Contractor Copyrights

Contractor
Contractor

Want to pay a contractor to produce creative material for you, and then actually own the copyrights? Getting ownership of contractor copyrights is tricky.

Copyrighted material – be it text, images, music, or code, is important for many creative and commercial efforts. None of us have the time or talent to do all of this ourselves, and so it is natural to turn to experts to help provide this material.

We could hire employees for this purpose.  However, many projects are of limited duration, and alas, unlike “the good old days” where employees had no rights and could be hired and fired at whim, these days employees actually have rights and benefits. These include unemployment insurance, social security, tax withholding, and the like. No one wants to go back to the Victorian era, but at the same time, it can be a hassle to employ someone.

Contractors are often used to avoid this hassle.  Contractors are expected to deliver results, but to do so in their own way. We pay money, expect to obtain the benefit of the deal, and then no more hassles or obligations. This simple expectation breaks down when it comes to IP, however, and contractor copyrights are particularly tricky.

To somewhat oversimplify, if you want to pay someone and obtain ownership of copyrighted material in return, the following legal considerations can apply:

  • Under Federal law, full copyright ownership requires a “work for hire” agreement
  • “Work for hire” agreements may imply (and in California, can define) that the worker is an employee
  • Employees are legally entitled to various employee benefits
  • Contractors are not legally entitled to employee benefits
  • Absent an assignment, copyright ownership remains with the contractor
  • Copyright ownership assignments must be in writing
  • Copyright assignments that are not “work for hire” can be terminated by the author or heirs after 35 years

This creates interesting legal problems.  It is common to put “work for hire” terms in contract agreements. The idea is to automatically acquire full copyright ownership this way.  However, such “work for hire” terms can be inconsistent or even incompatible with the definition of “contractor”.  This can open the door to potential legal headaches.

In an alternative approach, there is no “work for hire” clause, but as part of the deal, the author-contractor agrees to assign all contractor copyrights to the work that you have paid for. This is not perfect either. Additional assignment paperwork is often needed, and Federal copyright law allows an author-contractor to petition to terminate this assignment 35 years later.

35 years is fine for most purposes, but what if you are thinking on longer terms? Here, efforts to work around the 35-year copyright assignment termination issue should be considered. One option is to contract with a corporation that in turn “work for hire” employs the author.

Non-disclosure agreements (NDA)

Confidential
Confidential information

Non-disclosure agreements (NDA) can help preserve business trade secrets and other confidential information, but don’t expect your attorney to sign one.

Businesses often use non-disclosure agreements with their contractors, employees, product evaluators, and site visitors, as well as with other businesses such as suppliers, customers, potential partners, and the like.  These agreements are often required to establish diligence in preserving trade secrets.  If breached, such agreements may also be used, along with other suitable evidence, in subsequent legal action in state or federal court.

Although in some states, non-disclosure agreements are sometimes used as a backdoor form of a non-compete agreement (e.g. attempting to restrict an ex-employee’s employment elsewhere), this is not a universal practice. California, for example, disallows this sort of thing.

NDA typically include various clauses establishing:

  • Who is disclosing the information, and who is the recipient
  • The boundaries of the confidential information – what is and is not covered
  • Confidentiality obligations
  • When and/or how the agreement ends
  • Other legal provisions (beyond the scope of this blog)

Generally, NDA have carve-outs for publically available information and terminate either when information subsequently becomes available to others through no-fault of the recipient, or after a pre-negotiated number of years.

NDA can be particularly useful when you are working on an invention, but either have not filed a patent application yet, or else are continuing to work on improvements to the invention.  Here, if you want to work with vendors or contractors to produce components of the invention, NDA (and other IP rights agreements) can be important.

Attorneys, including myself, usually refuse to sign NDA.  Why is this?  The reason is that attorneys are already subject to strict state (and federal) attorney-client rules and regulations that require them to keep client (and potential client) secrets. In essence, by agreeing to talk to you, the attorney has already agreed to a standardized, legally enforced, type of attorney-client “NDA”.

Consider what would happen if this were not the case.  Clients would be afraid to even ask an attorney about their particular problems. Attorneys would be signing hundreds of NDA each year, each with different terms. The legal system would grind to a halt.

