The Merger and the Damage Done: How the DOJ Enabled an Empire in the Live Music Industry

The Merger and the Damage Done: How the DOJ Enabled an Empire in the Live Music Industry
By Josh Baker* A pdf version of this article may be downloaded here.  


In February 2009, Ticketmaster Entertainment and Live Nation announced a “merger of equals” that would unite these two titans of live entertainment, sending shockwaves through the industry.[1] On January 25, 2010, the United States Department of Justice approved the merger. When the Antitrust Division of the Department of Justice (“DOJ”) announced its decision, it encountered harsh criticism and backlash from within the industry for allowing these already-dominant firms to join forces. Spurred on by outcries from rock stars and politicians, the public regarded this deal with serious skepticism.[2] Nevertheless, the merger went through and Live Nation Entertainment (“LNE”) was born. A close examination of the merger can shed light on aspects of the music industry that inform the antitrust analysis, the efficacy of the remedies imposed in the consent decree, and the effects of the merger on the live music industry. This analysis will show that the DOJ should not have permitted the merger to proceed. In Part I of this Note I will detail the aspects of the music industry that are relevant to an examination of this merger. In Part II I will reexamine the DOJ’s antitrust analysis of the merger while Part III will explain how the structural and behavioral remedies imposed have failed to engender competition. Finally, I will argue that the DOJ overlooked a vital opportunity to create competition in the budding market of fully integrated live performance services.

I. The Live Music Industry

A. Yesterday: A Brief History of the Music Industry

Since the turn of the century, the music industry has been popularly characterized as a sinking ship, doomed by the prevalence of piracy and file-sharing. However, this depiction ignores half of the story. From 1999 to 2009 as the recording industry flailed, revenue from concert ticket sales in the United States skyrocketed from $1.5 billion to $4.6 billion.[3] It should be noted that such figures are a relatively new phenomenon, as the live music industry was not always so profitable. Prior to the 1950s, live concerts were only seen at nightclubs, dance halls, and restaurants. In the decade following World War II, technological advances helped create a mass market for recorded music. Record companies formed, signing artists to multi-album contracts and helping artists expand their audiences. The record companies encouraged artists to perform large concerts to draw fans and drive record sales. As some artists began to surge in popularity they were able to tour regionally, and the more successful ones, nationally. These artists would use local promoters to market their performances at each venue. The mass market for popular music grew rapidly, and soon enough promoters and other entrepreneurs began to build concert venues to accommodate larger audiences. Artists with a substantial fan base would perform in indoor clubs and artists who could draw a larger audience played in amphitheaters. The most popular artists began performing in arenas and stadiums. These “superstar” artists typically generated the lion’s share of ticket sale revenues. By 2009, gross revenues from the top one hundred tours had reached $2.5 billion.[4] However, superstar artists are few and far between. In 2009 fewer than one hundred artists worldwide were capable of drawing enough fans to fill amphitheaters or larger venues, and not all of these superstars tour each year.[5] The services of superstar artists are thus a scarce and crucial resource, fervently sought after by concert promoters.

B. A Day In The Life: Staging a Concert

A complex string of relationships is required to produce a concert. The key figures and entities in the chain are the artist, manager, booking agent, promoter, venue, venue service providers (including the ticket distributor), secondary ticket market, and consumers. Understanding each role in the process is crucial to analyzing the Live Nation-Ticketmaster merger under antitrust law. The first link is the artist’s personal manager. The manager serves a variety of purposes, one of which is arranging performances via the booking agent. The booking agent contracts with a promoter (such as Live Nation) to produce either an individual show or a multi-performance tour. The artist generally receives a guaranteed payout from each performance, or alternatively, a percentage of revenues. The manager and agent receive percentages of the artist’s income (typically 15% and 5%, respectively). The promoter is responsible for obtaining the performance space and marketing the event. The promoter usually receives a guaranteed payout, subordinate to the artist’s. After the guaranteed payouts are made, the remaining revenue is split between the artist and the promoter. The venue rents out the performance space and contracts for ticket distribution, concessions, merchandise, security and other services, or provides them in-house. The venue receives a percentage of the ticket distributor’s fees as well as a percentage of the concessions and merchandise sold during the performance. Artists receive the largest share of merchandise revenue. The ticket distributor delivers tickets to consumers (“primary ticketing services”). The distributor receives a portion of the ticket service fees, which are added to the face value of the tickets. To clarify a common misunderstanding, the face value of the ticket is split between, and determined by, only the artist and the promoter. It is beyond the purview of ticket distributors. Critics of surging ticket prices must understand that ticket distributors (such as Ticketmaster) should only be held responsible for increases in service fees, not increases in ticket prices. Finally, the consumer pays the face value of the ticket, plus the service fees, in exchange for admission to the concert. Once the tickets are purchased, secondary ticketing services (such as allow for the resale of tickets between consumers. On the secondary market, prices may fluctuate considerably. The secondary ticketing service provider also charges a fee for each sale.

C. Hello, Goodbye: Recent Industry Developments

For a litany of reasons, sales of physical albums have declined precipitously from levels seen at the turn of the century. Per Nielsen SoundScan, total album sales in 1999 reached 755 million—648 million from CDs and 105 million from cassettes.[6] By 2009, total album sales had dropped to 374 million.[7] Digital sales, which accounted for 40% of all music purchases in 2009, are increasing but have not yet replaced the losses incurred from declining physical sales. Conversely over the same time period, revenue from live performances has been steadily increasing. Even with ticket prices on the rise, concert attendance is growing. Artists used to go on tour to promote album sales, but now the relationship has flipped. In 1999, Millenium by the Backstreet Boys was the top selling album, generating $187 million in sales.[8] The Backstreet Boys’ touring revenues however only came to $37.1 million.[9] In contrast, U2’s record-breaking 2011 tour grossed $156 million in ticket sales, while the band pulled in a mere $4.8 million from combined album and digital sales.[10] Another significant trend the music industry has recently experienced is the emergence of “360 deals.” While the proliferation of these deals may seem revolutionary, this is not an altogether unexpected phenomenon. For years, record companies were models of vertical integration, providing artists with distribution, marketing, promotion, production and other services that were crucial to commercial success. Artists dreamed of signing “the big record deal,” seeking a big company to provide them with everything needed to release a successful album, since that used to translate into financial success. There is a well-documented history of artists agreeing to long-term contracts with the biggest labels, pursuing lucrative upfront advances and instant celebrity. The recent change has not been the behavioral pattern of artists, but rather that companies on the live performance side of the industry have begun consolidating their many roles. Artists still demand one-stop shopping, and with touring replacing album sales as the primary source of revenue, the major entities in the concert business are developing their capacity to supply those services.

D. Come Together: Live Nation, Ticketmaster, and the Merger

Live Nation and Ticketmaster were the two premier examples of increasingly vertically integrated firms in the live performance industry. Each had a history of pursuing vertical integration by acquiring companies in complementary markets. The merger of these two firms demonstrated their commitment to this strategy.
1. Live Nation: History and Strategy
Live Nation was principally a promotion company that started in the late 1990s as SFX Entertainment. Around 1997, SFX Entertainment began acquiring competing major promoters around the country to develop a national network. As SFX expanded, it introduced the practice of exclusively promoting significant portions, or even the entirety, of an artist’s national tour. Previously, artists (via their booking agents) would contract with individual local promoters in the regional markets where they wished to perform. In 2000, Clear Channel bought SFX and renamed it Clear Channel Entertainment.[11] Over the next few years, Clear Channel Entertainment significantly increased its share of the concert promotion market and acquired exclusive rights (via sale or contract) to numerous prestigious amphitheaters and other performance venues across the country. In 2005, following antitrust investigations, Clear Channel was forced to spin off Clear Channel Entertainment as a new entity, Live Nation. In 2008, Live Nation boasted that it was “the largest producer of live concerts in the world, annually producing over 16,000 concerts for 1,500 artists in 57 countries.”[12] In the United States alone, Live Nation owned 18 venues, held leases on 70 more, and operated many beyond that. Live Nation also owned or operated approximately 90% of the amphitheater venues in the United States. Additionally, Live Nation’s subsidiaries held booking rights for 159 venues around the world, and their events represented between 35-58% of all concerts, depending on the estimate.[13] In addition to achieving horizontal integration through the acquisition of competitors, Live Nation began to expand its reach vertically as well. In 2006, Live Nation acquired MusicToday, an online retailer for music merchandise. Although Live Nation was a longtime Ticketmaster client, in 2008 Live Nation announced that it would partner with CTS Eventim (Europe’s largest ticket distributor) to create its own ticket distribution platform. This platform was expected to compete directly with Ticketmaster in the market for primary ticketing services.[14] That same year, Live Nation also announced an agreement with SMG, a venue operator and former Ticketmaster client, to provide ticketing services for SMG venues. Live Nation has drawn antitrust scrutiny and allegations of engaging in anticompetitive behavior on multiple occasions. A set of class action lawsuits commencing in 2002 claimed that Clear Channel (prior to divesting Live Nation) restricted airplay on its radio stations for artists that competing promoters had booked.[15] A 2009 claim brought by an independent promoter claimed that Live Nation engaged in anticompetitive tying arrangements by leveraging its venues and promotional services, illegally monopolizing markets for amphitheater venues and promotional services, and denying competitors access to major artists (a “critical input”).[16] After the merger, in 2011, a separate class action by concertgoers claimed that Live Nation imposed mandatory parking fees as a form of illegal tying.[17]
2. Ticketmaster: History and Strategy
Ticketmaster offers integrated, full-service ticket distribution, which includes online sales, retail outlets, call centers and venue box office operations. In its early years, Ticketmaster competed with Ticketron, another primary ticket distribution service provider. With superior online technology and service, Ticketmaster surpassed and eventually acquired Ticketron. Over the past decade, has grown into one of the five largest e-commerce sites in the world, with over 26 million unique visitors each month.[18] Ticketmaster has also demonstrated a predilection for pursuing vertical integration. In 2008, Ticketmaster acquired Front Line Management Group. Front Line is the world’s leading artist management firm, representing over 250 artists.[19] Ticketmaster also acquired Paciolan, a leading supplier of ticketing software, as well as TicketsNow and GetMeIn, which offer secondary ticketing services. Both Ticketmaster and its subsidiary Front Line have distinct histories of acquiring rivals and companies in complementary markets. Ticket buyers and artists have launched a bevy of complaints over the years alleging that Ticketmaster charges excessive fees on primary ticket sales as a result of its monopoly power.[20] Pearl Jam was involved in a very public (if ultimately fruitless) spat with Ticketmaster over excessive service fees in the mid-1990s.[21] In 2003, The String Cheese Incident and its associated booking group claimed Ticketmaster had abused its market power by denying the group a customary percentage of the tickets to a concert through the use of exclusive contracts.[22] In another case which began in 2003, the Superior Court of California granted class certification on allegations that Ticketmaster misrepresents or omits the fact of a profit component in its shipping and processing fees.[23] Immediately preceding the merger with Live Nation, Ticketmaster faced public outcry and claims that it had conspired to divert tickets for popular events directly to TicketsNow, where tickets were sold at substantially higher prices.[24] A series of class action complaints regarding this alleged behavior were filed in Canada in February 2009, and later settled in February 2012.[25]
3. The Merger Investigation and Consent Agreement
On February 10, 2009, Live Nation and Ticketmaster entered into an agreement under which they would merge into a new entity called Live Nation Entertainment. The companies joined in a tax-free, all-stock merger with a combined enterprise value of approximately $2.5 billion.[26] Over the course of the following year, the DOJ conducted an investigation into the effects the merger might have on competition. A number of competitors and interested parties submitted comments opposing the merger.[27] Ultimately, the DOJ found that the merger would substantially decrease competition in primary ticketing services for major concert venues. To allay this concern, on January 25, 2010, the DOJ and the parties entered into a consent agreement that would permit the merger provided that specific measures were taken to address the effect on the primary ticketing market. Although the DOJ’s Competitive Impact Statement said its only concern was the primary ticketing market, their remedies and analysis touched on other potential anticompetitive effects.[28] These secondary concerns will be discussed in Part II, infra. The ten-year consent agreement—still in effect—includes both structural and behavioral remedies. Ticketmaster agreed to license its ticketing software to AEG, the second leading promoter in the United States, and to divest its Paciolan division to Comcast-Spectacor, one of Ticketmaster’s competitors in the primary ticketing services market.[29] The consent agreement also prohibits LNE from misusing proprietary ticketing information.[30] Promoters that were Ticketmaster clients would be at a significant disadvantage if their chief rival, Live Nation, were privy to such sensitive information, so LNE is restricted from sharing this information between their ticketing and promotion operations. The agreement also stipulates that Ticketmaster provide these clients with a copy of this information should the clients decline to renew their contracts with Ticketmaster.[31] Further, the agreement forbids LNE from engaging in retaliatory measures against competitors, which might occur via anticompetitive tying practices involving their venues, ticketing services, promotional services and Front Line-managed artists.[32] To enforce the agreement, the DOJ established a new Compliance Committee to monitor industry developments and encourage consumers and competitors to report violations. The Committee is authorized to interview employees of the firm and demand corporate documents regarding matters relating to the consent decree.[33]

II. The Department of Justice’s Antitrust Analysis

The Clayton Act prohibits combinations and acquisitions where “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”[34] A central tenet of antitrust law is that effective competition drives prices towards marginal costs, spurring innovation, incentivizing efficiency, and benefiting consumers. The antitrust analysis resulting from the DOJ’s investigation into the Live Nation-Ticketmaster merger formed the basis for the consent order and the remedies included therein. This section will scrutinize the DOJ’s antitrust analysis and examine alternative theories the DOJ should have considered.

A. Jigsaw Puzzle: Horizontal Components of the Merger

The focus of the DOJ’s antitrust analysis was the market for primary ticketing services, the sole significant market in which Ticketmaster and Live Nation both already participated and where they had been chief rivals. When Live Nation partnered with CTS Eventim to enter the primary ticketing services market, it became Ticketmaster’s fiercest competitor. The merger threatened to eliminate this significant competitive force.
1. The Market for Primary Ticketing Services
A proper analysis of the horizontal effects of this merger must begin with a definition of the competitive market at stake. A standard test for appropriate market definition, the “SSNIP test,” entails identifying a set of products or services over which a hypothetical monopolist (i.e. the merged firm) could profitably impose a small but significant and non-transitory increase in price. For the merger at hand, the relevant market included major concert venues and primary ticketing service providers.[35] If a monopolist in this market were to impose a SSNIP above the otherwise competitive pricing level, major concert venues would not be able to freely substitute an alternative. Venues must provide a primary ticketing service to consumers, and there are no viable alternatives to providing such a service outside of the identified market. In the market for primary ticketing services, sellers are able to price discriminate among different venues, as contracts between ticketing companies and venues are individually negotiated and typically prohibit the resale of those services.[36] Price discrimination could therefore result in the merger affecting each class of venues differently. Hence, the antitrust analysis focused on venues with few alternate service providers because the merger could disproportionately disadvantage such venues. The analysis found that the venues most affected by this merger were major concert venues.[37] These venues require sophisticated ticketing services that can withstand heavy transaction volume and complex marketing and distribution needs.[38] Only a limited set of firms was capable of providing these specialized services and fewer still had the proven track record that these venues desired. Live Nation and Ticketmaster were both among this select group. Defining the market at issue also requires examining geographical boundaries. For this merger, the relevant geographic market was the United States.[39] Although foreign ticketing services could potentially enter into the domestic market, at the time of the merger they were not significant market participants and have still not exerted much competitive influence within the domestic market. Therefore, the relevant market was defined as major concert venues within the United States. Once the market is defined, market participants must be identified and their respective market shares need to be calculated. Ticketmaster has long been the dominant supplier of primary ticketing services to major venues, with over an 80% market share before 2009.[40] In fact, in 2008 no other firm held more than a 4% share.[41] In the months preceding the merger, Live Nation declined to renew its contract with Ticketmaster and began to compete in primary ticketing services. According to TicketNews, the power scores (a market share approximation using an estimation of actual transactions) of and at the end of August 2009 were 60.32 and 16.02, respectively.[42] Using these power score figures, the Herfindahl-Hirschman Index (HHI)—a metric used by the DOJ as well as the Federal Trade Commission since 1982 to measure market concentration—for this market was nearly 4,000 prior to the merger, even ignoring all other firms.[43] The DOJ-FTC 1992 Horizontal Merger Guidelines regard a market with a HHI greater than 1,800 as “highly concentrated.”[44] The Merger Guidelines declared that a merger is presumed “likely to create or enhance market power” if it increases the HHI of a highly concentrated market by more than one hundred.[45] Based on the power score figures, this merger increased the HHI by almost two thousand. Although this illustration omits important parts of the market, such as companies that enable self-distribution, the merger still presented significant concerns under traditional horizontal merger analysis. However, calculating the HHI of a potential merger produces only a presumption of market power. It does not constitute a full analysis of the effects the transaction could have on competition. Accordingly, the DOJ has stated that the calculation of market shares and concentration ratios “provide only the starting point for analyzing the competitive impact of a merger.”[46] Importantly, the presumption that the merger is likely to increase market power does not necessarily indicate that the merged firm will, or has the ability to, act anticompetitively. One key factor the HHI calculation does not take into account is potential competitors not presently participating in the market. A hypothetical price increase by the merged firm could entice outsider firms to enter the market, making the price increase unsustainable. However, in the primary ticketing market, substantial barriers to entry prevent potential entrants from supplying a competitive check on LNE’s behavior. The DOJ identified a number of these barriers to entry in its investigation of the merger. Providing ticket distribution services to major concert venues requires platforms that are technologically complex and expensive to develop.[47] The high fixed costs necessary for developing and maintaining such platforms are especially problematic for potential entrants because they exacerbate the difficulty of achieving sufficient scale to provide effective market competition.[48] Furthermore, after years of operating at an impressive scale, LNE has unparalleled access to individual consumer data. The firm can leverage this data to provide marketing services that others could not initially offer venues.[49] Other aspects of Ticketmaster’s business model also discourage market entry. Ticketmaster regularly uses medium- to long-term exclusive contracts with venues (averaging six years in duration), with approximately twenty percent of these contracts expiring each year.[50] These contracts limit how quickly another firm could obtain a competitively effective scale. Venues also incur costs to install and teach employees to use new platforms; these costs act as counterincentives to the venue switching its primary ticketing service provider.[51] To evade these prohibitive cost barriers, new entrants might adopt software platforms that offer cheaper, yet effective, online distribution alternatives.[52] The licensing of web-based ticketing platforms involves extremely low marginal costs, which may help attract potential entrants. However, this would still not avoid the scale effects and costs to venues of switching service providers. Even firms already engaged in the business of ticket distribution face barriers to real competition for major concert venues. The major venues have complex ticketing needs, such as a high volume of sales upon initial ticket availability, and accordingly can be extremely reluctant to sign long-term deals with unproven ticketing companies. The slightest hiccup in primary ticketing services can produce disastrous effects for a venue, so a track record of reliability is a prized commodity.[53] Ticketmaster has established a strong reputation for capably providing complex ticketing solutions. Immediately prior to the merger, Live Nation, in an effort to establish a reputation for its own ticketing platform, was attempting to build experience handling ticketing services for its own venues. As the DOJ stated in its Competitive Impact Statement assessing the merger, “[n]o primary ticketing company other than Ticketmaster and Live Nation has amassed or likely could have amassed in the near term sufficient scale to develop a reputation for successfully delivering similarly sophisticated primary ticketing services.”[54] The DOJ recognized that potential entrants would be hard-pressed to convince venues to gamble on unproven ticketing partners that may encounter growing pains. The DOJ identified one firm who could potentially provide direct competition in the primary ticketing services market: CTS Eventim, a German ticketing firm. While the DOJ pointed to Live Nation’s agreement with CTS as evidence that former Ticketmaster clients could emigrate to newer competitors, the merger itself showed that such competition was not yet viable on a significant scale.[55] After Live Nation explored engaging in direct competition with Ticketmaster via licensing CTS software and adapting it to the North American market, it decided to forego this option. According to LNE’s own 10-K filing, the company terminated its agreement with CTS because the German firm “fail[ed] to deliver a North American ticketing system that met the contractual requirements of being a ‘world class ticketing system . . . that fits the needs of the North American market.’”[56] While new competitors may be better equipped to compete with LNE in the primary ticketing market, CTS was the most likely entrant and most viable competitor at a significant scale. Live Nation’s decision to join, rather than compete, was at least partially motivated by a lack of competing services capable of rivaling Ticketmaster’s dominant platform. One consideration the DOJ omitted from its analysis was the potential for substitution, specifically in the form of self-distribution. Rather than contract out to Ticketmaster or Live Nation for primary ticketing services, venues could turn, and have turned, to companies that offer software solutions that enable venues to handle ticket distribution in-house. Even with a dearth of effective competitors in the market for third-party ticketing services, were LNE to significantly raise prices for its ticketing services, venues in that market could substitute this in-house distribution option. In fact, a number of former Ticketmaster clients did just that.[57] Companies that offer these services have already developed the capacity to serve major venues and thus face fewer cost barriers to entry. This in-house option provides at least a plausible restraint on the sustainability of potential price increases from LNE.
2. The Market for Integrated Service Packages
The second horizontal concern the DOJ identified in its analysis of the merger was the effect on the market for vertically integrated service packages.[58] The DOJ noted that prior to the merger, both companies strove to supply a package that included both primary ticketing services and access to concert content.[59] Live Nation was able to offer this bundle (at least implicitly) when it entered the primary ticketing services market, and showed it could serve both the ticketing and promotional needs for venue clients.[60] In response, Ticketmaster acquired a majority stake in Front Line, allowing Ticketmaster to grow its capacity to offer its own ticketing and concert content package.[61] As the DOJ explained, “the merged firm’s ability to bundle primary ticketing services (implicitly or explicitly) with access to artists managed by Front Line and/or promoted by Live Nation would require competitors to offer venues both primary ticketing services and access to content in order to compete effectively.”[62] In 2009, the American Antitrust Institute published an article alleging that “[i]f the merger is consummated, firms seeking to enter the market would, to an even greater extent than at present, need to enter on several levels at once,” which would serve as a significant barrier to entry.[63] The issue was not that the firms engaged in bundling—which the DOJ did not deem anticompetitive behavior—but that save for the merger, the companies would have competed with each other in a newly minted market for integrated service-and-content packages. The DOJ should have expanded on this insight. For a brief few months, Live Nation had spurred Ticketmaster into a new arena of competition—albeit one which included only these two firms—forcing both Ticketmaster and Live Nation to experiment with innovative business models that championed vertically integrated services. Regardless of whether this development is characterized as having birthed a new market or having transformed the existing one, the two firms were nevertheless engaged in productive competition. Based on the companies’ respective histories of pursuing vertical integration, the DOJ anticipated that both would have continued on this path, save for the merger. The DOJ surmised that, “but for the proposed transaction, venues and concertgoers would have continued to enjoy the benefits of competition between two vertically integrated competitors.”[64] Notably, the merger proposal itself evidenced the intentions of both Live Nation and Ticketmaster to pursue vertical integration. The firms were not mirror images, as they were direct competitors only in the individual market for primary ticketing services. Aside from primary ticketing services, each firm had access to markets that the other had yet to penetrate, suggesting that Ticketmaster and Live Nation, respectively, were significant and likely entrants into a number of markets in which the other already participated. Competition likely would have spurred the firms to expand into these complementary markets. For instance, Live Nation could have entered (via acquisition) the markets for artist management and/or secondary ticketing. Conversely, Ticketmaster could have entered the markets for promotions and/or merchandising. Even if they never actually entered those markets, the standing threat of entry would have exerted significant competitive effects on those markets.[65] These complementary markets may have been competitive in their own right, but the merger eliminated significant potential competition in each of them. The DOJ should have recognized that two vertically integrated competitors, each with a history of pursuing vertical integration, were well-positioned to compete or threaten to compete in complementary markets.[66]

