and issues for netpreneurs:
intellectual property 101
Why can't a Honda motorcycle vroom like a
Harley-Davidson? Why can't you "One Click" at
BarnesAndNoble.com, but you can at Amazon.com? What makes a fair
non-disclosure agreement? The answers point out varying aspects of
protecting intellectual property, what Andrew Sherman calls "the
currency of the new economy." At this Morino Institute
netpreneur.org Coffee & DoughNets meeting held January 18, 2000, a
panel of experts took a business approach to explaining what
protecting and leveraging intellectual property means to marketing,
customer relationships, revenue and finding capital for Internet
made at Netpreneur events and recorded here reflect solely the views
of the speakers and have not been reviewed or researched for accuracy
or truthfulness. These statements in no way reflect the opinions or
beliefs of the Morino Institute, Netpreneur.org or any of their
affiliates, agents, officers or directors. The transcript is provided
"as is" and your use is at your own risk.
Copyright © 2000 Morino Institute. All rights reserved. Edited for
length and clarity.
mary macpherson: introduction
Good morning, I'm Mary McPherson, Executive Director of
netpreneur.org at the Morino Institute. On behalf of our entire team,
I'd like to welcome you to this morning's program and thank you for
coming out so early in the morning. A bit of history: This hotel is
the site of the very first Coffee & Doughnuts which had about 35
people about three years ago next month. Today, we have ten times that
Like everything else around the Internet, the area of intellectual
property (IP) is morphing. New boundaries are being drawn in
trademarks, patents, unfair competition, copyrights, business methods,
protection and branding. This morning, we're very fortunate to have a
distinguished, and mostly tie-less, panel of attorneys. Andrew
apparently did not learn the lesson about no-suits from his
last Coffee & DoughNets, but let me turn the program over to him,
our favorite counselor. You can read his bio,
but what you won't see there is a person who's been an entrepreneur
since his early teenage years. He's counsel to the Young
Entrepreneurs Organization, the National
Foundation for Teaching Entrepreneurship and Netpreneur.org,
and he has a deep passion for working with startups. It's my great
pleasure to introduce Andrew
Sherman of Katten
Muchen & Zavis.
andrew sherman: just a few
Four lawyers at 7:30 in the morning after a bitter Washington Redskins
loss in the playoffs. Many of you must think you're in purgatory.
The fact is, the only way we all agreed to show up this morning is
if we could individually bill all of you, so, if you could please turn
in your business cards, we'll prepare invoices. In Proxicom's case, of
course, you'll be subscribing for a large Internet services and
development agreement. Also, we should be wrapping up in about five
hours. Just joking, although, when we told our panelists that they
each had 10 minutes for opening remarks, they just froze. "I
can't," they all said, "I don't know how to talk for just 10
minutes." Well, I'll do the best I can to keep everybody on track
so we get to the Q&A as soon as possible.
Today's topic is about as important as it gets. Strategies for
protecting IP are critical. As netpreneurs, these assets give you a
competitive edge, yet they are intangible and appear nowhere on the
balance sheet. You can't touch them, you can't feel them, yet they are
the primary currency of the new economy. A good example is a small
deal announced last week which you may have heard of, the America
Warner deal. If you think about it, the
primary assets for both companies are four different types of IP—customer
relationships, brands, content and knowledge workers—all of which
will be touched on this morning.
That probably describes four of the primary assets you have—whether
it's a URL, customer relationships or distribution relationships—these
are all protected by some body of IP law. The key is to understand
enough about IP law to match your assets with the appropriate strategy
for protecting and leveraging them. That's what we'll discuss this
We've got a fantastic panel of three very talented people. I'll
introduce each individually before they speak, starting with Eric
Fingerhut of Shaw
Pittman. You can read Eric's bio
yourself, but I do want to highlight a couple of things. He focuses in
the trademark Internet practice group, counseling clients on
trademarks and other IP issues, often writing and speaking on the
topic. Given the role of trademarks and brands in this new economy, we
wanted to start things off right, so, Eric, take us away.
eric fingerhut: trademarks
Like a new Web site, the law involving trademarks and the Internet
is still very much under construction. That said, some clear trends
have emerged, one of which is that the entrepreneurial spirit which is
so pervasive among talented people like yourselves in the technology
community is not always compatible with traditional principles of
trademark law. Here's a quick example. You've heard about domain name cybersquatting,
but if you go to some auction sites, you'll now see people trying to
sell trademark applications, many of which are just applications that
were filed for the $345 filing fee. "Granolaware" was an
early one which somebody wanted about $1,400 for. Section 10 of the Lanham
Act prevents trafficking in trademark
applications that are filed on an "intent to use basis." You
probably wouldn't know that unless you had consulted your trademark
lawyer prior to listing that application for sale.
