by

VAN ELMORE
LAW OFFICES OF VAN ELMORE
DENVER, COLORADO

INTRODUCTION

Copyright, unlike trade secret, trademark and trade dress, is a category of intellectual property that has not historically been given a great deal of attention in franchising. This may have been an oversight in the past, for copyright protection provides a strong mechanism to protect the franchise system’s intellectual property assets. Regardless of past practices, technological developments and a growing focus on copyrights are changing the current franchising business environment to the extent that copyright protection and infringement are no longer subjects which can be prudently ignored.

The increasing prominence of software in many franchise systems creates one new arena in which copyright protections are of significance. Technological developments for modem entry to limited access information sources, in relation to manuals and other information, create new potential controls and revenue sources through the use of copyright protection. The trade secret status of software and manuals can be bolstered by the type of copyright registration which designates trade secret status.

Copyright infringement is also a much greater danger in franchise systems than in the past. Policing of copyrights is increasing. Photocopying infringements alone are of significant concern today. Software related copyright infringement is also a growing risk. Franchisors and franchisees need to be aware of potential copyright infringements in order to protect themselves.

WHAT IS A COPYRIGHT?

The United States Constitution gives the Congress the power to “[P]romote 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.”1 This power has been exercised by the Congress beginning in 1807 and now includes the Copyright Act of 1978, the Software Computer Act of 1980, The Berne Convention Implementation Act of 1989, the Visual Artists Rights Act of 1990 and the Computer Software Rental Amendment Act of 1990. (Hereinafter collectively referred to as the “Copyright Act”.)2

PROTECTED RIGHTS
Under the Copyright Act, this protection is provided to the authors of “original works of authorship.” Generally it is available for literary (including software), dramatic, musical; pantomimes and choreography; pictorial, graphic and sculptural; audio-visual; sound recordings; and architectural works. The author (or her designee) generally has the right to:

Reproduce the copyrighted work in copies or phonorecords,
Prepare Derivative Works based upon the copyrighted work,
Distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending,
Perform the copyrighted work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works and
Display the copyrighted work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work.

An author/franchisor of a copyrighted manual, advertising video or software, therefore has the exclusive right to do all of the above unless license agreements provide otherwise, in whole or in part. (CAVEAT: See First Sale and Fair Use Topics Below.)

WHEN DO COPYRIGHTS ATTACH AND HOW LONG DO THEY LAST?
Copyright protection subsists from the time the work is created in a fixed tangible form. Therefore, a graphic created in some application software is protected as soon as it is printed or the file is saved to a floppy disk or hard drive. Similarly, copyright subsists in a newsletter or manual when it is printed or saved in the computer or on a disk.

The duration of a copyright for a work that is fixed in a tangible form will be:

For a work that was created before 1978 and was published: 75 years from the date of publication (if the copyright was renewed)
For a work that was created, but not published, before 1978: until December 31, 2002
For a work created after 1978, if the copyright is owned by an individual: The life of the author, plus an additional 50 years
For a work created after 1978, if the copyright is owned by the employer of the author: 75 years from the date of publication, or 100 years from the date of creation, whichever is the shorter time period.

Publication, is defined in the Copyright Act as the distribution of copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease, or lending. The offering to distribute copies or phonorecords to a group of persons for purposes of further distribution, public performance, or public display, constitutes publication even though public performance or display of a “work” does not of itself constitute publication. A license, contained in a franchise agreement, to use a copy of a franchise manual or a software program is a publication. A contract with a newspaper, television station or network for advertising copies is a publication.

Once publication has taken place, the owner is entitled to place a copyright notice on the work which contains the date of publication.

WHAT IS NOT APPROPRIATE SUBJECT MATTER FOR COPYRIGHT PROTECTION?

Copyright does not cover an idea. Public policy compels that ideas should not be locked up under copyright protection. Ideas are rather to remain the property of everyone. Copyright does, however, apply to the expression of an idea. This distinction between an idea and its expression, although easy to conceive, has proved difficult to apply.

Judge Learned Hand framed this dilemma in Peter Pan Fabrics, Inc. v. Marti Weiner Corp., when he ruled that “[N]o principle can be stated as to when an imitator has gone beyond copying the `idea’ and has borrowed its `expression.’ Decisions must therefore inevitably be ad hoc.” This case involved whether the defendant had infringed upon the plaintiff’s ornamental dress design.

Copyright does not extend to a merely functional item. Thus an ornamental bike rack was denied copyright protection because it was “[I]nfluenced in significant measure by utilitarian concerns.” Similarly, if the idea and the expression become so inseparable that the idea pervades the expression, then the expression can not be protected. This is often a type of analysis that the courts are forced into regarding software, where the expression of the code is designed to provide a function.