B. All Down The Line: Vertical Components of the Merger

Vertical mergers, and the vertical components of mergers, have historically received lower antitrust scrutiny than their horizontal counterparts. Enforcement agencies rarely view these types of mergers as posing competitive risks since they are most often motivated by efficiency concerns rather than efforts to grow or maintain market power.[67] Nevertheless, certain vertical behaviors still draw antitrust scrutiny. Vertical combinations and agreements can be illegal if they injure the competitive process. The “principal concern with vertical transactions is the possibility that companies will be denied significant access to suppliers and customers.”[68] The Financial Times, considering the Live Nation – Ticketmaster merger in 2009, opined that a vertically integrated firm “running the entire process… would stifle competition. This would work against fans in the longer term, no matter what innovations were on offer initially.”[69] The DOJ neglected to include potential anticompetitive effects arising from the vertical components of the merger in its analysis, but did address some of these concerns by imposing behavioral remedies in its Final Judgment.
1. Anticompetitive Concerns of Vertical Integration
The Ticketmaster-Live Nation merger implicated some of the worrisome behaviors associated with vertical integration. One such behavior relating to the vertical components of this merger was anticompetitive tying or bundling practices. Although most tying is lawful, courts have held parties liable for “anticompetitive forcing,” where a firm coerces buyers of the tying product to also buy the tied product.[70] For example, here the concern was that LNE could require that venues exclusively book Live Nation artists (the “tied” product) as a condition for access to Ticketmaster’s ticketing services (the “tying” product).[71] Mere bundling, however, is often a desirable procompetitive behavior, which does not violate federal antitrust laws.[72] For a tying practice to be considered anticompetitive, the firm must use its market power in the tying market to coerce buyers to purchase the firm’s products or services in the tied market for reasons unrelated to the quality or price of the products offered.[73] Traditional industrial organization economics suggest that this strategy often makes little economic sense, as the firm would prefer to market its monopolized product independently.[74] Yet, there is reason to believe that in the primary ticketing services industry, LNE might have sufficient incentive to pursue this anticompetitive strategy. Competitors have asserted that, prior to the merger, Live Nation unlawfully tied the purchase of its promotional services to the use of its venues and venue services, with the intent to foreclose competing promoters and venues from accessing major artists.[75] Live Nation was (and remains) the only promoter capable of booking an artist’s entire national tour—its competitors tend to be concentrated in local markets—arguably providing Live Nation with substantial market power on its own (an issue distinct from the immediate merger). Live Nation could exert its market power to coerce artists not to partner with a competing regional promoter or venue. Without access to artists, these smaller rivals cannot compete effectively, giving Live Nation sufficient incentive to tie its products as a means of further entrenching its dominance in promotions and choking off competition in the market for venues. The merger could aggravate this concern, affording LNE increased leverage (in its superior market position in ticketing services) to persist in this exclusionary strategy. LNE incurred operating losses of $203.8 million, $70.4 million and $161.9 million in 2010, 2011 and 2012, respectively, possibly indicating an anticompetitive strategy of offering artists and venues unsustainable supercompetitive prices in order to exclude and eliminate competitors.[76] On the other hand, neither Live Nation nor Ticketmaster has yet been found liable for such conduct, as the IMP suit is still pending. In its response to public comments regarding the proposed final order in the DOJ’s investigation, the DOJ expressed doubts that Live Nation wields the significant market power alleged.[77] If the DOJ is correct, concerns over anticompetitive tying are purely speculative. However, the DOJ did specifically account for the increased potential for coercive tying in its behavioral remedies, in the form of anti-retaliation provisions.[78] Retaliation represents the enforcement or punishment side of anticompetitive tying offers.[79] Another antitrust concern relating to the vertical components of this merger was the use of exclusive contracts. Long-term exclusive contracts can be used by firms with strong market power to prevent competitors from entering a market, an anticompetitive practice that may violate sections 1 or 2 of the Sherman Act.[80] Ticketmaster has been accused of using such contracts to foreclose rivals in precisely this manner.[81] Likewise, Live Nation has been accused of abusing exclusive dealings contracts to foreclose competition.[82] However, the use of exclusive agreements is generally seen as efficient, procompetitive conduct.[83] Finally, a number of competing independent promoters related concerns that the merger would give Live Nation access to their proprietary information. As a primary ticketing service provider, Ticketmaster has access to this information as a result of its independent contracts with venues. Seth Hurwitz, a prominent independent promoter, described this issue in his testimony before the Senate subcommittee, explaining, “my biggest competitor will have access to all of my sales records, customer information, on sale dates for tentative shows, my ticket counts, they can control which shows are promoted and much more. This will put ALL independent promoters at an irreparable competitive disadvantage.”[84] The DOJ directly addressed this problem in the Final Judgment through a firewall provision.[85]
2. The Firms’ Asserted Procompetitive Justifications
Vertical mergers are generally presumed procompetitive, but courts and enforcement agencies still inquire into the particular efficiency gains asserted by the merging parties. In this case, the DOJ refused to credit a number of LNE’s asserted efficiencies. The DOJ’s Merger Guidelines require that the claimed efficiencies be merger-specific and non-speculative; the burden of substantiating the claims is imposed on the merging firms.[86] Ultimately, “if cognizable efficiencies are of a character and magnitude such that the merger is not likely to be anticompetitive in any relevant market,” the DOJ will not challenge the merger.[87] The press release announcing the merger of Ticketmaster and Live Nation claimed that the firms anticipated “approximately $40 million of operating synergies through the combination of their ticketing, marketing, data centers and back-office functions.”[88] A few weeks later, the CEOs of the two companies—Michael Rapino (Live Nation) and Irving Azoff (Ticketmaster)—outlined the benefits of the merger during a congressional hearing.[89] According to Azoff, “[i]t is designed to address the obvious inefficiencies in the supply chain — the large volume of unsold tickets to events, higher costs, surcharges and the explosion of the resale market.”[90] The DOJ largely rejected the procompetitive efficiencies claimed, explaining that the parties “could realize many of the asserted efficiencies without consummating the proposed transaction,” pointing to the fact that each company had already started to pursue strategies of vertical integration before the merger agreement.[91] The DOJ debunked claims of increased innovation by describing how a vertically integrated monopolist is actually less likely to innovate and yield efficiency gains than two competing firms would be. The DOJ also noted that a pair of competing firms had a greater likelihood of passing these advantages on to consumers.[92]

C. Under My Thumb: The DOJ’s Final Judgment

After weighing the anticompetitive effects and the firms’ procompetitive justifications, the DOJ determined that the merger could not proceed as proposed. In its Final Judgment, the DOJ allowed the merger, provided that certain steps were taken to alleviate the anticompetitive effects on the primary ticketing services market.[93] The remedies stipulated therein indicate the DOJ’s concern with horizontal effects in the market for vertically integrated services. However, the Final Judgment neglected to address how the merger extinguished the competitive effects of having potential entrants to complementary markets (promotions, artist management, etc.). With its proscription against retaliation, the DOJ subtly attempted to remedy the increased potential for LNE to engage in anticompetitive exclusive dealings and coercive tying.[94] In sum, although the DOJ spoke warily of the anticompetitive effects of the merger and discredited the parties’ explicit procompetitive efficiency claims, it nevertheless allowed the merger to proceed. While the Final Judgment was an effort to quell the DOJ’s antitrust concerns and produce effective competitive markets, as the next section will explain, that effort fell short.

III. Remedies

The DOJ’s Final Judgment employed a hybrid solution to address the anticompetitive concerns raised by the merger, including both structural and behavioral remedies. This section will argue that the structural remedies implemented were insufficient to cure the anticompetitive ills. Furthermore, in employing a then-novel enforcement strategy of imposing behavioral restrictions along with structural fixes, the DOJ imprudently neglected to address a number of concerns inherent with behavioral remedies in general. In the case of the behavioral restrictions on the Live Nation-Ticketmaster merger, those concerns are particularly apparent.

A. I Want To Break Free: Structural Remedies

The primary distinction between structural and behavioral remedies is that structural remedies create or preserve independent firms to maintain market competition, while behavioral remedies permit integration, subject to operating rules that aim to prevent the newly formed firm from undermining competition post-merger.[95] Historically, structural remedies have been preferred in addressing antitrust concerns over proposed mergers. The DOJ’s 2004 Antitrust Division Policy Guide to Merger Remedies (“2004 Guide”) stated that structural remedies, compared to behavioral remedies, “are relatively clean and certain, and generally avoid costly government entanglement in the market.”[96] The DOJ followed this preference in many merger investigations, both before and after publication of the 2004 Guide.[97] A number of studies, including reports by the FTC as well as European and Canadian agencies, have examined the strengths and limitations of structural remedies, concluding that they have been “largely effective —and superior to alternatives—in accomplishing their stated goal.”[98] The DOJ viewed decreased competition in the market for primary ticketing services as the primary evil presented by the Live Nation-Ticketmaster merger, and imposed two structural remedies to combat it. First, the DOJ sought to establish AEG as a viable, vertically integrated competitor in the primary ticketing services market because it was LNE’s most likely competitor. The DOJ required LNE to grant AEG a perpetual license of its Host ticketing platform, believing this would fill the market’s competitive void.[99] Second, the DOJ wanted to “establish another independent and economically viable competitor” in the primary ticketing services market and thus directed the divestiture of Ticketmaster’s Paciolan division to Comcast-Spectacor.[100] In February 2011, one year after the DOJ closed its merger investigation, AEG announced that rather than implementing Ticketmaster’s Host platform, it would be partnering with Outbox Enterprises.[101] Prior to the merger, AEG had been a Ticketmaster client. As the prime competitor affected by the merger, it follows that AEG sought to replace Ticketmaster as the provider of its in-house ticketing services and compete with LNE in that market generally. The fact that AEG chose Outbox over the DOJ-prescribed Host platform shows that this structural remedy had no appreciable effect on competition in this market. The intended effect of this remedy was to provide a competing platform seller. By rejecting the option to license the Host platform, AEG nullified any possible remedial effect on the competitive imbalance that concerned the DOJ. Conversely, the AEG-Outbox partnership demonstrated that competing promoters and venues may have more options available to fulfill their ticketing needs than the DOJ anticipated. Outbox, which operates on a venue’s website as opposed to a ticket company’s site, allows venues more power and control over customer service, and the venue retains consumer data and profiles without any third party involvement.[102] Other ticketing service purveyors have lauded this approach as embracing innovation and opening the door for viable competition.[103] In the wake of the merger, other competing venues have followed suit, so as not to provide business to LNE.[104] However, as promising as these developments may be with regard to increased innovation and competition in the primary ticketing services market, it remains unclear whether these cases are examples of a trend or temporary aberrations. If the newcomers prove sustainable, they may obviate the need for the DOJ’s structural remedies altogether. Prior to the merger, Ticketmaster’s usual renewal rate with venue clients was higher than 85%.[105] In 2010, the rate increased to 95%.[106] According to LNE’s Supplemental Operational and Financial Information, Ticketmaster “again achieved a net renewal rate of over 100% for 2012.”[107] In the company’s 2012 year-end financial report, it showed growth of 3.6% and 5.6% for the adjusted operating incomes of its concerts and ticketing divisions, respectively, over the previous year. Since 2010, the firm’s revenue has increased from $5.1 billion in 2010, to $5.4 billion in 2011, to $5.8 billion in 2012.[108] LNE has also continued to pursue its strategy of acquiring competitors.[109] Furthermore, Outbox and other upstart challengers have only just reached a scale where they can compete, so it remains to be seen whether their new technologies will prove viable substitutes. To truly exert a competitive influence on the market, the firms will need to attract more than just sympathetic (or vindictive) venue clients. These upstarts will need to prove that they can provide reliable service for venues with various capacities and ticketing needs. Until they do, current Ticketmaster clients will be reluctant to risk a change by implementing unproven software, no matter how innovative.

B. Don’t Stop Me Now: Behavioral Remedies

Behavioral or “conduct” remedies allow merging parties to consummate the deal, subject to conditions on their operational behavior. The aim is to create room for the procompetitive efficiencies gained from the merger while regulating anticompetitive behavior that the newly-merged firm might pursue.[110] Naturally, this creates a tension with the firm’s profit-maximizing incentives. A number of significant concerns derive from this tension and therefore behavioral remedies must be supplemented with continuous oversight of the firm’s conduct.[111] Such oversight is analogous to the work of a regulatory body; hence conduct remedies face shortcomings similar to those associated with industry regulation.[112] These shortcomings include informational asymmetries, vagueness, inconsistent incentives, implementation costs, and enforcement problems. The 2004 Guide warned that behavioral remedies are typically “more difficult to craft, more cumbersome and costly to administer, and easier than a structural remedy to circumvent.”[113] Firewalls, fair-dealing, and transparency provisions were all characterized as posing “substantial policy and practical concerns,” requiring considerable resources to oversee and carrying potential for “harm as well as good.”[114] Nevertheless, the DOJ’s Final Judgment imposed a set of behavioral remedies including anti-retaliation and firewall provisions as well as establishing a Compliance Committee. These remedies implicate a number of the general concerns with behavioral remedies and regulation. The anti-retaliation provisions of the consent agreement demonstrate the asymmetry of information between the firm and its regulating agency. In the Final Judgment the DOJ defined retaliation as
[R]efusing to Provide Live Entertainment Events to a Venue Owner, or Providing Live Entertainment Events to a Venue Owner on less favorable terms, for the purpose of punishing or disciplining a Venue Owner because the Venue Owner has contracted or is contemplating contracting with a company other than Defendants for Primary Ticketing Services. The term “Retaliate” does not mean pursuing a more advantageous deal with a competing Venue Owner.[115]
It is readily apparent that this definition may be subject to multiple interpretations, with the inquiry into a retaliatory action resting on a determination of the firm’s motives. The firm is considerably better positioned than the agency to know or obtain knowledge as to the motivation driving a particular business decision. This inherent informational disadvantage leaves the agency in the uncomfortable and ineffective position of deferring to the firm’s proffered explanation for engaging in the behavior in question.[116] Even a marginally clever company can understand this flaw and manipulate evidence to support a permissible motive. When the proscribed behavior is vague and motive-dependent, this type of remedy does mere lip service to actual behavioral modification. The firewall provisions of the consent order present another significant flaw with behavioral remedies: countervailing incentives. Although the DOJ prohibited LNE’s ticketing service from sharing sensitive promotional and consumer data with LNE’s promotional arm, the company’s profit-maximizing incentives run counter to this firewall. Hence, LNE will consistently be confronted with opportunities to misuse the firewalled information.[117] The firm is thereby incentivized to subvert the restrictions and avoid detection; such behavior is illegal, socially inefficient and, more importantly, undermines the effectiveness of the firewall provision.[118] Inconsistent incentives have a similar effect on the aforementioned anti-retaliation provisions, which require LNE to forego the full exertion of its vertical integration leverage. In effect, LNE is directed to “leave money on the table,” which will only encourage the company to exploit the vague boundaries of the consent order and find ways to circumvent the restrictions.[119] Behavioral remedies also carry significant costs to implement. Conduct restrictions must be monitored, interpreted, and enforced at the expense of the DOJ. This expense may be substantial and will draw resources from the agency’s total budget. In 2010, the Federal Energy Regulatory Commission (“FERC”) and Federal Communications Commission (“FCC”) each spent close to 15% on oversight and enforcement expenses.[120] The DOJ also has to develop an expertise in regulatory oversight and the appropriate accompanying structure, requiring institutional changes and associated personnel costs.[121] When behavioral remedies are compared with traditional regulation, additional enforcement challenges come to light. Where traditional regulators such as the FERC or the FCC have broader powers to restrict a firm’s conduct, the procedural and control rights of the DOJ are limited to ensuring compliance with consent orders.[122] The DOJ is also limited to ex post intervention for a limited term, rather than being afforded ex ante authority.[123] Finally, behavioral remedies enhance the risk of agency capture, through increased interactions between the large firm and the government enforcers.[124] LNE will have strong incentives to lobby agencies and legislative bodies for certain types of behavioral restraints that allow the firm to pursue its natural profit-maximizing tendencies.[125] The ineffective consent order constraining LNE in this case may be a good example of this sort of lobbying at work. LNE had considerably more lobbying resources than any of its competitors and the Final Judgment employed a then-novel enforcement strategy that, as I have explained, was largely ineffective in restraining LNE’s conduct. The DOJ has its own interests in effective enforcement, but in the end the agency is a political entity.


