Licensing Glossary

Copyright: a group of rights granted to the creator of original expressions, including text, software, photographs, drawings, movies, music, sculpture, architecture, and choreography. These rights are: 1) to make copies of the work; 2) to authorize others to make copies of the work; 3) to make derivative works (a new work based on an existing work, for example, a translation is a derivative work of the original book); 4) to sell and market the work; and 5) to perform the work. A threshold limitation of copyright is that it protects the expression, but not the ideas underlying the expression. For example, it is legal for Author B to copy Author A’s idea for an all guacamole diet plan, but if she copies specific sentences or recipes from Author A’s guacamole diet book, that could be copyright infringement. Furthermore, the “first sale doctrine” is an important limitation on 4), the right to sell the work, because it states that the first purchaser may sell it or give it away free of restrictions imposed by the creator. A copyright comes into existence as soon as an original expression is fixed in a tangible medium of expression. If Stevie Wonder plays a new melody on the piano, it is not copyrighted, but if he plays the same melody into a digital recorder, it is copyrighted. Although registration is not required, registration with the US Copyright Office will give the owner much stronger legal rights to stop infringements. For works created on or after January 1, 1978, copyrights last for the life of the author plus 70 years, or in case of works made for hire, the sooner of 95 years from the first date of publication, or 120 years from the date of creation. A copyright license generates revenue for the owner, while bringing the work to a broader audience than the owner/licensor alone could. Copyright licenses should normally be recorded with the Copyright Office. An exclusive licensee of a copyright is normally considered to be an owner of that right.

License: a contract in which an owner (licensor) of intellectual property (patent, copyright, trademark, trade secret, right of publicity) grants another party (licensee) a limited right to use that intellectual property, usually in exchange for money (but see Open Source License). A license can be compared to a lease of real property, in which the licensee is like a tenant who has the right to use the property for a limited time under limited conditions, and the licensor is like the owner of the real property, who retains ultimate ownership and control of the property. Compensation to the licensor is usually called a royalty, and can be calculated as a percentage of the licensee’s sales price or profit, or as a fixed amount per unit of licensee product sold, or a myriad of other ways. A license is usually limited as to time of permitted use, territory of permitted use, field of permitted use, and permitted products. For example, Harley-Davidson could grant a trademark license to Crossing Your T’s to use the Harley logo on t-shirts (product), for two years (time), in the United States (territory), and only for sales to retail stores (field). Furthermore, a license may be either exclusive (granted to only one licensee) or non-exclusive (potentially granted to several licensees).

Open Source License: generally speaking, a license that allows broad use rights of copyrighted material without payment of a royalty, so long as the user does not place proprietary restrictions on later users of her content. In the context of software, a license that complies with the ten requirements of the Open Source Initiative, including: 1) “free” redistribution (“free” as in no downstream proprietary restrictions and “free” as in no royalties on the original or revised code); 2) inclusion of or easy access to detailed source code; 3) the right to create and distribute modifications and derivative works; and 4) no inclusion of “downstream” license restrictions that reduce or undercut the other open source terms, i.e. once open source, always open source. For example, anyone can access and modify the source code of the Firefox Internet browser for free if they accept the terms of one or more open source software licenses, but that would not be possible with Microsoft’s Internet Explorer browser, which warns, “This program is protected by copyright law and… [u]nauthorized reproduction or distribution of this program…may result in severe civil and criminal penalties….” Although open source software is often called “free software,” that is not quite accurate. One of the best known examples of an open source software license, the GNU General Public License, does prohibit royalties, but also permits licensors to charge a small fee for the physical act of transferring the software, as well as service fees for warranties and maintenance. Although judicial precedent is scarce, at least one court has ruled that violation of an open source license could constitute copyright infringement as well as breach of contract—meaning that open source licenses could utilize copyright to force creators to permit copying of their work, rather than its traditional role of protecting creators against copying of their work. Open source licenses should also be distinguished from so-called “freeware,” that is, public domain software that is not subject to any copyright restrictions, open, closed, or otherwise. In the context of licensing of text and images, the GNU Free Documentation License and various Creative Commons licenses are guided by similar open source concepts.

Patent: a monopoly granted by the US Patent and Trademark Office that allows the inventor to prevent others from using, manufacturing, or selling the invention. There are three kinds of patents: utility patents (the most common); design patents (for ornamental designs of functional items); and plant patents (for new varieties of asexual plants). The permissible subjects for utility patents are: 1) manufactures or articles of manufacture; 2) machines or apparatuses; 3) processes or methods; 4) a composition of matter (for example chemicals or drugs); and 5) an improvement of any of the preceding. However, laws of nature, abstract ideas, and natural phenomena (e.g. the Theory of Relativity) cannot be patented. Patents do not exist unless an application has been filed with and granted by the PTO. To qualify for a utility patent, an invention must be novel, useful, and non-obvious to an expert in the field. (An invention will fail the novelty test if it is publicly disclosed, sold, or offered for sale, or publicly put to use more than a year before a patent application is filed.) For applications filed on or after June 8, 1995, the patent will generally last for 20 years from the filing date. Only individual inventors are eligible to receive patents, so corporations must take care to obtain an assignment (full transfer of rights) from inventor employees in order to become the patent owner. As with copyright licensees, an exclusive licensee of a patent is for most purposes considered to be the owner of the patent. Advantages of patent licensing for the licensor include: the ability to realize an income stream from an idea that it does not have the equipment or capital to manufacture; and the ability to penetrate foreign or other markets which it does not have resources to market or manufacture. Advantages for a licensee include realizing an income stream from advanced or superior products that it does not have the R&D capability to develop on its own; and protecting the market position of complementary products developed by the licensee that are threatened by the technological advances of competitors.