E-commerce is highly regulated, and the regulations continue
to come from all angles—legislation, cases, Congress, the European
Union and more. They come from everywhere. In the short time I have
today, I'm going to touch on three topics: basics, rules to remember
and a few comments on brand building.
the basic of trademarks
is any word, name, symbol, shape, color, sound, smell—anything used
to identify and distinguish you or your company as the source of goods
or services. Thanks to the Supreme Court's decision in the Qualitex
Co. v. Jacobson Products Co. case, trademark protection is not
limited to anything. Colors can function as a mark, like the color
pink for insulation, or sounds, like the sound of the Harley-Davidson
What about domain names? Domain names are simply Internet
addresses, but a domain name, if used in the proper way, can function
as a trademark. I don't need to go through the countless examples of
how many domain names today function as trademarks.
An interesting sidelight about domain names is that, until
recently, they were limited to 22 characters. That has now been
increased to 67 characters, so you can start registering slogans as
domain names. That's a fairly significant development.
Brands. What are brands? Somebody told me that a brand is like love—not
making love—but being in love. Everybody knows what it
is, but few can articulate it. Let me try, anyway. Legally, a brand is
the equivalent of a trademark. From a legal perspective, there's no
difference between NIKE
the trademark and NIKE the brand. A brand is the promise of
performance. It tells customers something about your company. It tells
your prospects and employees what you stand for and what they can
expect when they interact with you. It is the sum of a company's
marketing position and performance. Really, it is an emotional
relationship between the customer and the company. I just bought a Volkswagen.
Ten or 15 years ago I would not have bought one. Volkswagen had a
reputation then for being affordable and simple; now they've evolved
and their brand is high-tech. They've gone from hippie to
yuppie, and that's why I bought the car. Maybe that's thanks to clever
marketing, but I really think the company has delivered on its
product, also. I don't represent Volkswagen; it's just I'm very happy
with the car.
ten rules of trademarks and brands
Let's talk about ten quick rules to remember.
1. Reserving a domain name does not amount to the legal right to
use it. There is a popular misconception out there. If a domain
name is available—and I realize that very few of them are—it
doesn't mean that you have the right to use it. If you don't believe
me, ask West
Coast Video. They registered the domain
"MovieBuff.com" in 1996, then sat on it for two years
without doing anything with it. Meanwhile, Brookfield Communications
came along and took the Movie
Buff mark. When West Coast Video eventually
launched their Web site, they were enjoined because they hadn't made
any trademark usage of their domain name. Use of a domain name in an
email address does not rise to the level of trademark use.
2. The more arbitrary the mark, the broader the scope of
protection. In the trademark selection process, remember the
spectrum of distinctiveness. There are five types of terms, in order
from the most protectable to the least, they are coined (such
as "Exxon"), arbitrary (such as "Apple" for
a computer); suggestive (such as "Apple-A-Day" for
vitamins), descriptive (such as "TomApple" for a
tomato/apple juice drink) and generic (such as
"Apple" for an apple). "Apple" for apples can
never be registered. "TomApple," as a descriptive mark for a
tomato/apple juice, is capable of acquiring distinctiveness as a mark,
although inherently it's not protectable as a trademark.
Suggestive marks are good marks because they require consumers to
use their imagination to figure out what the underlying product is.
"Apple-A-Day," which connotes health, is a perfect mark for
vitamins. Arbitrary marks are very good—those words with common,
everyday meanings that have nothing to do with the underlying product,
such as "Apple"
for a computer. The best marks altogether, and you see a lot of
creativity here in the Internet space, are coined words. Xoom,
3. Conduct a trademark search. Don't stick your head in the
sand. Figure out what the risks are up front. It costs less than
$1,000 to do a trademark search, and it's a very good investment. Not
only can you figure out whether or not your mark is protectable, it
also gives you a good idea about what the competition is doing.
4. Seek federal registration. Federal registration in the US is
not required. You can always prove your common law rights, but a
registration is prima facie evidence of the validity of your ownership
and exclusive right to use the mark nationwide. Also, don't under
estimate the deterrent value of being able to use the registration
symbol (®) next to your mark. Additionally, the more registrations
you have in your portfolio, the more impressive it looks to somebody
considering acquisition of your company.
5. International trademark protection is very important. The
Internet is a global marketplace and a global medium. Outside the US,
many countries require a registration in order for you to have the
legal right to use a mark in that country. When you don't register the
mark and then you get a little publicity, the next thing you know some
pirate may come along and register your mark in a foreign country. On
a moment's notice, you're not able to use that mark in at that country
without buying it back. Regarding international domain name
protection, there are 240 countries out there, each with a country
code top-level domain (such as .ca for Canada and .uk for the United
Kingdom), and each with the same level of connectivity as .com, .net
or .org extensions. Be mindful of them. Some countries have local
presence requirements which actually protects you in some way from
cybersquatters, but be careful. Think of international trademark
protection as insurance.