The Department of Justice recognized anticompetitive harm stemming from the horizontal components of the Ticketmaster-Live Nation merger, specifically within the primary ticketing services market. However, it did not adequately identify the serious potential harms involved in the combination of two vertically integrated competitors in the live music industry. The DOJ also ignored the loss of significant potential entrants to the various markets complementing ticket distribution. Although the DOJ refused to credit many of the merging parties’ procompetitive efficiency claims, it failed to recognize the perils associated with the vertical components of the merger. Ultimately, the DOJ settled on structural remedies to address the horizontal concerns in the primary ticketing services market and instituted behavioral remedies to placate distressed competitors. The remedies imposed by the DOJ as conditions to the merger’s approval were insufficient to maintain or stimulate competition. The Paciolan divestiture transferred a small slice of the market share for primary ticketing services to a legitimate, vertically integrated competitor, Comcast-Spectacor. However, Comcast does not participate in the other complimentary markets involved in the live music industry, save for a few sports arenas. Furthermore, granting a favorable license of the Host software to AEG was rendered completely ineffective by AEG’s decision to partner with Outbox Technologies instead. Only after years of successful, reliable, large-scale service by innovative competitors, will a substantial number of major concert venues decide to risk a partnership with market newcomers such as Outbox or Ticketfly. Until such time, or until a competitor attains a significant market share in a bundle of complementary fields, LNE will stand alone as the dominant firm in the market for vertically integrated live music services. Most importantly, the DOJ missed a glaring opportunity to restructure a nascent industry. It should have recognized the burgeoning trend toward vertical integration in the live music industry, with two market leaders forging the way. Artists are growing increasingly reliant on touring income to support their careers and historically have been inclined to utilize one-stop shopping.[126] Vertically integrated firms like Ticketmaster and Live Nation stood ready to replace record companies in providing these services, capable of signing artists to lucrative 360 deals. Thus it seemed inevitable that Ticketmaster and Live Nation would become each other’s chief competitor, lowering prices for consumers, spurring innovation and generating efficiencies. Now, as a single firm, such benefits remain unrealized and LNE stands alone in its capabilities. The merger of Ticketmaster and Live Nation had an undeniable impact on the live music industry. Artists and competing service providers would all likely be better off had the DOJ prevented the merger and forced the firms to compete. Now it is up to the market to recognize the trends set by LNE and take advantage of a reconfigured landscape. Competitors in primary ticketing should take advantage of new technology to establish a reputation for reliability with new clients and eventually erode LNE’s dominance in the market. Other entities in the music industry, such as record labels, should follow LNE’s lead in creating full-service packages that center on live performances. The concert industry provides fertile ground for profitable competition in this new market and enterprising challengers would be wise to seize this opportunity.
* J.D., 2013, New York University School of Law; B.A., 2009, University of Maryland. This Article was originally written for Prof. Daniel Rubinfeld’s seminar on Antitrust Law and Economics. I would like to thank Prof. Rubinfeld and the members of the JIPEL staff for their assistance with this Article.
[1] Live Nation, Ticketmaster Announce Merger, Pollstar (Feb. 2, 2009),
[2] See, e.g., Daniel Kreps, Bruce Springsteen “Furious” At Ticketmaster, Rails Against Live Nation Merger, Rolling Stone (Feb. 4, 2009),; Cecilia Kang, Senator Urges Scrutiny of Ticketmaster Deal, Wash. Post (July 28, 2009) (referring to Sen. Herb Kohl),; Alfred Branch Jr., Ticketmaster/Live Nation merger: Pascrell letter to Justice Department yields impressive numbers, Ticket News (July 29, 2009) (referring to Rep. Bill Pascrell),
[3] Timothy B. Lee, Why We Shouldn’t Worry About The (Alleged) Decline Of The Music Industry, Forbes (Jan. 30, 2012),
[4] Steve Jones, 2010 wasn’t exactly rocking for the music concert industry, USA Today (Jan. 12, 2011),
[5] Complaint at ¶¶ 53-54, It’s My Party, Inc. v. Live Nation, Inc., No. 109CV00547, 2009 WL 1473260 (D. Md. Mar. 5, 2009) [hereinafter “IMP Complaint”].
[6] Nielsen SoundScan is the official method of tracking sales of music throughout the United States. SoundScan 1999 Year-End Music Industry Report, (Jan. 6, 2000),
[7] The Nielsen Company 2009 Year-End Music Industry Report, Bus. Wire (Jan. 6, 2010), The top selling album of 2009 (Taylor Swift’s Fearless) would not have ranked in the top ten in 1999.
[8] musicNEWS: The Top 10 Biggest Sellers of ’99, (last visited Oct. 26, 2013).
[9] Id. 1999’s top grossing tour (the Rolling Stones) earned $64.7 million. Mick Jagger, Rolling Stones Top Grossing At $64.7 Million, Chi. Tribune (Dec. 30, 1999),
[10] Randy Lewis, U2 is tops again in concert and music-sales revenue, L.A. Times (Jan. 8, 2012),
[11] In recent years Clear Channel has owned or operated a stable of over 1,200 radio stations across the country (a figure estimated to be closer to 850 presently), an extremely dominant position in a market that was once crucial to promotional efforts. The increasing influence of social media and shifting consumer listening habits have eroded the position of radio as the only medium for reaching potential fans.
[12] Alan J. Meese & Barak D. Richman, A Careful Examination of the Proposed Live Nation-Ticketmaster Merger 16 (William & Mary Law School Research Paper No. 09-41, 2009).
[13] Id.
[14] An errant prediction, discussed in greater detail in Part II.
[15] See In re Live Concert Antitrust Litigation, 863 F.Supp.2d 966 (C.D. Cal. 2012) (consolidating claims brought by Malinda Heerwagen and Nobody in Particular Presents).
[16] IMP complaint, supra note 5, ¶¶ 177-85.
[17] See Batson v. Live Nation Entertainment, Inc., No. 11 C 1226, 2013 WL 992641 (N.D. Ill. Mar. 13, 2013); Concert Fan Scream At Live Nation’s Fees For Phantom Parking Spaces, Antitrust Today (Mar. 18, 2011),
[18] Who We Are, Ticketmaster, (last visited Oct. 26, 2013).
[19] Id.
[20] Campos v. Ticketmaster Corp., 140 F.3d 1166 (8th Cir. 1998); Another TM Suit In Canada, (Feb. 17, 2009),
[21] Chuck Philips, U.S. Drop Ticketmaster Antitrust Probe, L.A. Times (July 6, 1995),
[22] Ben Sisario, A Band Battles Ticketmaster on Sales Fees, N.Y. Times (May 15, 2012),
[23] The parties settled the litigation in December 2010. Live Nation Entertainment, Inc., Annual Report (Form 10-K) at 38-39 (Feb. 26, 2013), available at [hereafter Live Nation Entertainment 10-K].
[24] Matt O’Donnell, Ticketmaster, TicketsNow Fee Class Action Settlement, (Oct. 24, 2011),
[25] Live Nation Entertainment 10-K, supra note 23, at 39.
[26] Live Nation, Ticketmaster Announce Merger, supra note 1.
[27] See The Ticketmaster/Live Nation Merger: What Does it Mean for Consumers and the Future of the Concert Business: Hearing Before the Subcomm. on Antitrust, Competition Policy and Consumer Rights of the S. Comm. on the Judiciary, 111th Cong. (2009) (written testimony of Jerry Mickelson, Chairman and Executive Vice President, JAM Productions) [hereinafter Mickelson testimony]; David A. Balto, Senior Fellow, Center for American Progress Action Fund [hereinafter Balto testimony]; Seth Hurwitz, Co-Owener, I.M.P. Productions and 9:30 Club [hereinafter Hurwitz testimony]), available at
[28] Competitive Impact Statement, United States v. Ticketmaster Entm’t Inc., et al., No.1:10-cv- 00139, 13 (D.D.C. Jan. 25, 2010).
[29] Final Judgment, United States v. Ticketmaster Entm’t Inc., et al., No.1:10-cv- 00139, 2010 WL 5699134, at *4-7 (D.D.C. July 30, 2010).
[30] Id.
[31] Id.
[32] Id. at *9-10.
[33] Aaron Silvenis, Live Aid? Assessing the Ability of the Ticketmaster-Live Nation Consent Decree to Restore Competition Levels in the Primary Ticketing Market 18 (The Am. Antitrust Inst., Working Paper No. 11-02, 2011).
[34] 15 U.S.C. § 18.
[35] Primary ticketing services can be obtained through a third party, such as Ticketmaster, or provided in-house with the assistance of firms that facilitate self-distribution. Meese, supra note 12, at 41 n. 116. Notably, consumers are not relevant participants in this market. Although effects on consumer welfare are important to consider, and consumers will surely feel the effects passed on through end prices, they have no bearing on the immediate inquiry. See Campos, 140 F.3d at 1174.
[36] Competitive Impact Statement, supra note 28, at 6.
[37] The DOJ defined “major concert venues” as the top 500 venues by annual revenue, as reported to Pollstar. Id. at 4 n. 2. Alternative proposed definitions restrict the number of distinctly affected venues to those with a capacity of over 8,000. See Plaintiff United States’ Response To Public Comments, United States v. Ticketmaster Entm’t Inc., et al., No.1:10-cv-00139-RMC at 20 (D.D.C. June 21, 2010) [hereinafter Response To Public Comments]. Others have argued that venue size is an altogether arbitrary and improper distinction for identifying relevant market participants. Meese, supra note 12, at 32.
[38] Meese, supra note 12, at 31 n.70 (citing Evren Ergin, Barclays Capital, Ticketmaster-Live Nation Antitrust Analysis, Apr. 30, 2009, at 5).
[39] Competitive Impact Statement, supra note 28, at 8.
[40] Id.
[41] Id.
[42] Top Primary Ticket Sellers, TicketNews, (week ending Aug. 29, 2009). The next closest competitor,, had a score of 5.03.
[43] HHI is the sum of the squares of the market shares of each participant, so including other firms would only increase the HHI.
[44] U.S. DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION, 1992 Horizontal Merger Guidelines, available at [hereinafter 1992 Guidelines]. The Guidelines were updated on August 19, 2010, available at [hereinafter 2010 Guidelines]. The threshold for “highly concentrated” markets in the 2010 Guidelines is 2,500.
[45] 1992 Guidelines, supra note 44. The 2010 Guidelines threshold for mergers “likely to enhance market power” is an increase of 200 points.
[46] Id. at 18.
[47] Competitive Impact Statement, supra note 28, at 9.
[48] Id.
[49] Id. at 9-10.
[50] Meese, supra note 12, at 62.
[51] Competitive Impact Statement, supra note 28, at 9.
[52] Meese, supra note 12, at 33.
[53] See James D. Hurwitz, Commentary: Ticketmaster – Live Nation 34 (The Am. Antitrust Institute, 2009).
[54] Competitive Impact Statement, supra note 28, at 7.
[55] See id. at 10.
[56] Live Nation Entertainment 10-K, supra note 23, at 37.
[57] Examples include the Houston-Toyota Center, Kroenke Sports Enterprises, Lollapalooza, International Speedway Corporation and the New York Metropolitan Opera. Meese, supra note 12, at 36-39.
[58] Although the DOJ framed this issue as an increased barrier to entry rather than a separate horizontal component of the merger, it undoubtedly recognized this as a competitive concern.
[59] Competitive Impact Statement, supra note 28, at 11.
[60] Id.
[61] Id.
[62] Id. at 11-12. It should be noted that the bundling practice itself was not deemed anticompetitive. The bundling by each company resulted in a new market comprised of competing bundles of integrated services.
[63] Hurwitz, supra note 53, at 49. The essay continued, conjecturing that “[t]he available evidence provides no indication that a substantial competitor can or will be created within any reasonable time horizon.” Id. at 53.
[64] Competitive Impact Statement, supra note 28, at 12.
[65] Just as current competitors exert downward price pressure on each other, a monopolistic price increase could also invite firms outside the market to enter at a lower price point.
[66] The DOJ likely neglected to include this theory because of its admittedly speculative nature.
[67] Meese, supra note 12, at 80.
[68] Hurwitz, supra note 54, at 50 (quoting ABA Section of Antitrust Law, Antitrust Law Developments 380 (6th ed. 2007)).
[70] Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 14–16 (1984).
[71] See Balto Testimony, supra note 27; Mickelson Testimony, supra note 27.
[72] See Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 276 (2d Cir. 1979).
[73] Meese, supra note 12, at 108–09.
[74] Id. at 109–10.
[75] See IMP complaint, supra note 5, ¶¶ 139–45.
[76] Live Nation Entertainment 10-K, supra note 23, at 22.
[77] See Response to Public Comments, supra note 37, at 18–21.
[78] Id. at 16–17.
[79] The efficacy of the DOJ’s solution is addressed infra Part III.B.
[80] See, e.g., United States v. Dentsply Int’l, Inc., 399 F.3d 181 (3d Cir. 2005); see also 15 U.S.C. § 1 (2006) (“Every contract . . . in restraint of trade or commerce . . . is declared to be illegal.”); 15 U.S.C. § 2 (2006) (prohibiting “Every person who shall monopolize, or attempt to monopolize…any part of the trade or commerce . . . . ”).
[81] In 1992, a California consumer group filed a class action antitrust suit against Ticketmaster, alleging the company’s contracts with venues and promoters constituted exclusive dealings agreements in restraint of trade and were therefore prohibited by antitrust law. See Kevin E. Stern, The High Cost of Convenience: Antitrust Law Violations in the Computerized Ticketing Services Industry, 16 Hastings Comm. & Ent. L.J. 349, 358 (1994). Pearl Jam spearheaded a well-publicized antitrust investigation against Ticketmaster in 1994, alleging that Ticketmaster’s exclusive contracts foreclosed access to “a significant percentage of the suppliers of services necessary to hold entertainment events.” Wanda Jane Rogers, Beyond Economic Theory: A Model for Analyzing the Antitrust Implications of Exclusive Dealing Arrangements, 45 Duke L.J. 1009, 1016 n.28 (1996); Pearl Jam Musicians Testify On Ticketmaster’s Prices, N.Y. Times (July 1, 1994), The investigation closed in 1995 with no finding of anticompetitive conduct. Press Release, Dep’t of Justice, Antitrust Division Statement Regarding Ticketmaster Inquiry (July 5, 1995), available at
[82] In a pre-merger suit that is still pending, a prominent independent promoter claimed that Live Nation used exclusive contracts with artists to prevent other promoters and venues from competing for their business. IMP complaint, supra note 5, ¶¶ 83-91. When Live Nation was a subsidiary of Clear Channel Communications, another independent promoter made similar claims regarding the company’s practice of securing exclusive contracts to promote artists’ entire national tours, precluding competing promoters from bidding on local engagements. See Amended Complaint at ¶ 52, NIPP v. Clear Channel Communications, Inc., 311 F. Supp. 2d 1048 (D. Colo. 2004) (No. 01-N-152). The case was eventually settled out of court.
[83] When brought suit against Ticketmaster for similar claims (among other antitrust allegations), the court ruled that the long term exclusive contracts were used by Ticketmaster to “accommodate their customers’ desires, to their mutual benefit.” The court held that these exclusive contracts represented “a mutually desired reasonable business practice from which no antitrust inferences may be drawn.” Ticketmaster Corp. v., Inc., No. CV99-7654-HLH(VBKX), 2003 WL 21397701, at *5 (C.D. Cal. March 7, 2003).
[84] Hurwitz Testimony, supra note 27.
[85] See Competitive Impact Statement, supra note 28, at 17. How effective this behavioral remedy might be is discussed infra Part III.B.
[86] 1992 Guidelines, supra note 45, at 30-32.
[87] Id.
[88] Live Nation, Ticketmaster Announce Merger, supra note 1.
[89] Live Nation and Ticketmaster CEOs Outline Benefits of Merger, Bloomberg (Feb. 24, 2009),
[90] Id.
[91] Competitive Impact Statement, supra note 28, at 12.
[92] Id.
[93] See id. at 13–18.
[94] The DOJ did not explicitly identify this concern in its Competitive Impact Statement, but the inclusion of this remedy speaks to the DOJ’s apprehension regarding the issue. See id. at 16–17.
[95] John E. Kwoka & Diana L. Moss, The American Antitrust Institute, Behavioral Merger Remedies: Evaluation and Implications for Antitrust Enforcement 3–4 (2011).
[96] U.S. Dep’t of Justice, Antitrust Div. Pol’y Guide to Merger Remedies § III(A) (Oct. 2004) [hereinafter 2004 Guide], available at The DOJ updated the Guide in 2011, incorporating significant policy shifts.The 2011 Guide omits an explicit preference for structural remedies and no longer restricts when it is appropriate to institute behavioral relief (previously limited to ancillary restrictions on vertical mergers). See U.S. Dep’t of Justice, Antitrust Div. Pol’y Guide to Merger Remedies (June 2011) [hereinafter 2011 Guide], available at Notably, the updated Guide deletes without explanation all mention of the four substantial costs associated with conduct remedies, costs that were central to the approach taken in the 2004 Guide. Kwoka, supra note 95, at 6 n.8.
[97] Kwoka, supra note 95, at 11.
[98] Id. at 12. Some drawbacks of structural remedies include information asymmetries between the agency, merging parties and third-party buyers; incentives to dispose assets that may insufficiently restore competition; an altered market post-remedy; and the conduciveness of the market to collusion following a divestiture. However, the failures and limitations of structural remedy policies have generally been addressed and improved over time. Id. at 10.
[99] AEG was the second leading promoter in the country, owned or operated more than thirty major concert venues, and held a 50% share of a reputable talent management agency. Competitive Impact Statement, supra note 28, at 13.
[100] Id. at 15. Paciolan occupied 3% of the market for direct ticketing services at major concert venues, and an additional 4% of the market through sublicenses (half of which already included Comcast’s New Era division). Id. Comcast was, and still is, seen as a potential competitor in ticketing services, but the company’s central focus remains with sports teams and arena venues. See Ray Waddell, Brave New World, Billboard (Mar. 27, 2010), Though somewhat vertically integrated, Comcast has yet to venture substantially into the other elements of the live music industry.
[101] Ethan Smith, Promoter Crowds Ticketmaster, Wall St. J. (Feb. 3, 2011),
[102] Alfred Branch Jr., AEG teams with Outbox Technology to compete with Ticketmaster on ticketing, TicketNews (Feb. 3, 2011),
[103] See id.
[104] See Alfred Branch Jr., Merriweather Post Pavilion switches from Ticketmaster to TicketFly, TicketNews (Feb. 19, 2010), In May of 2010, even before AEG made the switch, Merriweather Post Pavilion became the country’s first major venue to leave Ticketmaster for another competing ticketing service provider, Ticketfly. Scott Bernstein, Considering The Ticketfly Alternative, Glide Mag. (May 13, 2010), Ticketfly offers an integrated content management system, lower service fees and social networking platforms to facilitate distribution and marketing services. Silvenis, supra note 33, at 24; see also About, Ticketfly, visited Oct. 12, 2013).
[105] Silvenis, supra note 33, at 6.
[106] Id.
[107] Live Nation Entertainment, Fourth Quarter and Full Year 2012Supplemental Operational and Financial Information 1 (Feb. 26, 2013), available at
[108] Live Nation Entertainment 10-K, supra note 23, at 41.
[109] Its acquisitions include Coppel (a concert promoter based in Australia and New Zealand), Cream (a festival promoter based in the United Kingdom) and HARD (a festival promoter based in Los Angeles) in 2012 alone. Id. at 7.
[110] Kwoka, supra note note 95, at 4.
[111] Id. at 5.
[112] Mounting empirical evidence establishes that traditional industry regulation is not consistently effective at modifying firm behavior and often incurs distorting economic effects on the industry or market being regulated. Id. at 22 (citing Paul Joskow & Nancy Rose, The Effects of Economic Regulation, in 2 Handbook of Indus. Org., 1449 (Richard Schmalensee & Robert D. Willig eds., 1989); Kip Viscusi, Joseph Harrington & John Vernon, Economics of Regulation and Antitrust (2005)).
[113] 2004 Guide, supra note 96, at § III(A).
[114] Id. at §§ III(E)(2) & III(E)(2)(b).
[115] Final Judgment, supra note 29, at *3.
[116] Kwoka, supra note 95, at 23.
[117] Id. at 25-26.
[118] It does not strain the imagination to envision a company surreptitiously transferring valuable information from Employee A to Employee B, staying one step ahead of the regulators.
[119] Kwoka, supra note 95, at 26.
[120] Id. at 27 (citing FERC, Fiscal Year 2012 Congressional Performance Budget Request, at 2 & 4, available at and FCC, Fiscal Year 2012 Budget Estimates Submitted to Congress, at 39 & 69 (Feb. 2011), available at
[121] See id. at 27.
[122] Id. at 30-31.
[123] Id.
[124] Id. at 34.
[125] Id. at 35.
[126] See supra Part I

Handle with Care: The Evolving Actual Malice Standard and Why Journalists Should Think Twice before Relying on Internet Sources

Handle with Care: The Evolving Actual Malice Standard and Why Journalists Should Think Twice before Relying on Internet Sources
By Kimberly Chow* A pdf version of this article may be downloaded here.  


Readers of the People’s Daily November 27, 2012 online version were largely mystified to read that North Korean ruler Kim Jong-Un had been named the “Sexiest Man Alive.”[1] Quoting the original article in The Onion, the People’s Daily (the Chinese Communist Party’s official newspaper) extolled the leader’s “devastatingly handsome, round face, his boyish charm and his strong, sturdy frame,” and his “air of power that masks an unmistakable cute, cuddly side.”[2] The Onion is an American satirical newspaper and website. Previous winners of its Sexiest Man Alive title included Unabomber Ted Kaczynski and disgraced financier Bernie Madoff,[3] both of whom had as little in common with conventional sex symbols as Kim. The online version of the People’s Daily is apparently less rigorously edited than the print version,[4] and someone had fallen into the trap of giving too little scrutiny to a source that, on its face, should have prompted skepticism. This pattern of taking sources at face value has become too common in the current journalistic landscape in which Internet sources play a large part in breaking the news. News outlets reporting on a 24-hour news cycle place a premium on speed. Unfortunately, that emphasis, coupled with a distressing lack of caution when journalists use sources from the Internet, threatens standards for accuracy. When journalists republish material found on the Internet without conducting their own fact-checking, they run the risk of putting their stamp of approval on source material that has not been properly vetted or edited in the first instance. The tendency, even among established news organizations, to blindly trust what they read online is troubling, even more so given how quickly news spreads. The actual malice standard for defamation is deeply engrained in judicial opinions dating back to the 1960s, with subsequent case law fine-tuning its requirements. As new forms of media and speech have arisen, commentators have increasingly questioned whether the structures for finding defamation should change. The Internet has spurred a disconcerting practice of irresponsible journalism, but when established defamation law is applied, writers are largely protected from being found guilty of actual malice. When both professional and less-traditional writers rely on Internet sources in their work, they engage in journalistic practices that are removed from traditional reporting methods—information found on the Internet is inherently different from information gathered by speaking to sources or witnessing events firsthand. When use of Internet sources erodes the accuracy of reporting, journalists relying on them risk becoming the target of defamation suits. A goal of this paper is to help those in the media industry avoid such suits by recommending best practices with respect to web sources. As defined in the seminal 1964 First Amendment case New York Times Co. v. Sullivan, a defendant may be found guilty of defamation if actual malice was present,“that is, with knowledge that it was false or with reckless disregard of whether it was false or not.”[5] Later cases such as St. Amant v. Thompson proposed specific sources that might provide circumstantial evidence of actual malice.[6] One of St. Amant’s suggestions was that actual malice might be found if writing were “based wholly on” a source the defendant had obvious reasons to doubt.[7] The possibility of courts’ viewing a writer’s use of dubious sources as proof of actual malice becomes more striking when viewed in the context of recent decisions about information on the Internet. In light of some courts’ statements that Internet material should always be viewed with skepticism and doubt,[8] there is a strong possibility that courts may begin to view a journalist’s use of Internet sources as circumstantial evidence of actual malice, and may even impose additional duties of fact-checking. The first section of this note outlines the history of the actual malice standard for defamation through landmark cases. In it I also define terms and provide background for understanding the current state of the law and how susceptible it is to change. The second section discusses the current state of information dissemination on the Internet, explaining how the focus is a 24-hour news cycle. Part two also examines many courts’ belief that consumers should be skeptical of information they read online and points out reasons why these developments could indicate a need for reform. The third section presents possible ways the actual malice standard could change based on the nature of Internet sources, using current examples to demonstrate why changing the standard is necessary and considering whether such changes will realistically occur. The fourth section addresses the overarching policy concern of encouraging increased responsibility among writers and offers practical advice to professional journalists and other writers.

I. The History of the Actual Malice Standard for Defamation

In the United States, defamation is a false statement of fact that tends to harm the reputation of the subject of the statement or deter others from associating with him.[9] To find a party guilty of defaming a public figure or official, that party must have possessed “actual malice.” The Supreme Court first articulated the concept of actual malice in 1964 in Times v. Sullivan, defining it as a statement made, “with knowledge that it was false or with reckless disregard of whether it was false or not.”[10] Gertz v. Robert Welch further elucidated the definition, explaining that the actual malice standard applied when public figures and officials are subjects of defamation, while each state could set the standard for private individuals.[11] The St. Amant court expanded the requirements for a finding of actual malice, stating, “[t]here must be sufficient evidence to permit the conclusion that the defendant in fact entertained serious doubts as to the truth of his publication. Publishing with such doubts shows reckless disregard for truth or falsity and demonstrates actual malice.”[12] St. Amant identified three types of circumstantial evidence that could support a finding of recklessness and lack of good faith:
Professions of good faith will be unlikely to prove persuasive, for example, where a story is fabricated by the defendant, is the product of his imagination, or is based wholly on an unverified anonymous telephone call. Nor will they be likely to prevail when the publisher’s allegations are so inherently improbable that only a reckless man would have put them in circulation. Likewise, recklessness may be found where there are obvious reasons to doubt the veracity of the informant or the accuracy of his reports.[13]
Similarly, the 1989 Harte-Hanks v. Connaughton decision defined actual malice as occurring when a defendant made the false publication with a high degree of awareness of probable falsity.[14] One of the biggest obstacles to plaintiff victories in defamation suits is the subjectivity of the standard. According to St. Amant, the defendant must have “in fact entertained serious doubts.”[15] Likewise, Gertz described actual malice as having “subjective awareness of probable falsity.”[16] While the court in St. Amant conceded that such subjectivity might appear to put “a premium on ignorance,” the use of the recklessness standard and requirement of subjective belief were actually the most effective measures to protect First Amendment values and promote the public interest.[17] While the three types of circumstantial evidence that indicate recklessness are indeed important, the subjective belief requirement remains a prerequisite to a finding of actual malice. For example, in 1984 the court in Bose Corp v. Consumers Union distinguished a finding of actual malice from a finding of falsity, stating that even when the information disseminated was found to be false, it did not necessarily follow that the disseminator knew it was false.[18] Similarly, the First Circuit used the subjectivity requirement to justify the lower court’s holding in Levesque v. Doocy, refusing to impute serious doubts to news commentators even though the commentators/anchors were relying on an Internet source that the court pointed out was ridiculous.[19] Another wrinkle in the analysis is whether the defendant’s statement was an asserted fact (which is actionable) or if it was simply an opinion (which is generally not actionable). It is possible, though, to sue for defamation based on a hybrid opinion that includes both elements of fact and opinion. According to Milkovich v. Lorain Journal Co., statements of opinion can be actionable if they imply a provably false fact, whereas the First Amendment protects pure opinions.[20] Furthermore, in Gross v. New York Times Co., the New York Court of Appeals explained that a statement of opinion could be actionable if it implied a basis in facts that are not disclosed to the reader or listener. However, the court also held that a statement of opinion is not actionable when accompanied by a recitation of the facts upon which it is based or when it does not imply the existence of undisclosed underlying facts.[21] In spite of the actual malice line of cases, recent cases pose challenges for the courts hearing them, as they bring up novel issues of journalistic practice and technologies that did not exist when courts first articulated defamation law. Increasingly, it appears that the old guidelines are inadequate to address these new problems. Whether or not the courts or legislators will fashion new tools remains unknown.

II. Skepticism toward Internet Sources Could Cause a Reevaluation of Defamation

A. Internet Journalism Emphasizes Speed over Accuracy

The Internet has created new forms of journalism that are vastly different from the traditional forms used in the past. In particular, the “24-hour news cycle” allows news outlets to post articles and updates on their websites, broadcasting them at any time, day or night, rather than waiting for the next day’s newspaper or the next week’s magazine.[22] With each outlet racing to be the first to post breaking news, a premium is placed on speed at the expense of accuracy.[23] The 24-hour news cycle, which began with CNN’s coverage of the Gulf War in 1991,[24] has transformed both the quality of news and the format in which it is presented. Editors must now make on-the-spot decisions about whether to publish or send a story back for additional fact-checking. Previously, such decisions were made with a comfortable next-day or next-week deadline.[25] As a result, more opinions, sometimes masquerading as facts or interpreted as facts, are part of the collective consciousness of news. This development is leading courts to reevaluate the role of media and the professional responsibility of journalists, particularly on the Internet.