Franchise advertising provided a related case in which the court wrestled with the idea/expression dichotomy. In Sid & Marty Krofft Television Productions, Inc. v. McDonald’s Corp., a series of “McDonaldLand” advertisements were examined relative to infringement of the television show “H.R. Pufnstuf.” The court went beyond the extrinsic physical appearance of the cartoon characters to consider the concept of the characters, involving a village setting, as well as the characters’ emotional characteristics, as the protected expression, saying, “[C]opyright cannot be limited literally to the text, else a plagiarist would escape by immaterial variations.”

A work must demonstrate some originality to acquire copyright protection. Therefore a simple alphabetical listing of phone subscribers demonstrated insufficient creativity for copyright protection, however, a compilation of names and addresses in alphabetical order or numerical order in a directory are copyrightable, despite the fact that every element was readily ascertainable and no element originated with the author. The distinction lies in the public domain origin for telephone numbers and in the creativity demonstrated in the original selection of data and the arrangement of data.

Generally, copyright may not be obtained in any work which is not fixed in a tangible form of expression; such as an improvisational speech which has not been written or recorded. In addition, copyright does not apply to titles, names, short phrases, and slogans, familiar symbols or designs, mere variations of typographic ornamentation, lettering, coloring or mere listings of ingredients or contents.

Ideas, procedures, methods, systems, processes, concepts, principles, discoveries, or devices are not copyrightable (As distinguished from a description, explanation, or illustration).

Works consisting only of information that is common property and containing no original authorship; such as: standard calendars, height and weight charts, tape measures and rulers, and lists or tables taken from public documents or other common sources are also not copyrightable.

The Public Domain is the accumulation of all works which for one reason or another are not protected by copyright. This includes all works which are:

Originally non-copyrightable,
Subject to a copyright which has been lost or which has expired,
Authored by the federal government, and
Specifically granted to the public domain.

FIRST SALE
The First Sale Doctrine prevents an owner of copyright in a work from controlling subsequent transfers of copies of that work. Once the copyright owner transfers ownership of a specific copy, a book for example, the copyright owner’s right to further control the distribution of that particular book is extinguished. Therefore, the buyer of the book may sell it or rent it to others without infringing the owner’s copyright. The Copyright Act states:

Notwithstanding the provisions of section 106(3) [which grants copyright owners the exclusive right to distribute copies or phonorecords of a work], the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.

The first sale doctrine does not allow transmission of a work, through the internet for example, because a transmission would necessarily also involve a reproduction of the work and that is not exempted by the foregoing Section 109. There is also a limitation on the buyer’s right to dispose of her copy in regard to computer programs and phonorecords of a sound recording. These may not be rented, leased or lent for direct or indirect commercial advantage.

Section 109 also limits the copyright owner’s exclusive right to public display of copies of a work stating:

Notwithstanding the provisions of section 106(5) [which grants copyright owners the exclusive right to display publicly copies of a work], the owner of a particular copy lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to display that copy publicly, either directly or by the projection of no more than one image at a time, to viewers present at the place where the copy is located.

This would also not apply to display of a copy of a work through the internet because it is shown to more than one person at a time in different locations and none of the viewers would be at the server location where the copy is resident.

Licenses to use franchise manuals and software should specifically negate the ability of the licensee to further transfer, rent or display.

SOFTWARE AND COPYRIGHT

As noted above, the extension of copyright protection to software programs is a new and often difficult application of copyright doctrines, primarily because software is basically a functionally oriented set of instructions. Indeed, one of the early software cases held that the idea and the expression were inseparable and denied copyright protection. Later cases focused on the appropriate concept that software, although enabling a functional result, was like an explanation of how to do something. Such an explanation could be an expression and, therefore, copyrightable to the extent that there were many different ways to explain something that resulted in a use.

One of the significant cases in the development of copyright in software is the Whelan case. This court compared two different software programs to evaluate the presence of infringement. In so doing, the court directly confronted the idea/expression problem stating,

[T]he purpose of function of a utilitarian work would be the work’s idea, and everything that is not necessary to that purpose or function would be part of the expression of the idea … where there are various means of achieving the desired purpose then the particular means chosen is not necessary to the purpose; hence, there is expression, not idea.

Whelan was also one of the first software cases to address the protectability of non-literal expressions such as screens and menu structures.