6. Watch out for the representations, warranties and indemnities
that you give in your licenses or any other agreements that you enter
into. I can't tell you how many agreements I've been asked to
review where companies will flat out make representations that they
own worldwide trademark rights and give indemnities against worldwide
trademark infringement. Maybe you don't have the leverage to give
indemnities for worldwide infringement, but certainly you don't have
to represent and warrant that you own the marks worldwide.
7. Cybersquatting is stupid and potentially expensive. The
Anti-Cybersquatting Consumer Protection Act, which was passed on
November 29, 1999, prevents against bad faith domain name
registrations that are identical to, confusingly similar to, or
dilutive of distinctive or famous marks. You can ask me more questions
later, but the bottom line is that the big corporations won the battle
against the libertarians on that front.
8. Domain name registrants as of January 3, 2000, are all bound by
Corporation for Assigned Names and Numbers' (ICANN) uniform
dispute resolution policy (UDRP).
The UDRP is in some ways similar to the anti-cybersquatting
legislation, except that a complainant filing under UDRP does not need
to have a trademark registration, a difference from Network
Solution's old dispute resolution policy
where you needed a registration to get your foot in the door.
9. Be watchful of unauthorized framing and deep linking. In
other words, don't copy somebody else's Web site and paste it on to
your own unless you have authorization to do that. If you're going to
hyperlink to somebody else's Web site absent agreement, make sure you
link to the home page and not three or four pages deep so as to
deprive the site that you're linking to of advertising exposure.
10. Pick and choose your battles. My favorite quote, which is a
quote of my own, is "the Internet is everywhere and it's nowhere
at the same time." Obviously, everybody is very conscious about
their brands. If you see that somebody is using or misusing yours,
think before you object. I say that because many of you may have read
about a recent dispute involving eToys
where they objected to an artist's site that was making fun of
corporations under the domain name etoy.com.
etoy.com actually had reserved the domain name and was using its mark
prior to eToys, but eToys didn't like some of the content they were
posting. eToys objected, and, as a result, there was tremendous
backlash on the Internet. eToys suffered tremendous adverse publicity,
and, at the same time, gave credibility and exposure to the etoy site
to which it was objecting. It really was a lose/lose situation and a
public relations fiasco for eToys, and they ended up retracting the
on brand building
How else can you build your brand? Licensing can be the best way.
It's a great opportunity to increase your brand exposure and public
awareness, and it's not a bad revenue model either. Of course, there
are some risks inherent in licensing, and number one is that if you
don't police the licensee's use of your mark, you may end up not only
tarnishing your brand, but risking the abandonment of your rights to
The are basically two legal requirements for a valid license.
Number one, all licenses have to have a term. That doesn't mean that
you can't have automatic renewals and things of that nature, but don't
give perpetual licenses. The law regards those as tantamount to
assignments. Number two, any license must have quality control
provisions, and those provisions must be acted upon and exercised.
Again, failure to police your licensees could result in losing your
Let me leave you with some food for thought. These are what I call
"Fingerhut's Branding predictions." I'm not sure what gives
me the authority to give you my branding predictions except that my
wife went to high school with Jeff Bezos, President of Amazon.com.
She's constantly reminding me that she went to high school with Jeff
Bezos and telling me, "you're no Jeff Bezos." I don't know
what that means, but whatever.
First, and this is not rocket science, Y2K is the year of click and
mortar. You're going to see more E-commerce companies opening
up retail locations and more traditional offline retailers sinking
significant money into the Web. My two-year prediction is that it
wouldn't surprise me if, like Starbucks,
you ended up seeing Amazon.coms on every street corner. How? I'm not
sure, but I wouldn't rule it out. There will be more co-branding
and strategic alliances along the lines of the Yahoo/K-Mart
deals. The other day, somebody tried to convince me that in this
battle between E-commerce and offline retailers, offline
companies have a head start from years and years of brand building.
Then somebody else tried to convince me that the Internet has fostered
an environment that is much more evocative of the way business was
done 40 or 50 years ago with the mom and pop corner stores. He argued
that with all of the data collection tools available now, where they
know what you bought the last time and can make recommendations,
hopping onto an E-commerce site is like having a corner grocer
who knows you by name. In that way, maybe the E-commerce
companies have leveled the playing field when it comes to creating
relationships with their customers.
Last but not least, and this is not rocket science either, the
AOL/Time Warner deal demonstrates the increasing power of
Internet brands. At the same time, that deal shows that Internet
companies are going to be much more scrutinized, and they are going to
have to be accountable and profitable more quickly.
Thank you very much.
Mr. Sherman: Our next speaker, Marc
Kaufman is with Sixbey
Friedman Leedom & Ferguson. His
credentials are vast. They include experience in preparing and
prosecuting trademark and patent applications with a focus on computer
software and systems, medical instruments and electric power
distribution. He's going to focus on E-commerce business model
patents and general patent law strategies as they affect your
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