B. Courts Have Encouraged Skepticism toward Internet Sources

Strikingly, courts have begun placing the onus on consumers of Internet information, ruling that they should be skeptical of what they read. This warning reflects courts’ awareness of the often-unverified nature of information disseminated on the Internet. With the ever-evolving nature of Internet sources, courts are addressing each new source as it enters the marketplace—from standard websites, to blogs, to Twitter feeds. While these cases do not always directly implicate the actual malice standard, that traditional measure remains the backdrop against which courts shape standards of journalistic responsibility. In the 2011 case Obsidian Finance Group v. Cox, an Oregon federal district court warned of the danger in relying on blogs for information, writing that they are “a subspecies of online speech which inherently suggest that statements made there are not likely provable assertions of fact.”[26] Similarly, a federal court in California addressing personal websites and Internet discussion groups held that, “[i]n this context, readers are less likely to view statements as assertions of fact.”[27] In Too Much Media, LLC v. Hale, the New Jersey Supreme Court distinguished online message boards from other information sources on the Internet because of the lack of editorial oversight.[28] New Jersey’s high court explained that hyperbole, exaggeration, and a “looser, more relaxed communications style”[29] promote an environment in which the border between fact and opinion is blurred, and commenters should not be taken at their word. In fact, as discussed in Obsidian Finance Group, just the name of a website can be enough to alert the reader that he should be skeptical of what he finds therein. For example, a site such as can indicate a one-sided opinion.[30] Such rulings seem to make the consumers responsible for determining what is an untrustworthy source. The distinction between fact and opinion becomes especially confusing when writers make claims supposedly based on research, but expressed as statements that are deemed too informal to be trustworthy. For example, in Too Much Media v. Hale, the defendant wrote many posts on message boards that cited extensive research she had conducted on the pornography industry, including interviews with participants and her congressional representatives and studying websites and information in the mainstream media. Based on her purported research, the defendant made accusations in these posts regarding a security breach that released identifying information of adult website subscribers and singled out specific individuals as responsible for the breach and subsequent cover-up.[31] The court rejected Hale’s argument that she should benefit from the New Jersey shield law, which requires a “sufficient relationship or connection to the ‘news media,’”[32] holding that as a mere writer of posts on a message board, she did not have a strong enough relationship to the media.[33] Even if the writer claims to have done research, the medium of the message—in this case, an online forum—should make consumers skeptical of such claims. Most importantly, consumers should attempt to differentiate pure opinion from opinion purporting to be fact. This distinction is important because, as discussed in Part I, pure opinion is not actionable under defamation law, while opinion masquerading as fact can be actionable.[34] The dividing line between fact and opinion is especially fuzzy in the context of blogs, web forums, and other unedited content. For example, in Obsidian Financial Group, a blogger used the website “” to accuse members of Obsidian of violating bankruptcy laws.[35] As the court noted, the hostile tenor of the comments suggested that the blogger had a personal vendetta against the targets of her accusations and the vitriolic language she used invited further comment and debate.[36] Such biased content “undermine[s] the reader’s expectations that defendant’s statements are to be understood as assertions of provable fact.”[37] Thus, even if a defendant includes statements that imply provable assertions, the statements “lose the ability to be characterized and understood as assertions of fact when the content and context of the surrounding statements are considered.”[38] Regarding the actual malice standard, the problem with opinions is that the protection for republishing them grossly expands the First Amendment freedom of speech principles at the heart of Times v. Sullivan—there is no actual malice when a writer republishes something he believes is opinion, since by definition he has no reason to doubt the facts therein since he does not realize that there are even facts there, thinking he is simply restating another’s beliefs. Because the actual malice standard’s heavy-handed exclusion of opinion from defamation shows no signs of revision in the foreseeable future, such instances of over-protection where journalists republish what they believe to be purely opinion ends up distributing false or misleading information to the public, thereby undermining journalistic responsibility.

C. Redmond v. Gawker Takes a Different Tack

While exercising suspicion towards Internet sources has become the judicial position, the 2012 case Redmond v. Gawker seems to push back against this stance.[39] The Redmond ruling shielded defendant bloggers from defamation charges, in part because their piece had cited to a multitude of other Internet sources. The court reached this result even though the bloggers had not verified the sources’ accuracy before citing to them. Gawker’s Gizmodo blog published a post on plaintiff Scott Redmond’s business ventures, including Peep Wireless Telephony Company, entitled Smoke & Mirrors: The Greatest Scam in Tech. The article questioned whether or not Redmond’s inventions actually did what they promised. The piece went on to note that Redmond had a pattern of getting funding for projects that never materialized. The writers provided links to websites that described now-defunct past projects of Redmond’s.[40] The court stated that providing the links made the article “transparent” because it cited to many Internet sources: Having ready access to the same facts as the authors, readers were put in a position to draw their own conclusions about Redmond and his ventures and technologies. As shown by the comments posted, many readers did view these sources, and not all of them agreed with the authors’ views. Statements are generally considered to be nonactionable opinion when the facts supporting the opinion are disclosed.[41] The court’s statement raises two key issues. First, it can be argued that the skeptical tone of Redmond’s post and the questions the authors raised might, by themselves, qualify the authors’ assertions as opinions. Yet, the court’s declaration that revealing the facts behind the opinions rendered the opinions nonactionable means the court viewed the other Internet sources as facts. This leads to the second issue of whether the Gross court was using the proper definition of facts; perhaps Redmond did not disclose facts at all, and instead merely cited other unverified articles.[42] Notwithstanding Redmond, the judicial position of distrusting Internet sources suggests that journalists should be on notice that courts will begin considering their use of online sources in determining the presence of actual malice. Essentially, courts are ruling that everyone should be skeptical of Internet sources that have not undergone significant editing. Hence, one would expect that it should be easier to find actual malice, using a defendant’s reliance on Internet sources as circumstantial evidence of recklessness and subjective doubts. However, such circumstantial evidence may be rebutted by evidence of diligent fact-checking.

III. New Times May Mean a New Actual Malice Standard

A. News Organizations Are Not Being Careful Enough

Myriad examples illustrate how the current standard for defamation combined with the need for speed in the 24-hour news cycle encourage mistakes that are difficult for courts to prevent and punish. While thus far courts have focused on informal Internet information sources such as blogs or message boards, more established news media are also susceptible to the inaccuracy that accompanies tight deadlines. Driven by the pressure to constantly disseminate information, news outlets often rush to publish before their reports have been adequately checked. This practice has far-reaching consequences, as other outlets rely on the first outlet’s reporting, taking the initial story at face value without vetting it themselves and thereby falling prey to spreading misinformation. In the fall of 2012 during Hurricane Sandy, the Twitter handle “@comfortablysmug” published several Tweets on the social media site Twitter. The Tweets, which alarmingly reported that the New York Stock Exchange floor was flooded with three feet of water, Governor Andrew Cuomo was trapped in Manhattan, and other such panic-inducing statements, were later revealed to be lies created by Shashank Tripathi.[43] During the storm, Tripathi’s Tweets were retweeted on Twitter more than six hundred times, heightening anxiety during the disaster.[44] Unfortunately, several news outlets including CNN and the National Weather Service (“NWS”) picked up the Tweets.[45] Reporting them as news, CNN and the NWS gave the Tweets a legitimacy they had not had when they were merely posts on Twitter. CNN and the NWS’s decision to republish implied editorial oversight and a degree of fact-checking. While it was reported that law enforcement officials were pursuing action against Tripathi, claiming that he endangered the public by stirring hysteria without a proper foundation,[46] currently no action is being taken against the news outlets for furthering the spread of false information even though their actions seem to constitute a much graver lapse of judgment as the public places tremendous trust in the media. Immediately following the December 2012 Sandy Hook Elementary School shooting in Newtown, Connecticut, police found Ryan Lanza’s ID card at the scene of the shooting.[47] Citing Connecticut law enforcement officials, early reports identified Ryan Lanza as the shooter. These reports sparked a veritable witch-hunt that spread to many other news organizations. By 5pm that day, Ryan Lanza’s Facebook profile picture had been shared more than fourteen thousand times,[48] and websites such as Slate and The Huffington Post displayed a screenshot and provided links to the profile.[49] Ryan Lanza received countless messages from Facebook users vilifying him, and people listed as his Facebook friends were harangued for being connected to the suspected shooter.[50] When it turned out that the initial reports had mistakenly identified Ryan Lanza instead of his brother Adam, the media was quick to issue retractions and expose CNN as the source of the inaccurate reporting.[51] CNN defended itself by noting that it had continued to report new information as it developed, and the information had come from law enforcement officials.[52] Still, as Washington Post writer Eric Wemple points out, while it is difficult to do rapid fact-checking of police statements, other outlets that were heavily covering the Sandy Hook story did not simply take the police’s word for it and directly report, choosing instead to report with a citation to CNN.[53] In an apparently unique attempt to fact-check, among the reporting outlets, at approximately 3pm a former Jersey Journal reporter said he had spoken with Ryan Lanza earlier in the day and that Ryan denied his involvement.[54] Unfortunately, by that point Ryan Lanza’s reputation had already been subject to hours of damage. The summer before, ABC News had been the culprit, due to its coverage of the July movie theater shooting in Aurora, Colorado. After federal law enforcement officials released the name of the shooter, James Holmes, to media outlets, ABC reporter Brian Ross speculated, on air, that an Aurora man named Jim Holmes who had a page on the Colorado Tea Party website was the suspect.[55] In fact, Jim Holmes was a 52-year-old father and former law enforcement officer,[56] and was not the actual shooter, who was a 24-year-old.[57] In ABC’s apology, the network acknowledged its error in “disseminating . . . information before it was properly vetted.”[58] According to Wemple, by reporting this unverified story, Ross committed a serious “journalistic felony.” As Wemple explains, “[y]ou can speculate on air about Mitt Romney’s motives for not releasing his tax returns; you can speculate on air about whether the heat wave will pass; [but] you cannot speculate on air about the identity of an alleged mass murderer.”[59] The consequences for the other Jim Holmes could have been disastrous. Apart from allegations of political bias, many criticized ABC for not adequately checking its facts.[60] Fortunately for ABC, Jim Holmes did not bring an action for defamation against the network, and as I will discuss, under the current state of defamation law, he probably would not have been successful anyway. Thus far, the courts have only heard a handful of cases brought against news outlets for irresponsibly reporting information found on the Internet without first conducting proper fact-checks. However, the recent case Levesque v. Doocy illustrates how the subjective belief requirement of the actual malice standard can sink a plaintiff’s case even when the news outlet did not properly fact-check their sources, in some cases reporting information that on its face alone is plainly ridiculous.[61] At issue in Levesque was an incident that occurred in a middle school cafeteria in Maine. A student put a bag containing ham on a table where some Muslim students were eating lunch. After the Muslim students became upset and reported the incident to the school administration, the offending student was suspended for ten days and the incident was reported to local police as a hate crime. Plaintiff Leon Levesque, the superintendent of the school district, gave an interview to a local paper, the Lewiston Sun Journal, and was quoted as saying that the incident was being taken seriously: “All our students should feel welcome and safe in our schools.”[62] Upon seeing this article, freelance writer Nicholas Plagman wrote a parody piece that was mostly true but changed some of the facts and quotes to mock what he saw as an excessive emphasis on political correctness.[63] The ham became a ham sandwich and Plagman fabricated quotes by Levesque including, “[t]hese children have got to learn that ham is not a toy, and that there are consequences for being nonchalant about where you put your sandwich” and “[a]ll our students should feel welcome in our schools, knowing that they are safe from attacks with ham, bacon, porkchops, or any other delicious meat that comes from pigs.”[64] The website Associated Content published the piece, which falsely cited the Associated Press as a source.[65] On April 24, 2011, Fox and Friends, a daily morning television show hosted by defendants Steve Doocy and Brian Kilmeade, included a segment on the Plagman article, which they did not realize was a fabrication.[66] A Fox News researcher had done a web search on the incident to confirm certain facts reported in the Plagman piece such as the existence of the school. The researcher found the local news article and confirmed that the Sun Journal was legitimate.[67] After the news bit was passed on to the hosts, Doocy used Google News to find both the Plagman and Sun Journal articles as well as a Boston Globe article, sourced to the Associated Press, confirming the general facts of the incident. The hosts appeared on the show that morning speaking derisively of Levesque’s involvement in the ham incident.[68] Doocy and Kilmeade attempted to interview Levesque on-air, leaving two messages at his office at 8AM.[69] Levesque, who did not return the calls, sued for defamation and false light invasion of privacy.[70] The crux of the case was the actual malice inquiry. Although the district court found that the defendants had conducted very limited research on the Internet before broadcasting,[71] the First Circuit emphasized that “[a]ctual malice then is measured neither by reasonably prudent conduct nor an industry’s professional standards; rather, it is wholly subjective.”[72] Levesque pointed to both the defendants’ failure to adequately check the outrageous quotes in the Plagman article as well as their statements during the broadcast that they hoped they weren’t being “duped,” as evidence of reckless disregard for the truth. The court disagreed:
It is true that a more deliberate consideration of the Plagman article should have caused reasonable skepticism about the source and that the defendants were careless in relying on it, but this is an indication of negligence, not actual malice, and Superintendent Levesque faces the heavy burden of providing evidence that the defendants recognized the carelessness with which they were proceeding.[73]
Thus the court recognized that despite the absurdity of the defendants’ actions, because they did not actually entertain serious doubts, their conduct did not amount to reckless disregard of the truth and therefore was not actual malice, however professionally irresponsible their behavior may have been.

B. Courts May Impose Additional Duties on Journalists

In light of incidents such as those described in the previous section, it is worth considering whether additional duties should be imposed on reporters to make it more difficult to republish untrustworthy material found on the Internet without conducting adequate fact-checking. Currently, there is no duty to investigate. Still, perhaps there should be an intermediate duty of care that is higher than the current duty of not being reckless while not as strict as requiring investigation. Courts should consider using the established dubious nature of Internet sources to justify requiring increased vigilance for reporters relying on them. One possible revision of the actual malice standard is the creation of a heightened duty to investigate when citing to Internet sources. The Redmond decision illustrates the ease with which defendants may protect themselves in defamation actions by simply using their citation of unverified Internet sources to reveal the supposed facts behind their stated assertion(s).[74] While this appears to be the Gross designation of facts making opinions unactionable,[75] courts’ view of Internet sources as dubious casts doubt on whether Internet sources can be treated as “facts.” In Redmond, some of the “facts” the bloggers relied on were websites and online promotional material posted by the plaintiff himself[76] (and thus were more likely to be actual facts than if the bloggers had only read third-party accounts of the plaintiff’s work). But the court’s reasoning does not seem to rely on the quality of the facts; it wrote that the blog post was “transparent,” holding that citing sources (the “facts”) made the piece unactionable.[77] The court did not say what would result if the piece had cited to sources that were less favorable to the plaintiff’s work. For example, what would have been the result if the bloggers had cited to a website such as The court in Obsidian Financial indicated that the very name of the website, as well as the personal tone of its criticism, should put the reader on alert that this was a possibly biased source.[78] Would this qualify as citing to a fact under Redmond? The uncertainty of what ought to be treated as a fact should encourage a heightened fact-checking standard when using Internet sources. Arguably, forming an opinion based on when that source should obviously be subject to further investigation is not a journalistic practice that should be automatically shielded from a defamation action. At the very least, the source should not be cited baldly without any couching to indicate its potential bias.[79] It is one thing to report that such allegations exist, but it is another to use them as support for one’s own argument. For example, a reporter for the New York Times would not use a person screaming conspiracy theories on a street corner to support an article she was writing on possible corrupt bank practices. The existence of gives it a guise of respectability, albeit thin, because it is written down in some form. But it is important to remember that it is not much harder to obtain a domain name than it is to shout theories on the street. When sources report information quickly, basing their information on unchecked sources that subsequent news outlets republish without checking the sources themselves, an additional difficulty arises. Should there be a heightened standard to investigate even when a supposedly reliable outlet reports first? The more these incidents happen with a specific outlet, such as CNN’s reporting the Hurricane Sandy Twitter rumors and the incorrect name of the Newtown shooter, the more other publications should be on notice that they need to check the facts behind what CNN reports before putting the information under their own names and exacerbating the problem. Most likely, CNN trusting the Twitter reports would fall under the previous discussion of the Obsidian hypothetical, since courts would likely hold that Twitter, as a journalistic source, should be viewed skeptically like a website with a name such as, since there is no editorial oversight of Tweets. Other news outlets certainly have a reasonable belief that CNN is trustworthy because it has historically been a mostly accurate, dependable news source. Still, the frequency with which established news organizations are now stumbling should put other outlets on notice. Perhaps even more significantly, the rapidity with which information can spread online means that reputations can be destroyed within moments and may even endanger people’s lives. By naming the wrong suspect in the Aurora shooting, Brian Ross could have instigated a vigilante justice lynch mob. The same could have happened to Ryan Lanza, and indeed there was a huge backlash online. With such high stakes, a heightened standard of fact-checking, even when the information comes from other news outlets, should be encouraged as industry practice. As such, the current subjective belief standard is too forgiving. The defendant’s victory in Levesque signified a victory for the stringent subjective belief standard that is unsettling. By relieving the defendant of liability for beliefs that when examined are clearly ridiculous simply because he subjectively held them, stretches the desire to protect journalistic freedom too far. Where it is absurd for defendants to believe they were reporting the truth or that the underlying facts could be relied upon, their actions should rise to the level of recklessness. At the very least, such defendants ought to be punished more severely than merely having to issue a retraction. Such a revision in the subjective belief standard might amount to courts viewing the use of Internet sources, when unverified, as circumstantial evidence of the defendant possessing serious doubts as to their sources.

C. The Ingrained Legal Standards Will Be Resistant to Change

Despite the impulse to impose heightened obligations or revise the subjective belief requirement, courts and legislators (as well as journalist interest groups) will likely resist such change. Traditional defamation standards are extremely protective of writers in order to protect their First Amendment rights and avoid chilling their ability to report. New York Times v. Sullivan established the rationale for this protectiveness, citing “a profound national commitment to the principle that debate on public issues should be uninhibited, robust, and wide-open.”[80] In defending the often-harsh results of the subjective belief requirement, the Supreme Court in St. Amant balanced the interest of plaintiffs in achieving justice against society’s interest in protecting the press, emphasizing the importance of furthering First Amendment values: “[T]o insure the ascertainment and publication of the truth about public affairs, it is essential that the First Amendment protect some erroneous publications as well as true ones.”[81] These cases push back against tightening the actual malice standard. One factor that might impact a court’s decision of whether to view a writer’s use of Internet sources as a reason to impute doubts to them is whether society, as a whole, believes what is read on the Internet. According to a Pew Research Center study, twenty-nine percent of Americans believe that news organizations get the facts straight, and forty-two percent of Americans use the Internet as their primary news source.[82] While a significant part of society may be aware that they should not trust everything they read on the Internet, not every reader is savvy enough to know that what he reads on a blog, or even on, may not have been verified. It may be possible for the unreliable nature of Internet sources to be integrated into defamation law in the category of “dubious sources.”[83] Some courts have said that a journalist’s reliance on such untrustworthy sources may support a finding of actual malice, while St. Amant states, “recklessness may be found where there are obvious reasons to doubt the veracity of the informant or the accuracy of his reports.”[84] Similarly, in Foretich v. American Broadcasting Companies, the district court stated, “[a] broadcaster’s complete reliance on dubious sources can support a finding of actual malice.”[85] Likewise, in Bentley v. Bunton, the court laid out the requirements for finding actual malice based on unprofessional reporting:
The defendant’s state of mind can—indeed, must usually—be proved by circumstantial evidence. A lack of care or an injurious motive in making a statement is not alone proof of actual malice, but care and motive are factors to be considered. An understandable misinterpretation of ambiguous facts does not show actual malice, but inherently improbable assertions and statements made on information that is obviously dubious may show actual malice. A failure to investigate fully is not evidence of actual malice; a purposeful avoidance of the truth is.[86]
Given the receptiveness of courts to treat at least some sources as dubious, it seems probable that they would consider use of dubious Internet sources as circumstantial evidence of recklessness.

IV. How Writers Can Adapt with the Times

A. What Can Be Done to Encourage More Responsibility among Writers?

A judicial revision of the actual malice standard would be a forceful way to crack down on irresponsible journalism stemming from the use of Internet sources, and, as seen above, would likely meet strong resistance due to traditional First Amendment values. Nevertheless, judicial enactment of less dramatic changes might be feasible. Such changes could ensure recognition of the need for greater responsibility when dealing with Internet sources. Likely all journalists can agree that the 24-hour news cycle has increased the frequency of instances in which unverified reports go viral. In the case of informal journalists, greater enforcement of professional standards is highly desirable since they do not have editors to keep them in line. However, how such enforcement would be carried out is unclear. As seen in Obsidian Financial, anyone who can afford a domain name (which can be obtained for an average of eight to ten dollars a year)[87] can buy a mouthpiece to the world. Blogs are even more accessible as they are free on most platforms.[88] Additionally, commenting on message boards and articles published by other news sources is free, though one might have to first register with the website.[89] Admittedly, people who utilize these channels to disseminate information are at the extreme end of the spectrum of types of journalists. They are not usually subject to any editorial scrutiny and despite their lack of affiliation with an established news organization, their words have power and are often the subjects of defamation suits. The New Jersey Supreme Court discussed this phenomenon in Too Much Media:
[S]elf-appointed journalists or entities with little track record … claim the [shield law] privilege require[s] more scrutiny … The popularity of the Internet has resulted in millions of bloggers who have no connection to traditional media. Any of them, as well as anyone with a Facebook account, could try to assert the privilege.[90]
The question is whether traditional defamation standards are enough to encourage professionalism among these writers whose voices are disproportionately loud compared to the legitimacy of their messages. When respected news outlets rely on sources like these, the problem is compounded. One solution would require bloggers and anonymous disseminators of information to show that what they publish has been vetted by others in the form of acknowledgements attached to their pieces. Both Obsidian Financial Group, LLC and John Dougherty’s Reformulating Shield Laws to Protect Digital Journalism in an Evolving Media World, suggest that this vetting process is necessary to encourage accurate reporting.[91] Digital authors could provide proof of editorial oversight in the form of a colleague, co-contributor, or traditional editor, or there could be an area for comments to enable crowd-sourcing.[92] In Wiki Authorship, Social Media, and the Curatorial Audience, Jon Garon encourages the development of citizen journalism and new media, while emphasizing that only those who maintain standards of accuracy, attribution, impartiality, and integrity will survive.[93] Unfortunately, due to lack of resources or the fact that most bloggers work alone and are not sponsored by a larger organization, it may be difficult for informal journalists to provide such assurances of editorial oversight to their readers. Still where possible, bloggers would be well advised to strive for standards of accuracy.