Professional investors (VC, Angels) usually also refuse to sign NDA.  Here, there is no duty of confidentiality.  However, the finance people control the money, see a lot of ideas they don’t fund, and usually don’t want any constraints on their future investments. This is where it is good to have your patent applications filed in advance.

Secondary considerations of nonobviousness

Reset button

Is your examiner repeatedly insisting that your patent application claims are obvious?  One option: “reboot” your examiner by submitting at least one Rule 132 declaration providing “secondary considerations of nonobviousness”.

 Obviousness rejections are needed to prevent trivial patents.  Obviousness is legally determined by considering if the invention would be obvious from the standpoint of an imaginary Person Having Ordinary Skill In The Art (PHOSITA). This is ultimately just legal guesswork, and as previously discussed, such determinations are often unduly influenced by hindsight bias.

There is an alternative mechanism. The patent legal system also allows applicants to rebut obviousness rejections by submitting “objective indicia of nonobviousness”, which we will call “outside evidence”. This outside evidence can include unexpected results, commercial success, long-unsolved needs, failure of others, professional approval, skepticism of experts, and the like.

Although allowed, such outside evidence has a rather second-class status.  You can even see this in the terminology: “secondary considerations of nonobviousness”.  The patent legal system actually prefers its imaginary PHOSITA reasoning over actual real-world evidence! Sounds silly, but remember that they are skeptical because applicants are constantly trying to game the system.

Submission of outside evidence is not done often.  You might think that with the 2007 KSR removal of anti-hindsight rules, it would be more frequently used, but it isn’t. However, in my opinion, it is a useful “in an emergency, break glass” kind of tool.  You use it when you want to try to break the examiner out of a mental “rut”, or even a mental “infinite loop” of obviousness rejections.

When to use it?  Obviousness rejections are routine.  It usually takes at least two office actions to see if the examiner is showing signs of having a non-negotiable “I still think it’s obvious” position.  If this seems to be the case, outside evidence can potentially be used to try to “reboot” the examiner and break out of the loop. This is because according to the USPTO examination rules MPEP 716.01(d)   Weighing Objective Evidence…“When an applicant timely submits [outside] evidence traversing a rejection, the examiner must reconsider the patentability of the claimed invention.”

Outside evidence is submitted as various “Rule 132 declarations”.  Here the identity and the credentials of an outside declarant (someone other than the attorney, and preferably other than the applicant) are presented, the relevant outside facts are given, and the declaration is signed by the declarant. It is important to try to find credible individuals for this and to submit the best evidence available.

Due to USPTO concerns that the outside evidence is unreliable, this is not a sure tactic.  The rules state that there must be a “clear nexus” between the outside evidence and the invention’s claims. The examiner may rebut by arguing that no such clear nexus exists, proposing alternative explanations, and/or looking for other ways to discount the declaration.  Still, if you do have good evidence, why not use it?

Obviousness, hindsight, KSR

Training the human neural network: by Novasdid (CC BY-SA 4.0)

The 2007 KSR v. Teleflex Supreme Court (SCOTUS) decision is why the patent examiner, ignoring hindsight issues, just used your own teaching against you to reject your patent application claims as being “unpatentable” (obvious) under 35 USC 103.  Unfortunately, the US patent “obviousness” rules and regulations still have some “bugs”. 

The patent examiner has just reviewed your patent application, and has sent you a response. What are all these “rejected under 35 USC 103 as being unpatentable over (various citations)” statements? It almost looks like the examiner just copied your claim, interspersed it with various citations matching some of the claim words, and concluded with “therefore it would have been obvious to one of ordinary skill in the art…

This might even look to you like a standard formula that could be used to reject almost anything. Why does the USPTO work this way?

Some background: Without obviousness rejections, your patent could soon be swamped by many other competitor patents that claim the smallest, most trivial changes to your work. To keep the patent system healthy, there needs to be some “shielding”, some sort of “force field” that keeps competitors from getting too close to your work. In the US, the depth of the “shielding” or “force field” is set by trying to legally determine, often years later, what a person having ordinary skill in the art (PHOSITA) would think was obvious.

The big problem is “hindsight bias”. Lots of non-obvious things look obvious in hindsight. Here the legal system is attempting to cope, with varying success, with a very complex underlying problem of pattern recognition. Once you see the solution to a puzzle, it is hard to see anything else.