One of the leading cases on copyright in software is the Altai case. Once again the court compared two programs to determine whether copyright infringement had taken place. The court formulated the “abstraction, filtration, and comparison” test. Abstraction requires the breakdown of the program into a continuum of parts, beginning with the code and ending with the function. At one end is expression and at the other is idea. The next step, filtration, requires that the program be examined for non-copyrightable material, such as ideas or elements taken from the public domain. Finally, the remaining parts are compared with the allegedly infringing program to see whether there is a substantial similarity which would indicate copying.

This Altai test has substantially been adopted by the First, Fifth, Tenth, Eleventh and Federal Circuit Courts of Appeal. Non-literal expression, such as menu displays, has been protected in some cases as well.

It appears that some reverse engineering of software, and the copying associated with it, will withstand copyright challenges, as fair use, if this is done to create compatible software. It should also be considered that franchise systems may be able to bar this type of reverse engineering by prohibiting it in their license agreements.

The use of copyright as a protection for software is also growing on an international basis. The United States is one of the few countries to increasingly apply patent protections to software. This departure from the global trend may cause divergent treatment of software protection around the world in the future.

COPYRIGHT NOTICE

Prior to 1989, the copyright notice was required. Under the current Copyright Act the copyright notice is not required; however, it is strongly recommended. An infringer may try to defend her act of infringement by claiming that she is an “innocent infringer”; that is, that she had no knowledge of the copyright in the work copied. This defense can be countered by applying copyright notices to all copyrightable works. The notice may be affixed in a number of different locations and methods. Computer software for example may display the notice on the disk, on the screen, in the source code, in a pop up screen and on the printouts.

The recommended form of notice for literary works is as follows:

Copyright © 1996 Law Offices of Van Elmore
All Rights Reserved

Under US law “Copyright”, the symbol “©” and “Copr.” are acceptable. The © symbol is required in some international jurisdictions, however, some software programs, particularly on the internet, may not recognize this symbol and therefore it is recommended that both the word and the symbol be used together.

The date is the date of first publication. Note that this is not the date of creation. In the event that this particular work is a derivative work or a compilation, then the date of the first publication of the derivative work or the compilation is sufficient.

The person or entity that follows is the name of the owner of the copyright. This may be different than the author of the work. The phrase “All Rights Reserved” is indicated by virtue of the Buenos Aires Convention in order to perfect the notice in such countries as Bolivia and Honduras.

COPYRIGHT SEARCHES

The records of copyright registrations at the Library of Congress may be searched. A request for such a search may be made to the Register of Copyrights or to a commercial service such as DIALOG. The author, title and registration number of the copyright registration are some of the bases for search.

COPYRIGHT REGISTRATION

Copyrights may be registered with the Library of Congress in Washington, DC. The filing fee for registration is $20.

WHY REGISTER COPYRIGHTS?
Given the low cost of registration and the enhanced protections, in terms of statutory damages and attorneys’ fees that are made available as a result of registration, the more appropriate question may be; “Why not register?”

Registration provides prima facie evidence of validity and ownership if filed within five years of the first publication. An owner can not sue to enforce copyrights until registration has occurred. In addition, registration makes statutory damages available for infringements that take place after registration. This can be particularly beneficial in the event that actual damages are small or difficult to prove. For works registered after the adoption of the Berne Convention, the statutory damages are from $500 to $20,000 for the infringements involved in a case relative to a single registered work. This may be increased to $100,000 if the court finds that the infringement was willful. In addition, owners of copyrights may recover attorney’s fees and costs at the court’s discretion. Statutory damages may be elected in lieu of actual damages at any time prior to final judgement. The Copyright Act also provides for injunctions, impoundments and destruction of copies as possible remedies.

WHEN AND HOW TO REGISTER COPYRIGHTS
Registration may be done at any time during the life of the copyright. It is best to register the work within three months of the first publication. This will make statutory damages and attorney’s fees potentially available, even if the infringement occurs during the three month interim.32 Registrations after the initial three month period enable possible statutory damages and attorney’s fees in regard to infringements that occur after registration.

Registration is accomplished by completing an application form and mailing it along with the $20 filing fee and two copies of the best edition of the work to the copyright office. The registration is effective upon receipt by the copyright office, therefore certified mail with return receipt is recommended for mailing. There are several different filing forms depending on what type of work is to be registered. The most commonly used forms are as follows:

Form TX: Non-Dramatic Literary Works This is the category for non-dramatic literary works including all types of writings that are not intended as performances, with the exception of magazines and serials which use form SE. Each article in a magazine or newspaper would be registered individually with this Form TX if they are not registered as a whole using form SE. Software uses this form as do franchise manuals and advertising. When using this form for computer programs, it is possible to register the program code, the screens and the software manual as a whole.