B. Practical Advice to Journalists and Other Writers

What constitutes due diligence when relying on Internet sources? The root of the problem for professional journalists is that the time pressure of the news cycle encourages publishers to be irresponsible, whereas less-established writers simply may not know how to be responsible. Given the growing recognition among courts that what one reads on the Internet should be questioned, all writers, amateur and professional alike, should take note. The level of fact-checking most journalists must adhere to should be above merely republishing Internet sources without any attempt to verify them. An encouraging development in this direction took place in the aftermath of the Boston Marathon bombings on April 15, 2013. Two days after the bombing, CNN reported that authorities had identified and arrested a suspect.[94] The Associated Press followed suit, citing an unnamed law enforcement official.[95] While many other news outlets hurried to republish the material and announce the arrests, some remained skeptical and attempted to verify the reports before getting on the bandwagon. NBC and CBS, citing their own sources, reported that no arrest had been made and held firm to this line despite numerous reports to the contrary.[96] Their refusal to publish unverified news was rewarded when the FBI released a statement that refuted arrest reports and asked for better fact-checking:
Contrary to widespread reporting, there have been no arrests made in connection with the Boston Marathon attack. Over the past day and a half, there have been a number of press reports based on information from unofficial sources that has been inaccurate. Since these stories often have unintended consequences, we ask the media, particularly at this early stage of the investigation, to exercise caution and attempt to verify information through appropriate official channels before reporting.[97]
Based on the case law and trend of unreliability of Internet sources, the following is a list of basic tips to guide journalists and other writers faced with the task of searching for truth on the World Wide Web:
• When evaluating a website’s trustworthiness, do not overlook the name of the site., a site that obviously has a strong opinion, should be met with more skepticism than a well-established news organization known for impartial reporting such as • Check the website for evidence of editorial oversight. A one-man blogging operation should be viewed differently than a site known for the rigor of its editorial process. In the same vein, a Tweet, even by a professional journalist, usually does not undergo a second look from an editor or colleague. • Be aware of a website’s record for accuracy. If a website is known to have frequent slip-ups, it is not wise to take its reporting at face value. • When republishing what other well-respected news organizations have reported, it is advisable to corroborate the facts before putting one’s own imprimatur on the news. NBC’s reluctance to republish news that an arrest had been made in Boston, based on its own sources’ insistence that no arrest had been made, provides a perfect illustration. Furthermore, in the digital age in which we live, accounts and websites of even the most respected institutions can be hacked, allowing for the spread of misinformation.[98] Where possible, it is always preferable to speak with live people to confirm or deny a story or fact, rather than relying solely on an unconfirmed Internet report. • Keep in mind that there are many joke news sites, most of which do not make it obvious that their content is tongue-in-cheek. For example, The Duffel Blog posts satirical content about the U.S. Military, but its name is less recognized than other sites like The Onion.[99] As a result of an article published therein, in the fall of 2012 Senator Mitch McConnell’s office sent a letter to the Pentagon complaining about the Department of Defense offering veterans’ benefits to prisoners at Guantanamo Bay.[100] The Army veteran who created the site told the Wall Street Journal, “Incidents like this only illustrate a serious problem with our education system [.] … Apparently, they aren’t teaching skepticism or critical thinking in some parts of the country anymore.”[101]


While this paper has discussed possible ways to revise the actual malice standard, including imposing additional duties journalists should follow, making it easier to punish journalists is not my intent. Rather, I am striving to convey a cautionary tale for writers who may not fully grasp the dubious nature of many sources of information they encounter each day. To avoid defamation actions, journalists of all stripes, from the New York Times to the solo blogger, should operate under high standards of accuracy. Today, anyone with an Internet connection wields power, thus those who choose to make their voices heard must do so responsibly.
* Kimberly Chow is a 2014 J.D. candidate at NYU School of Law. Her academic and professional interests lie in traditional media law and its intersection with new technologies and forms of expression. She received a B.A. in History from Yale University in 2009. She would like to thank Barton Beebe, Lynn Oberlander, David McCraw, and the JIPEL editorial team for their thoughtful comments and editing.
[1] Edward Wong, Kim Jong-Un Seems to Get a New Title: Heartthrob, N.Y. Times (Nov. 28, 2012),
[2] See id.
[3] See Kim Jong-Un Named The Onion’s Sexiest Man Alive for 2012, The Onion (Nov. 14, 2012),,30379/.
[4] Wong, supra note 1.
[5] New York Times Co. v. Sullivan, 376 U.S. 254, 280 (1964).
[6] See St. Amant v. Thompson, 390 U.S. 727 (1968).
[7] Id. at 732.
[8] See, e.g., Obsidian Fin. Grp., LLC v. Cox, 812 F. Supp. 2d 1220, 1231 (D. Or. 2011) (holding that blog entries posted on an obviously critical website should be viewed with a skeptical eye); Too Much Media, LLC v. Hale, 20 A.3d 364, 379 (2011) (explaining that posts on Internet message boards do not undergo a rigorous editorial oversight process and do not have the credibility of publications that do).
[9] Restatement (Second) of Torts § 559 (1977).
[10] Times v. Sullivan, 376 U.S. at 280.
[11] See Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974).
[12] St. Amant, 390 U.S. at 727, 731.
[13] Id. at 732.
[14] See Harte-Hanks Communications, Inc. v. Connaughton, 491 U.S. 657, 667 (1989).
[15] St. Amant, 390 U.S. at 731.
[16] Gertz, 418 U.S. at 335 n.6.
[17] St. Amant, 390 U.S. at 731.
[18] Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S. 485, 511 (1984).
[19] See Levesque v. Doocy, 560 F.3d 82, 92-93 (1st Cir. 2009).
[20] See Milkovich v. Lorain Journal Co., 497 U.S. 1, 20 (1990).
[21] See Gross v. New York Times Co., 623 N.E.2d 1163, 1168 (N.Y. 1993).
[22] David A. Logan, All Monica, All the Time: The 24-Hour News Cycle and the Proof of Culpability in Libel Actions, 23 U. Ark. Little Rock L. Rev. 201, 205-06 (2000).
[23] See id. at 213.
[24] Lili Levi, A New Model for Media Criticism: Lessons from the Schiavo Coverage, 61 U. Miami L. Rev. 665, 686 (2007).
[25] See id.
[26] Obsidian Fin. Group, LLC v. Cox, 812 F. Supp. 2d 1220, 1223 (D. Or. 2011).
[27] Nicosia v. De Rooy, 72 F. Supp. 2d 1093, 1101 (N.D. Cal. 1999).
[28] Too Much Media, LLC v. Hale, 20 A.3d 364, 379-80 (N.J. 2011).
[29] Krinsky v. Doe 6, 72 Cal. Rptr. 3d 231, 238 (App. Dep’t Super. Ct. 2008).
[30] See Obsidian, 812 F. Supp. 2d at 1232.
[31] See Too Much Media, 20 A.3d at 369-70.
[32] Id. at 238.
[33] The court explained that message boards were too far removed from traditional media outlets to be eligible for shield law protection, in part because writers in those forums were not subject to any editorial scrutiny. See id at 235.
[34] See Gross v. New York Times Co., 623 N.E.2d at 1167-68 (N.Y. 1993).
[35] See Obsidian, 812 F. Supp. 2d at 1230.
[36] Id. at 1232.
[37] Id.
[38] Id. at 1234.
[39] Redmond v. Gawker Media, LLC, No. CGC–11–508414, 2012 WL 3243507 (Cal. App. Dep’t Super. Ct. Aug. 10, 2012) (unpublished decision).
[40] See id.
[41] Id. at *6.
[42] As a side note, I would advocate an examination of Redmond with regard to its treatment of unverified Internet sources as facts. Awarding defendants an automatic out just for pointing readers to other, possibly dubious source material is poor policy that does not encourage fact-checking.
[43] Kim LaCapria, Twitter Sandy Hoaxer May Face Criminal Charges for Spreading False Information, The Inquisitr (Nov. 1, 2012),
[44] Mark Duell, Hoaxer, 29, who fooled CNN with false ‘NYSE has flooded’ tweet during Superstorm Sandy is outed as Wall Street Analyst, The Daily Mail Online (Nov. 1, 2012),
[45] See id.
[46] Suzanne Choney, Man Who Made False Tweet about Sandy Apologizes; Could Face Prosecution, (Nov. 2, 2012),
[47] Brian Ross, Chris Cuomo, & Richard Esposito, Connecticut Shooter Adam Lanza: ‘Obviously Not Well’, ABC News The Blotter (Dec. 14, 2012),
[48] Spencer Ackerman, Internet Identifies, Threatens Wrong Man as Newtown Shooter, WIRED (Dec. 14, 2012),
[49] Adam Serwer, How the Press Got It Wrong on the Newtown Shooter, Mother Jones (Dec. 14, 2012),
[50] Alyson Shontell, What It Was Like Being Ryan Lanza’s Facebook Friend When The World Thought He Was A Killer, Business Insider (Dec. 17, 2012),
[51] Erik Wemple, CNN Addresses Ryan-Adam Lanza Mis-ID, The Washington Post (Dec. 15, 2012),
[52] Id.
[53] Id.
[54] Terrence T. McDonald, Facebook page of Hoboken man identified as Connecticut shooter: ‘It wasn’t me’, (Dec. 14, 2012),
[55] Jack Mirkinson, Aurora Shooting: ABC’s Brian Ross Incorrectly Suggests Tea Party Link, The Huffington Post (July 10, 2012),
[56] Alex Pappas, Colorado tea partier describes ‘surreal’ day of wrongly being linked to theater massacre, The Daily Caller (July 20, 2012),
[57] Id.
[58] Matthew Mosk, Brian Ross, Pierre Thomas, Richard Esposito, & Megan Chuchmach, Aurora Suspect James Holmes’ Mother: ‘You Have the Right Person’, ABC News The Blotter (July 20, 2012), – .UVc9Jqsjr4g.
[60] Erik Wemple, Aurora shootings: Was Brian Ross’s mistake evidence of bias?, Wash. Post (July 24, 2012),
[61] Levesque v. Doocy, 560 F.3d 82 (1st Cir. 2009).
[62] Id. at 84.
[63] Nick Plagman, The Ham Hate Crime, Nick Plagman for Daily Show Intern (last visited Apr. 29, 2013).
[64] Levesque, 560 F.3d at 85.
[65] See Plagman supra note 63.
[66] Levesque, 560 F.3d at 85.
[67] Id.
[68] Id.
[69] Id. at 86.
[70] Id. False light invasion of privacy is a tort that occurs when a non-public figure is portrayed in a misleading way to the public, thereby having his privacy invaded. See generally, Time, Inc. v. Hill, 385 U.S. 374 (1967).
[71] See Levesque, 560 F.3d at 92.
[72] Id. at 90, internal citations omitted.
[73] Id. at 91, internal citations omitted.
[74] See Redmond v. Gawker Media, LLC, No. CGC–11–508414, 2012 WL 3243507 at *1 (Cal. App. Dep’t Super. Ct. Aug. 10, 2012) (unpublished decision).
[75] See Gross v. New York Times Co., 623 N.E.2d at 1167-68 (N.Y. 1993).
[76] See Redmond, 2012 WL 3243507 at *2.
[77] See id. at *6.
[78] See Obsidian Fin. Grp., LLC v. Cox, 812 F. Supp. 2d 1220, 1232-33 (D. Or. 2011)
[79] Journalistically, making clear that a site has a prejudiced opinion may not even be as good as trying to avoid such extremely biased sites altogether if trying to publish a responsible piece.
[80] New York Times Co. v. Sullivan, 376 U.S. 254, 270 (1964).
[81] St. Amant v. Thompson, 390 U.S. 727, 732 (1968).
[82] Pew Research Ctr., Public Evaluations of the News Media: 1985-2009, Press Accuracy Rating Hits Two Decade Low (2009), (last visited Apr. 20, 2013).
[83] Foretich v. Am. Broad. Cos., Nos. Civ.A. 93–2620, Civ.A. 94–0037(HHG), 1997 WL 669644, at *8 (D.D.C. Oct. 17, 1997).
[84] St. Amant, 390 U.S. at 732.
[85] Foretich, 1997 WL 669644, at *8.
[86] Bentley v. Bunton, 94 S.W.3d 561, 596 (Tex. 2002).
[87] Martin Zwilling, Get a Domain Name without Bankrupting Your Start-Up, Forbes (Jan. 14, 2013),
[88] See, e.g., Tumblr, (last visited Oct. 16, 2013); WordPress, (last visited Oct. 16, 2013).
[89] See, e.g., Gawker, (last visted Oct. 16, 2013).
[90] Too Much Media, LLC v. Hale, 20 A.3d 364, 383 (N.J. 2011) (explaining why courts should give extra scrutiny to non-traditional writers who claim shield law protection).
[91] John J. Dougherty, Comment, Obsidian Financial Group, LLC v. Cox and Reformulating Shield Laws to Protect Digital Journalism in an Evolving Media World, 13 N.C.J.L. & Tech. On. 287, 320 (2012), available at
[92] See id.
[93] Jon M. Garon, Wiki Authorship, Social Media, and the Curatorial Audience, 1 Harv. J. Sports & Ent. L. 95, 137 (2010). As new media experiment with tools for accuracy, such as crowd-sourcing, Garon cautions that traditional media must continue to uphold rigorous fact-checking methods. See id. at 138. As new media experiment with tools for accuracy, such as crowd-sourcing, Garon cautions that traditional media must continue to uphold rigorous fact-checking methods. See id. at 138.
[94] Gary Levin, News outlets retract claim of Boston bomber arrest, USA Today (Apr. 17, 2013),
[95] Denise Lavoie & Rodrique Ngowi, Correction: Boston Marathon-Explosions Story, The Associated Press (Apr. 18, 2013),
[96] See Levin, supra note 95.
[97] No Arrest Made in Bombing Investigation, The Fed. Bureau of Investigation (Apr. 17, 2013),
[98] See, e.g., Nicole Perlroth & Michael D. Shear, In Hacking, A.P Twitter Feed Sends False Report of Explosions, N.Y. Times (Apr. 23, 2013),
[99] The Duffel Blog, (last visited Apr. 29, 2013).
[100] Dion Nissenbaum, Prank and File: These Military Reports are Out of Line, Wall St. J. (Apr. 21, 2013),
[101] Id.

On the Duality of Internet Domain Names: Propertization and Its Discontents

On the Duality of Internet Domain Names: Propertization and Its Discontents
By Frederick M. Abbott* A pdf version of this article may be downloaded here.  


There is a great deal of activity taking place in the world of Internet domain names. First, the opening up of the top-level domain name space by the Internet Corporation for Assigned Names and Numbers (ICANN) promises to transform the Internet space by widening the number of available second-level domains, by creating a range of new registrars and registries regulating their own space, and by introducing new and different mechanisms for resolving disputes regarding top-level and second-level domains.[1] Second, security-related developments in the digital environment suggest that the Internet as we have known it may not be with us for much longer.[2] Unless urgent steps are taken to improve security in the digital environment, it seems likely that greater controls will be exercised in the future regarding individual access to the commercial Internet environment.[3] Third, there is no assurance that domain names will retain their importance as a means of identifying locations on the Internet. The pace at which technology in the digital arena has evolved, and the ways in which individuals access content, provide assurance only that the future is uncertain. The gales of creative destruction blow through the digital environment at a pace unknown to most other fields of technology. In this respect, an inquiry into the fundamental nature of the domain name may seem (and may in fact be) a quaint exercise.[4] Nonetheless, to the extent that courts and alternative dispute resolution bodies are called upon to resolve issues concerning ownership and use of domain names — and, for that matter, other types of identifiers of places on the Internet (such as locators in social network environments)—it will be important to understand what those identifiers are. Legal rules regulating sales and transfers of property are different than legal rules regulating contract rights and regulation of behavior under contract. While it is typically inexpensive to register and maintain a domain name, some of these names are created with or develop very substantial financial value.[5] That financial value may be a consequence of a corresponding trademark, but it may also be a consequence of the dictionary meaning and significance of a common term.[6] Putting aside financial value, domain names and related disputes may concern important social interests, implicating rights of speech, expression and fair use.[7] Disputes may involve issues of privacy. In these various spheres of interest, the characterization of the disputing parties’ claims from a legal standpoint may have significant consequences. Specifically, whether such disputes are characterized as disputes concerning ownership of property or disputes regarding contract relationships may influence the outcome. The matter of defining the “domain name” has a substantial history. The Report of the First WIPO Domain Name Process defined domain names as “the human-friendly form of Internet addresses.”[8] This definition is accurate from a functional standpoint. The domain name is an alphanumeric string that is associated with an Internet protocol (IP) address that identifies a particular computer server or other location of data.[9] The domain name is created or selected by a person (the “registrant”) that registers the name with a “registrar” that maintains data regarding the identity and contact information for the registrant. The registrant enters into a contract with the registrar defining the terms of service for maintaining the domain name registration.[10] The registrar transmits data concerning the association of the domain name (or alphanumeric string) to a “registry” that maintains a database of the domain name/IP address associations, and facilitates the technical process through which queries on the Internet are routed to the appropriate server or other location from and to which data may be retrieved and/or stored. When a domain name is initially registered, it is not uncommon for the registrar’s server to act as the location of the registrant on the Internet (e.g., as a “parking page”).[11]

I. The Legal Framework

A. ICANN and the UDRP

Domain names are a global phenomenon, as are domain name disputes.[12] While this paper is focused on the U.S. in that it addresses specific U.S. laws and jurisprudence addressing domain names, the discussion of basic principles may nonetheless be relevant to other jurisdictions. Domain names may be used in the commission of trademark infringement. A domain name may, for example, use the same (or a confusingly similar) alphanumeric string as a trademark. The domain name may be registered by a person other than the trademark owner (and otherwise without the owner’s consent) and direct Internet users (e.g., consumers) to a website where products competing with those covered by the trademark are offered for sale.[13] Such third-party use of a domain name may constitute an act of trademark infringement within the meaning of the Lanham Act (in the United States).[14] The trademark owner may proceed against the accused infringer in a federal district court seeking an injunction and damages.[15] This is not a type of action unique to domain names. Use of a trademark without the consent of the owner (whether in a domain name, on product packaging or on a product, on a television advertisement, etc.) may give rise to an infringement cause of action.[16] In the late 1990s it was apparent that domain names presented a unique set of issues with respect to abusive acts.[17] First, domain names were inexpensive to register, and typically were not subject to screening ex ante for potential conflict with existing trademarks. Only informal procedures with the registration authority (i.e., the combined registrar/registry, Network Solutions) existed by which trademark owners could challenge domain name registrations alleged to be improper. This informal procedure was not effective. A domain name registrant might at a very low cost engage in a financially significant abusive act toward a trademark owner. Yet the remedy for the trademark owner might well involve multiyear litigation in federal or state courts at considerable expense. Second, although registration of a domain name was geography specific,[18] the use (and abuse) of the domain name was theoretically global. A domain name through a registry located in the United States might be used to abuse the rights of a trademark owner in Spain, Japan, or Australia. Because an effective remedy against a registrant engaged in abuse-required action at the registry (i.e. by termination of the link), and because the trademark owner might be located far from the U.S., securing an effective remedy posed serious problems. Some means for addressing abusive domain name registration and use that did not involve the complexities of enforcing foreign judgments in the U.S. was considered necessary. The Internet Corporation for Assigned Names and Numbers (ICANN) addressed these challenges through the adoption of the Uniform Domain Name Dispute Resolution Policy (UDRP) on August 26, 1999. The implementing documents of the UDRP and associated Rules were approved by ICANN on October 24, 1999.[19] ICANN also accredited four dispute resolution service providers, including the WIPO Arbitration and Mediation Center (based in Switzerland) and the National Arbitration Forum (NAF) (based in the U.S.).[20] ICANN rules for registrars require that domain name registrants enter into a service agreement that incorporates the UDRP and subjects domain names to mandatory administrative proceedings conducted by an authorized service provider. Under the UDRP, a complaining party must establish three elements to succeed against a respondent registrant of the disputed domain name: (1) that the complainant has rights in a trademark, and that the disputed domain name is identical or confusingly similar to that trademark; (2) that the respondent does not have rights or legitimate interests in the disputed domain name, and; (3) that the respondent registered and is using the disputed domain name in bad faith.[21] The rules for establishing elements (2) and (3) include nonexhaustive lists of acts that represent ways to address those elements. Disputes under the UDRP are heard by single-member panels appointed by the service provider, or by three-member panels if elected by either the complaining or responding party.[22] A panel may reject a complaint, and even find that it was brought in bad faith (i.e., reverse domain name hijacking). If the panel finds in favor of the complainant, it has only two potential remedial orders. It can direct the registrar to “cancel” the disputed domain name (i.e., deleting the respondent’s registration and making available the domain name to the public). Or, the panel can direct the registrar to “transfer” the disputed domain name to the complaining party.[23] When a domain name is transferred, the transferee-registrant enters into a new service agreement with the registrar (or a different registrar). The UDRP provides a 10-day window following notification of a decision ordering cancellation or transfer of a domain name during which the responding party may initiate an action before a court objecting to the cancellation or transfer by the registrar.[24] Filing by the losing respondent triggers an automatic stay of the cancellation or transfer, pending review by the court.


The U.S. Congress also reacted to the problem of abusive domain name registration and use by adoption of the Anticybersquatting Consumer Protection Act (ACPA) in 1999.[25] The ACPA is part of the Lanham Act (the general trademark statute). It generally authorizes causes of action in federal district courts where jurisdiction is found based on ownership of trademark rights, including personal names protectable as trademarks.[26] In addition to in personam jurisdiction, the ACPA allows for establishing jurisdiction in rem against domain names when certain preconditions are met, though in such cases remedies are limited to cancellation or transfer.[27] There are differences in the legal rules between the ACPA and the UDRP. The ACPA perhaps “more expressly” provides that a cause of action may only arise if the defendant registered the disputed domain name after the complaining party had established rights in a trademark.[28] As discussed later, this has been a general rule also adopted by UDRP panelists, but it is not stated in such direct terms as in the ACPA text. The ACPA incorporates a somewhat longer list of actions that might constitute evidence of bad faith than the UDRP, though it is not clear that the ACPA list adds significantly to the potential grounds of bad faith under the UDRP, particularly as the UDRP list of potential evidence of bad faith is non-exhaustive. Like the UDRP, the ACPA incorporates exceptions from findings of liability based on fair use and other protective doctrines.[29] The most important difference between the ACPA and the UDRP concerns remedies. The ACPA authorizes a federal court to order the cancellation or transfer of the domain name in a manner similar to the UDRP.[30] However, under the ACPA a federal court also has the authority to issue an order directed against the person who registered a disputed domain name or names, enjoining them from committing future acts against the plaintiff trademark owner, including registering confusingly similar domain names.[31] The federal court may award damages in favor of the complainant, including statutory damages.[32] While it will almost certainly be more costly and time-consuming to proceed against a third-party domain name registrant in federal court than under the UDRP, the reward from successful prosecution may be more substantial. However, it is useful to bear in mind that winning a money judgment against an abusive domain name registrant and collecting that judgment are different things.[33]

C. ACPA as Recourse from the UDRP

For losing respondents seeking to block the cancellation or transfer of the domain name in the U.S. based on an adverse finding of a UDRP panel, the ACPA establishes the legal basis for doing so.[34] An action may be filed in an appropriate federal district court seeking to enjoin the carrying out of the order of cancellation or transfer. It is a curious feature of the UDRP that a request to block a transfer in the U.S. is governed by the provisions of the ACPA (and, possibly, by the provisions of the Lanham Act as a whole).[35] In practical effect, a decision by a UDRP panel is not reviewed on the basis of application of UDRP rules, but rather on the basis of de novo consideration of the case under the ACPA. Federal courts generally have decided against providing any deference to the decisions of UDRP panels.[36] Moreover, there is nothing that prevents either party (i.e. the domain name registrant challenging a transfer or cancellation order, and the party asserting trademark rights and abuse) from providing new and/or different evidence before the federal court. A complaining party that has been denied relief by a UDRP decision may pursue the same respondent and same domain name before the federal courts under the ACPA. U.S. federal courts have decided that there is no res judicata or collateral estoppel effect of UDRP panel decisions, and have declined to accord deference to those decisions.[37] They have primarily done so on the basis that the UDRP process is designed as an expedited and streamlined process that does not involve the same evidentiary standards as federal court proceedings.[38] As a UDRP panelist, this author has noted that UDRP panels do not enjoy the same control over parties as federal courts, nor do they have judicial enforcement powers similar to those of federal courts.[39] All of this may, in fact, give rise to circumstances in which the same parties in federal court are litigating a different case involving the same domain name than that presented to a UDRP panel.[40] However, it is shortsighted that federal district court judges do not give some degree of deference to UDRP panels. The more frequently selected UDRP panelists are likely to have substantially more experience in assessing trademark-domain name claims than federal and state court trial judges who may hear only a few such cases over a span of years.

