suggesting ordinary person will ...

F. So preliminary injunction granted.

XI. Data East v Epyx: Karate games

A. How much similarity in expression is too much?

B. Some constraints from karate itself.

C. Some constraints from the hardware.

D. Obvious error to argue that copyright was infringed !!!

1. Only the scoreboard and background scenes were author's contribution

2. And they were different.

E. Questions:

1. Are there exactly 14 well defined karate moves?

2. Are there always 30 second countdown rounds?

3. Do real karate players use white and red? (No)

4. Is the 100 points per second from karate (No)

5. Does a real karate match have a bonus round for breaking bricks etc.? (No)

6. Shifting geographical backgrounds?

F. Is this inconsistent with the Pac-man case?

1. No--there is no real world Pac-man; the existence of karate reduces the ways a game can present it.

2. Yes--lots of arbitrary stuff copied from one game to another. See E above.

3. 7th vs 9th circuit?

XII. Clean Room techniques.

A. Copyright (unlike patent) does not protect against independent invention,

1. But independent invention in the context of literal infringement is very unlikely and

2. Very hard to prove.

B. For software, with broader than literal protection and compatibility as a desideratum

1. Independent invention may be worth doing, so

2. It is worth going to a lot of trouble to prove you have done it.

XIII. NEC v Intel: Reverse engineering the microcode of a CPU

A. The facts of the case

1.Apparently NEC did not use clean room techniques to develop their CPU microcode.

2. Someone did--a clean room version was used as evidence. Possibly generated for the litigation?

3. The author of the NEC microcode had actually disassembled the Intel chips, but ...

4. Claimed that he did not copy them.

B. How much similarity is too much?

1. NEC had licensed hardware patents, which

2. Constrained them in how they built their chip

3. Excusing similarity in their microcode necessary to fit the hardware constraints.

4. A further constraint not in the hardware (amount of ROM) was excused because it was the result of a reasonable decision (to use the extra ROM for something else).

C. Evidence of independent invention

1. Short routines in the NEC code were only somewhat different from the corresponding Intel code.

2. Long routines were quite different

3. Which is what you would expect, given the constraints

4. And fits the pattern observed in the clean room code.

D. Given that the idea was functional compatibility with Intel in a chip using the licensed Intel patents, the NEC code was only as similar to the Intel code as was necessary to express that idea. So it does not infringe the Intel copyright.

XIV. Brooktree v AMD

A. AMD designer studied Brooktree chip, used the information in designing AMD chip.

1. AMD offered a paper trail showing extensive effort

2. AMD designer admitted studying the Brooktree chip through a microscope

3. But that is not what the mask works act prohibits.

B. Brooktree claims that

1.only after being told there were 10 transistors did AMD get on the right track

2. After that it only took three months, which is evidence of copying. The earlier paper trail was irrelevant.

C. AMD wins

1. The act explicitly permits reverse engineering--for example counting transistors, studying layout.

2. No evidence was offered that the mask itself was copied.

XV. In re Certain Personal Computers ...

A. Importing computers without the copyrighted ROMs

1. As a way of avoiding copyright infringement

2. Someone else smuggles in ROMs, or

3. burns EPROMs with code copied from a real Apple II.

B. Contributory infringement

1. It is claimed that someone might get some of the missing software legally on disk or

2. Get some from old Apple cards that some dealers have, but ...

3. No evidence of a commercially significant amount of such use.

XVI. Vault v Quaid: Copy protection cracker case.

A. Technology

1. Prolok disk is physically different from an ordinary disk, and ...

2. Program is modified so that it cannot be operated unless from the Prolok disk.

3. RAMKEY foils the PROLOK protection.

4. Making RAMKEY required examination, and probably disassembly, of Vault's program.

B. Legal claims by Vault

1. Federal Copyright claims:

a. Copying Vault's program into computer memory in order to disassemble it in the process of developing RAMKEY violated Vault's copyright.

b. RAMKEY is used to infringe both Vault's copyrights and its customers' copyrights and has no other substantial use, so Quaid is guilty of contributory infringement

c. A version of RAMKEY containing a 30 character sequence from Vault's software was a derivative work.

2. Louisiana claims

a. Quaid breached Vault's license agreement by disassembling (shrink wrap license issue)

b. Quaid misappropriated Vault's program in violation of Louisiana Trade Secret Law.

C. Court concludes that:

1. Loading Vault program into RAM to disassemble is covered by the "necessary for use" exception (the act does not say that the use must be the one intended by the copyright owner!)

2. There was a substantial non-infringing use (to backup protected disks), so no contributory infringement.

a. Vault argues you can back up the program without RAMKEY (although backup will not run)

b. The disk is not subject to the kind of risk CONTU envisioned, just the program.

c. If the program is damaged, copy the backup back onto PROLOK disk and run it!

d. This Court rejects Atari, MicroSparc argument and treats CONTU comments about what sorts of risks the archival exception was intended to protect against as illustrative, not restrictive.

3.Standing issue--Vault has standing because its program was copied too (as well as its customers' programs).

XVII. Summary of copyright law for programs

A. The Law

1. Early cases were unsure whether software was copyrightable, and if so what software.

2. Modern cases establish that source and object code, system and application programs, are copyrightable.

3. The internal structure and organization of a program is, in principle, covered by copyright

4. As is the external appearance--how it looks to the users, but ...

5. Both are restricted by:

a. Similarity that is necessary in order to accomplish the idea of the program does not infringe (merger).

b. Similarity in something produced independently does not infringe.

6. It is still quite unclear how close similarity, in either 3 or 4 above, must be in order to infringe.

7. The question of what is idea and what expression still has no clear answer.

8. Dissection is disfavored, but ... material that is unprotectable must be excluded in judging similarity and originality.

B. The Economics

1. Two boxes called "invention" and "writings" with different legal rules applying.

2. Writings are unlikely to be accidentally duplicated, copying is easy to observe, so property rights are easily given. Inventions the reverse.

3. Source and object code fit in the "writings" box, but ...

4. As non-literal copying becomes protected, the fit becomes worse.

5. Standards do not fit either box well because their value is in part from being first, not from being good.

a. Standards raise arguments against protection (getting uniformity without the transaction costs of licensing)

b.and for (control of standard, incentive to produce standard).

c. But standards have the potential for a "patent race" problem even without intellectual property, since there may be an important advantage to being first.

d. How much weight should we give the various arguments? That depends on how tightly we are locked into standards and how easy it is to produce good standards.


I.The History of software patents

A. Broad outline over time:

1.Initially the PTO held that programs were not patentable under the mental steps doctrine. A series of mental steps, calculations, an algorithm, was not patentable subject matter.

2. The CCPA pushed the patent office towards granting software patents

3. In Gottschalk v Benson, the Supreme Court reversed the CCPA

4. CCPA fought back as best it could, although refersed in Parker v Flook, until

5. Diamond v Diehr allowed a patent on software+hardware, opened a crack on software.

6. In 1980, CCPA is converted into CAFC, which gets all patent appeals. Does this make the Supreme Court superfluous? At least it makes cases less likely to reach the Court, since conflicts among circuits are no longer possible in patent cases.

B. Is a programmed computer a machine? If so, does that not automatically make programs effectively patentable? A program is simply a description of how to implement the invention.

C. Patent law:

1. Requirements for patentability: Subject matter, Utility, novelty, non-obviousness. .

a. Subject matter? process, machine, manufacture, or composition of matter, or ... improvement in any of the above.

b.Utility is a weak requirement. In the 19th century it basically meant "not pernicious," although 20th century cases have strengthened it somewhat.

(1) Arguments for a weak requirement: If the invention is useless, a patent on it does not harm, and

(2) Inventors will not want to waste their money trying to patent useless inventions, but ...

(3) This leaves open the question of patents on things that are useless when patented, but may become valuable later on.

(4) There is one 19th century case where the infringer argued that he was infringing a pernicious patent--and won. Tobacco speckling case.

c. Novelty--you did it (all of it) first.

(1) Barred by knowledge and use before you invented.

(2) Barred by publication 1 yr prior to application. (or foreign patent)

(3) Someone else invented it first and did not abandon, suppress, or conceal--he gets the patent.

(4) the US has a first to invent, not first to apply, rule.

(a) Invent means "get the idea"

(b) In order to maintain your priority, you must work with "due diligence" from the time of your invention until you apply for a patent.

(c) Before applying you must reduce the invention to practice, which used to mean

(d) Build a working (although not necessarily commercially viable) version, but

(e) Can now mean "constructive reduction to practice"--describe how to do d above.

a. Non-obviousness.

(1) It must not be obvious to one skilled in the relevant art

(2) As of the time of invention.

1. Claims vs best method.

a. Claims describe what you are asking to have covered by your patent.

b. Specification describes what you believe to be the best way of doing what you are patenting

c. and must be enabling--sufficient so that someone skilled in the art who has read your application can do it.


A. Atkinson Patent: Bill Atkinson, author of MacPaint, Hypercard and much of Quickdraw.

1. There is a long description (specification) of the invention, and then a claim

2. Consisting of a series of more and more restricted versions, so that if the broader claim is shot down in some future infringement action the narrower will survive.

3. This version splits the patent into two, one on hardware (not shown) and one on software.

4. The latter is a patent on Apple style pull down menus.

5. File wrapper estoppal: If the record shows that you have offered a narrow interpretation of some element of the patent in order to get it granted, you cannot change your mind and shift to a broader interpretation of that element in order to win an infrinement suit. (Or rather, you can but it won't work if the defendant's lawyer catches you at it).

B. Gottschalk v Benson: BCD to Binary conversion

1. A process for converting numbers expressed in binary coded decimal (427=100 010 111, which is binary 4, binary 2, binary 7) into ordinary binary.

2. The claim covers all uses of the conversion algorithm.

3. Morse's eighth claim (O'Reilly v Morse) on the telegraph also covered faxes, internet, TV--"the use of ... electromagnetism ... for marking or printing intelligible characters, signs, or letters at a distance." It was disallowed as a claim for the function of a machine--what it did rather than how it did it. Like allowing Fulton to patent the use of steam to propel vessels, rather than just his particular steam engine.

4. Here the claim was rejected, analogously, as a patent on an algorithm.

5. Is this right? They did not claim all ways of converting BCD to binary--just one.

C. CCPA "interprets" Benson narrowly.

1.In re Christenson--if the novelty in the claimed invention is only a mathematical formula, the invention is not patentable, but...

2. Benson covers only process, not apparatus claims. (Rich dissents!)

3. And it only covers process claims that preempt all uses of an algorithm.

D. Parker v. Flook

1. The invention--continually recalculating and updating an alarm limit in catalytic conversion.

2. The claim does not wholly preempt the algorithm--just its use for petrochemical and oil refining

3. And it contains post-solution activity, so it is more than just an algorithm.

4. So it appears to pass the CCPA tests

5. The Supreme Court rules that case is considered as if the formula were well known.Like a law of nature in Funk v Kalo.

6. Is this dissection?

a.Is there any difference between "the only component found novel is outside statutory classes, so the claim rejected" (what the Court says it is not doing)

b. and "Once unstatutory material is assumed within the prior art, the "whole" invention unpatentable." (what the Court says it is doing)?

c. How does 101 work together with 102,3?

7. CCPA critique: (Rich--my version of his argument)

a. The Court has mixed 101 and 103 in a way that is inconsistent with precedent and would have catastrophic effects if applied generally, since ...

b. If all of the scientific knowledge that went into an invention is treated as if in the prior art, many (all?) non-obvious inventions become "obvious."

c. The correct procedure is to exclude an algorithm (or law of nature) from being patentable, but to allow a particular use to be patentable, taking account of the non-obviousness of the law or algorithm in deciding whether the invention is obvious.

d. So the inventor only gets ownership of the particular use he patents, not the law or algorithm, but gets some reward for inventing/discovering the latter since it permits him to invent the former.

E. Funk v Kalo v Diamond v Chakrabarty: These are two cases that raise the same issues concerning the unpatentability of a law of nature that the cases here raise concerning the unpatentability of an algorithm.

1. The invention in Funk v Kalo is a mixture of six strains of nitrogen fixing bacteria, one each from the six groups of strains used for six groups of legumes.

a. Previous workers had found that bacteria from one group inhibited those from the others, so a mixture would not work. Farmers had to have one kind of inoculant for each group of legumes.

b. The inventor discovered that the inhibition applied to only some strains within each group. He found one strain from each group that did not inhibit the others, and produced a mix that would work for all legumes.

c. The Supreme Court argued that his invention had to be evaluated as if his discovery were already known--in which case the invention would be obvious.

2. Chakrabarty invention is similar on a smaller scale. It combines plasmids inside a bacterium rather than bacteria inside a mixture. The plasmids are structures that can be transplanted from one bacterium to another. The result is an engineered bacterium for breaking down crude oil, with different plasmids breaking down different components. The court ruled that it was patentable.

3. In doing so, did the court reverse itself? Not explicitly

4. This illustrates Rich's point. If you assume all of Chakrabarty's scientific discoveries to be already known, his invention is then as obvious as Kalo's (actually Bond's--Kalo seed company was presumably the assignee).

F. Diamond v. Diehr

1. The invention was a process for measuring temperature inside a mold for rubber and continuously recalculating when the mold should be opened.

2. The examiner rejected it under 101 because everything was either conventional or computer program.

3. CCPA says it is not a program but a process for molding rubber articles. Passes 101.

4. Consider Parker v Flook. It sounds like the same issue.

5. But the decision follows Rich not Stevens, upholding the CCPA.

6. Dissent (Stevens):the discovery is not a method for molding rubber articles (patentable process) but a method of calculating when to open the mold (unpatentable algorithm).

G. Is Stevens or Rich correct?

1. Stevens is making a consistent application of Funk v Kalo, but Rich is correct that that case makes very little sense.

2. But this leaves open the question of whether Rich's conclusion is better policy than Stevens' conclusion (that programs are algorithms are not patentable subject matter, and that their inclusion in a process does not add non-obviousness to an otherwise obvious process).