Form PA: Plays and Screenplays This is used for registration of plays, screenplays, radio scripts and other works intended for performance before an audience. It is also used for musical compositions, lyrics and multimedia works.

Form SE: Serials, Newspapers, Magazines and Periodicals This is for works that are published in successive parts, dated or sequentially numbered, and intended to be published indefinitely.

Form VA: Visual Arts This form is for graphic works and pictorials such as, photographs, sculptures and paintings.

Form SR: Sound Recordings This is the registration form for recorded music and sounds such as CDs, tapes and records.

REGISTRATION OF DERIVATIVE WORKS
A Derivative Work is defined as “[A] work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgement, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications, which as a whole represents an original work of authorship, is a ‘derivative work. ‘ ”

The evaluation of what constitutes a derivative software program, as opposed to a new work, within the context of a series of developments for one program, is often a question of degree. Usually, mere versions of a software program that represent refinements or debugging are registered as derivative works whereas updates with new names and numbers are often registered as new copyrights.

Compilations, including collective works, are another type of work. Compilations are assemblages of pre-existing materials or data that are selected, coordinated, or arranged in a way that creates a new work. Compilations can acquire copyright protection and can be registered. Compilations may include some public domain material.

TRADE SECRET PROTECTION IN COPYRIGHT REGISTRATION
Both franchise manuals and software programs may be registered with the copyright office under a procedure that protects trade secrets. Indeed, since part of the proof of a trade secret is the extent to which the owner protects it as a trade secret, copyright registration, that is pursuant to trade secret protection procedures, adds to the strength of the trade secret claim.

Copyright registration of franchise manuals containing trade secrets can be accomplished by providing a cover letter stating that the manual contains trade secrets along with the registration application. The trade secret material may then be blocked out. A blocking mechanism such as stripes or other such mechanism should be used so that more unblocked text remains than is blocked.

Trade secret registration is also available for computer programs. This application also requires a cover letter stating that the program contains trade secrets. The page of the source code containing the copyright notice must also be enclosed. In addition, one of the following must be enclosed:

The first 25 and last 25 pages of source code with portions containing trade secrets blocked out; or
The first 10 and last 10 pages of source code alone with no blocked out portions; or
The first 25 and last 25 pages of object code plus any 10 or more consecutive pages of source code, with no blocked out portions; or
For programs of 50 pages or less, the entire source code with trade secret portions blocked out.

EMPLOYEES, CONSULTANTS AND ADVERTISING AGENCIES: WORKS MADE FOR HIRE

A work made for hire arises under one of two circumstances. A work is a work made for hire if it is created by an employee, as opposed to an independent contractor, within the scope of employment.

A work is also a work made for hire if it is (i) specially commissioned, (ii) is one of the following types of works; (a contribution to a collective work, a part of a motion picture or other audiovisual work, a translation, a supplementary work [such as illustrations or a foreword for a book], a compilation, an instructional text, a test, answer material for a test, or an atlas), and (iii) the parties agree in writing that it is to be considered as a work made for hire.

If a work is a work made for hire then the copyright is owned by the employer or the commissioner. If a work is not a work made for hire, then the copyright is owned by the creator of the work!

If a work is found not to be a work made for hire, then there may be an implied license for the party which commissioned the work to have the opportunity to use the work for the purposes of the underlying agreement, despite the retention of copyright by the creator. This was demonstrated in Effects Assocs., Inc. v. Cohen. In this case a special effects creator retained the copyright in effects created on order for a movie company. The movie company’s use of the effects, however, was held not to be an infringement.

In the CCNV case the U.S. Supreme Court has recently clarified that whether a person is an employee will be determined by the common law agency principles in that regard. This case also held that the two criteria for finding a work made for hire (i.e., either as a commissioned work which meets the criteria set forth above or as a work created by an employee), are mutually exclusive. Therefore, a work made for hire must originate under either the employment prong or the commission prong of the definition but not both. The CCNV holding was retroactively applied to all dealings with employees and consultants in Autoskill Inc. v. Nat’l. Educ. Support Systems, Inc.

The definition of “scope of employment” is of equally great concern. Following the logic of the CCNV case cited above, it appears appropriate to consider that the scope of employment may also be determined by the common law of agency. The Restatement (Second) of Agency, which the CCNV court cited regarding the test of whether a person was an employee, states that the work of an employee is within the scope of employment if:

it is of the kind he is employed to perform,
it occurs substantially within the authorized time and space limits, and
it is actuated, at least in part, by a purpose to serve the master…

Consider what effect this might have on a franchise training or sales video in which secretaries and other office personnel write scripts and play roles; activities which are clearly beyond the kind of work they are employed to perform.