II. Domain Names as Intellectual Property

A. The Technical Domain Name Function

A domain name shares characteristics with various forms of intellectual property as traditionally understood, but it does not fall neatly within “traditional” categories. To begin with, a domain name is similar in function to an old-fashioned telephone number. It tells a caller (in this case, the person through a device submitting an Internet query) where to route the call (in this case, to a particular server and/or sub location). A random character string associated with an IP address could perform that function, and simply entering the appropriate IP address in a browser can perform it. But, it would be very difficult for Internet users to remember and enter strings of numbers to find who or what they are looking for, and the domain name is the “human friendly” way of solving the memory and data entry problem.[41]

B. The Domain Name as Identifier

Broadly speaking, domain names fall into a number of different categories as identifiers. Some make use of generic or commonly descriptive terms, e.g., “health,” “drugs,” “travel,” as a means to attract Internet users to sources of information for goods and services that may or may not be associated with a particular supplier/provider. Despite lacking trademark status, these domain names may have a substantial financial value because of the likelihood that Internet users will use these terms, perhaps along with a generic top-level domain (gTLD) such as “.com,” when broadly searching for information and resources.[42] Many domain names incorporate the trademark or service mark of a business. Internet users seeking a business or its products (or services) commonly enter the trademark or service mark along with a gTLD to find the relevant resources, or enter the trademark or service mark in a browser and select the search result incorporating the trademark or service mark of the business.[43] The trademark or service mark of a business may appear in a domain name for reasons other than providing the location for goods and services. Commentators or critics of the business may use it in a legitimate way.[44] Typically with respect to legitimate noncommercial or fair use, the trademark or service mark will be combined with additional terms.[45] A subtype of the trademark-incorporating domain name is the “trade name” incorporating domain name.[46] From a technical IP standpoint, a trademark identifies a good or service that distinguishes one enterprise from another in commerce. A trade name is the name of a business that may or may not have trademark status. A third type of domain name is effectively a random or quasi-random alphanumeric string that does not signal the nature of the web location to which it will route the Internet user. There are a range of reasons why such random or quasi-random alphanumeric strings may be used. “Identifiers” have constituted intellectual property rights (IPRs) subject matter since the inception of commerce.[47] Artisans’ “marks” are as old as the crafting of pottery, whereby the artisan would identify his or her creation on the object. From the standpoint of the modern era, trademarks are subject matter of the Paris Convention on the Protection of Industrial Property of 1883 (and trade names are covered by that agreement).[48] There are other forms of IP that are identifiers, including geographical indications, appellations of origin, and other ways by which agricultural products have been designated. While some forms of intellectual property require a creative element (e.g., patent and copyright), the trademark does not.[49] A trademark must be distinct from other trademarks for identical or similar goods, but it does not need to meet a standard of novelty or originality (although it may not be generic or commonly descriptive).[50]

C. Domain Names as Intellectual Property

The domain name as an identifier may share characteristics with the trademark and trade name, but is it a distinct form of “intellectual property”?[51] To illustrate the question, suppose a person starting a new financial services consulting business registers as a domain name a previously unused alphanumeric string, “” and creates a commercial website. The name of the business on the website is “Financial Planning Associates”, and the unique alphanumeric string in the domain name is not identifying the services business on the website. As a unique alphanumeric identifier, is the domain name “” a form of intellectual property distinct from a service mark or trade name because its sole function is to direct users to a location on the Internet? Is it intellectual property as such? The U.S. Lanham Act defines “domain name”[52] and provides remedies against its misuse (see discussion of the ACPA supra), but the domain name as such is not accorded specific rights typical of IP. For example, the domain name is not associated with a specific statutory right to exclude third parties from infringing use. Moreover, U.S. statutory law does not include general provisions according protection to “intellectual property” as such, as distinct from the enumerated forms (e.g., patent, copyright, and trademark). A domain name may be a trademark, no doubt (e.g.,[53] To be clear concerning the illustration above, “” may well be registered as a trademark (or service mark) to the extent that it is used to identify the services of Financial Planning Associates. But the domain name is not accorded its own unique statutory protection, though it may be protected on application of general unfair competition law. It may (or may not) be that domain names (and other “non-traditional” forms of identifier) should be accorded their own unique forms of protection. But, as a matter of current law, they are not.

D. Trademarks as Property

1. Assignment and Transfer
Legislatures and courts have long treated trademarks as a form of property capable of ownership. But, the transferability of trademark ownership has a complex history, and even today includes ambiguous elements and a divergence between U.S. law and international trademark law. In the United States, it has long been thought that a trademark should not be assigned and transferred without the business with which it is associated.[54] Since the function of a trademark is presumed to be providing consumers with information concerning relevant goods, or protecting trademark owners against misappropriation of their valuable corporate reputation, it is thought a logical corollary that the trademark should not be disassociated from the product purchased by the consumer or the reputation of the business owner. This concept or principle has been embodied in the U.S. both at common law and in Section 10 of the Lanham Act as a rule against “assignments in gross.”[55] A trademark is assignable only with the goodwill of the business with which the mark is used.[56] That being said, the U.S. appears to be acting inconsistently with Article 21 of the WTO TRIPS Agreement by maintaining Section 10 of the Lanham Act. Article 21 provides in relevant part, “the owner of a registered trademark shall have the right to assign the trademark with or without the transfer of the business to which the trademark belongs.” This provision reflects the rule that apparently is most common outside the U.S.,[57] and it is difficult to stretch an interpretative argument that somehow the U.S. requirement to include the goodwill of a business in an assignment does not involve a requirement to transfer the business. There are arguments on each side of the “assignments in gross” discussion. The U.S. position reflects the “world as it should be.” If the trademark sends a signal to the consumer, why should the consumer bear the risk and consequences of new trademark ownership by an unrelated business? The TRIPS international position may better reflect the “world as it is.” Trademarks have largely become commoditized. “Brands” include sports teams emblems more or less randomly placed on consumer goods. Should the law reflect preferred expectations or reality? Fundamentally, trademarks are treated as a form of property that may be sold, assigned and transferred, both in the U.S. and elsewhere. In the U.S., there is a “rider” or condition attached to the property for purposes of assignment and transfer. It must be accompanied by the goodwill of the business.
2. Antidilution
A second element in the propertization or commodification of trademarks is the adoption of “antidilution” legislation and international rules. Article 6b of the Paris Convention provides special protection for “well-known” trademarks, which protection has been supplemented by TRIPS Agreement rules.[58] Domestic U.S. legislation extends rights to owners of famous trademarks to prevent third parties from using the mark on dissimilar goods or services (i.e., blurring) or from disparaging the trademark (i.e., tarnishment).[59] These rules in effect establish a property boundary around the trademark, protecting its owner against a third-party diminishing the value of its trademark asset. This goes beyond protecting the traditional trademark function of informing consumers as to the quality or characteristics of products, and towards protecting the trademark as property of its owner.
3. Intangible Asset Value
The typical business accounting treatment of the trademark is as an intangible asset.[60] That treatment varies depending on the jurisdiction. In the United States, the accounting and tax treatment may depend on whether the trademark was internally developed or purchased.[61] Regardless of the precise accounting treatment, the intangible asset value of trademarks is routinely calculated and reported by business information services, and the value of a brand may reach into the billions of U.S. dollars.[62]

III. Domain Names in the Courts

U.S. courts have expressed different viewpoints on the legal characteristics of domain names. There are principally three lines of reasoning: (1) domain names are a contract right (i.e., established by a service agreement between the registrant and the registrar); (2) domain names are a form of intangible property; and (3) domain names are a form of tangible personal property.

A. Domain Names as Contract Rights

The domain name registrant advises the registrar of the alphanumeric string that it wishes to register. If the domain name is available at the registry, the registrar provides a contract to which the registrant must adhere in order to register the domain name. That registration agreement includes representations and warranties from the registrant, establishes a term of registration, terms for payment, and incorporates the UDRP as a mandatory dispute settlement procedure to which the registrant agrees to be subjected.[63] Typically the domain name registration agreement provides the registrant with the right to renew the registration indefinitely, and includes a grace period provided by the registrar and/or registry in the event that the registrant allows the registration to lapse.[64] The registration agreement provides that the registrar may cancel the domain name registration in the event of a material breach of the agreement. The domain name registrant is permitted by the terms of the typical service agreement, and as mandated by ICANN rules, to transfer its domain name registration between registrars.[65] The registrant’s right in a domain name is established by contract with the registrar. But, the terms are broadly established by ICANN rules governing the registry and the registrar.[66] The registrar does not have a possessory interest in individual domain names registered by third parties.[67] The registrar has limited control over the registrant of the domain name in the sense that it may not cancel the domain name “without cause.”[68] Domain name registration is renewed absent the registrant’s failure to consent to renewal.[69] If a registrar ceases doing business, domain name registrations will survive on the database of the registry, and can be transferred by the registrant to a different registrar.[70] The registrar essentially serves as a database administrator, with a variety of secondary functions. Thus, while there is a reciprocal relationship between a domain name registrant and a registrar, ICANN exercises a superior authority over the relationship by prescribing mandatory rules and supervising the activities of the registrars and registries.[71] The service agreement between the domain name registrant and the registrar establishes a legal “construct” that is at least somewhat unique. The registrant has more than the typical rights of a party to a services agreement because the registrar (and registry) are not free to “breach and pay” through a voluntary election to refuse to provide services in the sense of canceling a domain name registration. Cancellation may only result if the registrant is in breach of the contract.[72] There is limited U.S. case law jurisprudence regarding the nature of domain names either as contractual rights or property. The leading decision supporting characterization of domain names as contract rights is that of the Supreme Court of Virginia in Network Solutions v. Umbro.[73] In this case, the holder of a money judgment sought to garnish a group of domain names registered by the judgment debtor with a view to sale by the sheriff’s office. Network Solutions, the registrar of the domain names, objected to the garnishment on grounds that domain names are the product of a conditional contract for registration services, and are not subject to garnishment and execution. It should be noted that the facts at issue in this case preceded ICANN’s adoption and implementation of rules regulating registration of domain names, and the establishment of the UDRP. The judgment creditor, Umbro, argued that the exclusive right granted to a domain name registrant is intangible property subject to garnishment. The Supreme Court of Virginia said:
Irrespective of how a domain name is classified, we agree with Umbro that a domain name registrant acquires the contractual right to use a unique domain name for a specified period of time. However, that contractual right is inextricably bound to the domain name services that NSI provides. In other words, whatever contractual rights the judgment debtor has in the domain names at issue in this appeal, those rights do not exist separate and apart from NSI’s services that make the domain names operational Internet addresses. Therefore, we conclude that “a domain name registration is the product of a contract for services between the registrar and registrant.” . . . A contract for services is not “a liability” as that term is used in [the enforcement of judgments statute] and hence is not subject to garnishment.[74]
In its decision, the Virginia Supreme Court expressed concern that allowing garnishment of a domain name services contract would open the door to garnishment of practically any services contract (e.g., prepaid services for satellite television) as well as garnishment of corporate names. The Court recognized that somet jurisdictions had allowed jurisdiction over property including telephone numbers that are products of services contracts, but disagreed with those holdings. The court distinguished contract rights for a sum of money due under a contract (which might be garnishable) from a contract for the performance of the service. The Court refused to allow the judgment creditor to “step into the shoes” of the judgment debtor.[75] Two dissenting Justices, including the Chief Justice, wrote, “[b]ecause NSI has received everything required to give the judgment debtor the exclusive right to use the domain names registered, the contractual right, a valuable asset, is the intangible personal property in which the judgment debtor has a possessory interest.” Such intangible personal property, they believed, was subject to garnishment under the relevant statute. It should be noted that because the Virginia Supreme Court rendered its decision prior to establishment by ICANN of rules that largely standardize obligations of domain name registrars and registrants, the Court was not addressing the same type of “regulated contract” to which domain name registrants are subject today. This might have influenced its reasoning about the contingent nature of the services Network Solutions would be performing. A California State appellate court decided in Palacio Del Mar Homeowners Ass’n v. McMahon that “[d] In Palacio Del Mar, the principal rationale of the California Court of Appeal was that domain names should not be considered the equivalent of tangible property, citing with supporting Ninth Circuit precedent, as discussed below, that domain names are “intangible property.” Domain name registration agreements are not by any means the only type of contract that is regulated, and that may not be cancelable absent certain conditions.[77] The situation of domain names is not dissimilar from some other forms of intellectual property, such as the patent. Once a patent is registered with the national patent office, that office may not cancel (for example, invalidate) the patent absent some defect or dereliction on the part of the patent holder. Indeed, the patent only exists because it is granted by the patent office. But, the granted patent is regulated by rules superior to those of the patent office that are established by the national legislature.[78] It is because of these superior rules that the patent is often referred to as a form of property, even though it is only a form of legislated “temporary property” because it is defined by a term of years. It expires. A domain name effectively has an indefinite duration and is durable. This is more characteristic of property than of typical contract rights.[79] In this respect, a domain name might alternatively be considered some form of “legislated property” in that its operational life depends on the train of legislation from the establishment of ICANN through establishment of registries and registrars, and the registrant’s act of requesting registration. But, it remains that the rights and obligations of the domain name registrant are expressly defined by contract with the registrar, and are not a direct product of legislation.

B. Domain Names as Intangible Property

1. Conceptually
A domain name is an alphanumeric string that is electronically encoded to function on and through a computing device connected to a network (and a network of networks). The electronically encoded alphanumeric string that constitutes the domain name ultimately has a physical reality in the sense of being stored as magnetic charges on a disk drive or other electronic storage device, but it is not a human-tangible physical reality. Similarly, the domain name typically appears as an alphanumeric string entered into a web browser address line, but that also is an electronic representation that is not human-tangible, although it is “perceptible.” The domain name might be represented in a tangible medium, such as in plastic signage, but that would be a transformative expression of the functional electronic coding, not the “thing itself.” Although some U.S. courts have differed (see discussion below regarding tangible property), it is reasonable to conclude that the domain name is “intangible” in its primary functional state. Property is traditionally defined as a determinate thing over which ownership and control may be exercised. Because the registrant of a domain name holds the exclusive right to control the use of that specific alphanumeric string (subject to various limitations and exceptions typical of trademark law) the domain name may be characterized as a form of property. Because the domain name is “intangible” and a form of “property,” it seems reasonable to conclude that the domain name is a form of “intangible property,” though not to be conflated with “intellectual property.”[80] As discussed earlier, a domain name may share characteristics with one or more forms of intellectual property (e.g., a trademark or trade name), but not in all cases. In that regard, some domain names may be intellectual property because they share attributes of recognized forms, e.g. the trademark, others not.[81] That, however, is a different question than whether domain names are considered “intellectual property” as a class.
2. Ninth Circuit Precedent
The leading casein which the Ninth Circuit Court of Appeals determined domain names to constitute intangible property, Kremen v. Cohen,[82] is important both because of its basic holding, and also because of the facts that distinguish it from those that today are generally operative with respect to domain names. The case involved a domain name, “,” registered and subject to fraud in 1994. This was prior to the establishment of ICANN rules regarding activities of registries, registrars and registrants, including ICANN’s rules regarding the contract rights of registrants. The registry, Network Solutions, was accused, inter alia, of breaching an implied contract with the initial registrant and true owner of the subject domain name when it allowed a fraudulent transfer. The Ninth Circuit found that there was no contract or contract right, express or implied, between the registrant and Network Solutions primarily on grounds of lack of consideration.[83] The court went on to consider whether domain names as a class “are a species of property”[84] by applying a three-part test: is a domain name (1) an interest capable of precise definition, (2) capable of exclusive possession or control, and (3) with a legitimate claim to exclusivity? It compared domain names to corporate stock and plots of land, finding they are precisely defined. It found that registrants control the location to which domain names direct Internet users. It determined that registrants have a legitimate claim to exclusivity because the act of registration excludes others from registering the same domain name. In a concise and straightforward manner, the Ninth Circuit found that domain names as a class are intangible property.[85] The Ninth Circuit thereupon rejected a distinction drawn by the lower district court between types of intangible property. In doing so, it conceptually declined to follow a proposal by the Restatement (Second) of Torts § 242 (1965) to differentiate between intangibles “merged” in a document and those that are not. It read the leading California Supreme Court decision and subsequent lower court and federal precedent to reject such a requirement. Nonetheless, the Ninth Circuit said that it did not need to “settle the issue once and for all” in this particular case because, “Assuming arguendo that California retains some vestigial merger requirement [with a document] The Ninth Circuit found that the distributed electronic database (i.e. the Domain Name System, or DNS) that associates domain names with particular computers is “a document (or perhaps more accurately a collection of documents)”, albeit an electronic one.[87] The Court rejected arguments from Network Solutions that because DNS records may be stored in more than one place, the DNS is not a document, and that the DNS is not a document because it is refreshed every twelve hours.[88] The Court held that Network Solutions should be open to liability for the tort of conversion of intangible property because it gave away the rightful owner’s domain name, whether or not it did so negligently (saying “the common law does not stand idle while people give away the property of others”[89]). In a subsequent case, Office Depot v. Zuccarini, the Ninth Circuit affirmed that domain names are intangible property under California law, subject to a writ of execution, for purposes of establishing quasi in rem jurisdiction over property as a predicate to having it used to satisfy a money judgment. The Court determined that for purposes of asserting quasi in rem jurisdiction domain names are located where the registry is located as well as (in self-acknowledged dictum) where the relevant registrar is located. In other words, domain names can be seized and executed against as intangible property for the purpose of satisfying a money judgment.[90]

C. Domain Names as Tangible Property

At least one US court has characterized domain names as “tangible property”. It did so on the theory that domain names can be perceived by the senses and access to them can be restricted by passwords and other security measures. The case in question, In re Paige, was in federal bankruptcy court, and involved a complex dispute over ownership of registration of a valuable domain name, <>, contested as to forming part of a Chapter 7 bankruptcy estate.[91] The allegation of the trustee in bankruptcy was that a party claiming adverse ownership had unlawfully converted the domain name from its true owner who was the subject of the bankruptcy. In a lengthy factual finding the court determined that the bankrupt party owned the domain name, and prepared to consider whether certain defendants had unlawfully converted the asset. Before doing so, it needed to determine whether a domain name is property capable of conversion. The court rejected the contract right approach of the Virginia Supreme Court in Umbro,[92] because that court applied Virginia state law, and the bankruptcy court was obligated to apply Utah law. For similar reasons, the bankruptcy court rejected reliance on Kremen because the Ninth Circuit had applied California law, and because it accepted that Utah would not follow Kremen, though in fact the state courts of Utah had not reached that question or made such a decision. Instead, the bankruptcy court followed the reasoning of a federal court case applying Utah law, Margae, Inc. v. Clear Link Techs., LLC, that considered conversion of webpages and other intellectual property (not domain names).[93] The Margae court relied on precedent from the Utah Supreme Court addressing the characteristics of computer software that it held to be “tangible personal property” for purposes of applying a state sales tax.[94] The bankruptcy court in In re Paige concluded:
Based on the reasoning in Margae, which the Court elects to follow, the Court determines that like web pages and software, domain names can be perceived by the senses and access to them can be physically restricted by the use of passwords and other security measures. In fact, the reason that the Plaintiffs cannot access the Domain Name at this point is because [the defendant] has “locked out” or physically restricted their access by changing the username and password. Moreover, unlike a mere idea that can only be stored in a person’s mind, domain names can and do have a physical presence on a computer drive. Accordingly, the Court concludes that like web pages and software, the Domain Name at issue is a type of tangible property that is capable of conversion.[95]
On the question of perception by the senses, if this court was correct, then “light” would presumably constitute “tangible” property because it is perceived by the senses. It is hard to accept the idea that because something can be perceived (e.g., a movie on a screen) it is therefore tangible. The fact that access to an electronically encoded alphanumeric string can be restricted by a password or other security device may be a factor in characterizing the domain name as “property,” but that does not make it “tangible.” Access to an online science database may be restricted by a password, but that does not make it physical or tangible property.[96] It may be that courts are somewhat more reluctant to treat “intangible property” as assets that can be blocked, transferred, restricted, etc. because of concerns about whether such intangible assets are capable of “possession” and “control.” Additionally, it may be that certain statutes address personal property in a way that might seem to exclude intangible property.[97] But, if these concerns are present, it may be preferable to revise the way the rules are framed than to attempt to characterize something that is electronic and cannot be touched by a human as “tangible.” “Perceivable” and “tangible” are different concepts.[98]

IV. A Dual Nature

Based on the foregoing analysis, it may be suggested that domain names have a dual or two-fold nature. They are contract rights created on the basis of a regulated contract between the registrant and registrar, and of indefinite duration pursuant to that contract (contingent on the payment of renewal fees). They are also intangible property insofar as the registrant may exercise a right to exclude others from using the same domain name, and may control use of the domain name. They are not, however, tangible, and are not tangible personal property.[99] In their two-fold nature, domain names seem to be relatively unique. Typical “intellectual property” is not a creation of contract. Trademarks are registered by a trademark office, but their use is governed legislatively, and not by a contract between the trademark office and the trademark owner. Unregistered trademarks may arise on the basis of use, and be recognized by judicial authorities, but they are not creations of contract. Trade names may arise on the basis of use, and also may be registered with local authorities. But, trade names are not created or regulated by a contract. Much the same is true for patents. Patents are granted by a patent office, and registered with that office. Patents are the subject of extensive legislation. But, they are also not created by contract (though they are subject to payment of renewal fees). As discussed earlier, domain names share characteristics with forms of intellectual property, and might constitute their own type or class.[100] But that is not something yet accorded by statute. And, since U.S. law does not provide a general catch-all form of intellectual property protection, it would be premature to suggest that the courts use the concept of “intellectual property” as something distinct from contract rights and intangible property. Because domain names overlap with trademarks and trade names, careful consideration would need to be accorded to defining this new form of IP. Bearing that in mind, the introduction by ICANN of open registration of top-level identifiers may accelerate interest in establishing a new form of protection. Given the level of investments being made in new domain name rollouts, the entities relying on those domain names may consider that the additional layer of protection would be useful.

