FALL 2007

Computer Law

Course No.  9200 711 001
Th 6:30 - 9:30 p.m.
Room W-214
Professor Jay Dratler, Jr.
Room 231D (IP Alcove)
(330) 972-7972
dratler@uakron.edu, dratler@neo.rr.com
Copyright © 2000, 2001, 2002, 2004, 2007   Jay Dratler, Jr.   For permission, see CMI.

Notes and Questions on Misuse

1.  To understand the breadth of the holding in Lasercomb, it is important to focus on the facts of the case.  What was the reason why the court held the plaintiff's copyright unenforceable?  It had something to do with a license agreement, didn't it?  Were the defendants themselves parties to this license agreement?  If not, who was?

2.  Did the court invalidate the plaintiff's copyright?  Except for the misuse defense, wasn't the copyright infringement claim in the case straightforward and valid?  Try to articulate, as precisely as possible, why the court refused to uphold a claim for apparently willful copyright infringement?  Whom did the alleged misuse threaten or hurt?  the defendant?  third parties?  the public?  What was the precise nature of the harm that justified refusing to enforce a valid copyright?

3.  Is the court concerned with the possible effect of the plaintiff's standard form of license agreement on competition?  If so, what particular clause of the license agreement raised the concern?  Did the court analyze its effect on competition?  Did the court scrutinize, in the words of the GTE Sylvania Court "substantial economic effect," as antitrust law requires, or did it resort to "barren formalism"?

4.  One hundred years is a long time, but not longer than the life of a copyright.  When Lasercomb was decided, copyright in unpublished corporate "works made for hire" lasted 100 years from their creation, a term now extended to 120 years.  See 17 U.S.C. § 302(c). Can you think of any legitimate business reason why the plaintiff'licensor might have wanted to preclude licensees from developing competing software during the life of the copyright?  If a licensee did develop such competing software during the term of the copyright, what might the licensor suspect?  How would those suspicions be resolved?

5.   Here are the statutory provisions by which Congress, in the 1952 patent act and the Patent Misuse Amendments of 1988, cut back the misuse defense in patent law:
    "No patent owner otherwise entitled to relief for infringement or contributory infringement of a patent shall be denied relief or deemed guilty of misuse or illegal extension of the patent right by reason of his having done one or more of the following: (1) derived revenue from acts which if performed by another without his consent would constitute contributory infringement of the patent; (2) licensed or authorized another to perform acts which if performed without his consent would constitute contributory infringement of the patent; (3) sought to enforce his patent rights against infringement or contributory infringement; (4) refused to license or use any rights to the patent; or (5) conditioned the license of any rights to the patent or the sale of the patented product on the acquisition of a license to rights in another patent or purchase of a separate product, unless, in view of the circumstances, the patent owner has market power in the relevant market for the patent or patented product on which the license or sale is conditioned."
35 U.S.C. § 271(d).  If Congress had used the words "patent or copyright" wherever the word "patent" appears in this statute, would it have made a difference in the outcome of the Lasercomb case?  If not, could a case much like Lasercomb also arise in the patent field?  What practical risks might such a possibility present to a patentee and her license attorneys?