The work made for hire doctrine can also create trouble when dealing with advertising agencies which create radio, television or newspaper advertisements for a franchise system; consultants who create software, signs, newsletters or manuals for franchise systems; and any other service provider who creates copyrightable materials for the franchise system.

The solution to these problems is to acquire assignments of copyrights in all works to be created before they are started. It is very important that such assignment agreements be signed before any work has begun. Such assignments should require the consultant to also sign confirming assignments in the future. An example of such a confirming assignment, for use with a third party consultant, is attached as Appendix A.

Care should be taken that the assignment attempts to cover all possible present and future mediums in which the work might be used. For example, consider the situation in which a photographer takes pictures of principals in a firm. The photographer may often retain the negatives and may allow use of the photographs within the firm or for personal use only. The photographer does not provide an assignment of the copyright. Consider what domestic and international legal rights a photographer may have if such photographs are now included in a World Wide Web page on the Internet.

This assignment solution, as described above, does not depend on an agreement between the parties that a work is a work made for hire. As described above, that declaration is only available in a limited number of situations. Many of the franchise contexts in which consultants are hired do not fall within those limited circumstances and, therefore, can not be a work made for hire even if the parties mistakenly try to agree that it is a work made for hire. It is for this reason as well that an assignment is preferable. The assignment alternative is also advantageous because some state’s statutes provide that if the work is agreed to be a work made for hire, then the consultant automatically becomes an employee for purposes of unemployment insurance, workers’ compensation, and other issues.

An assignment should also be used for all employees. This eliminates dependence upon the work made for hire first prong. Such an assignment can be incorporated into employment agreements. This can be particularly useful if the work performed is not within the scope of the employment. Some states have statutes limiting general assignment clauses in employment agreements and excluding from the reach of such clauses certain types of inventions developed on the employee’s own time. In the event that such statutes are governing or if a blanket assignment has not been used for a particular employee or a particular work, then consideration should be made regarding a specific assignment for the work. This assignment would need to be supported, of course, by additional consideration.

Termination rights are rights that belong to a person who is an author of a copyrightable work. Termination rights do not accrue to corporations or other such entities. Termination rights also do not apply to works made for hire (this is a difficulty with the assignment alternative set forth above). The Copyright Act provides that all exclusive or nonexclusive grants of a transfer or license of any rights under a copyright may be terminated by an author or the author’s statutory successors within a five year window beginning 35 years after the grant, or in the case of a grant covering rights of publication, 35 years from the date of publication, or 40 years from the date of execution of the grant, whichever is earlier. This right may not be assigned or in any other way negated.

Termination is effected by serving notice of election to terminate not less than two or more than ten years before the date of termination. A copy of the notice must be recorded in the U.S. Copyright Office before the effective date of termination.

In many circumstances within the franchise context the expected useful life span of a commercial work is shorter than 35 years and therefore termination rights are not of great concern. It should be recognized, however, that this can be a problem when dealing with individual consultants, when a work made for hire agreement is not used or applicable. It can also be a problem when receiving licenses to use other copyright works, such as software. If you are taking a license to use copyrighted works, or if you are contracting with a consultant for development of new works, you may wish to use a Certificate of Originality to establish the consultant’s or licensor’s ability to provide clean title. This certificate is a questionnaire which sets forth the authors and other history of a copyright work, so that information regarding termination rights, authorship and governing licenses may be evaluated.

WHAT SHOULD A FRANCHISE SYSTEM CONSIDER PROTECTING UNDER COPYRIGHT LAW

A franchise system should protect its various manuals, brochures and software under copyright registrations. In addition, newsletters, training or other videos should be evaluated for registration. Advertising for various medias should be contemplated in relation to the ease of registration versus the potential damage as a result of copying. Blank forms are generally not protectable, however, instruction material on the form is. Therefore it is suggested that blank forms containing instructional material be registered as a whole. Databases can also be protected within the guidelines set forth for compilations and collective works.

Manuals and other copyrightable information may be treated in a new way, given the development of modem access sites and possibly even the internet. For example, the Copyright Clearance Center, Inc. (CCC), which can provide licenses for the copying of many literary works, similar to ASCAP’s function in the music business, is developing a new program which allows metered access to on-line information within a closed system (i.e. not a public system such as the internet).