I. Review:

A. Patent requirements:

1. [[paragraph]] 101 "invents", "new and useful," categories of patentable ...

2. [[paragraph]] 102: Novelty (and priority)

3. [[paragraph]] 103: Non-obviousness (to a person having ordinary skill in the art to which said subject matter pertains)

B. Atkinson: Note that he is patenting an idea, not code.

C. Is Stevens or Rich correct?

1. One is a consistent reading of the law--Rich. See Funk v. Kalo

2. Stevens consistently applies Funk--but Funk is bad law.

3. Stevens wants:

a. No program related invention patentable unless its contribution does not depend entirely on the use of a computer. (Does the equivalent position for laws of nature imply that you can not patent an invention that only works in a gravity field--a pendulum clock, for example? That only works if you know the law of gravity?)

b. Algorithm = program. But according to the Court (Parker v Flook) Algorithm = procedure for solving a given type of mathematical problem. Does MacPaint qualify? Space invaders?

4. Even if Stevens' arguments are bad law, is his conclusion good policy? Not clear. It may depend on

a. Elasticity of supply for this kind of invention. Writing a program that runs is easier than building a machine that works. Compare computer science classes to engineering classes--nobody expects one student to design and build a working car.

b. Difficulty of court judging technical issues, especially in a field. Nine old men.

c. Difficulty of defining lines around intellectual property

d. All of these may mean we are better off without patent protection for programs.

II. In Re Pardo: Algorithm for non-order dependent processing.

A. Is it an algorithm

1. Did they confess that it was in their application? The application was pre-Benson, so we cannot assume that they are using "algorithm" in the sense the court used it there..

2. Is it an algorithm? Court defines algorithm very narrowly.

B. Is it obvious?

1. The PTO did not provide evidence that it was, so was reversed.

2. Nobody else tried to patent it first.

a. That might be evidence that it was not obvious

b. Or simply that nobody else had the chutzpah to think it was patentable.

3. In fact, it is obvious. Also important--consider the application to parallel processing.

C. In Re Abele

1. Reads Flook as

a. An invention is not patentable if it wholly preempts an algorithm, or ...

b. Would wholly preempt it save for limiting it use to a particular technological environment.

2.From Walter, we get

a.The algorithm must be really used in the process, not ...

b. Simply presented and solved by the invention,

c.or accompanied by post-solution activity or

d. a preamble describing uses.

3. Conclude--statutory if

a.the algorithm is applied to physical elements or process steps, and ...

b. Its application is circumscribed by more than field of use or non-essential post solution activity.

4. If what they invented is an algorithm, it is not patentable subject matter. If it is an application of an algorithm, it is--passes [[paragraph]] 101.

5. Claim 5--a general method of displaying data in a field. No.

6. Other claims: Using it to display X-ray data in a particular context, yes.

III. Official Gazette Summary

A. Algorithms--defined as a procedure for solving a given type of mathematical problem.

1. Are not themselves statutory processes, but ...

2. Their use does not make something that otherwise would be statutory now non-statutory.

3. So the application of an algorithm in the invention does not bar grant of patent.

4. Two part test.

a. Presence of an algorithm.

(1)It does not matter whether the claim is stated in apparatus or process form.

(2) Putting the algorithm in words instead of symbols does not matter (but might work).

b.Is the algorithm applied to physical elements or process steps?

(1) If the only application is insignificant post solution activity, it is not statutory subject matter.

(2) Just limiting the field of use does not make it statutory subject matter.

(3) Nor does just gathering data to put into the algorithm.

B. Computer programs vs processes.

1. The Supreme Court has not ruled on the patentability of computer programs.

2. The CCPA has held that they are statutory subject matter.


IV.Review: Present state of things

A. Algorithm, narrowly defined, is not statutory subject matter, but ...

1. That means a procedure for solving a mathematical problem

2. With "mathematical" narrowly defined. For example ...

3. Compression algorithms and encryption algorithms (RSA) have gotten patents.

a.How would you write the application?

b. As a process where the algorithm is applied to a text stream, produces compressed text.

4. Of course, the Supreme Court has not reviewed those patents.

B. A process or apparatus that includes an algorithm may be patentable.

C. How does non-statutory matter function within a statutory claim?

1. Funk v Kalo: Must be treated as obvious in evaluating the rest of the claim

2. More recent cases: No patent on, or effectively on, the non-statutory matter, but the non-statutory matter can be used to make a new invention of statutory matter non-obvious.

V. In Re Grams: Procedure for identifying and locating abnormality in a complex system.

A. Applied to one use--clinical diagnosis.

B.Only physical step is gathering data.

C. Not patentable, since it would be a patent on the algorithm (in a limited range)

D. Is it bogus? Read the claim. Where is the old "flash of genius?"

VI.In Re Iwahashi

A. The idea--square instead of multiplying:

1. (X+Y)2=X2+2XY+Y2

2. You can use a much smaller lookup table for squares than for products!

3. The equations seem to be pretty badly messed up.

B. It is statutory matter because the algorithm is applied to specified apparatus (ROM)

C. Is any of this non-obvious?



VII. Infringement by equivalents.

A. Applied to "means for" steps in a patent. Literal infringement: "An element in a claim for a combination may be expressed as a means or step for performing a sepecified function without the recital of structure, material, or acts in support thereof, and such claim shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof." section 112 paragraph 6

1. What are "means for" steps? "A means to accomplish X" rather than "apparatus Y to accomplish X."

2. In deciding what means are equivalent to the claim, the specification is used.

3. To infringe, the step in the accused apparatus must be equivalent in function as well as structure.

4. For example--means to heat a mixture (specification uses a gas furnace) then compress it.

a. Heating in a different apparatus is literal infringement

b. Compressing so fast that it heats almost certainly is not.

B. The Doctrine of Equivalents

1. The accused apparatus or process is not covered by the literal language of the claim, but ...

2. Does essentially the same thing in substantially the same way to obtain substantially the same result.

VIII. Penwalt v Durand-Wayland

A. Court leaves open the possibility that substituting a program for hard wiring might infringe, but ...

B. Claims that the accused devices do not do the same thing, due to

C. Limitations in the Penwalt claim necessary to get a patent in a crowded field.

IX. TI v US International Trade Commission

A. Context: TI wants ITC to keep out imported pocket calculators. ITC decides not to.

B. Do they infringe TI patent on the pocket calculator?

1. "Means for" claim

2. All means have undergone technological advance. Is LCD screen equivalent to a thermal printer?

3. Range of equivalents broader for more fundamental inventions--which this is.

4. ALJ found that none of the means in the accused devices were equivalent to the means in TI's specification..

5. The court thinks that overstates the difference, but that the accused devices are not equivalent considered as a whole. The court is not willing to point to any single means for which the means in the accused devices are not equivalent.

6. Do a lot of "almost differences" add up to one "difference?" Apparently, at least in this case.

[--- Unable To Translate Graphic ---]





I.Trade Secret--the law

A. Misappropriation--acquiring by improper means or from someone who acquired by improper means .

1. Applies if you knew or had reason to know that it was acquired improperly.

2. Covers both acquiring and disclosing.

3. Includes discovering that the trade secret was improperly acquired, or having reason to have so discovered, after acquiring the trade secret but before making any reliance expenditures.

B. Trade secret: It must be valuable, the value must depend on its secrecy, and there must be reasonable efforts to keep it secret.

C. Damages:

1.actual damage plus excess unjust enrichment.

2. Is the "unjust enrichment" part simply the opportunity cost of not being able to sell the secret to the person who stole it? The thief's gain measures the highest price he would have been willing to pay the owner for the secret.

3."Exemplary" damages = punitive damages

D. Preserving secrecy. Why must the owner of the secret take precautions?

1. To give others fair warning that it is a trade secret--otherwise a competitor observes, copies, and is sued.

2. As evidence to the court that it really is a valuable secret--the firm's beliefs revealed by its behavior. If they took no precautions, perhaps they are lying when they say it was a valuable secret.

3. But this does eliminate the purloined letter defense--take no precautions so that nobody will realize the secret is worth stealing.

II. UCC v Lykes Youngstown: Straightforward theft

III. Minuteman v Alexander: Departing employees

A. Are customer lists trade secrets?

B. Does the new technology make them easier to steal?

C. Are they copyrightable?

D. It is prudent to use nondisclosure or noncompete agreements.

1. Both provide contractual protection (if they prove enforcable) and

2. Prove efforts to protect secret, and

3. Prove employees knew it was a secret.

IV. Healthcare v Lippany

A. Duty of confidentiality (contractual). For consideration.

B. "Methodology" of program is not sufficient to be copyrightable under Whelan v Jaslow but is a trade secret.

C. The fact that there was a public presentation does not prove it was not a secret if the presentation did not reveal enough to give away the secret.

D.What is the legal status of products developed during employment. Use the employment contract to set taht in advance.

V. Synercom v UCC (again)

A. Is unfair competition law preempted by copyright?

1. The copyright act explicitly preempts "equivalent rights" to subject matter that it covers.

2. Sears v Steiffle, Compco v Daybright.The same issue in the patent context.

a. Design patents were held invalid; the firms tried to use state unfair competition law to prevent copying of their products.

b. The state unfair competition law was held to be preempted, because...

c. It was providing patent like protection for the sorts of things patent law was designed to protect, and the defendants had engaged in now tortious behavior other than copying those things.

3. Kewanee v Bicron: Trade Secret law is not in general preempted. The courts argument was:

a. Does its enforcement compete with the objectives of patent law?

(1) If the only purpose of patent law is to force the inventor to disclose his invention in exchange for getting a patent, then it interferes if some people will reject that offer because trade secret protection is available instead. But ...

(2) The court believes that is very unlikely; it thinks hardly anyone would prefer trade secret protection to patent protection.

(3) Furthermore, although the court does not emphasize the point, trade secret law complements the reward and prospect funtions of patent law, since it provides a more flexible system of protection to fill in the gaps--protect inventions too small to get a patent, or inventions that the patent office erroneously thinks are too small, or inventions so big (i.e. long lived secrets) that a patent provides inadequate reward for producing them (Coke formula?).

b.Trade secret law fits into traditional state police power--as a way of preventing industrial espionage and the like.

4. That court concludes that the relevent questions are:

a. Is the activity stealing or the equivalent--the sort of thing regulated by the traditional state police power?

b. Is this an area left unattended by congress?

B. How does this case fit in?

1. No stealing, no breach of confidence. No relevance to the police power.

2. The area was covered by congress (writings are copyrightable), but this particular "writing" is not protectable (because of merger)--just as the Sears and Compco "inventions" were not patentable.

3. Does trade secret protection clash with congressional intent in writing the copyright act?

a. It complements the reward function.

b. It conflicts with the disclosure function.

c. Should standards be protected? No (this court thinks). Doing so gives Syncercom favored status.

C. Syncrcom loses on formats, cannot use the piracy of its manuals for an unfair competition claim--although it can claim (and win) that one on copyright grounds.

VI. Vault v Quaid (again).

A. The shrink wrap license is a contract of adhesion, meaning that it is a form contract offered to lots of buyers on a take it or leave it basis. Courts are less willing to enforce contracts of adhesion than bargained contracts. (Shouldn't be--in my view--but are)

B. District court: LA act provides protection beyond that of copyright and so conflicts with federal copyright law.

C. Fifth circuit affirms. But does not any ordinary contract provide protection beyond that you would have from the relevant law without the contract?

D. Do you agree? Does this mean that shrink wrap licenses are unenforcable?

VII. State v Tanner: Theft of software (unauthorised copying)





VIII. Review:

A. Trade Secrets

1. Information whose value depends on secrecy, reasonably protected

2. Misappropriation involves wrongful act by somebody

3. Both seller and buyer have misappropriated, provided

4. That buyer knew or should have known the information was wrongfully obtained.

5. Liability for damages plus excess unjust enrichment.

6. Special provisions for innocent user who has made reliance expenditures.

B. Preemption issue: Is state law preempted by federal IP law?

1. Sears and Compco imply that the answer is yes, if

a. The intellectual property is a sort covered by the federal law

b. The protection is of the sort covered by the federal law

2. Kewanee v Bicron implies that the answer is no, if

a. The state law does not seriously impede the objectives of the federal law, and

b. The activity regulated falls within the traditional police power

c. Which means, among other things, the protection is not of the sort provided by federal law.

3. At least, this is how the Synercom court reads the situation,

4. So Synercom loses--no unethical behavior by UCC, the area is covered by copyright law but formats are not protected.

C. Are shrink wrap statutes preempted?

1. Vault v Quaid says yes, because they give protection beyond copyright.

2. But do they give it, or allow parties to contract for it?

3. Is there something special about contracts of adhesion?

D. What is not preempted?

1. Minuteman involves a tort of misappropriation defined in a state statute.

2. Tanner applies criminal sanctions. But note that theft was not from copyright holder.

3. How do you calculate the value of what was stolen? From whom.

IX. Noncompetition agreements:

A. My paper is not specifically about computer law, but is about an issue that arises in the computer context.

B. Current Law: Restrictions are enforcable if

1. They are easonable in the cost they impose on the employee (narrow in space and time) and

2. The protection is no more than required to protect some valid interest of the employer.

3. They are more likely to be enforcable against employees with access to confidential information

4. Or possibly "key employees"

a. Does that mean an employee whose loss cripples the company, or

b. An employ whose acquisition makes it possible for his new employer to compete with his old employer.

5. The restriction must be accepted in exchange for valid consideration.

6. Noncompetition agreements are more readily enforced in the context of sale of a business.

C. My argument on freedom of contract:

1. Contracts maximize the summed perceived benefit of the signatories, hence should be enforced unless

2. The court believes a signatory is incompetent to judge his benefit (paternalism) or

3. There are significant net costs to third parties.

D. Reasons for such contracts:

1. Hostages for human capital or employee specific firm investment (Key employee case)

a. If so, the contract is in the interest of the parties, but

b. Courts apparently disapprove--high cost of the restriction to the employee is a reason for not enforcing it.

c. Does this reflect a non-economic argument, related to the refusal to enforce contracts for indentured servitude? If so, is that refusal a mistake? Consider immigrants whose alternatives were paying the cost of immigration via an indentured servitude contract or not coming.