6.   Lasercomb is hardly one of a kind.  Besides the Fourth Circuit, two other federal circuit courts of appeals—the Fifth Circuit and the Ninth Circuit—have upheld a copyright misuse defense.  See Alcatel USA, Inc. v. DGI Technologies, Inc., 166 F.3d 772, 777, 783, 793-794, 49 U.S.P.Q.2d (BNA) 1641 (5th Cir. 1999) (reversing injunctive relief for copyright infringement based on copyright misuse, while dismissing copyright infringement defendant's antitrust claim on merits); DSC Communications Corp. v. DGI Technologies, Inc., 81 F.3d 597, 601, 38 U.S.P.Q.2d (BNA) 1699 (5th Cir. 1996) (accepting defense for purposes of framing preliminary injunction in same case); Practice Management Information Corp. v. American Medical Association, 121 F.3d 516, 521, 43 U.S.P.Q.2d (BNA) 1611, 45 U.S.P.Q.2d (BNA) 1780 (9th Cir. 1997).   See also, Supermarket of Homes, Inc. v. San Fernando Valley Board of Realtors, 786 F.2d 1400, 1408 (9th Cir. 1986).  Another two circuits—the Seventh and Eleventh—have recognized the defense in dictum.  See Assessment Technologies of WI, LLC v. WIREdata, Inc., 350 F.3d 640, 647, 68 U.S.P.Q.2d (BNA) 1953 (7th Cir. 2003); F.E.L. Publications, Ltd. v. Catholic Bishop of Chicago, 214 U.S.P.Q. (BNA) 409, 413 n.9 (7th Cir. 1982); Bellsouth Advertising & Publishing Corp. v. Donnelley Information Publishing, Inc., 933 F.2d 952, 961 (11th Cir. 1991), rev'd on other grounds 999 F.2d 1436, 1439 n.5, 28 U.S.P.Q.2d (BNA) 1001 (11th Cir. 1993) (en banc), cert. denied 510 U.S. 1101 (1994) ("Although the patent misuse defense closely fits the copyright law situation and may someday be extended to discipline those who abuse their copyrights, we decline to extend the application in the context before us because there is no antitrust violation").  Finally, the Eighth Circuit has assumed its existence arguendo.  See United Telephone Co. of Missouri v. Johnson Publishing Co., 855 F.2d 604, 612 (8th Cir. 1988) ("On the assumption that judicial authority teaches that the patent misuse doctrine may be applied or asserted as a defense to copyright infringement, the stipulated facts in this case do not support" the defense).

7.   Perhaps the most interesting "take" on copyright misuse is that of the Seventh Circuit, which includes two of the foremost antitrust and economic experts on the federal bench, Judges Posner and Easterbrook.  In 1982, Judge Posner, writing for the court, disparaged the notion of copyright misuse as potentially conflicting with antitrust law.  "Our law is not rich in alternative concepts of monopolistic abuse," he wrote; "and it is rather late in the day to try to develop one without in the process subjecting the rights of patent holders to debilitating uncertainty."  USM Corp. v SPS Technologies, Inc., 694 F.3d 505, 512 (7th Cir. 1982), cert. denied 462 U.S. 1107 (1983).  (Posner, J.) (Citation omitted.)  A few years later, he expressed additional skepticism regarding copyright misuse, noting that copyright, which does not control facts or ideas and allows independent development of the same subject matter, contains intrinsic safeguards against economic monopolies.  See Saturday Evening Post Co. v. Rumbleseat Press, Inc., 816 F.2d 1191, 1198-1199 (7th Cir. 1987) (Posner, J.).  He therefore concluded that "[i]f any monopolies harmful to the public have even been built on invalid copyrights, we have not heard of them." Id., 816 F.2d at 1199.

Yet in 2004, Judge Posner came very close to recognizing the copyright misuse defense, brandishing it as a club to bludgeon copyright holders who might try to overstep the legitimate bounds of their intellectual property rights.  See Assessment Technologies of WI, LLC v. WIREdata, Inc., 350 F.3d 640, 646-647, 68 U.S.P.Q.2d (BNA) 1953 (7th Cir. 2003) (Posner, J.).  The occasion for this near-conversion was a case in which a copyright holder had attempted, by threats and bluster, to extend the protection of its copyright to raw data, including data that it itself had not even developed.  See id., 350 F.3d at 642-643.  Although recognizing that his earlier opinions "ad intimated skepticism" about copyright misuse, Judge Posner opined as follows:
    "Cases such as Lasercomb, . . .  cut misuse free from antitrust, pointing out that the cognate doctrine of patent misuse is not so limited, though a difference is that patents tend to confer greater market power on their owners than copyrights do, since patents protect ideas and copyrights, as we have noted, do not.  The argument for applying copyright misuse beyond the bounds of antitrust, besides the fact that confined to antitrust the doctrine would be redundant, is that for a copyright owner to use an infringement suit to obtain property protection, here in data, that copyright law clearly does not confer, hoping to force a settlement or even achieve an outright victory over an opponent that may lack the resources or the legal sophistication to resist effectively, is an abuse of process."
Id., 350 F.3d at 646-647, 68 U.S.P.Q.2d (BNA) 1953 (7th Cir. 2003) (citations omitted).