Prior to 2007, the USPTO used anti-hindsight rules in an attempt to minimize hindsight problems. However, in the 2007 KSR v. Teleflex case, SCOTUS made what, in my opinion, was a key error. Dictionaries define hindsight somewhat incompletely as: “understanding of a situation or event only after it has happened or developed”. SCOTUS ran this incomplete dictionary definition into the ground. They argued that the earlier anti-hindsight rules were too “rigid”, and that “common sense” should be used. They held that hindsight could be avoided by just considering if the invention would be obvious “at the time of the invention”.

This is an almost meaningless statement.  Who would file a patent application if it could be invalidated by later filed patent applications?

In reality, the patent applicant has just shown the examiner the solution to a puzzle, thus “training the examiner’s neural net” to subsequently view this solution as “obvious”.  However, the examiner is told to examine with 100% hindsight bias.  The examiner can also dismiss “hindsight” rebuttals by merely stating that under the newer, post-KSR, USPTO rules (MPEP 2141.01 III): “Content of the prior art is determined at the time the invention was made to avoid hindsight.”

In other words, thanks to the KSR ruling, the present USPTO rules can be paraphrased as Don’t bother us about “hindsight”, we’re not listening, and SCOTUS says that we don’t have to!

Fortunately, there are other ways to rebut obviousness rejections. Examiners often misquote the citations, have gaps in their reasoning, and their proposed combination is often a Frankenstein monster that differs significantly from the claim.  Secondary considerations can also be raised. So things can be done, but this hindsight “bug” (or feature) in US obviousness patent law is annoying.

Beware the “on-sale bar”

Victim of the on-sale bar

A patent is invalid if the invention was sold more than a year before filing (on-sale bar), and the recent “Helsinn v Teva” case shows that the courts can be harsh.  

A patent applicant can accidentally ruin their own patent in various ways.  In the US, one error is to first sell an invention (presumably in the form of a product), and then wait more than a year to file the patent. This error violates the 35 USC 102 on-sale bar of classic (pre-2012) patent law. This error also violates the latest 2012 AIA version of patent law, which phrases this as “on sale, or otherwise available to the public”.

However, the relationship between an “invention” and a “product” isn’t always clear, and it also isn’t always clear if a “sale” has taken place.  If I privately show you a cardboard box and say “I have an invention inside, want to buy it sometime if it works?”, and you say “Maybe”, is this a sale that invalidates a later patent?  In the event of doubt, how will the courts rule?  Will they err on the side of protecting the patent, or invalidating the patent?

In their May 1, 2017 “Helsinn Healthcare via Teva Pharmaceuticals” decision, the Federal Circuit took a harsh and patent unfriendly approach. Indeed, this ruling was so harsh that Lamar Smith, the Congressional sponsor of the 2012 AIA law, stated that the court was ignoring the intent of Congress.

To greatly simplify the Helsinn case: back in 2001, Helsinn was doing FDA clinical trials on the efficacy of various palonosetron drug formulations to reduce nausea during chemotherapy. During these trials, they signed a supply agreement with MGI (another company) stating that if the FDA approved some of Helsinn’s various drug formulations, and if MGI subsequently made purchase orders for these drug formulations, and if Helsinn subsequently accepted these purchase orders, then Helsinn would sell the drug to MGI. In 2003, after the clinical trials were successful, but before FDA approval, and before any actual product changed hands, Helsinn began filing for various patents.

Teva, a competitor, decided to challenge these patents as being invalid due to the “on-sale bar”. But was there really a sale? Was there an invention yet? Was it disclosed to the public? A lower court ruled in favor of Helsinn, but the Federal Circuit reversed.

The Federal Circuit used the Uniform Commercial Code (UCC – a set of laws intended to “save” ambiguous contracts by automatically supplying missing terms) to argue that there was a “sale” despite all the “ifs” and ambiguity. They then argued that the invention was in the (undelivered) product and that the invention existed before clinical proof that it actually worked.  Strangely, they even argued that the AIA “on sale, or otherwise available to the public” language didn’t apply because… this would change past practice. Apparently Congress, (despite good reasons and clear intent) somehow doesn’t have enough authority to make these changes?