This program, which is intended for commercial use, would allow various payment methods for access to a franchise manual, or even digitized training sessions. These training sessions and manuals can be the standard texts or conceivably could be interactive and could contain digitized videos, etc. Access can be limited to certain locations and users. Payment can be keyed to a monthly or per use basis. Additional charges can be administered for printing or downloading or these activities could be prohibited. Electronic payment can be debited from a credit card or other identified account. The application of anti-trust tying arrangement doctrines should be evaluated in regard to such a program. Hopefully, such an analysis would find that these additional charges for access to various copyrights and trade secrets, which are associated with the trademark, will not be prohibited.

This suggested mechanism for modem access to manuals and training would enhance trade secret protections both legally and practically. Termination of access could be triggered by the franchisor very quickly, pursuant to statutes and the franchise agreement. Seasoned franchisees could perhaps benefit by virtue of less frequent access charges.

CCC is also working on a method to enable this same type of program through more public systems such as the internet. CCC can be reached on the internet or by phone at (508) 750-8400.

DISCLOSURE CONSIDERATIONS REGARDING COPYRIGHTS

Item 14 of the UFOC guidelines requires that rights in copyrights that are material to the franchise be described in the disclosure document. Copyrights that the franchisor licenses to the franchisee need to be considered relative to this requirement. This would also include any copyright licenses that are licensed to the franchisor for use in the system.

Copyright registrations are also to be disclosed. This does not appear to be limited to copyrights registered by the franchisor but includes those involved in licenses to the franchisor. In addition, Item 14 requires further disclosure, “To the extent relevant, disclose the information required by Item 13 concerning these patents and copyrights.” The instructions for Item 14 further describe the details of necessary disclosure regarding copyrights.

Query: When discussing the circumstances under which the copyright license to the franchisee, or to the franchisor, may be cancelled or modified, is it necessary to discuss the possible ramifications of termination rights as discussed above? The federal Bankruptcy Code at section 365n, provides that a licensee of a copyright, such as software, may retain the use of the licensed software and perhaps access escrowed code, if the licensor declares bankruptcy and the license, an executory contract, is rejected. The licensor, however, may not be obligated to continue service or updates for the software. Query: Does this possible circumstance need to be disclosed? The sample answer does not discuss these issues.

It is suggested that the questions set forth above regarding the need to discuss certain copyright issues may have some application in particular disclosures depending on the circumstances. In addition, copyright licenses and payments may trigger other disclosure requirements, depending on the circumstances. In this regard it is suggested that the following UFOC Items also be reviewed: Item 5 (Fees paid to the Franchisor), Items 6 and 7 (License, service and renewal fees for software and other licenses), Item 8 (Specially required licenses for software and other copyright works), Item 9 (Contract issues regarding licenses), Item 11 (Various training and manual issues involving copyrighted works), Item 15 (Possible non-compete or access issues regarding copyright information), Item 17 (Contract treatments of copyright works in relation to termination and non-compete).

ARE YOU INFRINGING COPYRIGHTS?

The Copyright Act permits certain copying to take place without infringing the owner’s rights. There are a few specific exceptions, such as the ability to make an archival copy of a computer software program and the ability of libraries to make reproductions.

FAIR USE
Generally, however, the ability to make copies without infringing the owner’s rights is described as Fair Use. Whether a use is fair use, including fair use of an unpublished work, depends upon evaluation of the following factors:

The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
The nature of the copyrighted work;
The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
The effect of the use upon the potential market for, or value of, the copyrighted work.

Although copyright infringement can occur through many mechanisms, there are two particularly dangerous methods for infringement that occur in office environments today. These danger areas are relative to photocopying and software copies.

INFRINGEMENT BY PHOTOCOPYING
Photocopying of various written materials can be an infringement of the copyright and can be very expensive. In American Geophysical Union v. Texaco, Inc., an employee of Texaco photocopied articles from a technological journal for his own files and use in regard to research. Texaco was not aware that this photocopying was taking place. In defense of these actions, Texaco argued that this was typical for purposes of research and was fair use. Texaco had subscribed to the journal and routed it to employees. The Copyright Act itself in describing the type of purpose and character of use that may be acceptable refers to 1. Commercial or non-profit educational purposes, 2. Preamble purposes such as criticism, comment, news reporting, teaching, scholarship and research, and 3. The degree of transformation. (Emphasis added)

Despite the use in relation to research, the district court held for the plaintiffs. The use was found not to be fair use. The commercial nature of Texaco’s business was persuasive. In addition, the court cited the availability of license arrangements for photocopying from the Copyright Clearance Center, Inc. (CCC). The case was settled. Settlement included payment of $1 million in damages plus payment of undisclosed retroactive licensing fees. In addition Texaco agreed to sign a five year agreement with CCC.