2. Protecting trade secrets

a. If trade secret law inadequate, perhaps because violation will be secret.

b. If it is hard to transfer the secret, so the recipient must hire the thief for a while to teach the secret.

c. Hiring provides a good cover for paying for the trade secret--the bribe is buried in the salary.

d. If the secret does not qualify for legal protection--the parties are using contract to establish rights that they do not get by law. This an example of contracting around legal rules that are inefficient--at least in terms of the interests of the contracting parties.

e. Note that the result of competition between the firm and a competitor who has acquired the firm's secret is is not simply a transfer from victim to acquirer. It is worse than a transfer for firms, since they will tend to compete down the price and thus reduce the total amount to be made, but better than that for customers, who will be paying the lower price.

3. Think of the agreement as establishing an ex ante cartel in a monopolistically competitive industry.

a. This is the most likely context for such agreements

b. Verbal argument (see article)

c. Result of formal model: Forbidding noncompetition agreements can make things either better or worse.

d. Courts apparently approve of this use of the agreements, judging by what they are willing to enforce.


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I. International protection for intellectual property

A. How does it come into existence? Free rider problem. Countries with no protection can free ride on the innovations paid for by countries with such protection.

1. A multi-national company could withhold investments from a country without protection to punish it for infringing the multi-national's intellectual property. But there is a free rider problem here too--the multi-national is giving up profitable investment opportunities in order to produce a benefit (protection of intellectual property) of which it receives only a tiny fraction.

2. A nation might pressure or bribe nations that did not protect intellectual property.

B. Copyright: Berne and UCC. 1988 we joined Berne

1. Differences from present law:

a. Moral right. Implications?

b. No formalities are required. But there are still some advantages to registration and notice.

2. Both agreements give the same rights to foreigners as to a country's own citizens, whatever they are.

C. Paris convention covers patents, trademarks, unfair competition.

1. Member grants foreigners same rights as citizens.

2.Priority--first application, 12 months to apply in any other member country.

D.Patent Cooperation Treaty--standardized application and filing procedure.

E. GATT proposals: Current status?

1. Software is a literary work under Berne.

2. Compilations with selection or arrangement are protectable.

3. Authors may ban rental or charge for it.

4. International version of the mask act.

5. International trade secret protection.

F. Copyright protection for software:

1.Hong Kong provided it in 1987, 1988

2. China provided it in 1991, but with an unlimited right of use for state organizations and for individual enjoyment. China joined Berne in 1992, which (maybe) implicitly eliminates the unlimited rights.

3.Mexico in 1984 started registering copyright in programs, in 1991 gave them explicit legal protection.


1. All are Berne and UCC members. Berne is self executing in most, UCC is not.

a.Denmark, Germany, Spain, UK, France explicitly protect programs.

b. some others do not, but have case law that implies protection.

c.Some have neither.

d. Germany had a higher originality requirement than other countries.

2. Directive: adopted 1991. Protects as literary works as per Berne.

a.Requires national legislation to implement. Regulations would be self implementing.

b. Protects expression not ideas.

c.life+50 years

d. Article 1: protection does not extend to ideas, principles, logic, algorithms or programming languages underlying the program. Where the specification of interfaces constitutes ideas and principles, ...it is not copyrightable subject matter.

e. Article 5: in absence of specific contractual provisions to the contrary, you can copy if doing so is necessary for use. The right to backup may not be contracted away. It is legal to use the program (in otherwise permitted ways) in order to study it to learn its ideas--(perhaps running it with a debugger?).

f. 6. Decompilationl to provide interoperability is lega, if there is no other way to do it.

g. Article 7: Protection crackers are contributory infringement. Quaid beware.

h. Unclear points--where is the line drawn between idea and expression? Is the interface referred to only the machine interface, or might it apply to a human interface as well?


II.Trade dress

A. Why we are interested:

1. Trade dress arguments might be used in software look and feel litigation.

2. They might be used in future VR litigation

3. Trade dress is rather like a standard, since:

a. Trade dress is arbitrary to start with and ...

b. Gets its value because other people learn it.

B. The basic law.

1. Borrowed from trademark--but ...

a. Applied to things other than words and image ... the form and packaging of shredded wheat in Kellogg v National Biscuit Company.

(1) "Shredded Wheat" is public domain once the patent on making it expires

(2) The shape is functional, and ...

(3) Kellogg has taken reasonable efforts to avoid confusion.

(4) Some question remains about whether a box with a picture of two biscuits in a bowl of milk violates Nabisco trade dress.

b. Trade dress raises a problem of functionality--can I patent tables and chairs at a restaurant? Rug?

c. But a similar (smaller?) problem arises with descriptive trade marks, which let me "own" a term used to describe a product.

2. Trade dress must be distinctive and non-functional or

3. Have acquired a secondary meaning?

4. The underlying idea in trademark/dress law is likelihood of confusion--passing off.

5. How do Secondary meaning and Distinctiveness interact in trademark law?

a. "Functional" descriptions are not protected unless they have acquired a secondary meaning.

b. Which (this court says) is a substitute for inherently distinctive

C. Fudruckers: First round--District court

1. If there is no likelihood of confusion, no trade dress infringement.

2. If an item is functional, you cannot be forced to change it even if there is likelihood of confusion.

3. Is this right? What about gestalt--a non-functional combination of functional items (their list).

D. Second round--Circuit court

1. Must show that imitatin of trade dress is likely to confuse consumers. When? What about future confusion, when the originator opens a restaurant in the copyer's territory? What about future confusion after the originator has given the trade dress a secondary meaning it does not yet have?

2. Must be "nonfunctional" and have acquired secondary meaning" but ...

3. "functional elements that are separately unprotectable can be protected together as part of a trade dress." Is "the whole collection of elements taken together" functional?

4. The court hedges a little on whether secondary meaning is required if dress is inherently distinctive, but holds that in this case there is insufficient evidence for "inherently distinctive".

5. Secondary meaning need not be in Phoenix given intentional copying--that conclusion (separate trademark in seaparate markets) comes from a line of cases involving independent adoption in good faith. Also, restaurant customers are mobile, so the relevant market is national not local.

E. Two Pesos v Fudruckers:

1. Taco Cabana opened first in San Antonio

2. Two Pesos was an imitation (?) elsewhere in Texas

3. Taco Cabana wanted to move into two Pesos territory, sued.

4. The jury held that trade tress existed, distinctive, non-functional but

a. No secondary meaning

b. i.e. customers did not think "this dress means this firm"

5. Issue here was whether both distinctiveness and secondary meaning are required

6. Court says "no" for trademark, hence "no" for trade dress.

7. So the jury's decision that there was no secondary meaning is not inconsistent with the verdict.

F. Are the cases inconsistent?

1. Does Two Pesos say "there can be likelihood of confusion without secondary meaning" or

2. There can be trade dress infringement without likelihood of confusion?

3. Is functional a proxy for non-arbitrary? For merger? A novel is functional."Aesthetic functionality"

G. Justification:

1. In the context of non-functional, distinctive trade dress, protection makes sense because

a. There is no "exhaustion of the commons" problem--lots of arbitrary names out there.

b. Creating distinctive trade dress lowers information cost to the customers

c. You get ownership of your trade dress before you have given it a secondary meaning, which avoids the risk that someone else will steal it while you are working on making it well known.

d. Like giving copyright without requiring proof of utility etc.

2. In the context of secondary meaning, it makes sense because

a. Although there is a cost in making it harder for others to describe their product (descriptive trade marks) or make a certain style of product (trade dress)

b. That word or style has come to mean your product in consumers' minds, so

c. It is deceptive if others use it

d. Like patent with utility etc requirements--giving you the property right costs others something, but is worth the cost if you prove the size of the benefit--in this case, that the word now has the secondary meaning.

e. Doctrine of merger? What if your word is the only or best way to describe your (and your competitor's) product? That is equivalent to "functional" in the context of trade dress.

III. Software interface: Could it be protected as trade dress?

A. Distinctive and non-functional--Lotus menu tree qualifies.

B. Is the Mac interface functional? Yes and No (other ways could be invented)

C. Is there secondary meaning? Yes.

D. Is there likelihood of confusion?

1. No--the Mac and Windows interfaces run on different platforms. But ...

2. Mac might want to invade the Dos world--consider Taco Cabana

3. There might be confusion about the source, not the product; consumers might think Windows was produced by Apple (???). Consider the Pac-man case; a home video clone would not be confused with the arcade game, but users might assume it was produced by the same firm.

4. What about confusion after the point of sale--my employees like it because they think it is a Macintosh interface, even though I know it is from Microsoft. Like the argument in Steiffel that Sears was not fooling the buyers of its pole lamps--they knew they were buying cheap Sears lamps not classy Steiffel lamps--but the buyers were fooling their friends and neighbors into thinking they had classy lamps.

5. Are users sophisticated, thus unlikely to confuse? As evidence against, lots of sophisticated law school faculty at Chicago seem to think that "Microsoft" is the name of their word processing program.

E. Trade dress versus copyright as a basis for protection

1. Trade dress protection does not require originality. This might be useful for Apple, since its interface was in large part invented at Xerox PARC.

2. Trade dress considers the effect as a whole, which is what Apple unsuccessfully tried to get the court to do in Apple v Microsoft.


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A. Where Trade Dress now stands

1. Either distinctive or secondary meaning

2. Functional features are not protected individually, but ...

3. May add up to protectable trade dress.

4. Likelihood of confusion may be prospective.

5. Does not have to be in the same geographical market if deliberate copying

6. But probably does not cover copying with no likelihood of confusion.

B. Does it make sense?

1. Yes as a way of protecting the process of generating consumer information.

a. Where there is no commons problem, give it for the asking (Distinctive trade dress)?

b. Where there is a commons problem, give it when with secondary meaning has been established.

2. But it is not designed as copyright for restaurants.

a. Might get used that way if potential confusion happened to exist

b. But not in the more general case of copying a good idea

c. Could you copyright a restaurant?

II. Virtual Reality: What is it? Will it be important? Jurimetrics Article on reserve.

A. Standards--protocols

1. Define the general framework, but ...

2. The metaverse is an open system

a. Much of what is in it (animercial, building) is on the owner's computer.

b. Much of the user's interaction is running on the user's computer.

c. Like my using Eudora to handle my EMail

B.Avatars--a much fancier equivalent of icons on the Mac or Windows

1. Use them for acting (double click an icon to load and run it) and

2. They signal simple info (highlight an icon to show it is selected)

3. This is a much fancier version. Note:

a. Facial expressions--a very complicated signalling system

b. Samurai duel--his avatar is acting on the metaverse (especially the other avatar)

c. Consistent metaphor--a problem showing the businessman's body in pieces. Beaming in is forbidden because it breaks the metaphor.

C. What would you like to protect? How might you protect it? Consider a VR role playing game.

1. The underlying code--easy. Protected by copyright.

2. The literal pictures--easy. Protected by copyright

3. The general story line, background, framework: D&D?

a. Probably copyrightable if well enough defined, but ...

b. A lot of it is derivative from stuff arguably in the public domain (Orcs in D&D)

c. You could base your RPG on a copyrighted book, having licensed the right from the copyright holder, and, piggyback protection--sue an infringer for violating the book's copyright.

4. How you do and observe things:

a. Moving--keys, feet, symbols, ...? Note connection to the underlying metaphor--are you a pedestrian or a driver in the virtual universe?

b. Magic? An RPG would feel better if the player, in order to use magic, had to actually employ some real skill. For instance, in Fletcher Pratt naval war gunning, the real skill of aiming guns is modelled by the player's ability to estimate the range from his ship to the ship he is shooting at.

c. Signals--how does the player know what the temperature is? Time? Do you display the sun, have a clock in the sky (breaks the metaphor), have a patch on his skin that gets hot or cold, ...

d. The problem with protecting all of these is that your solution to each of these problems is functional, and therefore arguably uncopyrightable because expression merges with the idea.. So ...

e. Either you argue that you can still prevent exact copying, or you argue that there are many possible ways of solving these problems, so no merger (Lotus).

f. To get trade dress protection, you argue that each individual solution is functional, but that combining your particular selection of functional solutions will mislead the consumer.

g. What about patent protection? Consider movement--perhaps you could patent either an apparatus to translate the player's actions into movement in the virtual world, or a process for doing so.

D. Other examples:

1. A meeting. We are all in our own offices, but each of us sees a room with all of us in it.

a. Do you simply use real world signals to convey physical acts, or a set of codes for "looking at you" etc.

(1) -) is the conventional symbol for a smile, meaning "this comment is intended as a joke."

(2) Using symbols takes a lot less bandwidth, simpler equipment, then showing a sharp picture of all of every participant.

b. If someone in the meeting is showing a projection, do the participants see a projection screen, as in a physical meeting, or do they see what he is projecting in front of them--virtual reality inside virtual reality.

c. Automated dummies to indicate that someone has stepped out for a minute?

d. How many of the answers to these questions are functional? If so, are they patentable? Can the description of some way of doing things in a science fiction story prove prove obviousness or negate novelty, thus preventing patent protection for the first person who actually does it that way?

2. Learning a skill: Heart surgeon. Driver.

a. Patent for a device--a power glove with feedback, say.

b. The better your solution it is, the less protectable, since it was constrained to fit reality, reducing the number of alternatives available. This is the argument used in Epyx (the karate game case).

