Digital Property Rights – An Evolving Business Landscape

By Anna Hicks
May 31, 2012

Creativity and invention are highly valued within the United States as reflected by patent laws dating back to 1790, with mention of intellectual property even included in the U.S. Constitution. Protecting these ideals was seen as key to promoting an innovative spirit within American society and encouraging the creation of new products. Ultimately, a steady influx of new products and services translates into a healthy economic market as consumers reap the benefits of innovation.

With the advent and rise of the Internet, digital property rights have become an increasingly hot-topic in the Board rooms and Executive Offices of major companies, particularly those in the hi-tech industry. Much like the information protected under intellectual property rights, digital products provide their creators with certain protections under the law. The problems and legal challenges facing major companies like Yahoo and Facebook will help better define the laws surrounding digital property rights, and likely present opportunities as well as a whole host of new legal questions.

Intellectual Property Rights 

The Internet is the newest marketplace for business transactions and laws have yet to catch up with the different types of digital property available online. Digital property rights represent the next generation of intellectual property rights, which puts them on the same playing field as patents, copyrights and trademark brands.

As intellectual property, digital information exists inside the Internet realm. In effect, transactions and agreements between companies and consumers take place in a virtual world as opposed to the “real-life” world standard laws were designed to protect.

Instead of the written contract agreements drawn up between companies, new or existing businesses operate in an online marketplace that allows for considerable flexibility. Business-to-consumer transactions also operate within this virtual territory. Under these circumstances, it’s really no surprise to see major companies, such as Napster, Amazon, Google and Yahoo clash in areas having to do with digital property rights.

Digital property rights disputes arise when some form of counterfeiting or piracy occurs between companies. With the many forms that digital-intellectual property can take, rights infringements tend to pop up in unexpected places, though the companies involved in some of the more publicized disputes may very well have seen trouble brewing beforehand.

Patent Violations

Whenever an online company develops a new software technology, the company has the option of patenting their creation. And while payment transaction screens provide an ideal advertising space for generic credit ads, Amazon.com –a major online bookseller- decided to streamline their customer purchase transactions instead.

Amazon.com developed a new technology known as 1-click technology or “one-click buying, which enables customers to make purchases in a single click. Rather than enter credit card and billing information each time a purchase is made, this information is stored in customer account files. Amazon was awarded a patent on this technology in 1999.

As this technology gives online businesses a convenient way to get the customer to the checkout as soon as possible, it didn’t take long for other large online companies to try to infringe on Amazon’s patent rights. Less than a month after Amazon received the patent, Barnes & Noble set up an “Express Lane” checkout option that also allowed customers to make a purchase in one-click without having to look through a best credit card compare before making a purchase.

Not surprisingly, Amazon filed a lawsuit against Barnes & Noble for patent infringement violations. And while the lawsuit was settled in 2002, the terms of the settlement have yet to be disclosed. But at least Amazon had patents to enforce.  So many of the new tech elite have little or no patent footprint.  Will the failure to protect what they are building wind up to be their achilles heel?

Licensing Infringements 

The Internet thrives on new technologies involving web applications and their ability to interconnect with other digital devices. As many web applications are designed to interconnect with new cell phone technologies, the companies who develop the apps can benefit from increases in site traffic when mobile phone users pull up their application.

New web applications fall under the digital property category, so a company that owns a patent can require other companies to purchase usage licenses. This licensing option allows other companies to include the application on their device’s app menu.

Yahoo –one of the Internet’s major search engines- developed and patented a mobile Yahoo News web application that allowed users to look through major new stories relevant to everything from Celebrities to Personal Finance. Facebook – one of the Internet’s most popular social networking sites — created its own mobile-compatible interface that allows users to interact on Facebook from their mobile phone device. Facebook took it upon itself to incorporate the Yahoo News web application into its Facebook Mobile interface.