V. Undervaluing the Dual Nature

A. Propertization Standing Alone

We have observed that domain names are reasonably characterized as both contract rights and intangible property. Yet, a recent line of decisions in the Ninth Circuit Court of Appeals cast doubt as to whether federal courts are prepared acknowledge this dual nature. There is a nascent trend to treat domain names as intangible property subject to the ordinary rules of personal property, but without taking into account the “contract model” (to use the terminology of the WIPO Second Report) under which domain names are registered and regulated. Under the emerging jurisprudence, the domain name “owner” of the property is entitled to sell or transfer the property to a third-party along with accrued rights. The purchaser takes the property along with the accrued rights that may insulate it from third-party claims. The fact that the purchaser enters into a new contractual arrangement with the registrar is not taken into account despite the fact that the purchaser makes representations and warranties as part of its contract with the registrar that might otherwise preclude it from asserting rights previously acquired by the seller.
1. GoPets v. Hise
The first decision by a federal appellate court to explicitly adopt the characterization of a domain name as intangible property in order to protect the transferee of a domain name is GoPets v. Hise, 657 F.3d 1024 (9th Cir. 2011).[101] Although the express characterization by the Ninth Circuit was novel, the result in in the case was consistent with customary administrative panel practice under the UDRP, and for this reason the decision may not have attracted significant attention. In GoPets, the initial domain name registration was undertaken prior to the acquisition of trademark rights by the complaining party that sought a finding of abusive domain name registration and use, first before a UDRP panel.[102] The UDRP panelist, consistent with long-standing precedent on this issue, decided that the initial registration could not have been undertaken in bad faith within the meaning of Paragraph 4(b) of the UDRP because the initial registrant/respondent could not have intended to abuse trademark rights that did not exist at the time of registration.[103] Subsequently, the initial registrant transferred the disputed domain name to a related party/family member.[104] By that time, the complaining party had established trademark rights. The complaining party sought relief in the federal courts under the ACPA, arguing that the related-party transfer constituted a “new registration” within the meaning of the ACPA so that the prior rights of the initial domain name registrant were extinguished.[105] Again consistent with the preponderance of UDRP panel practice, the Ninth Circuit decided that the related party transfer undertaken by the initial domain name registrant did not constitute a new registration within the meaning of the ACPA.[106] UDRP panelists have generally not regarded related party transfers as new registrations because there are a substantial number of good faith business reasons why holders of registrations may want to transfer registration to a related entity, and depriving the domain name owner of its pre-existing registration rights in such circumstances ordinarily would be unfair.[107] To illustrate, imagine that an individual in 2003 registered the domain name “” and was using that to host a high school yearbook website. The Facebook social media website of 2013 did not exist in 2003, and there was no service mark associated with it. The social media company registered FACEBOOK at the USPTO in 2010. Under long-standing UDRP panel practice, the social media company could not successfully pursue a claim for abusive domain name registration and use against the individual 2003 registrant of “” because the initial registrant could not have undertaken its registration in bad faith when no adverse trademark rights existed. It is now 2013. Imagine that the individual registrant from 2003 has formed a limited liability company (LLC) through which to operate his/her high school yearbook website. The domain name registration from 2003 is transferred into the name of the LLC, but nothing about the high school yearbook website changes. Should this now allow the Facebook social media company to successfully pursue a claim for abusive domain name registration and use? The answer from UDRP panelists generally has been “no.” From the standpoint of UDRP precedent, there was nothing about the result reached by the Ninth Circuit in GoPets out of line with the way the case would ordinarily have been decided under the UDRP. However, the express reasoning of the Court raised an issue. The Ninth Circuit said:
[T]he text of § 1125(d)(1) considered in isolation does not answer the question whether “registration” includes re-registration. Looking at ACPA in light of traditional property law, however, we conclude that Congress meant “registration” to refer only to the initial registration. It is undisputed that Edward Hise could have retained all of his rights to indefinitely if he had maintained the registration of the domain name in his own name. We see no basis in ACPA to conclude that a right that belongs to an initial registrant of a currently registered domain name is lost when that name is transferred to another owner. The general rule is that a property owner may sell all of the rights he holds in property. GoPets Ltd.’s proposed rule would make rights to many domain names effectively inalienable, whether the alienation is by gift, inheritance, sale, or other form of transfer. Nothing in the text or structure of the statute indicates that Congress intended that rights in domain names should be inalienable. We therefore hold that Digital Overture’s re-registration of was not a registration within the meaning of § 1125(d)(1). Because Edward Hise registered in 1999, long before GoPets Ltd. registered its service mark, Digital Overture’s re-registration and continued ownership of does not violate § 1125(d)(1).[108]
Recall that the facts of GoPets involved a related party transfer. The Ninth Circuit did not allude to this factor in the reasoning quoted above. It plainly stated that domain names constitute property, subject to traditional property law, and that the rights of domain name owners are “alienable” or transferable.[109] While the Court noted that it was engaged in statutory interpretation of the ACPA, it did not provide further guidance as to how the property characteristic of domain names might influence results in contexts different than the related party transaction undertaken in GoPets.
2. v. AirFX LLC
While the decision of the Ninth Circuit in GoPets mirrored the result that would in all likelihood have been reached by a UDRP panel, a subsequent federal district court decision from Arizona applied the language of GoPets in a different, yet foreseeable, factual context where the results would likely (and did) differ. v. AirFX LLC involved the purchase of a domain name by a party unrelated to the initial registrant.[110] The initial registration took place prior to the complaining party’s establishment of trademark rights, but the purchase and reregistration by an unrelated party took place after the establishment of trademark rights.[111] In holding that the purchaser/transferee could not have registered the domain name in bad faith under the ACPA, the Arizona District Court said:
Defendant argues that GoPets is distinguishable, because in GoPets Hise transferred the domain name to an entity he co-owned, and here Lurie purchased from an unrelated third party. According to defendant, the purpose of the ACPA will be undermined if a cybersquatter who purchases a domain name in bad faith is immune from liability simply because the domain name he purchased existed before a mark was distinctive. Nothing in the language of GoPets indicates that it should be read as narrowly as defendant suggests. GoPets did not distinguish between transfers of a domain name to related parties and other kinds of domain name transfers. To the contrary, GoPets broadly reasoned that if an original owner’s rights associated with a domain name were lost upon transfer to “another owner,” the rights to many domain names would become “effectively inalienable,” a result the intention of which was not reflected in either the structure or the text of the ACPA. Id. at *4 [citation omitted].
The District Court went on to hold that the issue whether the domain name holder registered in bad faith was determined at the time of the initial registration by an unrelated third party when the complaining party had not yet established trademark rights.[112] In the District Court departed from general UDRP panel practice that has treated the acquisition of a domain name by a party unrelated to the previous registrant as a new registration within the meaning of the UDRP. The circumstances existing at the time of that new registration govern whether the new holder has undertaken the registration in bad faith.[113] UDRP panels have not generally treated domain names as freely alienable property carrying the pre-existing interests of prior registrants through to unrelated transferees. Following the reasoning of the Arizona District Court, derived from seemingly unambiguous language of the Ninth Circuit, might result in a significant change to panel practice under the UDRP, unless there is some difference between the ACPA and UDRP that would provide a basis for distinguishing the way the same terms should be interpreted.

B. WIPO Panelists React

WIPO panels have addressed the holding in GoPets regarding the meaning of “registration” and unrelated transferees. The first such decision preceded the District Court decision: Twitter, Inc. v. Geigo, Inc, WIPO Case No. D2011-1210. The second post-dated Diet Center Worldwide, Inc. v. Jason Akatiff, WIPO Case No. D2012-1609.[114] Employing very similar reasoning, these panels rejected the GoPets approach, finding that transfers between unrelated parties constitute new registrations. Both panels relied on the contractual relationship between the domain name registrant-transferee and the registrar, and the representations made at the time of modification of registrant data or registrar change. In the decision post-dating, this author (sitting as sole panelist) said:
As other UDRP panels have also done in cases such as Twitter, Inc. v. Geigo, Inc, WIPO Case No. D2011-1210, this Panel will continue to follow the general approach of WIPO UDRP panelists and consider that the transfer of a domain name to an unrelated third party constitutes a new registration for purposes of assessing bad faith. Although the Panel recognizes that domain names have attributes of intangible property, the rights of the domain name registration holder are contractual in nature and subject to the terms and conditions of a registration agreement.[115] When an unrelated third party changes registrant data and/or re-registers with a new registrar, that party is accepting representations and warranties under the registration agreement as of the date of the change.[116] These effectively include that the new registration is being undertaken in good faith (see paragraph 2 of the Policy). With the greatest deference owed to the national courts,[117] this Panel observes that the Ninth Circuit Court of Appeals decision in GoPets v. Hise was interpreting the ACPA, not the Policy. The precise holding addressed the situation of related party transfers and in that regard was consistent with general WIPO UDRP panel practice under the Policy. The language used by the Ninth Circuit can also be read more broadly, as the Arizona District Court did in v. AirFx LLC. But, again, that court was interpreting the ACPA. Given the significant differences in the legislative history and the language of the ACPA and the Policy, this Panel is not inclined to extrapolate from the apparent ACPA-related development in the Ninth Circuit, noting that there is at least some disagreement among the Circuits regarding interpretation of the term “registration” as it is used in the ACPA.[118] While administrative panels under the Policy tend to look to the law of the country of the parties when they are within the same country, the Policy is a set of rules that operates within its own unique context.[119] The UDRP incorporates generally accepted principles of trademark law, without representing a linear application, to the extent that this would even be possible in its international setting. For example, in order to provide safeguards for registrants, a UDRP transfer requires bad faith on behalf of the registrant, going in this respect beyond conventional trademark law. In this connection, the Panel further notes the mutual jurisdiction provisions which enable party recourse to national courts. The Panel observes that it will assess the bad faith element as of the time Respondent by its own account acquired the disputed domain name . . . . [Footnotes renumbered from original]

C. The ACPA and the UDRP

1. Bad Faith
Both under the ACPA, and under the UDRP as predominantly interpreted by panelists, a finding of bad faith registration is predicated on the existence of a conflicting or adverse trademark at the time of domain name registration.[120] The statutory language of the ACPA clearly establishes this predicate (and it has been confirmed by court decision).[121] UDRP panelists have applied the logic that a domain name registrant cannot act in bad faith by taking unfair advantage of trademark rights that do not exist.[122] There is a perhaps subtle distinction between ACPA jurisprudence and the prevalent UDRP panel approach regarding post-registration evidence of bad faith. Under the ACPA, if the predicate of a pre-existing conflicting trademark is met, the court may determine that the domain name was registered and used in bad faith based on conduct subsequent to registration.[123] From the perspective of most UDRP panelists, on the other hand, while the prior existence of trademark rights is a predicate to finding bad faith, it is not the end of the inquiry with respect to bad faith which must exist at the time of domain name registration. Additional factors concerning the intent of the registrant remain to be assessed under Paragraph 4(b) as of the time of registration. For example, if on registration a domain name registrant commences operation of a legitimate web-based business, but later on engages in conduct that might appear to take unfair advantage of a trademark owner, the subsequent conduct is generally not the basis for a finding of bad faith registration and use. Bad faith “registration” entails bad faith at the time of registration.[124] The distinction between ACPA jurisprudence and UDRP panelist jurisprudence on this timing issue is referred to as “perhaps-subtle” because there are contexts under the UDRP in which after-the-fact conduct can be used as evidence of intent at the time of registration. The language of paragraph 4(b) of the UDRP suggests that. But, there are limits to how far after-the-fact conduct can be stretched to determine intent at the time of registration. A link back to the initial registration is needed.[125] To be clear, however, under both the ACPA and UDRP there must be a conflicting trademark in existence at the time of registration for bad faith to be found.[126]
2. A Class of Insulated Domain Names
The combined holdings of GoPets and create a perpetually protected set of domain names under the ACPA. A domain name initially registered or created when no conflicting trademark rights were in existence can never be successfully claimed against because neither a related or unrelated party transfer triggers a reassessment of the conditions of registration, while a pre-existing trademark is an express condition to a finding of bad faith. On its face, direct transposition of the GoPets and decisions into UDRP jurisprudence—removing unrelated party transfers from treatment as new registrations—likewise would create a class of “insulated” domain names that were initially registered prior to the acquisition of trademark rights by third parties. Because bad faith under the UDRP requires that a trademark be in existence at the time of registration, and because the rights acquired by the initial registrant would be freely transferable, a domain name initially created prior to the establishment of the trademark could never be successfully attacked. They would, as under the ACPA, be “alienable without limit.”[127] The decision by the Ninth Circuit in GoPets did not flow from any express statutory requirement. The court was interpreting an otherwise undefined term in the ACPA, that is, “registration” (as used in the phrase “at the time of registration”). It decided that the term “registration” was addressed to the initial or creation registration of a domain name, and not to a subsequent registration by an unrelated transferee because of the transferor’s property interest in the domain name. That interpretative approach did not take into account the contract accepted upon acquisition of the domain name by the transferee, which contract incorporates a proviso that the transferee not registering the domain name in bad faith. Other than articulating an interest in an apparent supra-sanctity of property rights, the Ninth Circuit did not explain why the new registrant/transferee of a domain name that conflicts with an existing trademark and evidences other bad faith elements should be subject to different contractual treatment than the “creation” registrant. It appears that under the Ninth Circuit’s rationale, the owner of a domain name registration that has risen in value because a third party has developed trademark rights in the same or a substantially similar term is encouraged to take advantage of that newly established trademark-based value through sale of the domain name. It can be argued that no enterprise starting a business and developing a valuable trademark should do so without first securing the corresponding domain name, and that an enterprise that does so should be subject to paying whatever the market dictates to acquire the domain name after-the-fact. And, it may be that the Ninth Circuit was engaged in a conscious exercise in risk allocation, adjudging the enterprise developing a new trademark in a better position to assess its own domain name-related situation than the holder of the creation registration. The Ninth Circuit may have intended to send a message that no one should develop a business name or trademark without having first secured the relevant Internet address. The value to the creation-owner of the domain name in such circumstance may well be serendipitous. It may just have happened to register a term or string that someone later developed into a valuable brand. Just as likely, the registered term (i.e. domain name) may be held by a firm that registers domain names speculatively in the expectation that some percentage of those names will eventually acquire a value as a consequence of the development of third-party trademark rights. The Ninth Circuit approach in GoPets (as applied by the District Court in encourages the speculative registration business model by immunizing transfers of previously created domain names from scrutiny.[128] If transposed to the UDRP, because domain names created prior to the existence of trademark rights may never be attacked as abusive, transferees would never be subject to comparatively fast and efficient dispute settlement proceedings. Only traditional trademark infringement proceedings would remain in the trademark owner’s arsenal, but typically at substantial expense. Because the registration of a domain name is typically very inexpensive (in the range of US$10 or less), the Ninth Circuit’s reason for elevating the interests of the creation registrant over that of the subsequent trademark owner is not clear. If the creation-owner and the transferee are engaged in a good-faith enterprise, and this has value, it should be protected under the UDRP (as well as under the ACPA) at the time of the new registration (as discussed below). The creation-owner may lose the serendipitous benefit of a sale and transfer to a transferee without legitimate interests in the domain name, or that is acting in bad faith, but it is not apparent why such benefit should be superior to the interests of the owner of a newly developed trademark.

VI. Treating Unrelated Transfers as New Registrations

A. Related Party Transfers

As discussed earlier, UDRP panels have so far distinguished transfers between related parties (as in GoPets) and unrelated parties (as in UDRP panelist practice can be analogized to the U.S. rule requiring that assignments and transfers of trademarks be accompanied by the goodwill of the business. In the U.S., if a trademark is assigned and transferred for corporate organization purposes (e.g., for beneficial tax treatment or change in corporate form), the nature of the underlying business is not changed. Goods or services, for example, continue to be provided with the same quality. A company that has owned and developed rights in a trademark or brand over the course of 50 years does not give up the strength of the brand (such as is gained, for example, by filing of a certificate of incontestability) merely because of the intra-firm transfer. It seemed logical to extend this general principle to domain names. UDRP panels have presumed that transfers between related parties involve a continuity of ownership that entitles the registrant to maintain its rights and financial position, and have been unwilling to penalize domain name registrants because of a mere change in form. Some exceptions from this general rule have been recognized when a related party transfer had been viewed as a bad faith transaction. However, related party transfers are not the only circumstances where the rights of the domain name registration owner/seller and purchaser/transferee should be protected.

B. New Registration and Contract

1. A New Assessment
The courts in GoPets and assessed the rights of domain name registrants and transferees as if their relationship was governed solely on the basis of property rights. However, the better approach both under the ACPA and UDRP may be to accept that domain names have a two-fold or dual character. They have attributes of intangible property, yet the rights of the domain name registration holder also are contractual in nature and subject to the terms and conditions of a registration agreement. When an unrelated third party changes registrant data and/or re-registers with a new registrar, that party is accepting representations and warranties under the registration agreement as of the date of the change. These effectively include that the new registration is being undertaken in good faith.[129] Assume that the transferor initially registered the disputed domain name when there was no adverse trademark, and thus had been insulated from a finding of abusive domain name registration and use. If the unrelated transferee acquires the domain name when there is an existing adverse trademark, under the ACPA and UDRP it would have met the predicate or but for condition for a finding of bad faith. However, the fact that there is an existing adverse trademark does not mean that the unrelated purchaser/transferee is engaging an abusive domain name registration and use. Although the assessment criteria under the ACPA and UDRP may be somewhat different, the complaining party/trademark owner must still demonstrate—in terminology of the UDRP—that the new registrant lacks rights or legitimate interests in the disputed domain name, and has otherwise registered the domain name in bad faith. The brief discussion of the assessment criteria that follows is based on the terms of the UDRP and administrative panel precedent, but the statutory assessment criteria used to determine bad faith under the ACPA are substantially similar.
2. Rights or Legitimate Interests
The fact of a trademark owner’s rights in a mark, and that the disputed domain name is identical or confusingly similar to the trademark, is the beginning of the analysis—not the end. Most of the more important decisions under the UDRP from a jurisprudential standpoint address whether the complained-against domain name registrant has rights or legitimate interests (or has registered and used in bad faith, which may involve similar factors). In focusing on the alienability of domain names, the Ninth Circuit appears to be expressing concern over the risk that legitimate owners of domain names will be deprived of rights in property without adequate justification. But, paragraph 4(c) of the UDRP is intended to give domain name registration owners, and transferees of domain names, opportunity to defend their right to ownership. It places the burden of establishing lack of rights or legitimate interests on the complaining party.[130] Similarly, four of the nine factors used to assess bad faith intent under the ACPA are directed toward establishing the legitimate interests of the domain name registrant, and there is a general defense for registering based upon reasonable belief regarding lawfulness.[131] Up until now, there has not been significant issue within UDRP jurisprudence arising from an inability of third-party transferees of domain names initially registered prior to existence of trademark rights to establish rights in the transferred domain names. This is probably because transferees with legitimate interests in those domain names have been able to establish that before the panels. But, it may be that administrative panelists need to be particularly watchful in cases of such transfers, especially when the transferee is acquiring some type of ongoing enterprise that has a substantial commercial value.

C. The Sale and Purchase of a Business

While there is a market for domain names “standing alone”, a valuable domain name may well be so because it is associated with a successful ongoing business. The domain name registration owner may have established that business when there was no “adverse trademark,” and the business may be insulated against a claim of abusive registration and use under either the ACPA or the UDRP because of the initial domain name registration date. This paper has suggested that the good or bad faith of an unrelated domain name purchaser/transferee should be tested at the time of purchase and reregistration. But, might not such a general rule have an unduly harsh effect on the initial registrant owner of the website business identified by that domain name? Would an unrelated third party purchaser be able to purchase the business, including the domain name, without being subject to a finding of abusive domain name registration and use? If there was an ongoing business associated with the complained-against domain name that predated the acquisition by the trademark owner of its trademark rights, the purchaser of that ongoing business may be determined to have a legitimate interest in the domain name because of the continuity of the business. This would seem to depend on the characteristics or facts of individual cases, but some possible general cases might be anticipated. For example, it may be that the initial registrant/transferor of the disputed domain name commenced its business (but did not register its domain name) before the “newer” trademark owner secured rights in the trademark (such as by registering with the USPTO).[132] In such case, the registrant/transferor of an ongoing business (and domain name) would likely have a priority right under traditional trademark law principles to continue using its domain name because it was using the relevant term earlier than the trademark owner. The disputed domain name registrant should be able to establish its rights or legitimate interests under paragraph 4(c)(i) and/or (ii) of the UDRP. Under the ACPA, there is a similar assessment factor as in UDRP paragraph 4(c)(i), which should yield a comparable result. In such circumstances, the subsequent transfer of the domain name to a new business owner should not affect the rights or legitimate interests in the domain name since, inter alia, the business has been commonly known by the domain name and/or there has been a prior good-faith offering of goods or services. If the initial domain name registrant-transferor establishes an online business subsequent to the acquisition by the trademark owner of rights (such as evidenced by registration), the issues with respect to a third-party transferee of the domain name may be more contestable. Traditional trademark infringement analysis may again factor in. An analysis of rights or legitimate interests may turn on whether the initial domain name registrant/transferor is operating in the same class or line of business as the trademark owner, and might assess evidence regarding whether the initial registrant/transferor was aware of the trademark owner when it began to operate its online business. If the initial registrant-transferor and the transferee are in different national jurisdictions than the trademark owner, this might well influence an assessment of the extent of knowledge (and intent). It is important to note that the individual factors listed in paragraph 4(c) of the UDRP as potentially establishing rights or legitimate interests are expressly non-exhaustive. A panel may consider whatever evidence or factors it considers appropriate to jurisprudential analysis of the rights or legitimate interests of a third-party transferee of a disputed domain name. A panel may determine that the issues are sufficiently close that the complaining party has not carried its burden of persuasion, and that a federal court may be a more appropriate forum for a full domain name/trademark infringement proceeding, with more extensive submissions of evidence, testimony, etc.[133]

D. Other Rights or Legitimate Interests

Rights or legitimate interests are not limited to ongoing commercial enterprises. A domain name may be used for fair use or legitimate noncommercial purposes and not be subjected to a finding of abusive domain name registration and use under the UDRP or ACPA. Should interest in such use be transferable to unrelated parties? The answer to this question is likely to be quite fact specific. An unrelated purchaser/transferee may present evidence of intention to continue a legitimate use. As a practical matter, the same elements that would establish a defense prior to a transfer are likely to be relevant after the transfer. Under the UDRP, since the complaining party bears the burden of proof to demonstrate that the domain name registrant lacks rights or legitimate interests, this should not place an undue burden on unrelated purchaser-transferees. Under the ACPA, there is a general defense of reasonable good faith belief in fair or other lawful use. Conversely, an unrelated purchaser/transferee that is unable to demonstrate rights or legitimate interests should not have grounds for retaining a domain name that is subject to an adverse trademark right.