3. Telepresence: Lunar construction? Micro assembly?

a. You don't need or want literal mapping. The objective is not to "feel as though you are on the moon" or "feel as though you are now a tenth of an inch tall," but to "control a machine on the moon" or "control miniaturized machine tools."

b. So there more opportunity for clever metaphors. You might use color to signal temperature or velocity or electric potential, or find some way of showing both the front and the back of the piece you are manipulating (represent it as a transparent object).

c. Could you protect such a metaphor via patent (idea) or copyright (expression) or trade dress (palming off)?

d. Commons problem---how many ways are there of doing this? Boundary line problem--can you clearly define your way? Confusing customers--is it plausible that the customer will assume your metaphor means it is your product?

E. Snowcrash: The metaverse. How it works

1. They are actually the structure of the metaverse by contract, inside a single system. The metaverse is running on a machine somewhere, although each user interacts with it through his machine.

2. Many of the issues that might arise as legal issues for the courts if nobody owned the metaverse still arise as issues for the standards committee to settle.

3. What if someone wants to copy Clint and Brandy?

4. What if someone wants to copy the black sun?

a. Facial expressions idea is surely unprotected by merger, but ...

b. How to do it was a hard problem--copyright+trade secret?

c. Can Juanita do it again and start a competitor?

d. Is the decor protected or functional?

5. What if someone wants to copy the metaverse?

a. Is the geometry protected? Is a sphere distinctive? Single main route around the equator?

b. What about having specific entry points? Is there an alternative solution?

c. What about the idea of selling space measured by its exterior dimensions--the inside of your house can be bigger than the outside.

6. What about copying the protocols??? That way people can interact with the new virtual universe using the software, avatars, etc. they already have for the old one. Synercom appears to imply that copying the protocols is legal.


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I. Review and amplification of the case for and against intellectual property protection:

A. Arguments for:

1. It gives an incentive to create valuable intellectual property

2. By creating rights in intellectual property, it gives the owner the incentive and ability to manage it.

a. Edmund Kitch's "prospect theory" of patents. A patent is analogous to a prospector's claim

b. In addition to rewarding discovery, it creates a property right in exploiting the discovery.

(1) The prospect can mine and know he owns the ore within a certain region.

(2) The patent holder can pay for and coordinate further research to increase the value of his invention.

3. Transaction cost problem in negotiatingfor the use of intellectual property.

a. Where intellectual property is not protected, it is hard to produce and coordinate it via contract.

b. How do I sell you an idea without giving it away in the process?

B. Arguments against:

1. Patent race. Inventing something is valuable, inventing it a day before your competitor would have invented it is not. But the reward goes to the first inventor, so there is an incentive to invent it earlier than it is worth inventing.

2. It is hard to draw clear boundary lines around intellectual property, so where it is protected it is still hard to deal with it be contract.

3. One function of property in other contexts is to decide who gets to use something. Everyone can use one idea simultaneously, so this function is unnecessary in the context of intellectual property.

4. Hence, if the arguments under A are not compelling, you may be better off with no protection and everyone free to use the intellectual property. That is how we mostly handle language, for example.


II. Review of Intellectual Property for Computers: Copyright

A. Is a program a writing?--wrong analogy, right box. Congress settled the question with the new copyright act.

B. Non-literal copying: Internal structure of the program or appearance to the user somewhat protected, but...

1. Protection is limited by merger. If the only way to structure the program, or the only way to interact with the user for this purpose, or one of a few ways, is yours, then you are unprotected, or protected only against close copies.

2. If you are representing a real world idea, merger may come in because you are constrained by the reality.

3. What if you are constrained by wanting to be compatible? Apple v Franklin, Lotus v Paperback say that does not justify a merger argument, Synercom seems to say that it does.

4. The lines are still unclear.

C. What is a derivative work? What is contributory infringement?

1.Speedup board yes, game genie no (or else it is fair use).

2.Prom blaster is contributory infringement, copy cracker is not. Typing service is.

3. Archival exception does/does not limit itself to fragile medium.

D. Protection of standards:

1.Synercom says no, but ...

2. Lotus gives some, but note that ...

3. Clean room gives a way around copyright protection for machine interfaces. Hard to do for user interface, since the specification is the expression you are not supposed to be copying.


III. Patent: Is a program patentable by itself or in combination? Is an algorithm?

A. There has been a long evolution from "no" to "probably."

B. Patentable if more than an algorithm narrowly defined, and

C. The amount extra is significant (not just ... providing inputs or insignificant post solution activity)

D. Supreme Court has not yet spoken.


IV. Trade Dress. May be usable to protect user interfaces, if a plausible "likelihood of confusion" argument can be made.




I.Computer Contracts: Goods or Services? Contract or tort? Does it matter?

A. Neilson v. Monteleone: Is a customized computer system goods or services? Goods are covered by the UCC and have implied warranties.

1. Purchaser is not an expert.

2. The contract took the form of lease not purchase; Neilson sold the system to Tri-continental, which leased it to Dr. Monteleone--probably for tax reasons.

3. The program was altered for doctor's needs; there were problems.

4. Is this breach of implied warranties of merchantibility and fitness for a particular purpose.

5. What is sold is mixed goods and services: hardware, software and services.

6. Defendant argues: Only hardware was goods and it was not defective. Software is an intangible.

7. Court: The transaction was structured as a lease but substantially a sale.

8. Buyer was relying on the professional expertise of Neilson.

9. Neilson loses--it is goods and carries an implied warranty.

B. Communications Groups, Inc. v Warner Communications: Software+Services

1.Warner failed to pay the 2nd half of the price, counterclaims under implied warrantee argument.

2. Plaintiff says there was a license to use copyrighted software, not a sale, ergo no implied warranties.

3. Contract provides for express disclaimer of warranties.

4. Court rejects 2, referring to "computer software goods." Is it right? It claims "license" really a lease.

a. Does the depend on the form of the transaction? Seller gave buyer diskettes, manuals, what if instead the seller ...

b. Loaded software onto customer's computer, or let customer download it?

c. Is training a good? Can you train a computer?

d. What about training an expert system? Would that be a service?

5. Court says it is a lease not a sale, but still covered by UCC as if a sale.

6. The disclaimer is not sufficiently explicit to meet UCC standards.

7. So plaintiff motion for dismissal of counterclaims is rejected.

C. Data Processing Services v. L. H. Smith Oil (Not in our book)

1. Contract to develop custom software, no hardware involved.

2. District court found it to be services, not goods.

3. But DPS breached implied promise of having requisite skill, and is therefore liable. The case hints at a tort of computer malpractice.

D. Clements Auto Company v Service Bureau Corporation: Tort not contract. 1961-66

1. SBC studied SM's requirements, agreed to provide data processing services.

2. SBC expanded its level of services from 63-66. Final level covered inventory.

3. in 1967, SM terminated all contracts, claiming the system was slow, error prone, expensive.

4. SM sued on rescission, breach of implied warrantee, breach of contract, ... and fraudulent misrepresentation.

5. SBC countersued for payments due.

6. Court found actionable misrepresentation only--the representation that the system would work well.

7. SBC argues that the disclaimer of warranties in its contract also protects it against liability for innocent misrepresentation.

8. Is "it will do X" a statement of fact or opinion? It depends. If within expertise of representor, a fact.

9.SBC was the expert--inequality of knowledge between SBC and SM.

10. At what point should SM have cancelled? When the misrepresentations were clear.

11. Does a limited liability contractual provision affect fraud damages? Not in Minnesota.

E. Glovatorium, Inc. v NCR:

1. System sold with (knowing) claim by agent that it would do things it would not do.

2. Is the firm responsible for fraud by its agent? That depends on his status.

3. Large punitive damages were awarded.

4. How would you avoid such an outcome if you were running the firm?

F. Black, Jackson and Simmons v. IBM: (Not in our book)

1. IBM sells the hardware, recommends a seller of software.

2. The hardware does not work with the software.

3.BJS alleges negligent misrepresentation by IBM.

4. The court disagrees: Tort law in Illinois is for personal injury, not for the economic losses that were bargained over. "If the court allows the parties to circumvent their contractual remedies by suing in tort, the ability of contracting parties to allocate and bargain for risk of loss will be effectively destroyed and certainty in in commercial transactions will be radically undermined."

5. There is an exception to this rule for negligent misrepresentation by one in the business of supplying information for the guidance of others in their business transactions. It does not apply here.

6. Plaintiff alleges emotional distress suffered by corporation's President. He is not a party to the suit. "A corporation cannot sustain emotional distress."

G. Diversified Graphics Ltd. v. Groves: Negligence, breach of fiduciary duty, and breach of contract.

1. E&W advised DG on obtaining a computer system. Negligent? Turned out badly.

2. Should E&W be held to an ordinary or professional standard of care?

3. Computer malpractice? Should there be such a tort?

H. Contract v Tort, goods v services:

1. Under contract, liability is limited to what the parties agree to (maybe); under tort it is not. What about the problems of getting an enforcable contract for a mass market sale?

2. Contract excludes liability for consequential damages unknown to breaching party (Hadley v Baxendale). Not true of tort.

3. Services, goods, lease all have different tax treatment.

4. Should there be freedom of contract?

a. To define liability.

b. To limit liability

c. Consider consequential liability issue.

d. Does fraud trump freedom of contract?

e. What about defining user's rights? Define copying, disassembly, etc. rights more clearly. Borland.

II. Sega v Accord. Does not really belong here, but I read it after we finished discussing copyright for software.

A. The Facts: Copyright case.

1. Sega console would only run game cartridges with special compatibility code--i.e. Sega or Sega licensed cartridges.

2. Accord copied and disassembled the code in order to figure out how to make their game cartridges compatible. They included in their cartridges a short string of code that the compatibility code in the console looked for in cartridges.

3. Sega sued on the ground that copying and disassembling violated their copyright.

B. Reverse engineering argument--court argues for a fair use exception not a copying exception.

1. Does this fit the fair use guidelines, such as they are?

2. Is this a commercial use of the copyrighted intellectual property? Yes, but ... what is being used commercially is not the copied code (except the short string in the cartridge), but the information derived from copying and disassembling the code. Copyright is not supposed to protect ideas.

3. Is this a competing use? Yes, but ... Accord is not copying the console code to learn how to make consoles but to learn how to make cartridges.

4. The court holds that this is a fair use if it is the only way of getting at the information embedded in the copyrighted code.

C. Trademark facts

1. Taiwan did not recognize U.S. copyright in software, did recognize trademark

2. Sega cartridges were being pirated in Taiwan, so ...

3. Sega modified its console so that putting a Sega cartridge in would display the Sega trademark on the screen. That way the pirated cartridges violated Sega's trademark rights.

4. Accord's cartridges, designed to be compatible, also set off the trademark display. Sega argued that Accord was violating its trademark.

5. Sega claimed their software engineer could easily make a cartridge that was compatible but did not set off the trademark display, and offered an example.

D. Trademark argument.

1. The Accord cartridges come in packaging that says that Accord is not Sega.

2. When the display is set off by an Accord cartridge, is it Sega or Accord that is misleading the customer? The code for the display itself is in the console, and Accord is not trying to set it off.

3. Sega knows how to make a compatible cartridge without setting off the display, but is not telling; Sega also has the source code, so their ability does not prove that Accord could do it.

4. The court finds that Accord is not violating Sega's trademark.


III. Review:

A. Contract remedies: Goods or services? Lease or sale?

1. Support clearly a service, hardware and off the shelf software a good.

2. Custom software is iffy. Does the seller "write" or "modify" it?

3. Leases seem to be freely interpreted as sales.

4. Which it is is elevant because of implied warranties under UCC

5. It is also relevant for tax reasons. The purchase of services is expensed, so you get the whole deduction when you spend the money. Goods get depreciated, so the deduction is spread out over time.

6. Lease vs sale is also being driven by tax considerations--leasing transfers the depreciation deduction to a leasing firm which has a higher marginal tax rate than the actual user. If the good depreciates faster in the IRS code than in the real world, the parties end up paying less tax because of the lease arrangement. This is especially useful if the real user has no profit to take deductions against.

B. Contract or tort remedies?

1. Contract remedies are limited by contract and by Hadley v Baxendale rule (forseeabilty)

2. tort claims are fraud, misrepresentation.

a. They get around any contractual limitations

b. And avoid forseeability limitations

c. And open the possibility of getting punitive damages.

3. Should the courts accept freedom of contract and refuse to grant tort damages if waived?

a. In ordinary cases, where "tort" is what contract was about, yes, but ...

b. What about real fraud cases?


IV.Software Sales and Licensing:

A. Alternative channels. Mass market, shareware, negotiated sale, custom, govt.

B. Mass market problems:

1. Hard to negotiate enforcable contract.

a. Shrink wrap? Dubious enforcability.

(1) Vault v Quaid

(2) 2-207 (1), express condition. What is "definite and seasonable expression of acceptance?"

(3) 2-207 (3)?

b. Can you get a real contract when the buyer registers his copy? If so, you still need some way of making it in his interest to register. The obvious way is a tie-in, such as making support depend on registration.

2. The seller would like to ...

a. Get waiver of consequential damages. Least cost avoider agmt.

b. Perhaps restrict resale. Why?

C. Negotiated sales.

1. The parties can set mutually agreeable terms, except ...

2. The court might refuse to enforce the terms because it thinks they are unconscionable or

3. One party might evade the terms by suing under tort law

4. Even if the terms are enforcable, it is not always obvious what the terms ought to be, because ...

a. Measuring performance is hard

b. Both parties have private information

c. Often there is no sharp point of acceptance.

D.Shareware: Why do it?

1. Income from honesty of your customers, very low distribution expenses.

2. Income from tie-in sale--better version, updates, manual. Some expenses.

3. A way of getting a reputation for the programmer, or the product, or even the compiler the program was written with.

4. A way of Beta testing what is going to be a commercial product.

5. One interesting thing about the shareware market is that it provides an example of a world without intellectual property protection (or at least very little).

E. Government: Why all the details?

1. Because rights in information and programs are easier to lose track of?

2. and so must be clearly specified.




