The Peach and the Fuzz

Even the smartest business people can be confounded by the
ownership rules governing intellectual property, IP, in the United
States. And with good reason: the controlling statutes give courts
wide discretion to interpret the legal principles at play. To begin to
understand how these principles might apply to you and your company, here are a
few fundamental tenets and rules of thumb to kick-start your thinking.

Most of us understand that something new and original may be
the subject of IP protection. An invention, such as a new way of sending
e-mail, can be the subject of a patent, or an original song can be the
subject of copyright. It is important to keep in mind that, under the U.S.
Constitution, Congress is empowered to promote the progress of science and
useful arts by securing for limited times to authors and inventors the
exclusive right to their respective writings and discoveries. Federal and
state laws protecting IP such as patent, copyright and even trademarks, can also
be viewed as carve-outs against the First Amendment, which prohibits Congress
from enacting laws that, among other things, abridge the freedom of speech or
the press.

One general rule of thumb is that certain intellectual
property laws tend to favor the individual creator, inventor or author. A good
example is the law governing works made for hire under United States
copyright law. If your company hires an independent contractor to write custom
source code and you pay the contractor in full for her work, your company does
not own the copyright in that code unless
you have a written agreement stating that the work performed by the contractor
was a work made for hire or, alternatively, that the contractor assigns to
your company all her right, title and interest in the source code.

Consider the following allegorical framework next time you
are forced to ponder vexing IP ownership questions. Lets assume certain
science or technology exists that contains protected IP, such as a genetically
engineered organism, source code or a musical composition. We will call this
original discovery or underlying work the Peach. Lets further assume
employees or contractors working for your company have begun to adapt and
improve upon the Peach. We will call these adaptations and improvements the
Fuzz.

Difficult questions arise when attempting to determine the
size of the Peach and who owns all or portions of it. Ideally, you also would
like to know where the Peach ends and the Fuzz begins. Certainly, there are many
product and technology development scenarios where the Fuzz itself becomes so
pervasive and large, it overwhelms the Peach. At this point (early on, one
hopes) in the analysis, you not only need to be clear on your companys
business and investment objectives and strategies, but also you need to have a
strategic handle on the pertinent IP legal issues as well.

The federal district court in New York is currently
grappling with these types of IP ownership and use issues in the case of Viacom
Intl Inc. v. YouTube. One of the big questions in the case is
whether YouTube may be liable for allowing the posting of allegedly protected
audio and video content.

Intuitively, we recognize that art and inventions that
benefit society must rely to some degree on the art and inventions that have
come before them. We also recognize that inventors and artists (and the
companies representing them) need to protect and commercially benefit from the
IP they create. The most troubling questions turn on whether or when we allow
new inventors and new artists to incorporate past-protected IP without
permission versus when we require they obtain (and pay for) permission. You
only have to view and listen to something like The Grey Album by DJ Danger
Mouse (a mash-up from five years ago that used unauthorized Beatles and Jay-Z
samples and became a bootleg internet phenomenon) to recognize that the
balancing act is a tenuous and difficult one.

This is a sponsored legal report from Lane Powell PC. Steven B. Winters is a shareholder at Lane
Powell and leads the Seattle offices intellectual property and technology practice. Steve represents companies in all
areas of technology, patent, copyright, trademark and trade secret law,
including licensing, technology development and outsourcing, digital rights
management, risk management, procurement, promotions, supply, distribution,
internet and online, mergers, acquisitions, IPOs, and litigation supervision
and management. He can be reached at [email protected] or (206)
223-7740.