As copyright protection becomes more and more important to business as the basic way of protecting computer programs, the question of just what a copyright allows a business to do becomes a hot one.
Try to get too much mileage out of a copyright and you may lose it entirely, the U.S. Court of Appeals in Richmond warned companies Aug. 16.
For almost 50 years, the concept of patent misuse has been established in U.S. law.
A company that tries to use its patent power to give it clout beyond the area of the patent itself -- by, for instance, including in the patent license a clause requiring the licensee to buy nonpatented supplies from the patent-holder -- is likely to be held to be using the patent in a manner contrary to public policy and to be told that it cannot proceed against a licensee who infringed the patent.
It has been a matter of legal dispute, however, whether that same principle applies to copyrights.
The Richmond judges say it does, pointing to the fact that the framers of the Constitution seemed to consider the two kinds of intellectual property rights virtually identical.
Their ruling in Lasercomb America v. Reynolds found that license terms on software used to create dies for cardboard cartons are so onerous that the owner cannot enforce its copyright.
The opinion blocks an infringement action against a licensee despite the fact that, the judges noted, there is no question that the defendant made unauthorized copies of the program.
What made the license so unacceptable that the judges saw fit to impose such severe sanctions?
Its terms forbid any company using the program from participating in any way in the development of any computer-assisted die-making software -- a ban that ran for 99 years.
That's bad because it deprives the overall economy of the benefits of the bright ideas that might be generated by the technical personnel at any license-holding company, Judge James M. Sprouse said.
The original concept of patent misuse was developed because the courts feared that too much control over intellectual property would give the owner monopolistic clout.
But what is particularly significant about the Lasercomb ruling is that Sprouse wrote that it is misuse for the copyright holder to try to control competition outside the actual confines of the copyrighted material, even if the attempt does not go so far as to be an antitrust violation.
In other cases, courts ruled that:
The Internal Revenue Service cannot expect U.S. companies to ignore foreign government rules. The U.S. Tax Court rebuffed IRS attempts to refigure the tax liability of Procter & Gamble Co. based on royalty payments that the company's Spanish operation should have paid to its corporate parent, a Swiss subsidiary of P&G. U.S. law forbids such IRS reallocation of income if it is forbidden by the laws of the country where the subsidiary operates.
The IRS argued that there is no such law on the books in Spain.
But the Tax Court pointed to bars on royalty payments contained in the Spanish government's original approval of the P&G manufacturing setup there, and held that those provisions are the legal equivalent of an actual statutory prohibition.
(Proctor and Gamble v. Commissioner, Sept. 18)
Companies that run deceptive ads can still collect damages from competitors. In the dog food wars, Ralston Purina and Alpo Petfoods each accused the other of running false advertising, and after a 61-day trial the judge decided that they had in fact overstated the virtues of their products.
Ralston, however, was deemed to be the worse offender, and so was told to pay damages to Alpo.
The U.S. Court of Appeals ruled that was too narrow a reading of the law. Each company hurt by another firm's false advertising can collect damages, the appellate judges said.
So Ralston, in addition to having to pay Alpo, will also be awarded some money from that company.
(Alpo v. Ralston Purina, Sept. 7)
Employees have to be paid for on-the-job "sleep time" unless they really get to sleep. The U.S. Court of Appeals in St. Louis told a Nebraska county that aides in homes for the mentally retarded had to be paid for their entire shifts, even though theoretically they could go to bed at night.
In reality, they were expected to "sleep with one eye and one ear open," Judge Earl R. Larson noted, and to respond to emergencies that were so frequent as to become routine.
The county argued that U.S. Labor Department regulations said that workers need not be paid for sleep time if it amounted to at least five hours a night, but the appellate judges ruled that meant five uninterrupted hours, not merely the total of a number of shorter sleep breaks.
(Hultgren v. Lancaster, Sept. 4)
The Boy Scouts of America may be violating the 1964 Civil Rights Act by insisting that its members believe in God. Although the organization's central principles have long said that "no member can grow into the best kind of citizen without recognizing an obligation to God," BSA had argued that it did not violate the federal ban on religious discrimination because it is not a "place of public accommodation" as defined in the statute.
But the U.S. District Court in Chicago noted that places of entertainment are specifically included in the definition.
The court also said that the Boy Scouts, by stressing how much fun the organization is, put themselves in that category.
The law exempts private clubs, but the Boy Scouts' open-to-all policy prevents it from taking advantage of that exemption, Judge Ilana Rovner found.
(Welsh v. Boy Scouts, Aug. 9)
A lump-sum distribution to retired federal civil servants is immediately taxable. That IRS interpretation of the Tax Code was challenged by a former FBI agent, who opted to get back at one time the entire $53,000 he had put into the Civil Service Retirement System, even though the distribution reduced his monthly annuity by $199.
The agent insisted that the $53,000 was not really income merely a return of contributions which had previously been taxed.
The Claims Court, however, said the IRS had long called such payments taxable and that Congress must agree with that reading of the law since it never changed the wording. (Shimota v. U.S., Sept. 10)
A company may not have to stand behind a product carrying its trademark. The Connecticut Supreme Court held that General Motors Corp. cannot be held liable for defects in automatic transmission fluid licensed to carry its trademark, because the automaker neither makes the compound nor is responsible for its sale.
The justices warned, however, that a trademark owner could be considered responsible for products made by others under license if the trademark owner took a significant role in designing, manufacturing or marketing the faulty merchandise.
(Burkert v. Petrol Plus, July 31)
Some firings are so outrageous that an employer can be forced to pay damages for the resulting emotional distress. A California Court of Appeals approved a $100,000 jury award to compensate a worker for an unjust dismissal and $1 million in punitive damages. Most cases alleging that a firing was unfair are essentially contract law cases, with damages limited to lost wages and no opportunity for a punitive add-on.
But the California judges found that in some cases the company's conduct has been so outrageous that the case should be treated as a tort claim, just like one for any other intentionally inflicted injury. (Lanouette v. Ciba-Geigy, Aug. 13)
Daniel B. Moskowitz is a Washington editor for Business Week newsletters.