I. Data Base access (near and dear to lawyers)

1. Control over large amounts of organized and computer readable stuff.

2. My problem on hypertext book

3. Putting a library on disk problem.

4. Offering a database on Internet problem. Contract?

5. Resale problem in all of these.

II. Apple v Microsoft:

1. Apple licensed to Microsoft those elements of the Macintosh interface used in Windows 1 and Microsoft's applications on the Macintosh.

2. Apple wants infringement judged by the overall look and feel; Microsoft wants the decision made on the basis of each individual item. Apple loses on that issue--in part because the license for

3. Did licensing Excel, Word, etc. effectively license all of the interface elements that they used? If so, Apple gave away the store. Apple argues that the interface is being run from the ROMs that have the Macintosh system on them, not from Microsoft's code in its application (which is calling the system software in the ROMs). Microsoft wrote the contract, so this ambiguity is interpreted against Microsoft.

4. Why did not Apple license the whole interface to Microsoft (at an appropriate price)?

a. It matters--One of the arguments in the "should standards be protected intellectual property" dispute is "owning standards will not prevent standardisation, since it will be in the interest of the owner to license the standards to others." Why is that not happening here?

b. Did one of the parties make a mistake, or ...

c. Am I wrong in thinking that Windows is much worse than it would be if Microsoft did not have to worry about whether it was infringing Apple's copyrights, or ...

d. Were Apple and Microsoft afraid that a licensing agreement would set off antitrust action against them?

III. Bankruptcy:

A. Fleming v. Carroll Publishing

1. Is the lease a disguised security agreement? That is a question of fact, not law, so the lower court's holding standands.

2. Carroll terminated payments, claiming non-delivery (i.e. that the system did ot work adequately). Suit and counterclaim.

3. Equity repossessed some stuff, sold it without notice to Carroll.

4. Equity would have had the right to repossess and sue, but only if it followed the rules, including notice.

5. It still has the right to claim the rest of the collatoral, but not to sue for anything more.

B.In Re Select-A-Seat Corp. Fenix Cattle Company v. Silver:

1.The facts of the case:

a. Select-a-seat (remote outlet sales of tickets for games etc.) licenses its software to Fenix, with exclusivity agreement--they will not license anyone else within a certain geographic area. Fenix pays $140,000 up front plus 5%/year.

b. Select-A-Seat goes into Chapter XI, later X.

c. Trustee moves to reject contract with Fenix as "burdensome executory contract."

d. Bankruptcy court agrees; Fenix can file proof of claim for damages.

2. Fenix claims:

a. Agreement not an executory contract

b. Fenix had a property interest in the software packages

c. Even if it was executory, it was not burdensome.

3. Court says:

a. Executory contract is one under which the obligations of both the bankrupt and the other party are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other. Fenix still owed 5%/year. Select-A-Seat still owed exclusivity (not selling to anyone else). So contract is still executory.

b. Trustee did not recover the tangible property, nor the license. Merely the executory portion--warranty and exclusive dealings.

c. Licensing agreement might have been burdensome. Was someone else offering to pay for a license? The case does not say.

4. Query--could one avoid such problems by buying the copyright instead of a licensing agreement?



IV. Damages: How to measure--Direct losses or infringer's gains?

A. UCC v Lykes: thief lost money on the project, so no gains.

1. The court argues for basing damages on the ex ante rather than the ex post value of the trade secret--what they thought it was worth when they stole it.

2.But if the secret had done very well, the court would have based damages on the ex post value--what the thief actually made. So on average the thief is more than fully reimbursing the victim.

3. Ex ante value corresponds to a "fair licensing price." Is that...

a. The most buyer would have paid

b. The least seller would have accepted

c. A guess of what they would have bargained to?

d. What if no bargain would be possible?

4. If no bargain was possible, then the least seller would have accepted is right--it is the damage done.

5. If a bargain was possible, than the amount bargained to (or perhaps the most buyer would have paid--which is the upper bound of the possible amount bargained to) is the opportunity cost--what the victim lost because "buyer" stole instead of buying.

6. So one could view a fair licensing price as a proxy for max(damage, opportunity cost)

B. Johnson v Phoenix: Preliminary injunction against copyright infringement.

1. Why? May not be able to get the software back from the customers, the infringer may be judgement proof.

2. Is that likely here?

3. To get the injunction, you must prove likelihood of success and possible irreparable or

4. Possible success, balance of hardships strongly in their favor.

5. Is this the case? Could you argue that in a rapidly changing field, the hardship is to the accused infringer, whose intellectual property (assuming it is theirs and they are going to win the case) is rapidly becoming obsolete?

C. In Re Certain Personal Computers.

1. General exclusion order against infringing and contributorily infringing products.

2. Importer is permitted to import and post a bond--which they get back if the president reverses the order.

3. Enforcement difficulties. How can customs agents know which circuit boards are for Apple clones?


V. Criminal remedies:

A. U. S. v. Goss Illicit video games: Is the copy the circuit board or the ROM?

1. Goss sold 4 circuit boards and 5 entire games; he was not authorised by Data East, the licensee. He was caught by a sting operation.

2. The circuit boards lacked the label and custom chip that licensed boards had, and ...

3. Goss implied in conversation that they were illegal.

4. The work is not the copy--what part of the game was the copy? The ROMs.

5.First sale doctrine: Burke & Van Heusen, Inc. v. Arrow Drug, Inc. Copyright law cannot be used to enforce the licensing agreement--if Goss somehow got ROMs that had been sold by the copyright owner, he is not violating the copyright even if someone else violated a contract.

6. ROMs in the 4 circuit boards appeared identical to legal ones, could have been obtained legally.

a. Either from broken machines, or ...

b. From someone abroad who had bought them legally but was not supposed to sell them to a U.S. buyer.

7. If fewer than 7 copies in violation of copyright, government's charge collapses. 9 - 4 = 5 < 7.

8. The outcome may be only the result of technical incompetence by the prosecution--but the defendant may have been innocent! People sometimes pretend things are stolen so that they buyer will think he is getting a particularly good deal. Or he may have thought they were illegal when they were not. Or they may have been illegal, but not in violation of copyright law--for instance, the ROMs might have been stolen by someone from the licensee, who had legally bought them from the copyright holder.

B. U.S. v. Robert Riggs (and Craig Neidorf)

1. What happened:

a. Riggs copied a text document from a Bell South computer--it had a secrecy warning at the top.

b. Neidorff edited it and published it in Phrack

c. The file zipped back and forth across state lines in the process.

2. Is it fraud?

a. If you get the file by calling up a secretary and persuading her that you are someone she is supposed to send it to, then yes.

b. If you get it by "persuading" a combination lock to let you in at night to steal the document, no.

c. This case is somewhere between the two.

3. No fiduciary relationship between Riggs and Bell South--is this deprivation of an intangible right (requires a fiduciary relationship to be fraud) or of property (does not)?

4. Is what was transmitted a thing? "goods, wares or merchandise."

a. Transmitting money counts.

b. Does transmitting Bell's proprietary information count as transmitting "goods, ... ?" Yes, if affixed to a tangible medium. What if the medium is not stolen (U.S. v. Brown below)?

c. This court holds that it counts even if what was transmitted is not tangible--others have disagreed.

d. Anyway--the court says thatcomputer storage is more like paper than like memory.

e.But no computer was transported--just the information. What if trade secret information had been transmitted by a phone conversation?

5. Is what was transferred the type of property that can be "stolen, converted or taken by fraud?"

6. Dowling v U.S. holds that copyright violation does not qualify. Pirated records (from broadcasts), when transported across state lines, are not subject to the Federal Stolen Property statute. The criminal owned the records, and the intellectual property was not "goods, wares or merchandise."

7. This court holds that trade secret can be stolen even if copyright can only be infringed.

8. Are "Hacker" and "Legion of Doom" prejudicial terms?

9. The real story:

a. The Sysop of the BBS on which the document was stored reported it, the informationg got to Southern Bell security months before its publication, and nothing was done.

b. Every document produced by Southern Bell for internal use had the same secrecy warning.

c. The information was administrative, not technical. Maybe helpful for verbal fraud, but ...

d. Southern Bell sold a document with more extensive information to anyone for $13.

10. Is there a first amendment issue here? Neidorff is being charged with publishing something, not stealing it.

11. Law enforcement was trying to "send a message"--discourage communication of information useful in committing crimes--i.e.

a. BBS's and electronic journals that published

b. Other people's phone ID and credit card numbers

c. Information on how to get such things and

d. Information on how to get entry to other people's computers.

e. Worried, in this case, that the information might be used to sabotage the 911 system.

12. Is this a legitimate objective? Books on "how to get even,", "Anarchist's Cookbook," etc. are protected by the First Amendment. They tried to achieve it by harassment--siezing computer systems as evidence and then (in many cases) neither indicting people nor returning the seized systems.

13. Does Neidorff have legal recourse against the Feds? Against Bell South (which claimed the document was worth $80,000). Should he? Is Bell guilty of abuse of process?

a. Bell's figure was a (much inflated?) estimate of the cost of producing the document. But ...

b. They still had it. The relevant figure ought to be either

c. The cost to them of the info getting out or the value to the thief.

d. Both were trivial, since they were freely selling a document containing the same information.

C. U.S. v Brown:

1. Programmer left, moved, took his copy of employer's source code with him.

2. Source code program is not goods, wares or merchandise, as per Dowling. This court disagrees with U.S. v. Riggs.

3. Does the national stolen property act criminalize copyright infringement? No.

4. Statutes are to be read narrowly.

D.Schalk v State: Criminal penalties for trade secret violation.

1. Schalk quit his employer, took a position with a competitor (voice recognition and speech synthesis).

2. Just before leaving, he copied his directory onto a tape and took it with him.

3. Texas penal code makes stealing a trade secret criminal.

4. Was the secret protected?

a. Access by outsiders--but they knew it was secret

b. By modem--but required a password

c. Public presentation, but only a ten minute discussion of concepts.

d. Release to University--but under nondisclosure agreement.

5. Did he know it was a trade secret? He should have.

6. His defense--he took the whole thing, did not misuse it. Hard to prove either way.

7. Note the problem presented by the new technology. Because copying is so easy, and no harm is done unless the information is used, it is at least possible that he simply copied the whole thing to save the trouble of sorting out what he wanted. In this case that does not seem too plausible; for one thing, he was leaving to work for a competitor. But ...

E. Unix source code cases. 1990.

1. Law enforcement was following a trail from BBS to BBS via EMail

2. Found a respectable computer consultant, who ...

3. Had lots of Unix source code on his computer, and traded with similar people to get more.

4. Is he a criminal with millions of dollars of stolen property?

a. Obviously not--Bell can sue if there is any damage (there probably is not).

b. If Bell does sue, they may find it harder to get contractors.

5. Typically in such a case his equipment is seized but no charges are ever made!

6. What is happening? It is useful to have source code when doing subcontracting work. Bell is restrictive about giving it out. So A has source code for one part of Unix, B has it for another, they trade in order that neither has to persuade Bell to give him the code when and if he actually needs it. (conjecture)

7. Should Bell worryabout such behavior? If intellectual property is easy to steal, the best strategy may be to enforce your rights against people who misuse it, not against ones who simply have it.

8. If Bell gets people like this thrown in jail, they may find it harder to hire consultants next time.

9. Conjecture: Bell's right hand did not know what its left hand was doing. Bell Telephone people are trying to intimidate hackers and phone phreaks; Bell Unix people would not want their consultants arrested for harmless acts, even if they are iin violation of contract.

VI. Review: Issues raised by the criminal cases.

A. What is computer fraud? Is using a fake password analogous to lying to a person or to opening someone else's combination lock?

B. What is information?

1. In what sense does copying it deprive the owner of it?

2. Does transporting it count as transporting "goods, wares or merchandise?"

a. Does it depend on the form in which it is transported--phone call or diskette?

b. Does it depend on who owns the diskette?

c. Does it depend on whether it is copyrighted or a trade secret?

3. Can it be "stolen, converted or taken by fraud?"

4. How do you measure its value?

a. Production cost? Clearly wrong.

b. Value to thief--perhaps, or ...

c. Cost to victim.

d. Note that the Neidorff case is a clear example of why the victim might lie about the value.

C. Ought protection of information be civil or criminal, contract or tort?

1. For ordinary theft, the reason the owner would not permit it is clear, so its inefficiency is clear, so there is a good case for making it criminal. But consider disputes over what perks an employee gets at work--my use of the services of the Law School mail room to mail things for which I pay postage, for example. Ought it to be criminal to take more perks than my employer thinks I am entitled to, or should that be a civil issue?

2. Since "theft" of information does not injure the victim directly, it is much less clear when it is or is not efficient to permit it, so there may be a good case for handling it by tort law or contract.

3. What about the fuzzy area where I want to have rights but (usually) not enforce them? That may describe the Unix cases--which resulted in people going to jail for having source code that they may have believed that nobody really minded their having.

4. There seems to be a strong argument for making these issues civil rather than criminal.

5. And in some cases (fair use) there is even a good case for treating intellectual property as a commons rather than property.

D. At what point does the first amendment come in?

1. If you take criminal action against BBS's that post a publication containing stolen intellectual property?

2. Does that exert a chilling effect? Should you be able to take criminal action against bookstores that sell a book that contains some stolen intellectual property?

3. Especially given the fuzzy nature of IP--do you want to criminalize a mistaken opinion about what is fair use?


I. Privacy: Control of true information.

A. Is it a problem?

1. Better information technology leads to a decrease in privacy.

2. But not necessarily to an increase in the risk of being damaged by false information about oneself. Better technology may make it easier to distinguish true information from false. Computerised credit reports are likely to be much more reliable than gossip.

3. Does an improvement in information technology lead to a shift in power? If so, is it from those who do not have information to those who do, or from bad guys to their potential victims? If an employer can find out which actual and potential employees are good and which bad, does that mean that the employer has more power over workers, or that good workers have increased power to get rewarded for working well, and bad workers less power to get rewarded for working badly? Similarly, does improved credit information mean a transfer of power from borrowers to lenders, or from deadbeats to people who pay their bills?