It is recommended that franchise systems seriously consider licensing arrangements through CCC in order to avoid these problems.

INFRINGEMENTS INVOLVING SOFTWARE
The copyright act permits one archival copy of a computer program to be made. Other duplication or the installation of software into more than one computer is often a copyright infringement. The Software Publishers Association (SPA) has more than 1,100 members including Borland International, Symantec Corporation, Microsoft, WordPerfect, Novell and Adobe Systems. This association enforces software copyrights in the business community. A New York book publisher, Facts on File, Inc., was sued by SPA for loading unauthorized copies of software onto office computers. The settlement was in excess of $100,000. SPA’s antipiracy hotline is (800) 388-7478. Many calls to the hotline come from disgruntled employees.

The SPA also produces software, “SPOT IT”, to assist in evaluating whether there are infringing programs in your systems’ computers.

PREEMPTION

The Copyright Act provides:

[A]ll legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 [of the Act] in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyrights as specified by section 102 and 103 … are governed exclusively by this title. On or after January 1, 1978, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.

This preemption is limited by the following:

Nothing in this title annuls or limits any rights or remedies under common law or statutes of any State with respect to … activities violating legal or equitable rights that are not equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106…

The greatest concern for franchise systems in regard to this preemption is the possible limitation of trade secret protection, which is a state law based in tort. In Harper & Row, Publishers, Inc. v. Nation Enterprises the court found that state trade secret claims are preempted by copyright law if two conditions are met. First, the work must be covered by sections 102 and 103 of the Copyright Act. Secondly, the state-created right must be equivalent to one of the exclusive rights created by the Copyright Act. If, however, a state law violation includes acts other than the exclusive rights of the Copyright Act, then there is an “extra element” and the state cause of action will not be preempted.

A subsequent case applied similar logic. In Gates Rubber Co. v. Bando Am., Inc., the court held that the Copyright Act did not preempt a Colorado trade secret claim in connection with a computer program because the trade secret claim went to the wrongful acquisition of the computer software and disclosure of it to the copyright owner’s competitor. These were claims that were in addition to those provided by the Copyright Act.

It appears that trade secret claims can survive preemption by the Copyright Act.

INTERNATIONAL

Copyright protection is not globally uniform. There are certain treaties and agreements to which the United States is a participant. Generally these international laws only provide a somewhat general format for copyright protection in the signatory countries. The only safe course is to evaluate the laws of a particular target country. This should be done before publication takes place anywhere, in order to preserve the best potential copyright protection.

Most countries offer protection for foreign works under certain conditions. These conditions are significantly influenced by two primary international copyright conventions; The Berne Union for the Protection of Literary and Artistic Property (Berne Convention) and the Universal Copyright Convention. The Berne Convention was first drafted in 1886 in Berne, Switzerland. The current draft is the 1971 Paris text. This treaty is administered by the World Intellectual Property Organization (WIPO) based in Geneva, Switzerland.

The Berne Convention contains four primary principles; national treatment, preclusion of formalities, minimum terms of protection, and minimum exclusive rights.

National treatment enables a US author to gain protection for her works in the Bahamas, for example, which is also a signatory. Preclusion of formalities prohibits protection based only on formalities such as registration or notices. Therefore, for example, the US Copyright Act was amended upon adoption of the Berne Convention to the extent that these formalities became optional.

Minimum terms of protection requires that the duration for copyrights last at least for the life of the author plus 50 years.

Minimum exclusive rights requires each nation to protect six rights; translation, reproduction, public performance, adaptation, paternity and integrity.

The Universal Copyright Convention (UCC) has been revised over the years; beginning in 1952 and ending with the most recent Paris draft of 1971. This treaty provides less protection to copyright owners than the Berne Convention. If a nation signs both treaties, the Berne Convention controls. The US was a primary proponent of the UCC because the US had a formalistic approach to copyright notice and registration. Since the US has joined the Berne Convention on March 1, 1989, the UCC has begun to diminish in significance.

The North American Free Trade Agreement (NAFTA) defines intellectual property to include copyright and related rights. NAFTA tracks the Berne Convention regarding protections for copyright owners. NAFTA does add the ability to prohibit importation of infringing copies of a work. NAFTA also prohibits stealing copyright works from satellite signals.

The Uruguay Round Agreements Act (URAA) of the General Agreement on Tariffs and Trade (GATT) includes an agreement on the Trade-Related Aspects of Intellectual Property (TRIPS). This amended US Copyright Law in several ways. Significant among these is the amendment to section 104A. This provides for the automatic restoration of a copyright in certain foreign works that are in the public domain in the US but are protected by copyright in the source country. There are a number of specific criteria for reinstatement of US copyright protection to these foreign works.