The case is presently being appealed, but the moral is: be careful.

Goodbye Texas Eastern District

 

But armadillos love patent trolls!

In the TC Heartland v. Kraft Food case, the Supreme Court ruled that the Eastern District Court of Texas is no longer patent litigation central. Goodbye forum shopping. 

In a strange quirk of patent law, a single judge from Marshall Texas (population 24,000) has been deciding more than 25% of the US patent infringement cases. If you wanted to sue someone for patent infringement and wanted a friendly court, the Eastern District Court of Texas was the place for you.

Put it this way: so much patent litigation happened here that Samsung actually sponsored a local Marshall Texas ice skating rink, just to keep the locals happy.

This is very unusual.  Corporations are typically sued in their state of incorporation or in the primary state where they do business.  However, patent litigation has had its own set of rules.  For nearly a generation, lower courts have interpreted these rules as implying that corporations can be for sued for patent violations nearly anywhere in the US.

It didn’t take long for patent litigation experts to figure out that if this was the rule, then why not sue where the courts are friendliest? This practice is also called “forum shopping”.

The local economy around Marshall Texas had been struggling.  What to do? In what may have been a bit of a “race to the bottom”, the Federal Court and local juries in Marshall Texas became increasingly patent-plaintiff-friendly.  Lots of attorneys with big corporate expense accounts started flying to Marshall.  Good for the local economy, but it starts to look a bit fishy…

In the recent TC Heartland v. Kraft Food decision, the Supreme Court decided that this had to stop.  They ruled that if Congress had intended this sort of thing, Congress would have said so plainly.  They also pointed out that there wasn’t much of a basis for the “file anywhere” interpretation. So goodbye “file anywhere” rule.  And for the most part, goodbye Eastern District Court of Texas.

Going forward, the new hot spots for patent litigation may become Delaware (many corporations are incorporated there), California (high tech industry), and other high-tech areas.

Blurred lines: copyright AFC tests

Blurred lines

The “Blurred lines” music copyright case went wrong because courts are not using modern abstraction-filtration-comparison (AFC) infringement tests.

Copyright covers creative expression but not ideas or information.  Many copyrighted works, however, are a mixture of creative expression and ideas/information.  This mixture gives courts headaches, and as a result, copyright litigation can be unpredictable.

For software copyright infringement cases, courts tend to use an “abstraction-filtration-comparison” (AFC) test. The AFC test was first introduced in the 1992 “Computer Associates v. Altai” case.  For this test, the court (i.e. the judge with expert help) first “abstracts” (analyzes) the work and determines what parts are “expression” (copyright protected) and what parts are ideas (copyright ineligible).  Then the court removes (filters out) the ineligible idea portions. If there are questions about what remains, the court can give the remaining “expression” portions to a jury to decide.

This test puts a lot of responsibility on the court to get things right and is hard to perform in practice, but at least it makes some sort of logical sense.  Throw out the ineligible stuff, and just look at the rest.

The AFC test was inspired by the earlier “Scènes à Faire” (Scenes a Faire) concept often used for literary and movie copyrights. As a quick example, if you want to write a Western novel or film, then horses, guns, salons, bandits and the like are considered essential ideas, and these would be tossed out in a copyright case involving a Western theme.

So what went wrong in the recent “Blurred Lines” music copyright infringement case? The song admittedly tried to capture the party atmosphere of Marvin Gaye’s earlier “Got to Give it Up” song, but the lyrics and music were quite different. Both had party noises and “cowbell”, but these were different party noises and different cowbell. In fact, Marvin Gaye’s copyright was for sheet music that didn’t cover party noises and cowbell at all.

The problem is that outside of software, older tests, such as “objective substantial similarity” and “total concept and feel” are still being used.  These older tests blur the distinction between creative expression and ideas and rely on an unskilled jury to magically sort things out.

To somewhat simplify the “Blurred Lines” case, the jury listened to music that contained a mixture of creative expression (different lyrics and music) and unprotected ideas (generic party noises and cowbell). To make matters worse, the jury instructions did not even tell the jury to try to distinguish between creative expression and copyright ineligible ideas.