4. There are at least two potential ways of dealing with privacy problems. One is to restrict the gathering, distribution and use of information about people. The other is to permit people to do things, such as encrypting their communications, that keep the information from ever getting out.

B. Merriken v. Cressman: A school drug prevention program

1. The proposal:

a. Collect lots of personal information about kids

b. Without getting informed consent from parents

c. And use it to figure out which ones are at risk of drug use, in order to

d. Take preventive action.

2. Arguments against it:

a. If you decide a kid is likely to use drugs, that may be a self-fulfilling prophecy or lead to scapegoating by other children.

b. Gathering the information may be a violation of family privacy and the child's loyalty

c. "Preventive action" means incompetent psychotherapy by amateurs

d. Inadequate precautions to keep the information private.

3. Constitutional issues:

a. Privacy, freedom of speech, etc.

b. No consent to waiver of rights (even supposing they are waivable).

c. A balancing test is appropriate, but goes heavily against permitting the program.

C. Fair Credit Reporting Act

1. Information goes to court or grand jury, or anyone the subject wants it to go to, or to anyone with a legitimate business purpose in connection with a transaction involving that subject.

2. Legal rules on when information becomes obsolete.

a. Why? Bankruptcy 10 yrs.

b. Only applies to small transactions.

3. Credit agency must make a reasonable attempt to notify subjects of investigative reports except for reports in connection with employment that was not applied for.

4. The law looks as though it would be pretty easy to evade--just claim you are doing business with someone when you are really trying to dig up dirt on him. This might not happen very often--but then, it might not happen very often if the act did not exist, either.

D. Bankruptcy code: Only limits use of bankruptcy information by government and in employment

E. Lotus Marketplace: A CD full of marketing information which was going to be mass marketed; Lotus dropped the plan because of public opposition on privacy grounds.

F. Whalen v. Roe: Drug prescription database

1. In a computer with fairly elaborate precautions to keep it private.

2. After 20 months, only used for two investigations.

3. District Court: It violates the zone of privacy in doctor patient relationship, the sweep of the law is needlessly broad, law loses.

4.Supreme Court does not follow Lochner (and hasn't for quite a while). The state may infringe this sort of liberty even if the court does not agree that doing so is desirable, because the state has broad latitude in experimenting. The law is constitutional.

5. There are two privacy concerns here--information and decisionmaking about drug use (which may be affected by threat of stigmatization), but

6. Neither is sufficient to make the database legislation unconstitutional

G. U.S. Dept of Justice v. Reporters Committee For Freedom of the Press, 1989

1. Can reporters get at rap sheets under FOIA?

2. the contain only public information, but no compilation is publicly available at present

3. FOIA puts the burden on the agency of proving a reason not to disclose

4. Exceptions include information whose disclosure would unreasonably invade personal privacy.

5. Is there a privacy interest in a compilation of publicly available info? Supreme Court says yes.

6. The policy objective of FOIA is making government visible, not providing people with information about other people..

7. Medico's rap sheet is only very tenuously related to that objective.

8. Strong result--if the information is desired as information about the subject rather than about the government, FOIA does not apply.


II. Steve Jackson case:

A. The facts:

1. Steve Jackson Games had only a tenuous connection to anything illegal--an employee (Blankenship, aka Mentor) had Phrack on his board (Phoenix), and had posted talk about a planned decryption service.

2. Phoenix was an ideological board with no stolen credit cards, codes, etc., on it. Blankenship invited telephone people to come on the board and argue with hackers.

3. Kluepful is the guy who was told about the 911 document and chose not to do anything about it.

4. Izenburg ran a BBS on his own machine, connected with Terminus. Foley urged him to admit all sorts of things, none of them true. He let them seize his machine as evidence; he was charged with nothing. Six months later he asked about getting it back, as of two years later he still had not done so.

5. "Erik Bloodaxe," co sys-op of Phoenix, had his stuff seized. Two years later, they still had it. No charge.

6. Secret Service raided Phoenix, seized everything, no charges, two years later still had it--including his wife's thesis. No copy provided.

7. They also raided Steve Jackson Games, apparently on the theory that Jackson's computers might have evidence and that Mentor might be able to erase it if warned.

a. Seized work in progress,

b. Working equipment,

c. Files of BBS EMail system.

d. Nobody was charged with anything.

8. GURPS Cyberpunk was the almost finished manuscript seized. A book, not a game.

9. The next day, Jackson asked for the book back, so he could finish publishing it. Was told by an agent that it was a "manual for computer crime." Later told the same thing by other agents. He was not told about the connection to the 911 document case until months later when the warrant was unsealed.

a. This gave everyone reason to believe for some months that it was a prior restraint case.

b. And leaves suspicion that it really was a prior restraint case--that once the Secret Service saw GURPS Cyberpunk, they concluded that Steve Jackson was a bad guy and ought to be treated accordingly.

10. The secret Service claims they did not know of either the Privacy Protection Act or that SJG was a publisher.

11. They were, however, informed of the latter fact during the raid

12. And of both the next day.

13. The Secret Service refused to give copies of anything, did not return the bulk of what was seized for almost four months.

B. The Verdict

1. The Secret Service was not liable for defects in the initial warrant application

2. Not liable for damages for the first day of the seizure

3. Liable for damages for the rest of the year for violation of Privacy Protection act in searching a publisher

4. Not liable for damages thereafter because because they were balanced by SJG's gains from publicity

5. Not a violation of the Wire and Electronic Communications ... act interception rules because reading a stored message is not interception,

6. But it does violate the procedures set out by the act for getting access to stored communications, so $1000/plaintiff statutory damages. What about the other 362 plaintiffs? Collatoral estoppal does not apply to the government, so presumably they all have to litigate if they want their $1000/plaintiff.

C. Some narrow legal issues:

1. No damages for day 1, ordinary damages for the next 4 months. Should it be ordinary damages for day 1 (negligence), punitive thereafter (deliberate violation of the law)? But the U.S. waiver of sovereign immunity does not cover punitive damages, so you cannot get them against the government.

2. SJG got damages only for 1990, because of their later gain from publicity. Is that offset proper? If I buy a SJ game out of sympathy for Steve Jackson as a victim of the Secret Service, do I really intend the money to go to reduce their civil liability to him?

3. Suppose the victim was not a publisher--does the Secret Service have a legal obligation to minimize damage? Consider the wife's thesis. Would it be possible to institute a class action covering all such cases, asking for an injunction requiring the Secret Service to institute a policy of prompt copying and return? The data, not the computer, is the evidence.

D. Broader issue: Is the whole campaign in violation of the first amendment?

1. The objective was to suppress the distribution of information in order to suppress crime.

2. When is that legal?

E. Still broader issue: What are the limits on police imposition of costs instead of indictment?

1.Old style: beat someone up.

2. Arrest someone, let him cool off in jail over night, drop charges.

3. Seize a computer.

4. All of them work because the police have the threat that, if the victim objects, they could impose larger costs, at some cost to themselves (indict, jail, maybe lose the case).

5. Is this a bad thing, or a necessary adjustment to the real world?

6. How might it be prevented or limited? Should police or police departments be liable, and when?

7. Would that give police an incentive to make dubious indictments instead of dubious seizures?


I. Encryption: The problem it solves

A. The movement towards doing more things by electronic communication, ultimately including VR communication, makes it harder (absent encryption) to keep things private

B. Dark fiber idea: Use optical fiber with enormous bandwidth. Instead of using a switched network, send everyone everything. That also makes it harder (absent encryption) to keep things private.


II. Encryption: The technology

A. Algorithm and key. "Secure" means " secure against someone who knows the algorithm."

B. Brute force approach--try every possible key.

C. Other approaches--many and varied. For some algorithms there may be clever approaches that work much better than brute force.

D. Non-mathematical approaches--steal the key etc.

E. Public Key Cryptography

1. Combine public key (used to transmit DES key) with DES (or some similar encryption scheme) for speed. Use similar tricks for digital signature. The RSA patent on its form of public key encryption expires in the year 2000 .

2. Tap now, read next decade approach. In deciding how strong encryption you want now, you must allow for the effect of technological improvement and improvement in the mathematics of decryption for however long your information needs to be kept secret.

3. For distributing public keys you need reliable certifying agencies, which will prove that this really is your public key.

4. All of this stuff is discussed in detail in the RSA FAQ, on reserve.

F. One-time pad: The one really unbreakable code. But it requires that the parties exchange pads in advance.


III. Supplementary technology

A. Anonymous remailers: So that nobody can prove who is talking to whom

B. Digital Cash: So that nobody can trace payments


IV. If you have it all ...

A. Private communication

B. Hard to tax or regulate sales of services.

1. You could use a consumption tax instead. Observe the spending rather than the earning of income.

2. But it would then be hard to tax consumption of services.

3. Taxation is also limited by tax competition, as people become less tied to the location of their job. What does a nation have to offer the taxpayer to make him locate in it and pay taxes to it?

C. People can deal with each other anonymously. If you know someone's real name, you can get at him--sue him, kidnap him, spy on him, tax him. So keep true names secret.

D. No wiretapping

E. Brand name on criminal markets.

F. Drastic reduction in the ability of government to monitor and control

1. Bad insofar as crime prevention is a good thing

2. Good insofar as you do not trust government, or ...

3. Believe it tends to go too far and is best limited by not having the power to do so.

G. Easier protection of property in information?

a. trade secret approach. Keep secrets, rather than ...

b. Requiring copyright protection or the like.

c. On the other hand, copyright gets harder to enforce, since you can have anonymous pirate sellers.

H. A good world for spontaneous communities, multiple communities, ...

I. Can these developments be prevented? At a tolerable cost? The Clipper chip is an attempt.


V. The Clipper Chip

A. The proposal

1. The chip has two keys built into it (not public key); whoever builds a particular implementation (i.e. Bell's scrambler phone or whatever) chooses a key exchange protocol. When you call up another phone, the two phones use the protocol to negotiate a key to be used for this session.

2. Along with the conversation, the phones also transmit the law enforcement block, which includes the chip ID, the session key encoded with the chip keys, all encoded with the family key. Law enforcement agents (and, soon, everyone else) know the family key.

3. The keys for every chip are deposited with an escrow agency, can be obtained with a court order

4. A law enforcement agent records the conversation, decrypts the law enforcement block, takes the chip ID and his court order to the escrow agencies, gets both chip keys, uses them to decrypt the session key, uses it to decrypt the actual conversation.

5. The chip uses a secret algorithm (Skipjack), is proof against reverse engineering (maybe).

6. The algorithm will be tested for secruity by people chosen by the governmentto do so.

7. It is proposed as a voluntary standard, not (yet) compulsory. It will be required for dealings with the government, which, however, will not use it for highly classified material.

B. Technical problems

1. Maintaining the secrecy of the keys as chips are produced.

2. Is the algorithm secure?

a. People outside the government cannot properly test it

b. It might contain a deliberate back door, or

c. A possible back door--one not designed in, but that could perhaps be discovered by someone who knew the algorithm and was very good at cryptography. NSA knows the algorithm and employs a lot of very good cryptographers.

d. Is it really secure against reverse engineering?

e. Can they prevent pirate clipper chips--without escrowed keys? Making them requires either referse engineering the chip or discovering the algorithm.

3. Is the procedure secure? You talk (encrypted) to my phone A, which talks to my phone B, which talks (encrypted) to the phone of the person you called. I sit in between A and B listening.

4. Once a chip's numbers are out, they are out for ever. Must you warn the subject when your search warrant expires?

C. Law enforcement issues:

1. If it is not compulsory, why would criminals use it?

2. Can you detect or prevent pre-incryption?

3. Suppose it is compulsory--with large volumes of data, it is easy to hide encrypted messages.

4. It is better against my problems (criminal brand name) than for its stated purpose.

D. Economic issues

1. It locks us into a government chosen technology. Fixed key size, hardware only encryption.

2. There is some additional cost to maintaining the escrow system, sending the law enforcement block--all of which would be unnecessary if we were not trying to design a tappable form of encryption.

3. Given the small amount now spent on wire-tapping; would it still worth doing if it cost a few billion?

4. Will foreigners use Clipper if U.S. can crack it?

E. Legal issues

1. First amendment--preventing privacy has a chilling effect?

2. Fourth amendment--can the government make locks illegal?

3. Probably neither argument will fly, beyond perhaps requiring the government to choose the least intrusive option.

4. What about forcing someone to reveal a key?

a. How? Contempt of court, or by threatening to introduce his refusal to do so as evidence.

b. Does this violate the Fifth amendment?

c. Will a prudent criminal burn his private key weekly, switch to a new one? Daily?

5. Does a digital signature count as a legally enforcable signature?


I. Thompson v San Antonio Retail Merchants Association

A. Automatic capture of information--strengths and weaknesses.

1. Cheap and easy way of adding information, but ...

2. Individual merchant may be careless, since he does not pay costs of error.

B. Is SARMA testifying to facts or transmitting them?

1. Suppose the information was added to the data base with a note of its source? Can SARMA then shift the blame and the liability to the merchant who reported the information?

2. Is it libel to report another's libel? Yes, often. So shifting the liability will not work--they will both be liable.

C. FCRA imposes duty of reasonable care--which was not met here.

D. Damages. $10,000+costs

1. Humiliation and and mental distress, because ...

2. He was falsely suspected of reneging on a $77 debt, when ...

3. He was in fact only a convicted felon!

4. One suspects punitive etc. motives in the court.


II. Rogan v City of Los Angeles

A. Against a municipality, must show

1. deprivation of protected interest

2. due to an official policy etc.

B. Erroneous information, identifying Rogan as a wanted murder suspect.

1. Readily available information that would avoid confusion was not included.

2. The information was repeatedly reentered, as per policy, with no checking.

C. Plaintiff deprived of rights because

1. NCIC record violated fourth amendment particular description requirement.

2. Maintanance and reentry caused further arrests without due process of law.

D. By policy of L.A.?

1. Police officers were not trained in how to amend information in the system or the need to do so.

2. They did not even know it was possible to do so, nor did they consider doing so after initial misidentification incidents.