8.  This last passage of Judge Posner's deserves careful scrutiny.  What does Judge Posner mean by saying "confined to antitrust the [misuse] doctrine would be redundant"?  The antitrust laws provide causes of action to remedy harm caused by anticompetitive conduct.  Misuse doctrine provides a defense to claims for infringement of intellectual property.  Is that "redundant"?

Moreover, is misuse doctrine "confined to antitrust law"?  That is, does misuse doctrine provide a defense to infringement claims if and only if an antitrust counterclaim is viable?  Was that the case in Lasercomb?  Or is misuse doctrine based upon public policy and notions of equity that are completely independent of antitrust?  Is that what Judge Posner means when he says the Lasercomb "cut misuse free from antitrust"?

Finally, does the law really need another way to fight abuse of process?  The old tort still exists, although the more modern term for it is "wrongful civil proceedings."  See Restatement (Second) of Torts § 674 (1977).  Should the law provide, as an adjunct to state tort remedies, escape from liability for clear infringement, as in Lasercomb?

9.  Antitrust law balances on a knife edge.  Condemn too little, and the law will allow private parties to suppress competition and distort the economy to their benefit.  Condemn too much, and the law may suppress the motive forces of competition itself.  This is why the law weighs intent little in deciding whether antitrust liability exists: too much emphasis on intent may ultimately crush competitive zeal itself.

Cases that make this point are legion.  See, e.g., Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 226-227 113 S.Ct. 2578, 2602, 125 L.Ed.2d 168 (1993) ("It would be ironic indeed if the standards for predatory pricing liability [*227] were so low that antitrust suits themselves became a tool for keeping prices high"); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 593,106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ("courts should not permit factfinders to infer conspiracies when such inferences are implausible, because the effect of such practices is often to deter procompetitive conduct") (citation omitted.); Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 763, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984) ("Permitting an [anticompetitive] agreement to be inferred merely from the existence of complaints, or even from the fact that [a distributor's] termination came about ‘in response to' complaints, could deter or penalize perfectly legitimate conduct").

Perhaps the best statement of this principle is Judge Easterbrook's in A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396, 1402 (7th Cir. 1989), cert. denied 494 U.S. 1019 (1990):
    "Intent does not help to separate competition from attempted monopolization and invites juries to penalize hard competition.  It also complicates litigation.  Lawyers rummage through business records seeking to discover tidbits that will sound impressive (or aggressive) when read to a jury.  Traipsing through the warehouses of business in search of misleading evidence both increases the costs of litigation and reduces the accuracy of decisions.  Stripping intent away brings the real economic questions to the fore at the same time as it streamlines antitrust litigation."

10.   If antitrust law is balanced on a knife-edge, then what would be the effect of a misuse defense based ostensibly on threats to competition, but lacking all the checks and balances of antitrust analysis?  Won't it unbalance the knife?

As you ponder this point, consider the practical effects of a robust copyright misuse defense "cut loose" (in Judge Posner's words) from antitrust law.  Except for gross violations like per-se illegal price fixing or horizontal division of customers or markets, licensors who have small shares of all relevant product and service markets don't have to worry too much about antitrust scrutiny of licensing restrictions.  Indeed, the 1995 Licensing Guidelines' "safety zone" provides substantial comfort unless market shares exceed 20%.  See United States Department of Justice and Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property, § 4.3, reprinted in 49 Patent, Trademark & Copyright J. (BNA) 714 (April 13, 1995).  That is a nice rule of thumb that helps lend some certainty to the very uncertain and complex world of antitrust.

Yet what good would that rule of thumb be if a court could render valid copyrights unenforceable on the basis of broad notions of public policy and equity?  Indeed, what good would the 1995 Licensing Guidelines be?  Wouldn't a misuse doctrine allowing such broad defenses cause licensing attorneys to worry again, regardless of how small their clients' market shares might be?