So, not surprisingly, the jurors found infringement; most likely because both songs contained party noises and cowbell.  Never mind that these were not covered by copyright and that as far as the actual copyrightable lyrics and music went, the two songs were quite different.

This case is presently on appeal. Various copyright experts have suggested that the way out of this mess is to expand the use of the AFC test from computer software to other types of copyright cases as well. Unfortunately, the law works slowly. Until then, go easy on the cowbell at parties.

Intellectual property for cheerleaders

Cheerleader
Is the uniform decoration “functional”?

In Star Athletica v Varsity Brands, the Supreme Court ruled that copyrights can cover the industrial designs of clothing, 3D objects, and other useful (functional) things.

The boundaries between different areas of intellectual property, such as copyrights and patents, can be fuzzy.  Copyrights, among other things, cover artistic images and 3D sculptures on various media or “articles”, but the artistic feature must be able to exist separately from any functional (useful) part of the underlying media.

Copyrights v design patents: Copyrights require only minimal originality, are cheap, and last for generations. But, if you want to claim an ornamental design for a functional (useful) item, this falls into design patent territory. Design patents have a higher threshold for originality, are more expensive, and only last for 15 years.

Some things, such as clothing, and other 3D designs that combine artistic/ornamental and useful/functional aspects, fall into multiple areas, but not always as one might predict. Clothing “knock-offs” exist because the overall pattern or cut of clothing is conclusively (legally) presumed to be functional, hence copyright exempt. So this goes into the design patent bin. However artistic fabric patterns can be copyrighted.

Which brings us to the cheerleaders, and the Supreme Court’s (SCOTUS) recently decided Star Athletica v. Varsity Brands case.  This teaches lessons that apply to other mixed artistic/functional things as well, such as 3D objects. So you folks with 3D printers, listen up!

Cheerleader uniforms have certain characteristic lines and colors, and Star Athletica copyrighted a number of these designs. Varsity Brands, possibly believing that fashion knockoffs are no big deal, copied them, got sued, and the case eventually made its way to SCOTUS.

Varsity had some interesting legal arguments – namely that the lines and colors were functional (no copyright) because they distinguished the uniform as a cheerleader uniform. However, SCOTUS didn’t buy it. They cited Mazer v Stein, an earlier 1954 SCOTUS case, where an artistic statute was ruled to have retained copyright protection even when used as a lamp base (made functional). Like this earlier case, SCOTUS ruled that if an otherwise copyrightable feature can be perceived as art separate from the useful article, then the feature can get copyright protection.

Unintended consequences?  So we can have an ornamental design for a functional item (design patent).  We can also have a useful item with an artistic feature (copyright); at least when the artistic feature can exist independently of the useful item. Confusing, and there may be some unforeseen economic issues. Although SCOTUS relied on the previous 1954 Mazar case, copyright laws have changed since 1954.  Copyright now automatically attaches to nearly everything and lasts nearly forever.

In any event, if you are planning on doing fashion knockoffs, be careful.  In fact, if you are any manufacturer planning on incorporating “an old art design” into a functional object, be careful.

Terminating copyright transfers

return
“Return”, by Ldavis (CC BY-SA 3.0)

Someone in your family write something years ago that was a hit? Copyright transfer termination laws might let you get this old copyright back.  

US copyright laws contain certain author-friendly provisions that allow independent (not working for hire) authors to eventually get their copyrights back.  The underlying idea is to give a second chance to young authors who may have entered into unfavorable copyright assignment (transfer) deals with various publishers.

For example, the 1976 copyright act (17 U.S. Code § 203, effective 1978) states that under certain situations (such as if written notice is given 2-10 years in advance), the rights to previously assigned copyrights can be retrieved by the author (or heirs) during a limited 5 year time window that starts 35 years after the initial assignment or publication.

Although since 1978, there have been other substantial changes to US copyright law (e.g. the “Sonny Bono” Copyright Term Extension act of 1998), this 1976/1978 era termination right still exists.

Indeed the concept of author termination rights predates the 1976/1978 copyright act.  Previous copyright acts, such as the 1909 US copyright act, had independent author termination rights as well.  For example, under the 1909 act (in effect until 1977), copyright terms were 28 years, and the author had the option to renew the copyright one time, for a total of 56 years.  During this first renewal period, under certain situations, the author could also terminate his original copyright assignments at 28 years. But no more.