3. Crotsley had a policy, inconvenient to victim, for dealing with such situations.

E. Result

1. L.A. is liable.

2. Officers are not because of qualified immunity.


III. Lowry v Credit Bureau, Inc. of Georgia

A. As in Thompson v SARMA, but a more reasonable response by the credit agency.

B. Was Lowry libelled? No, another Lowry was correctly described as a bankrupt.


IV. Fair Credit reporting act.

A. [[paragraph]] 609 Disclosures

1. Credit agency must provide subject with all nonmedical information it has on him,

2. Provide him the sources except for investigative consumer reports, and

3. Tell him who the recipients of the information are.

4. The act immunizes credit bureaus against defamation suits and the like, except for violating specific provisions or acting with malice.

B. [[paragraph]] 611 Procedure for disputing and recording disputes, and correction.

C. [[paragraph]] 613 Public Record Information for employment




I. Dayton Conference: Sega v Accolade. (Out of order--should be with the intellectual property stuff)

A. Essential result: Decompilation is a fair use if it is the only way of getting at the ideas.

B. Argument One: Is Decompilation a plausible way of pirating?

1. The impossibility of decompilation, explained by one who does it.

a. Slow, hard, gives you unannotated assembly code without variable names.

b. A crazy way of pirating, a barely workable way of learning compatibility information

c. Supposedly, the cost of software is 10% writing, 90% maintaining. If so, even if decompilation, modifying, and recompiling is cheaper than writing your own software, if it makes it much harder to maintain the code (since you do not know why it does what it does) it is probably a bad idea.

2. And the result is still illegal--so why not just copy the object code? Or decompile illegally?

C. Argument Two: Is copying necessary to get at ideas? Is disassembling? Can people read machine language? Yes. Can people read hundreds of thousands of bytes of machine language and keep track of what it is doing without making and using notes, which will themselves be infringing derivative works? No.

D. Argument Three: In what sense are ideas unprotected?

1. You cannot copyright the idea--direct protection.

2. You cannot copyright what is necessary for the idea--merger. What if the key to making my console run your cartridge is that the cartridge must send the console a story--which I have the copyright on?

3. You cannot use copyright to protect your trade secret in the idea--Sega v Accolade

4. You must reveal your ideas to get copyright protection--no cases yet.

E. Why?

1. Because the copyright act says so. That only gives sense 1.

2. Because of the doctrine of merger--that only gives sense 2.

3. Via a doctrine of opyright abuse imported from patent law and related to antitrust, tied sales. The doctrine is on the way out in patent law. On the other hand, the facts of Sega do involve a tied sale.

4. Copyright bargain--make the idea public in exchange for protection. Imported from patent law, no textual support in copyright law. In patent law, you make the idea public and get the idea protected. It is not clear that making the idea public and getting only your expression protected would be a good bargain.

5. The point of copyright: Why sell a writing if you won't let people read it?

a. Suppose that I buy a medieval French cookbook; my French is not very good, so I must make extensive notes in the process of translating it to myself. Is that fair use? Presumably yes.

b. But programs are not really writings. You buy a writing to read it, you buy a program to run it.

c. So the analogy to fair use in my example under a is the "load into RAM" exception, not decompilation.


II. Libel on-line

A. Cubby v Compuserve: The verdict

1. Compuserve is a distributor, not a publisher

2. Because it cannot reasonably check content in advance

3. So liability would have a chilling effect on free speech, which is unconstitutional

4. Vicarious liability is inappropriate, since CCI and DFA are independent contractors, not employees.

B. Medphone: Liability for postings

1. Postings on a bulletin board on Prodigy claiming the stock was terrible

2. Stock price went down (lots of other explanations)

3. Company sued.

4. Case not yet resolved.

C. Libel or Slander?

1. Simple approximate division--defamation in a transitory form is slander, in a permanent form is libel.

2. Common law: Libels are actionable per se, slander requires proof of special damages (with some exceptions).

3. Broadcasting classifies as libel, not slander (Restatement second of torts).

4. What is a posting?

5. Publication is required for libel. Restatement on posted libel.

D. What should the law be? What is a network?

1. Cubby focusses on control--for something like the internet, whose?

a. Machine I posted from

b. Machine you read from

c. All machines who forwarded it?

d. Me--can you prove who I am? Should we requrie digital signatures in order to post?

2. Suppose I am defamed in a book--what do I do? Ditto newspaper. Ditto Usenet News.

a. An open news group has instant correction facilities, unlike either other case. It is like a conversation with the subject (or maybe only his friends?) present. Does the subject of defamation have an obligation to mitigate damages--for instance by posting a reply to the defamation?

b. A moderated news group is like a newspaper, letter to the editor.

c. What about a mail group with closed membership?

3. Who is a public figure on line? Is it enough if I am a regular poster in the particular group, so that everyone there knows who I am? Probably not, if the objective of the New York Times v Sullivan rule is to preserve free political debate--although the rule does not only apply to defaming politicians.


III. Obscenity on-line

A. Obscenity vs Indecency

1. Obscene--It is constitutional to forbid people in general from reading it. A work is obscene if:

a. The average person, defined by community standards, would find that the work as a whole appeals to the pruriant interest, and

b. The work depicts or describes, in a patently offensive way, sexual conduct specifically defined by the applicable state law, and

c. The work, taken as a whole, lacks serious literary, artistic, political or scientific value. Not defined by local community standards.

2. Indecent--may be kept from to children, but not from adults (except to the extent that keeping it from adults is an unavoidable consequence of keeping it from children).

3. Sable Communications v FCC:

a. The invention of Dial-a-porn resulted in a series of acts, regulations, suits on how much the providers could be constrained in order to protect children.

b. 1988 act--total ban on both obscene and indecent, no FCC regulations to limit serving children required.

c. The court held that banning obscene speech is constitutional, even though the standard of obscenity will vary from place to place. The burden is on the provider to tailor its product accordingly.

d. Indecent speech is protected by the 1st amendment, so the law must restrict it more narrowly to only protect children. That part of the 1988 act is unconstitutional.

e. FCC v Pacifica--banned dirty words only by time of day. And broadcasting "can intrude on privacy without prior warning as to program content, uniquely accessible to children, even those too young to read." "Captive audience, ... unwilling listeners." So the case for regulating radio is stronger than for regulating telephone conversations.

f. Alternatives suggested by the FCC: require credit card, an access code obtained by providing proof of age, or a scrambler only sold to adults.

g. Dissent (Brennan, Marshall, Stevens) holds that imposing criminal penalties for distributing obscene material to consenting adults is constitutionally intolerable, because of the vagueness of the definition of obscene, hence chilling effect.

B. How does this apply to networks?

1. The act applies to anyone who : "Makes obscene communication by means of telephone for commercial purpose" or "permits any telephone facility under such person's control to be used for ..." That might apply to Compuserve EMail and other forms of electronic communication to people using modems over telephone lines. Even if the EMail or posting is not made for commercial purposes, you could argue that its transmission (by Compuserve, or a commercial net access provider) is.

2. A future act directed at networks would raise constitutional issues similar to those in Sable. Obscene could be prohibited but indecent could probably not be if less extreme alternatives were available. The difficulty of dealing with a multitude of community standards would not prevent such an act.

3. Currently, alt.talk.sex is not under the act because it is not commercial. But access providers arguably are!

C. Technical issue--possible control and associated liability.

1. Posters must identify themselves via digital signature. Require the poster of indecent or obscene material to restrict his post to "World minus K12," or "World minus Prudes."

2. Posting machine--require users to label posts as "adult only," "PG," ... ?

3. Receiving machine--require it to provide its community standards in a way that makes it possible for posters to include it out if their posts would offend its community.

4. Who defines the code--courts? Internet standards committee?

5. What about an owned information utility such as Compuserve or AOL? Must they require age evidence for customers?


IV. Computer Crime:

A. Lund v. Commonwealth of Virginia (1977)

1. VPI grad student in statistics, entitled to use the computer, but arrangements did not get made. Instead ...

2. He got keys for other people's accounts, used them.

3. Funny money expenditure of $5,065 shown, $26,384.16 estimated, but the output's only market value was as scrap paper.

4. Got his doctorate anyway, suggesting that VPI did not much mind, also got ...

5. Convicted of grand larceny. Appealed because

a. No evidence that the keys and computer cards were stolen, or worth > $100

b. Computer time and services are not the subject of larceny under the relevant statute.

6. Commonwealth argued that the value of the printouts was >$5000. "goods or chattels"

7. Some states have statutes to make it a crime to obtain labor or services by false pretences--not VA

8. Printout must have its value proved--only scrap paper value was proved. Conviction reversed.

B. People v. Weg (1982).

1. Weg used Board of Ed computer to run his own business on.

2. There is a "theft of services" offense in New York.

3. But it applies only to "business, industrial or commercial equipment."

4. This is not business equipment, because used internally by government.

5. The theft of service provision was a response to People v Ashworth. Employees used a mill's machines and workmen to spin wool for sale. Held not to be larceny, because not property.

6. Revision was not intended to make all theft of services into larceny--most remains civil. Weg goes free.

C. People v. Versaggi: Evidence

1. Under N.Y. computer crime statute, 1986.

2. Someone shut down Kodak phone lines

3. Commands to do so appeared on the SL-100 log and ...

4. Corresponded to commands captured on monitor monitoring the phone line

5. While Versaggi was calling that line.

6. Twice.

7. Some circumstantial evidence is very strong--for instance, finding a trout in the milk.

D. People v. Versaggi: Law.

1.What is "alteration?"

2. vs "Use"

3. Court says he altered the program

4. In fact, he at most altered the data.

5. And that only by stretching the definition, since "altering data" presumably meant "in a database" not "flags in memory showing the current status of a program."

6. Badly written law? Should include (or exclude) tampering with operation of a program.

E. Mahru v. Superior Court

1. BHI is providing contract computer services for credit union.

2. Credit union terminates, signs with ECOM

3. End game negotiations break down

4. BHI officer shuts things down, makes it a little harder to restart.

5. ECOM people get it restarted after several days. BHI goes bankrupt

6. BHI officers say they were protecting the computer, for Credit Union's benefit, against amateurs running it and messing something else.

7. Is this malicious ... ? the description of the change was taped to the monitor!

8. Taken literally, writing a nasty letter on my mac violates the statute!

9. So don't take it literally, acquit. Sensible decision.

F. United States v. Morris

1. Morris deliberately spread a worm, but one not intended to do damage.

2. Due to his error, it did damage. He tried unsuccessfully to stop it.

3. Does "intentionally" modify damage as well as access?

4. Is what he did "unauthorised access" or "exceeding authorised access?"

5. Does it apply only to outsiders, or to insiders going where they do not belong?

6. Does respondeat superior apply to a programmer whose program accesses?


V. EFT Issues

A. Disclosure: EFTA specifies disclosure to consumer of terms and conditions.

B. Authorised and unauthorised transfers

1. Pre-authorised transfers must be authorised in writing. (Digital signature?)

2. Consumer is liable for unauthorised transfers only

a. If by accepted card etc., with

b. Additional confirmation (photo, PIN, etc.)

c. Limited to transfer before the institution is notified or becomes aware of problem.

3. But consumer is also liable if he failed to report

a. unauthorised transfer or error in 60 days,

b. or loss of card.

c. But this is limited to $500.

C. Liability for failure to make a transfer

1. Financial institution is liable for failure to make a transfer, unless

a. There were insufficient funds, or the funds were encumbered, or the transfer exceeded the customer's credit limit

b. Or ATM has insufficient cash

c. Or an excuse provided by other regulations.

2. Institution liable if insufficient funds were due to institution's mistake (not crediting a deposit, say).

3. Not liable for acts of god, given reasonable care, or technical error if consumer aware of it.

4. Strict liability for actual damages proved if bona fide error.

D. If payee agreed to accept EFT, the obligation to pay is suspended by a computer error that prevents payment, until the payee makes a written demand for payment.

E. Dispute resolution: EFTA specifies procedure re errors.

F. Waiver: Contract can expand consumer rights but not contract them.

G. Civil liability: Negligence standard in general: "a bona fide error notwithstanding the maintainance of procedures reasonably adapted to avoid such error." Exceptions above.

H. Criminal liability: violating provisions of the title, plus theft, fraud, etc.


VI. UCC 4A: Huge sums, low error rate, high speed, low cost.

A. Wire transfers (business to business) and nonconsumer automated clearing house

1. Flow of instructions--X to his bank to transfer to Y's bank to transfer to Y.

2. Often the acceptance and the payment are separated by some hours

3. Implying granting of short term credit.

4. Option--don't accept until the money arrives.

5. What happens if something breaks in the middle--insolvency.

B. Risks of inadvertent losses:

1. Temporary credit in the process, plus insolvency.

2. Loss through failure to execute or late execution of order.

3. Error in intermediate order.

4. Who is liable?

C. When does what happen legally--acceptance

1. Y's bank owes Y money when it accepts payment order from X's bank or last intermediary.

2. Acceptance occurs when Y's bank pays Y, notifies Y, or receives payment.

3. X's bank becomes liable to pay for X when it accepts the order, unless their contract with X specifies otherwise.

4. It accepts by sending payment order to Y's bank or intermediary.

D. Bank error

1. Liability is owed to X by intermediate bank for failure to execute

2. No consequential damages, absent contract to the contrary.

3. X is only liable for the money if Y's bank accepts a payment order for Y (not if it does not accept, or accepts it for Y' by mistake)

4. Except that X is liable if X specified the intermediary and the intermediary collected from X's bank but failed to pay Y's bank.