11.  In the general case, antitrust analysis is complex and time consuming.  Yet the human (and judicial!) impulse to do good without having to think much about how is strong and universal.  There is even talk of extending the doctrine of misuse to cover abuse of the Digital Millennium Copyright Act.

Section 1201 of the copyright act (17 U.S.C. § 1201), as added by the Digital Millennium Copyright act, prohibits circumvention of technological measures to protect copyrighted works and trafficking in the means of circumvention.   The original intent of Section 1201 was to reinforce technological measures that copyright owners use to protect their creative works from piracy.  Yet clever plaintiffs have sought to use it to control the unauthorized refilling of toner cartridges and to prevent rival manufacturers from selling compatible transmitters for remote garage-door openers.  See Lexmark International, Inc. v. Static Control Components, Inc., 253 F. Supp.2d 943, 956-958, 66 U.S.P.Q.2d (BNA) 1405 (E.D. Ky. 2003) (using Section 1201 to enforce contractual restraint against re-using certain toner cartridges); Chamberlain Group, Inc. v. Skylink Technologies, Inc., 2003 U.S. Dist. LEXIS 15298, 68 U.S.P.Q.2d (BNA) 1009 (N.D. Ill. 2003) (Skylink I) (denying summary judgment to plaintiff, who made garage-door openers, for various reasons).  But see Chamberlain Group, Inc. v. Skylink Technologies, Inc., 292 F. Supp.2d 1040, 2003 U.S. Dist. LEXIS 20351, 68 U.S.P.Q.2d (BNA) 1948 (N.D. Ill. 2003) (Skylink II) (granting defendant summary judgment on Section 1201(a)(2) claim on ground its customers had implied authorization to circumvent, if any circumvention had occurred).

Cases like these are part of the so-called "Aftermarket Wars," in which manufacturers of specialized products attempt to control the aftermarkets for related compatible components, spare parts, and service.  These essence of all these cases is the legal right to control related markets; it therefore quintessentially involves antitrust.  See, e.g., Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 456-459, 477-478, 486, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992) (service and parts for photocopying equipment; reversing summary judgment); Image Technical Services, Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1219, 1220, 44 U.S.P.Q.2d (BNA) 1065 (9th Cir. 1997), cert. denied 523 U.S. 1094 (1998) (same: affirming jury's verdict of monopolization and attempt to monopolize where only sixty-five of "thousands" of parts withheld from independent servicers were patented); In re Independent Service Organizations Antitrust Litigation, 203 F.3d 1322, 1327-1328, 1329, 53 U.S.P.Q.2d (BNA) 1852 (Fed. Cir. 2000) (dismissing antitrust claims by summary judgment and holding that presumption of manufacturer's legitimate business reasons for withholding patented parts and copyrighted software and manuals from rival servicers of its own equipment was unlikely to be rebutted); Data General Corp. v. Grumman Systems Support Corp., 36 F.3d 1147, 1187, 1198, 32 U.S.P.Q.2d (BNA) 1385 (1st Cir. 1994) (dismissing claim based on withholding diagnostic software and service for computers).  Cf., PSI Repair Services, Inc. v. Honeywell, Inc., 104 F.3d 811, 813, 819-821, 822 (6th Cir.), cert. denied 520 U.S. 1265 (1997) (dismissing antitrust claims based upon manufacturer controlling third parties' sale of unpatented aftermarket parts to independent service organizations).

The Aftermarket Wars are relatively new antitrust conflicts, now being fought against the background of over a century of antitrust jurisprudence.  Should the courts "cut the Gordian knot" of all that antitrust complexity, at least in Section 1201 cases, by introducing the notion of Millennium Act abuse?  Or would it be preferable for Congress to amend Section 1201 to restrict it to its original intent—protecting creative works from piracy—and exclude the Aftermarket Wars from the literal scope of Section 1201?  See Jay Dratler, Jr., Cyberlaw: Intellectual Property Law in the Digital Millennium § 2.05[1] (Law Journal Press 2002 & Supps.)

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