The 1976/78 copyright act changed the copyright term (for works not made for hire) from 56 years to the author’s lifetime plus 50 years, and later the renewal requirement was also dropped. The 1976/78 copyright act changed the author termination rules for pre-1978 works. These days, for pre-1978 works, under 17 U.S. Code § 304, independent authors (or heirs of independent authors) are now given a five-year window, starting at 56 years, to get their copyrights back.

Sound complicated?  This is the simplified version; the reality is even more complex!  For example, what is a “work for hire?” For non-employees, it is a work that someone has commissioned you to do, and these days this commission agreement must be in writing.  However, in the pre-1978 era, companies would try to incorporate “work for hire” clauses into assignments from even non-commissioned authors. The courts did not always buy this, as per a famous Marvel comics case involving Captain America.  Like to get the rights to this?

These rules are so complex that you almost need a computer program to sort through the various options.  Fortunately, this has been done.  The Authors Alliance, in conjunction with Creative Commons, now offers online software designed to give authors at least a rough idea of the feasibility of terminating their earlier copyright assignments.  This software is available at rightsback.org.

Conley, Twombly, and Iqbal

Motion to dismiss denied!

Conley, Twombly, and Iqbal are different standards of proof to successfully initiate patent litigation. This varies between the states.  Consider this when incorporating your company.

From the standpoint of patent litigation, “Conley, Twombly, and Iqbal” are attorney speak for how much “meat” a patent infringement complaint must have in order to not get quickly tossed out of court under a motion to dismiss [rule 12(b)(6)]. So if you ever receive a patent infringement complaint, or plan to institute a patent infringement complaint, these names will become important to you.

Historically, it was very difficult for the average person to initiate litigation. In earlier centuries, pleading had to follow strict “code pleading” rules, where even minor defects could cause otherwise good cases to be tossed out of court.  In rebellion to this, in the 1930’s, when the modern Federal Rules for Civil Procedure were first established, the thinking was that everyone should be able to have their day in court. To do this, the standards for the initial pleading were set at a low “short plain statement” level (1957 Conley v. Gibson case).  So it didn’t take much to start a Federal lawsuit. The legal theory here was that deficiencies in the initial filing could be easily corrected by subsequent discovery motions. Justice for the masses – this would be great!

Fast forward to 2007 and the legal situation was actually not so great. The Federal courts were clogged with cases. Discovery motions notoriously chewed up large amounts of time and money, sometimes on the basis of initial pleadings that were a bit “thin”.

In the 2007 Bell Atlantic Corp. v Twombly case, the US Supreme Court (SCOTUS) took it upon itself to raise the standards for pleading.  As rephrased by SCOTUS in the later (2009) Ascroft v. Iqbal case: “…only a complaint that states a plausible claim for relief survives a motion to dismiss… While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.  Note the term “plausible”. It means “reasonable” or “believable”. This is where the standards get tightened, because the old standard was “possible”.

In practice, the court will initially assume that the complaint facts are correct, but then examine various alternative scenarios to see if there are plausible alternatives that are legally OK. For example, in the original Twombly case, collusion between telecommunications carriers was alleged. Facts showing that different carriers behaved in a similar manner were given, but no evidence of actual collusion was presented.  Here the “plausible” alternative scenario was that each was just independently protecting their own tuff without improper collusion. So the 12(b)(6) motion to dismiss was upheld.

Similarly, prior to Twombly, it did not take much to start a patent infringement lawsuit.  Just fill out a “Form 18” giving the patent number, an assertion of infringement, and a few other minor details and this was good enough.  In theory, after Twombly, standards should now be higher, but…

Ten years later, and due to intervening Federal Circuit rulings that encouraged continued use of “Form 18”, this higher standard is only now slowly trickling down to patent litigation. There are still significant inconsistencies between different states and different Federal District Courts. Before 2017, this didn’t matter as much because for patent infringement, a company could be sued anywhere.  But now, since the 2017 TC Heartland case, a company is usually sued in its state of incorporation.

So at present, we have a new and interesting situation where a company can apparently lower the risk of patent infringement lawsuits by incorporating in a state where the Federal Courts have higher standards.