Right of Publicity: a right that prohibits using the image, voice, or other likeness of a person for commercial purposes, without that person’s consent. There is no federally recognized right of publicity, but it is currently recognized in 19 states by statute, and (depending on who is doing the estimating) another 10 to 30 states by case law, so its contours vary somewhat from state to state. The most famous rights of publicity cases involve use of a celebrity look-alike or sound-alike in an advertisement (including a case where game show hostess Vanna White successfully argued that a robot in a Samsung ad was really impersonating her), but even non-celebrities can have their rights of publicity misappropriated. In a recent case, the model seen for decades ecstatically sipping coffee on the labels of Taster’s Choice jars won a multi-million dollar verdict for misappropriation of right of publicity because Nestle could not produce a written release showing that he had consented to use of his photograph. In some states, such as New York, rights of publicity are extinguished upon the death of the person, while in other states, such as California, they survive for varying periods after death. (The longest survival period is Tennessee’s at perpetuity, contingent on use, so the King (Elvis Presley) may indeed live forever.) Rights of publicity licenses are often bundled together with trademark licenses in celebrity merchandise licenses.

Trademark: a word, graphic, sound, or other symbol that indicates the source and quality of goods (trademark) or services (a service mark, but often referred to with the catch-all “trademarks”). Intel Corporation identifies its microprocessors with registered trademarks that include the word “Intel” in plain text, a graphic of the word “intel” (in lower case) enclosed by an oval, and a five note synthesized musical motif that is reminiscent of a xylophone (DING… ding ding ding ding). Packaging or appearance of products can also serve as a kind of source identifier, called “trade dress,” the most famous example of which is probably the striated, green glass Coca Cola bottle, because consumers seeing such a bottle on the store shelf will normally assume it is a Coke. Under the doctrine of common law trademark, trademark rights are created automatically upon their use on goods and services in commerce, but registration of the trademark with the Patent and Trademark Office will give the owner a broader geographic scope of protection, as well as greater legal rights in case of infringement. Trademarks are potentially eternal in duration, at least as long as the owner continues to sell the associated product or service. Conversely, trademarks can be lost either because they are abandoned (Brooklyn Dodgers) or become generic, that is descriptive of an entire category of goods, not limited to one source (“Aspirin” was originally a trademark of Bayer). For a licensor, licensing its trademarks not only generates income without increasing overhead, but may also increase awareness of the core product category (free advertising) while increasing the scope of product categories that qualify for trademark protection. For a licensee, licensing a famous mark can add value to its products that generate extra income. However, licensors must be vigilant about monitoring the quality of licensed products and services, because an unregulated “naked license” could result in loss of the original trademark. There is no need (indeed there is no mechanism) to record trademark licenses with the US Patent and Trademark Office, but recordation of licenses is a prerequisite to recognition in many foreign countries.

Trade Secret: a formula, pattern, device, or compilations, that is a) used in business, and is b) not generally known, and that c) gives the owner a competitive advantage. Unlike patents, copyrights, and trademarks, there are no registrations or filings necessary or even possible to create trade secret rights. Trade secret rights are predominately defined by state law, and generally last as long as confidentiality is preserved. Perhaps the most famous example of a trade secret is the formula for Coca-Cola, which only two people are supposed to know at any one time. Although trade secrets generally apply to the same kinds of inventions that qualify for patents, as implied by the Coca-Cola example, two of the advantages of trade secret protection compared to patents are: 1) potentially eternal duration; and 2) no mandatory disclosure via public filings. The functional aspects – the “idea” portion—of software can qualify for trade secret protection, while the code and interfaces – the “expressive” portion – normally qualify for copyright protection. Also unlike patents, copyrights, and trademarks, trade secrets are not binding upon the public at large, but only those with a “duty of confidentiality,” for example employees, or those who have signed a non-disclosure agreement protecting the owner’s trade secrets. Trade secret rights can be lost if the owner discloses the secret, or if a third party not under a duty of confidentiality reverse engineers the trade secret without using illegal means such as theft. The rationale and benefits of trade secret licensing are nearly identical to those for patent licensing.

Work Made for Hire: under copyright law, (1) a copyrightable work created by an employee within the scope of his employment; or (2) certain categories of copyrightable works commissioned pursuant to a written agreement. If a work qualifies as a work made for hire, the hiring party owns the copyright, otherwise the creator owns it. For the first category of work made for hire, the key issue is often whether the creator was an employee or an independent contractor. To make this determination, courts may look at up to 20 factors, including the hired party’s control over accomplishment of the work (less control tends towards employee status); method of payment (hourly or piece work payment tends towards independent contractor status, fixed periodic payment tends towards employee status); hirer’s control over when and how long hired party must work; provision of tools; hired party’s right to employ his own helpers; and tax treatment by hirer. For the second category of work made for hire, a work created by an independent contractor can qualify, but only if it is commissioned pursuant to a written agreement, and only if it is a) a contribution to a collective work; b) part of an audiovisual work; c) a translation; d) a supplementary work, such as an appendix, bibliography, or chart; e) a compilation; f) an instructional text; g) a test; h) answer material for a test; or i) an atlas. Note that custom software normally would not fit any of these categories, and therefore would not qualify as a work made for hire. Further note that in the case of patentable inventions, there is no work for hire doctrine, so ownership of an invention would normally remain with an employee, even if he invented it in the course of his employment (although the employer would normally get a non-exclusive license under the doctrine of “shop rights”). Therefore, in an any working relationship where one party may create either copyrightable works or patentable inventions, it is advisable for the parties to enter a written agreement at the outset of the relationship stating that any work is deemed to be a work made for hire, but if it does not qualify, then the creator/inventor shall have been deemed to transfer ownership of the intellectual property to the hiring party as of the time of is creation.

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