E. Unauthorised orders:

1. If bank accepts an order complying with agreed on security procedures, customer is bound to pay.

2. Provided that the security procedure was commercially reasonable.

3. Unless the customer can prove that it was not the source of the leak.

a. In practice, today, that probably means proving that the bank was the source of the leak.

b. Suppose they use public key cryptography for security. If the order came in encrypted with the customer's private key, the customer must be the ultimate source of the leak--the bank does not have the customer's private key. If something bogus went out encrypted with the bank's private key, then the bank must be the source of the leak.

VII. Port City State Bank v. American National Bank (1973)

A. Two bounced checks, returned after the deadline. Who is liable?

B. ANB's new computer system had errors when it went into use, which caused ANB to fall behind, which is why they bounced the checks later than they should have.

C. Trial court held that American National was excused by the error.


VIII. Georgia Railroad Bank & Trust Company v. The First National Bank and Trust Co.(1976)

A. Facts:

1. $25,000 check deposited by Freeman with GRB, miscoded as $2,500, sent on, processed

2. Freeman's account was overdrawn as a result of not being credited with the whole $25,000, error noted, GRB credited Freeman, requested payment from FNB.

3. Jones told FNB not to take the money out of his account.

4. FNB told GRB it could not pay--although money was in Jones account.

5. FNB loses--Jones can only stop payment up to the time the check is certified or paid by drawee. Paying the wrong amount still counts.


IX. Bisbey v D. C. National Bank

A. Facts

1. Bisbey made the original error--two overdrafts.

2. Bisby made a second error--she thought the bank had mistakenly paid her bill twice in the second month. She complained.

3. A bank official called her, explained the situation. She considered the matter still unresolved, sued under EFTA.

B. Appeals Court opinion.

1. Bank violated act, liable, but ...

2. Strongly hints at nominal damages and "reasonable" attorney's fee

3. Inasmuch as "victim" was benefitted!


I. The value of "stolen" property.

A. NSPA: Interstate transport of stolen property >$5000 is a federal crime.

1. "Goods, wares, merchandise, securities or money"

2. Is a "stolen" computer file property? If so

3. How do you value it?

B. Dowling v. United States: Are bootlegged (or pirated) records

1. "Goods, wares, or merchandise?"

2. stolen, converted or taken by fraud?

3. Copyright argument and trade secret misappropriation argument are both possible.

4. Latter failed because not raised at trial, no evidence of value was offered.

5. Is it the value of the records or the value of the embedded intellectual property that matters?

6. The act was passed to fill an enforcement gap--but copyright already solves that problem.

7. Copyright act has limited and narrowly defined criminal penalties.

8. It is unlikely that congress intended NSPA to implicitly infringe on this area.

9. If NSPA applies to copyright infringement, it would also apply to patent infringement, where there is no criminal penalty (why?)

C. The relevance of this to the Bell South 911 Document and similar cases

1. Is Dowling about copyright, intellectual property,

2. Or tangibility? Goods must be the same as those stolen--physical identity.

3. U.S. v. Riggs: NSPA applies to tangible medium+intellectual prpty(formula on paper)

a. Should apply to intangible as well

b. Dowling applies to copyright but not to trade secret.

4. U.S. v. Brown: Programmer took his hard disk with company's source code when he quit.

a. Govt claims that defendant took the code, violated NSPA.

b. Not physical goods, wares, or merchandise--law does not apply.

5. To apply to Bellsouth case, we need:

a. Dowling is about copyright, not tangibility

b. Dowling is about copyright, not all intellectual property--specifically not about trade secrets.

c. Note that Dowling was decided under "taken" not "goods" part of the NSPA.

d. But perhaps only tangible goods can be "taken, ... " It may requires physical taking.

6. Dowling is not about trade secrets because:

a. "Filling the gap" argument applies to Copyright and Patent, which are Federal, not to Trade Secret, which is state law.

b. There are lots of cases (Riggs cites them) applying NSPA to trade secrets. Must the paper the trade secrets are written on be stolen?

c. Dowling court finesses the question of how the recordings were obtained.

7. Dowling is not (should not be?) about intangibility because:

a. U.S. v Levy: defendant was authorised to write checks, used them to steal money, deposited it in another state.

(1) He argued that the checks were not stolen, only the value.

(2) the court rejected this argument.

b. Lagerquist v US: Bank checks that were not stolen, but obtained by the sale of stolen property.

c. U.S. v. Kroh: Fraudulent financial statements were used to obtain loans, which the banks deposited electronically in his account in another state. No physical movement of dollars--he did not even have them before they were moved. He is still guilty.

d. Is the transfer of abstract value equivalent to the transfer of information in Riggs?

D. The broader issue: Fitting files and their theft into the law. Options.

1. Let the common law evolve.

2. Use NSPA to expand the definition of property to cover trade secrets of this sort.

a. Do we then make the usual trade secret requirements?

b. What counts as reasonable precaution to protect your trade secret?

c. Does this let us establish property rights by contract? Copyright does not (first sale doctrine).

3. Leave it under state trade secret law, contract law, etc.

a. Argument against: diverse law, lots of interstate activity. On the other hand ...

b. Contracts can tailor law to an efficient structure of ownership.

c. For example, Borland copyright contract, which seems an improvement on the Federal copyright act.

E. The still broader issue: Property rights to things in cyberspace.

F. The valuation issue:

1. What is the value of a stolen file?

2. Use the trade secret rule--value to thief or loss to victim, whichever is greater?




I. Review: NSPA and all that (with help from Lexis)

A. Is a stolen computer file "goods, wares, merchandise, securities or money?"

1. Note that on this issue the money transfer cases do not help, since "money" is its own item in the list.

2. So perhaps intangibles are not "goods, wares or merchandise."

3. Might it depend on what they are used for?

4. Term "goods, wares, or merchandise" in 18 USCS @ 2314 is a general and comprehensive designation of such personal property or chattels as were ordinarily subject of commerce. Shetland pony, poached alligators, Horses and burros ... constitute goods, wares and merchandise within meaning of NSPA. Stolen copies of geophysical maps belonging to oil company, and Photostatic copies of geophysical maps stolen from oil company constitute "goods, wares, or merchandise." NSPA was violated when thieves transported in interstate commerce copies of stolen papers describing chemical processes even though thieves returned stolen papers to owner voluntarily; copies and notes of papers describing secret processes for manufacture of certain antibiotics and steroid drugs were "goods" which had been "stolen, converted, or taken by fraud"

Given established, viable, albeit limited, market in chemical formulations, and wrongful appropriation of original documents containing such formulations, normal, ordinary and logical import of language of 18 USCS @ 2314 dictates conclusion that documents were "goods, wares or merchandise" within meaning of this statute. Airline tickets were goods "ordinarily a subject of commerce" within meaning of 18 USCS @ 2314, since they have value and can be sold, under broad interpretation of statute.

5. Papers of governmental agencies are not "goods," "wares," or "merchandise," FBI documents showing that individuals are or may have been engaging in criminal activity or what procedures are being used by FBI in tracking them do not constitute "goods," wares," or "merchandise."

B. Can it be "stolen, converted, or taken by fraud?"

1. "Stolen" should be construed to include all felonious takings with intent to deprive owner of rights and benefits of ownership, regardless of whether or not theft constitutes common-law larceny.

2. Alleged removal of retail business's property from one state to another and conversion to removers' personal use in order to conceal property from creditors in contemplation of bankruptcy--with consent of business's sole stockholder--does not violate 18 USCS @ 2314, because creditor's interest in property is not property right that statute protects and election of stockholder to remove assets cannot be deemed criminal deprivation of someone else's rights. Bristling specificity of 18 USCS @ 152, which, inter alia, made concealment of assets in contemplation of bankruptcy a crime, strongly suggested this modest and restrained interpretation.

C. What is it worth?

1. In determining jurisdictional value of goods in prosecution under 18 USCS @ 2314, it is proper to use market value of goods. "Value" of transported sound recordings which had been made in violation of copyright laws was market price rather than cost of procuring license to copy recordings. United States v Whetzel (1978). Determination of value of stolen stock certificates, since stock involved had neither face nor par value, was price willing buyer would pay willing seller at time and place property was stolen; value need not necessarily be determined at time and place of theft, but instead may be determined at any time during receipt or concealment of stolen property. United States v Reid.

D. Does Dowling determine the verdict in Riggs? If so, not the verdict that was given.

1. Copyright violation is not stealing, but trade secret probably is.

2. Can one steal and transport intangibles? Maybe.

3. So the verdict in Riggs does not necessarily contradict Dowling.

E. The broader issue: How do misappropriated files fit into the law?

1. If they are misappropriated intellectual property, copyright or patent, then mostly civil.

2. If they are ordinary property, then criminal.

II. Computer crime--some legal fine points, showing how the courts have fitted computer crimes into the general framework of the existing law.

A. U.S. v Jones

1. Jones Everston, supervisor of Accounts Payable Dept., got their (Canadian) employer's computer to print out checks to Jones, by making it appear that they were payments of legitimate bills.

2. Are these "falsely made, forged, altered, counterfeited or spurious representations" of a promise to pay issued by a foreign bank (excluded from NSPA) or fraudulently obtained property (included)?

3. Fraudulent.

B. U.S. v. Seidlitz

1. Facts of the case.

2. Is an internal "spy" program a wiretap? Title III Omnibus crime control bill, 18 USC 2510 (4)

a. Refers to "aural" acquisition of the contents ...

b. Information appeared on a screen!

c. Does this mean that a speech to word program would evade the law?

d. Interception legitimate with permission of a party. Can a computer give permission? Its owner?

3. The victim was a govt agency. Is use of the "spy" facility government action? Does it violate the fourth amendment? Done at govt request, by private contractor, without a warrant. Judge says no.

4.Was he really stealing Wylbur source code? Extensive printout of it? Why then?

C. U.S. v. Girad (and U.S. v. Lambert)

1. Lambert was checking if people were DEA agents from a computer terminal, selling the info.

2. 18 USC Section 641 (Unauthorised sale of govt property)

a. sells any "record ... or thing of value" of the United States. Written in 1875.

b. Does this cover information, or only tangible property and documents?

c. Defense argues that record c. 1875 meant court records.

3. "thing of value" have "in a sense become words of art." Generally held to cover intangibles.

4. The existence of a property in the contents of unpublished writings was judicially recognized before the advent of the copyright laws.

5. Daly in Lambert cites U.S. v. Friedman (1971): Copying Grand Jury transcripts onto defendant's own paper. "said information is Government property, regardless of who may be said to own the particular sheets of paper."


I.Property in Cyberspace:

A. Different things to protect, thus different legal rules may be needed.

B. Different technology of enforcement and violation--some laws may become unenforcable. Think of how cheap copying has made parts of current copyright law unenforcable.

C. One might establish the relevant legal rules by legislation, by court decisions fitting cyberspace issues into existing law (see above), or by contract enforced by property rights over computers, disks, etc.


II.Protecting machine readable books.

A.Cornell needed more library space, dug a hole in the ground and put a library in it.

1. They could instead have converted lots of books to machine readable form

2. And put their new library in cyberspace instead.

3. The easiest books to do this with are those that are out of copyright, since no permission is needed.

4. But it should be possible to get permission for books that are permanently out of print.

B. If Cornell does this and wants to get back much of its money by providing copies in machine readable form to other libraries, how does it protect itself against a pirate who downloads everything and then resells it in competition with Cornell?

C. Strategies and Responses:

1. Claim copyright on the machine readable versions as derivative works. Feist kills that.

2. Modify (add key words, variant paginations, ...) and do 1, rely on Meade Data Central.

3. Pirate strips out your modification, reuses free.

4. Use contract? Pirate gets it at third hand, does above .. .

5. But his stripping stuff out violates your copyright!

6. Pirate claims fair use under Sega.

7. You point out that it is not that hard for him to get at the unprotected out of copyright work the same way you did.

D. Alternative--Get the courts to junk Feist, rule that sweat of the brow works, at least for this sort of work. Or get Congress to amend the copyright act to define machine language readable versions as derivative works. or ...

E. Create a new form of intellectual property for machine readable works.

1. Copyright as against copies of your copy.

2. Prove they are copies of your copy by varying numbers of spaces, misspellings, etc.

3. Or require the pirate to prove he did the work himself, as in clean room cases.

4. Since it is sui generis--only protect against making machine readable versions publicly available. Why pass a law you cannot enforce?

5. You will probably not get permission for in print books. Why?

F. Think of this line of argument as a sample exam question


III. Copyright by contract, in a world without enforcable intellectual property.

A. The world: encryption, anonymity, etc. PGP archives at present.

B. You cannot enforce IP against pirates, but you can enforce contracts. How?

C. By dealing with people who either do business under their true names and live in jurisdictions that enforce contract, or post suitable bonds with reliable parties.

D. If you can tag your copies, you then only sell to purchasers who agree to be liable if a copy of their copy gets out.

E. How to tag books. Include lots of sentences that have two variants, choose the particular set of variants differently for each copy you distribute.

F. Why it does not work--a pirate buys ten copies and uses them to locate the variant sentences. He produces and puts in his archive a copy generated by some combination of majority vote and coin flipping.

G. How to tag programs, VR adventures, films, ... . As in E above, but use variants that have to go together in ways not immediately obvious. For example:

1. Arithmetic book. Variant A of problem 1 had better be combined with variant A of answer 1, or the pirate will have some very unhappy customers. This example is too easy to get around, but ...

2. Computer program: Compile a different object code version for every customer, all from the same source code version.

3. Replace the novel with an interactive novel--a program. The pirate can record one play of it--but part of its value comes from the fact that every play will be different.

H. The cost of buying the authorised edition will not be very high, since selling books in machine readable form on line eliminates most of the production cost. So a strategy that introduces some errors into pirate editions may be enough to get most customers to buy the authorised edition.

IV. Alternatives

A.Government archive, subsidy.

1. Inaccurate pricing

2. Subsidize the world

3. Prior restraint made easy.

B. Shareware--like autographed copy.

C. Don't distribute. Game. Database.



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