If the criteria are met, then reinstatement is automatic. The owner can then directly notify a reliance party, which is a party using the work, or the owner can create constructive notice by filing a Notice of Intent to Enforce (NIE) with the copyright office between January 1, 1996, and December 31, 1997. The Copyright Office will publish the NIEs on May 1, 1996, and every four months thereafter. A party using the work will then have 12 months after notification to continue using the work. After that time, use must cease or a license must be negotiated with the owner for continued use. This could have a surprising effect on franchise systems that may be using some previously public domain materials in the US, but which maintained copyright protection in some foreign countries.

INTERNET

The internet and other networks such as America Online and various Bulletin Boards (BBS) provide an interesting mix of copyright issues on both a domestic and international basis. As discussed above, display and reproduction of copyright works are not exempted on the internet by virtue of the First Sale Doctrine. Therefore, transmission of copies of lawfully acquired works in such networks, unless specifically authorized, will generally violate the owner’s right of reproduction because a new copy is made at the download location, if not also at the network location.

The Copyright Act enables the owner to limit importation of copies or phonorecords of a work if that importation represents unauthorized importation as a result of piracy or of importation of copies that were only authorized for distribution outside of the US. However, the definition of copies or phonorecords covers physical items and not electronic impulses and therefore, electronic transmission on the internet across US borders is not covered as an unauthorized importation.

Works on the internet may be copyrighted works. Therefore copying them by downloading them is an infringement. Lists of other internet addresses may be compilations that have copyright protection and therefore these lists may not be copied into another list of internet addresses. However, a single internet address is probably not a work that can be copyrighted and therefore can be mentioned elsewhere without infringement. Placement of information on the internet should be preceded by a careful analysis of the license or other copyright authorization to use the work; specifically including whether or not such authorization permits such a posting.

President Clinton formed the Information infrastructure Task Force in 1993 to study and recommend the actions necessary to implement the administration’s vision regarding the National Information Infrastructure. The resulting report regarding the internet and other such global networks makes recommendations regarding changes to the copyright laws.

SUMMARY

Franchise systems have a valuable protection for their intellectual properties and a strong deterrent to copying of various elements of their systems through the use of copyright registrations. This protection is relatively simple and inexpensive to obtain. Franchise licenses, consultant agreements, and employment contracts should be reviewed with copyright protection in mind. Copyright registrations should be initiated and maintained and software and photocopying infringements should be evaluated and avoided.

Technological developments in the area of modem access make new and valuable methods available for use in relation to manuals and training. Copyright protection will continue to grow in significance in relation to these developments.

APPENDIX A
CONFIRMATORY ASSIGNMENT

For good and valuable consideration, receipt of which is hereby acknowledged,______________ _________________________________________[Name, Address]; (”Assignor”, herein) has assigned and does hereby assign and transfer to XYZ, Inc., a _________ corporation with offices at ____________ (”Assignee”, herein), Assignor’s entire right, title and interest in and to any and all Proprietary Information relating to Assignor’s work for or on behalf of Assignee, including without limitation Assignor’s contributions to project(s) and product(s) identified as follows:

TITLE(S) OF PROJECT(S) AND PRODUCT(S):

For purposes herein, “Proprietary Information” includes without limitation inventions, discoveries, improvements, works of authorship, formulas. processes, compositions of matter, computer programs, code, databases, mask works, trade secrets, designs, notes, drawings, marketing plans, literary works for manuals, advertising materials, newsletters, product plans, business strategies, financial information, forecasts, copyrights, patent rights, other intellectual property rights, and the right to bring suit thereunder. Assignor agrees that on request and without further consideration, but at the expense of Assignee, Assignor will communicate to the Assignee or its representatives or nominees any facts known to the Assignor respecting said Proprietary Information, and will testify in any legal proceeding, sign all lawful papers, execute all applications and confirmations, make all rightful oaths and generally do everything possible to aid the Assignee, its successors, assigns and nominees to obtain, maintain, perfect, and enforce rights in the Proprietary Information.

Signed and sealed this ____ day of ________, 199_

[ASSIGNOR NAME]; (Assignor)

By_____________________________________________
[TYPED NAME/TITLE]

STATE OF_________________________

COUNTY OF_______________________

On this ______ day of _________________, 199_, before me personally appeared [TYPE NAME] personally known to me who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument, and acknowledged to me that she/he executed the same of her/his own free will for the purposes therein set forth.

Notary Public (Notary’s Seal)