And while the legal lines between web application rights and usage rights may still be somewhat fuzzy, Yahoo filed suit against Facebook for neglecting to purchase licensing rights to the Yahoo News web application.  In spite of the substantial increase in traffic to the Yahoo News site since its appearance on the Facebook Mobile interface, Yahoo still had a certain responsibility to protect its shareholders interests and the interests of its employees.

Trademark Infringement 

Company trademarks become another form of digital property once a company takes its business onto the web. A trademark represents a company’s brand name, which can also embody the reputation of the company in terms of brand familiarity and respect. Trademark infringements occur when another company –usually a competitor — uses a company trademark to enhance its own image.

In 2006, Google – the largest Internet search engine — was the subject of a lawsuit involving the sale of the company name “Rescuecom” as a keyword term. As Google specializes in selling keyword terms and phrases as part of its advertising program, Google was selling the Rescuecom trademark name as a keyword term to Rescuecom’s competitors. Interestingly enough, Google has been the subject of similar type lawsuits involving the Geico and American Airlines trade names.

And while lower court rulings dismissed Rescuecom’s claims of trademark infringement, a 2009 ruling from the 2nd US Circuit Court of appeals determined the charges to be valid. As a result, the Google/ Rescuecom lawsuit will play out in the courts.

Of course, a company as massive and interconnected as Google has its own trademark handling policies, however digital property rights are still a developing concept in the online world as well as in the court system.

Copyright Infringements 

Copyright infringements involve the illegal distribution and/ or sale of copyrighted works. One major lawsuit involving Napster -an online file-sharing site- demonstrates the new limits or boundaries that must exist online in order for intellectual property rights to be protected on the Internet.

In 2000, the Recording Industry Association of America or RIAA filed a lawsuit against Napster for copyright infringement violations. As Napster’s file-sharing service allowed users to swap music files (among other file types), this allowed users to obtain new music recordings without having to actually having to pull out their credit card best interest rate. The courts found Napster guilty of illegal distribution of copyrighted material since the musical artists and recording companies held the actual copyrights to the music.

It seems light-years ago that the RIAA – Napster case was the talk of the industry.  iTunes now dominates the sale of legitimate digitized music, but issues continue to abound regarding the resale of legally obtained digitized copyrighted materials, for example.  In the digital world duplication and distribution cost nothing and can occur in an instant.  Although Napster is a distant memory to some, the issues presented by the ease of infringing in a digitized world remain.

Conclusion 

As the Internet continues to grow, ecommerce sales have grown by leaps and bounds with each passing year. The effects of digital property rights violations carry certain consequences for consumers and for the economy as a whole. And while companies like Amazon may forego the generic ad space for a more innovative shopping experience, any attempts to improve sales turnover rates will fall by the wayside if other companies can profit from stealing their ideas.

As intellectual property law was written to protect and maintain fair marketplace practices, the Internet’s continued growth rates warrant refining the laws that protect digital property rights. In effect, failure to properly define digital property rights can result in slowed economic progress as companies and individuals become less inclined to introduce new products in the marketplace. Consumers, too run the risk of purchasing sub-par merchandise in cases where pirating and illegal distribution practices go unnoticed in the online world.

If we learned anything from the RIAA — Napster battle it was that when these two squared off in litigation it allowed Apple to develop a dominant foothold.  As the giants of Silicon Valley continue to fight each other opportunities will present themselves for others, which in turn will create new businesses and an entirely new set of legal issues.

The Author

Anna Hicks

Anna Hicks

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

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There are currently 1 Comment comments.

  1. patent litigation June 8, 2012 2:29 am

    Your point about the rise of the digital realm and related property rights underscores my long-held belief that the time has come to update the patent system and make it more flexible. Although it is often important to obtain patents on digital technology, the standard 20-year patent is not necessarily appropriate. As I have said before, a multi-tiered patent system offering patents with varying terms and types of protection seems more fitting. Maybe the next round of patent reform will include conversations on this topic.
    http://www.aminn.org/patent-legislation