E. The ACPA Revisited

The suggestion of this author is fairly modest: that when the Ninth Circuit has the opportunity to revisit the definition of “registration” within the meaning of the ACPA that it limit the holding of GoPets to the factual context in which it was adopted. That is, the Ninth Circuit might maintain the interpretation of “registration” that excludes related party transfers (as per the facts of GoPets), but clarify that unrelated party transfers of domain names (and the accompanying transferee provision of new registrant information and acceptance of the registration agreement) are within the definition of “registration”. Indeed, the author is encouraging the Ninth Circuit to bring its jurisprudence into line with that so far developed by UDRP panels, and naturally does so with deference to the place of the Ninth Circuit in the U.S. jurisprudential hierarchy. Yet it is only the “philosophical language” in GoPets that has given rise to the apparent conflict in jurisprudence (as per A different formulation limited to related party transferees would have achieved the same result. At least one commentator has suggested to amend the ACPA so as to expressly define “registration” and to broaden the category of domain name transfers that are treated as new registrations.[134] Opening up a broad statutory scheme for a minor change not infrequently serves as a prelude to a larger scale exercise in legislative revision. The law of unintended consequences is always at work. This article is not encouraging amendment of the ACPA for purposes of addressing what is a comparatively modest issue. Perhaps more important, the ACPA is invoked much less frequently than the UDRP. UDRP panelists are not obligated to follow jurisprudential developments under the ACPA, or to take into account the language of the ACPA. As a practical matter, UDRP panelists can maintain their current practice more or less irrespective of how jurisprudence in the Ninth Circuit develops. The UDRP is not explicitly tied to any national jurisdiction, and less to any particular Court of Appeals of the United States. Nonetheless, UDRP panelists pay attention to such jurisprudence, and there are good reasons to seek an approximation of the rules, if for no other reason than to provide more legal certainty to domain name registrants.

VII. The Continuing Role of Trademark Law

It must be emphasized that trademark law, e.g., the Lanham Act in the U.S., continues to apply to potential abuse of domain names.[135] A domain name may infringe a trademark, and a website incorporating a domain name may infringe a trademark, whether or not the domain name was acquired in good faith or bad, and whether the domain name owner or its predecessor at some time in the past had rights or legitimate interests in that domain name. A domain name owner may escape an order of transfer or cancellation under the UDRP, or a finding of abusive conduct under the ACPA, yet still face a claim for trademark infringement on grounds outside those found in these two legal mechanisms. In that regard, one should not over-emphasize the role of the UDRP and ACPA. Trademark owners can protect their valuable identifiers—assuming they have legitimate causes of action—against infringers more or less irrespective of the “container” in which the infringing item is placed.

VIII. The Wider Picture

At the outset of this article, the author observed that an inquiry into the “fundamental nature” of the domain name may be a quaint exercise. Yet there are “real world” circumstances in which it is important to determine whether a domain name is “property” that can be freely assigned and transferred or is a contract right subject to the conditions established by a chain leading from ICANN. There is a third option suggested by this article, that domain names are both. They are a form of intangible property that is created by and subject to contract. As intangible property, they may be subject to security interests, considered assets in bankruptcy, and generally assigned and transferred. But being also contract rights, they are subject to certain conditions when acquired by new (unrelated) owners. They should not be acquired in bad faith. They may legitimately be acquired as part of an ongoing business in order to protect the interests of the seller built up in that business, even in the presence of an adverse trademark if the initial registrant/seller had been operating legitimately and in good faith. It is difficult to foresee all of the circumstances in which the legal characterization of domain names will be important. Given the different contexts in which the UDRP and ACPA were adopted, and in which they are implemented, it should be expected that jurisprudential conflicts will from time to time arise and require attention. This article calls attention to one such conflict and proposes to resolve it through recognition that the legal character of the domain name need not be limited to a single class of subject matter. This characterization might become more important as ICANN’s rollout of new top-level domains begins to transform the domain name space.
* Edward Ball Eminent Scholar Professor of International Law, Florida State University College of Law. The author regularly serves as an administrative panelist in proceedings under the Uniform Domain Name Dispute Resolution Policy for the WIPO Arbitration and Mediation Center. The author notes with appreciation the research assistance of Ms. Sabina Kania, a JD candidate at FSU College of Law. A presentation regarding the subject matter of this article was made and discussed at the Annual Meeting of WIPO Domain Name Panelists in October 2012 (Geneva), and the author has benefited from discussion with members of the WIPO Arbitration and Mediation Center Secretariat, including Erik Wilbers (Director) and David Roache-Turner (formerly Head, Internet Dispute Resolution Center). This article, however, expresses solely the personal views of its author.
[1] See Benefits and Risks of Operating a New GTLD, ICANN: New Generic Top-Level Domains, (last visited Jan. 28, 2013). The author of this article as sole panel expert recently rendered one of the first decisions under ICANN’s New gTLD Dispute Resolution Procedure for Existing Legal Rights Objections. See Express, LLC v. Sea Sunset, LLC, WIPO Case No. LRO2013-0022 (<.express>).
[2] See, e.g., Bernard R. Horovitz,Blunting the Cyber Threat to Business; Hackers target firms world-wide, yet insurance policies rarely cover the damage, Wall St. J. (Jan. 9, 2013),; Nicole Perlroth, Attacks on 6 Banks Frustrate Customers, N.Y. Times, Sept. 30, 2012, at B1, available at
[3] See, e.g., Ryan Abbott, Big Data and Pharmacovigilance: Using Health Information Exchanges to Revolutionize Drug Safety, 99 Iowa L. Rev. (forthcoming 2013) (manuscript at 8-9, 37), available at security and privacy issues that might arise in connection with an initiative that uses health information exchanges to inform a pharmacovigilance system).
[4] Previous consideration of the legal character of domain names and related rights can be found in Daniel Hancock, Note, You Can Have It, But Can You Hold It?: Treating Domain Names As Tangible Property, 99 Ky. L.J. 185 (2010-11); Sean Price, Case Note, A Reasonable Rendition of Registration: GoPets v. Hise, Schmidheiny v. Weber, and Congressional Intent, 22 DePaul J. Art Tech. & Intell. Prop. L. 449 (2012); Ned Snow, The Constitutional Failing of the Anticybersquatting Act, 41 Willamette L. Rev. 1 (2005).
[5] See, e.g., List of most expensive domain names, Wikipedia, (last visited Sept. 21, 2013). The Wikipedia list includes a number of domain names sold for over U.S. $10 million. Id. However, Wikipedia’s list, unlike Business Insiders’ list, may include the sale of websites with other business assets or goodwill that extend beyond the sole value of the domain name. Alyson Shontell, The 25 Most Expensive Domain Names of All Time, Business Insider (Dec. 23, 2012, 8:03 AM),
[6] Both the Wikipedia list and Business Insider list are dominated by common terms, including “,” “,”,” “,” and “” Wikipedia, supra note 5; Shontell, supra note 5.
[7] See discussion and references in Frederick Abbott, Thomas Cottier & Francis Gurry, International Intellectual Property in an Integrated World Economy, 457-76 (2d ed. 2011).
[8] World Intellectual Property Organization [WIPO], [hereinafter WIPO First Report]; accord id. ¶ 4 (“A domain name is the human‑friendly address of a computer that is usually in a form that is easy to remember or to identify, such as”).
[9] Id.; see also Office Depot Inc. v. Zuccarini, 596 F.3d 696, 698-99 (9th Cir. 2010); Hancock, supra note 4, at 187-90; Price, supra note 4, at 451.
[10] The WIPO Second Report refers to the integrated registration system flowing from ICANN to the registrant as the “ICANN Contractual Model”. See World Intellectual Property Organization [WIPO][hereinafter WIPO Second Report].
[11] For additional details regarding registrant-registrar-registry relations, see, e.g., Office Depot, 596 F.3d at 699; Price, supra note 4, at 451.
[12] The transnational character of the domain name system played a significant role in motivating development of ICANN management and related dispute settlement rules. See WIPO First Report, supra note 8, ¶¶ 14-21.
[13] Trademark rights may be based on registration or they may be unregistered/common-law rights.
[14] 15 U.S.C. § 1125(c) (2006).
[15] 15 U.S.C. § 1114(2)(D)(iv-v) (2006).
[16] Id. § 1114(1) (2006). Of course, there are many potential defenses to infringement, including fair use defenses.
[17] For a discussion of the historical background of domain names and the issues that arise, see WIPO First Report, supra note 8, ¶¶ 1-25.
[18] In the late 1990s, exclusively within the U.S.
[19] See Internet Corp. for Assigned Names & Nos. (ICANN), Uniform Domain Name Dispute Resolution Policy (Oct. 24, 2009), (last visited Feb. 1, 2013) [hereinafter UDRP], ¶¶ 8-12 (discussing adoption of UDRP and Rules by ICANN).
[20] Id. ¶ 10. The initial group of approved dispute settlement service providers included e-Resolution and CPR Institute for Dispute Resolution. e-Resolution no longer exists, and the CPR Institute no longer provides UDRP dispute resolution services.
[21] UDRP, supra note 19 ¶ 4(a).
[22] Internet Corp. for Assigned Names & Nos. (ICANN), Rules for Uniform Domain Name Dispute Resolution Policy, ¶ 3(b)(iv) (Oct. 24, 2009), (last visited Feb. 1, 2013) [hereinafter Rules for UDRP]. For three-member panels, each party selects a panelist (from an approved roster), and the parties attempt to agree upon the third panelist (in default of which, the service provider selects that panelist). A prospective panelist submits a declaration regarding potential conflict of interest prior to appointment. Once appointed, the panel receives a file that includes the complaint, response, incorporated evidence, and the chain of correspondence by all parties with the service provider. The appointed panelist has fairly broad discretion to seek additional information from the parties. Absent some special circumstance, the panel is expected to transmit its decision to the service provider within 14 calendar days. Id. ¶ 15(b).
[23] UDRP, supra note 19, ¶ 4(i).
[24] UDRP, supra note 19, ¶ 4(k).
[25] Anticybersquatting Consumer Protection Act, Pub. L. No. 106-113, 113 Stat. 1501A-445-552(1999) (codified at 15 U.S.C. § 1125(d) and 15 U.S.C. § 8131) [hereinafter ACPA], at 189-90; Price, supra note 4, at 455.
[26] 15 U.S.C. § 1125(d)(1)(A)(ii) (“A person shall be liable in a civil action by the owner of a mark, including a personal name which is protected as a mark under this section . . . . ”).
[27] Id. § 1125(d)(2).
[28] The ACPA, insofar as it protects trademarks, limits actions to those where the claimant had trademark rights at the time the disputed domain name was registered. 15 U.S.C. § 1125(d)(1)(A)(ii) limits actions against domain name registrants to those: “(I) in the case of a mark that is distinctive at the time of registration of the domain name, is identical or confusingly similar to that mark; (II) in the case of a famous mark that is famous at the time of registration of the domain name, is identical or confusingly similar to or dilutive of that mark . . . . ” (emphasis added). The UDRP requires that a disputed domain name has been “registered and used in bad faith”. UDRP, supra note 21, ¶ 4(a). The preponderance of panelists (supported by the legislative history of the UDRP) have concluded that registration in bad faith can only be found where trademark rights exist for the complaining party. See WIPO Overview of WIPO Panel Views on Selected UDRP Questions, Second Edition (“WIPO Overview 2.0”), “Consensus view: Generally speaking, although a trademark can form a basis for a UDRP action under the first element irrespective of its date [see further paragraph 1.4 above], when a domain name is registered by the respondent before the complainant’s relied-upon trademark right is shown to have been first established (whether on a registered or unregistered basis), the registration of the domain name would not have been in bad faith because the registrant could not have contemplated the complainant’s then non-existent right.” WIPO Overview 2.0, para. 3.1. See further discussion of the timing/sequencing issue under the ACPA and UDRP infra.
[29] 15 U.S.C. § 1125(d)(1)(B) provides that “(ii) Bad faith intent described under subparagraph (A) shall not be found in any case in which the court determines that the person believed and had reasonable grounds to believe that the use of the domain name was a fair use or otherwise lawful.” Also, four of the nine factors that the ACPA prescribes for assessing bad faith intent of the domain name registrant are similar to factors that the UDRP uses to assess rights or legitimate interests in a disputed domain name. Compare 15 U.S.C. §1125(d)(1)(B)(i)(III-IV), with UDRP, supra note 21, ¶ 4(c).
[30] 15 U.S.C. § 1125(d)(1)(C).
[31] Id. §§ 1125(d)(3), 1116(a).
[32] Id. § 1117(a), (d).
[33] See, e.g., Office Depot Inc. v. Zuccarini, 596 F.3d 696 (9th Cir. 2010).
[34] A petition to the U.S. courts seeking an injunction to prevent an order of transfer by a UDRP panelist is governed by the ACPA. 15 U.S.C. §1114(2)(D)(v); see, Inc. v. Excelentisimo Ayuntamiento de Barcelona, 330 F.3d 617 (4th Cir. 2003). The ACPA (and perhaps the Lanham Act as whole) is applied to determine whether the transfer should be allowed or blocked. Compare id., with Storey v. Cello Holdings, L.L.C., 347 F.3d 370(2d Cir. 2003). Thus, in effect, the enforceability of UDRP decisions depends on interpretation of the ACPA.
[35] The Federal Circuits have divided on that latter extension.
[36] See, e.g.,, 330 F.3d at 626 (“[a]ny decision made by a panel under the UDRP is no more than an agreed-upon administration that is not given any deference under the ACPA.”).
[37] E.g.,, 330 F.3d at 626 (UDRP panel decision was relevant only insofar as it enabled plaintiff to file an action under the ACPA); Storey, 347 F.3d at 378, 380-82 (2d Cir. 2003) (stating that “an administrative proceeding does not preclude the registrant from vindicating his rights under the ACPA or trademark law in court.”).
[38] See, e.g., Storey, 347 F.3d at 382-83. Cf. Sallen v. Corinthians Licenciamentos LTDA, 273 F.3d 14, 28 (1st Cir. 2001) (recognizing the overlap of the UDRP and ACPA).
[39] See Diet Center Worldwide, Inc. v. Jason Akatiff, WIPO Case No. D2012-1609, n.13. Other references have taken place in the context of termination orders based on contemporaneous federal court proceedings.
[40] A complainant may lose a case under the UDRP because it has failed to adequately substantiate its claim, and may initiate a federal court proceeding in order to rectify its prior failure. Compare Super-Krete Int’l, Inc. v. Concrete Solutions, Inc., WIPO Case No. D2008-1333, with Super-Krete Int’l, Inc. v. Sadleir, 712 F. Supp. 2d 1023 (C.D. Cal. 2010). In the UDRP proceeding, the complaining party argued (and lost) on the basis of common-law trademark rights, presenting no evidence to support such rights. The plaintiff thereafter provided evidence of pre-existing trademark registrations to the federal court, and succeeded. The district court did not take note of the difference between the case pleaded by the complaining party in the UDRP proceeding and the case presented to the federal court.
[41] It is a wonder, perhaps, that in the “old days” individuals were expected to remember 20 or so seven-digit telephone numbers to contact their family, friends, and business relations.
[42] See supra note 5.
[43] See 1 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 7:17.50 (4th ed. 2013) (“In the same way that businesses sometimes desire to have a prestige business address, businesses want a prestige address in cyberspace that corresponds to the trade name of the company or to a company trademark.”).
[44] See, e.g., Pfizer Inc v. Van Robichaux, WIPO Case No. D2003-0399, <>; Sutherland Inst. v. Continuative L.L.C., WIPO Case No. D2009-0693, <>.
[45] See discussion of relationship between domain names incorporating trademark alone, and domain names using trademark in combination with other terms, inToyota Motor Sales, U.S.A. v. Tabari,610 F.3d 1171 (9th Cir. 2010).
[46] See Abbott, Cottier & Gurry, supra note 7, at 342.For discussion of trade names under the TRIPS Agreement, see Appellate Body Report, United States — Section 211 Omnibus Appropriations Act of 1998, ¶¶ 333–41, WT/DS176/AB/R (Jan. 2, 2002).
[47] McCarthy, supra note 43, § 5:1 (describing the early origins of trade symbols).
[48] Paris Convention for the Protection of Industrial Property, Mar. 20, 1883, 21 U.S.T. 1583, 828 U.N.T.S. 305.
[49] See Abbott, Cottier & Gurry, supra note 7, at 318.
[50] As discussed below, there are forms of intangible property that protect compilations of commercial information — database protection (e.g., in the European Union) and protection of undisclosed information in the form of regulatory data on pharmaceutical and agricultural chemical products (per Article 39.3 of the TRIPS Agreement) —that fall outside traditional notions of intellectual property.
[51] See McCarthy, supra note 43, § 7.17.50 (“Out of the millions of domain names, probably only a small percentage also play the role of a trademark or service mark.”).
[52] 15 U.S.C. §1127 states: “[t]he term “domain name” means any alphanumeric designation which is registered with or assigned by any domain name registrar, domain name registry, or other domain name registration authority as part of an electronic address on the Internet.”
[53] See, e.g., AMAZON.COM, Registration No. 2078496.
[54] See generally, McCarthy, supra note 43, §§ 18:1–:11. A related discussion concerning licensing of trademarks is discussed in K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 313–15 (1988).
[55] 15 U.S.C. § 1060(a)(1)–(5) (2006) provides, inter alia, “[a] registered mark or a mark for which an application to register has been filed shall be assignable with the good will of the business in which the mark is used, or with that part of the good will of the business connected with the use of and symbolized by the mark.” See McCarthy, supra note 43, at § 18:2.
[56] Although there may be some hints at a move away from strict application of this rule in the U.S., it appears still to represent good law. McCarthy, supra note 43, § 18:10. McCarthy does not condone this as a mechanism for circumventing the anti-assignments-in-gross rule, but notes that goodwill“denotes only an intangible and ineffable concept: A concept which lies in the eye of the beholder.” Because “goodwill” is a fairly flexible concept, the rule may not have great practical effect on transactions that realistically are assignments in gross. A recital of “associated goodwill” as part of transferring a trademark asset may be sufficient to satisfy most purposes.
[57] Id.
[58] See generally Abbott, Cottier & Gurry, supra note 7, at 363-70, 375-78.
[59] See 15 U.S.C. § 1125(c) (2006); see also Nabisco, Inc. v. PF Brands, Inc., 191 F.3d 208 (2d Cir. 1999).
[60] See McCarthy, supra note 43, at § 2:19 (“In this sense, good will can be defined as the intangible value of a business beyond the value of its physical assets.”).
[61] See, e.g., Donald E. Kieso, Jerry J. Weygandt & Terry D. Warfield, Intermediate Accounting, 664-719 (14th ed. 2012).
[62] Manish Modi, Coca-Cola Retains Title as World’s Most Valuable Brand, Bloomberg (Oct. 2, 2012, 11:57 PM), (based on Interbrand’s Best Global Brands 2012 report).
[63] See, e.g., Go Daddy Domain Registration Agreement, GoDaddy, (last revised Aug. 27, 2013).
[64] Id.
[65] See Policy on Transfer of Registrations between Registrars, ICANN, (effective June 1, 2012).
[66] See WIPO Second Report, supra note 10, regarding the ICANN Contractual Model; see also, Inc. v. Verio, Inc., 356 F.3d 393, 395–96 (2d Cir. 2004) (discussing relationship between registrar and ICANN).
[67] Registrar Accreditation Agreement, ICANN ¶ 3.5, (last updated Aug. 2, 2012) (registrar expressly disclaiming all rights to exclusive ownership or use of registered names and associated IP addresses).
[68] Id. ¶¶–.7 (placing detailed renewal limitations and notification requirements on the registrar).
[69] Id. In any case, the domain name registration is effectively of indefinite and continuing duration because domain name registrants may transfer domain names between registrars in the event that registrars do not wish to continue renewal of a particular registration.
[70] The registrar is not the owner of registration of a domain name, but rather an intermediary service provider. See id. ¶ 3.5. The Registrar Accreditation Agreement requires that registrars have in place procedures for transferring domain names to other registrars in the event of a suspension or termination of operations. Id. ¶ 4.2.8–.9.
[71] Id. ¶¶ 2–3.
[72] See Registrant Rights and Responsibilities Under the 2009 Registrar Accreditation Agreement, ICANN, (last visited Feb. 1, 2013) (the “right for the Registrar to cancel the registration . . . is not absolute.”). By way of illustration, the provision for termination in the domain name registration agreement provides as follows:
7. SUSPENSION OF SERVICES; BREACH OF AGREEMENT You agree that, in addition to other events set forth in this Agreement: i. Your ability to use any of the services provided by Go Daddy is subject to cancellation or suspension in the event there is an unresolved breach of this Agreement and/or suspension or cancellation is required by any policy now in effect or adopted later by ICANN; ii. Your registration of any domain names shall be subject to suspension, cancellation or transfer pursuant to any ICANN adopted specification or policy, or pursuant to any Go Daddy procedure not inconsistent with an ICANN adopted specification or policy (a) to correct mistakes by Go Daddy or the registry operator in registering any domain name; or (b) for the resolution of disputes concerning any domain name. “You agree that your failure to comply completely with the terms and conditions of this Agreement and any Go Daddy rule or policy may be considered by Go Daddy to be a material breach of this Agreement and Go Daddy may provide you with notice of such breach either in writing or electronically (i.e. email). In the event you do not provide Go Daddy with material evidence that you have not breached your obligations to Go Daddy within ten (10) business days, Go Daddy may terminate its relationship with you and take any remedial action available to Go Daddy under the applicable laws. Such remedial action may be implemented without notice to you and may include, but is not limited to, cancelling the registration of any of your domain names and discontinuing any services provided by Go Daddy to you. No fees will be refunded to you should your Services be cancelled or terminated because of a breach. Go Daddy’s failure to act upon or notify you of any event, which may constitute a breach, shall not relieve you from or excuse you of the fact that you have committed a breach.”
Go Daddy Domain Registration Agreement, GoDaddy, (last revised Aug. 27, 2013).
[73] Network Solutions, Inc. v. Umbro Int’l, Inc., 529 S.E.2d 80 (Va. 2000). See also Hancock, supra note 4, at 191–94.
[74] Network Solutions, 529 S.E.2d at 86 (quoting Dorer v. Arel, 60 F. Supp. 2d 558, 561 (E.D. Va. 1999)).
[75] See Hancock, supra note 4, at 191-94 (arguing that the majority opinion inNetwork Solutions v. Umbro is often misread for the proposition that a domain name cannot be a property right). It is correct that the court did not expressly reject the proposition that a domain name may constitute property (intangible or otherwise). But, the court refused to treat the domain name as a liability within the meaning of the garnishment and execution statute because the domain name was “inextricably bound” to a contingent services contract with the registrar.
[76] Palacio Del Mar Homeowners Ass’n v. McMahon, 95 Cal. Rptr. 3d 445, 449 (Ct. App. 2009) (footnote omitted) (quoting Network Solutions, 529 S.E.2d at 86). See also In re Forchion, 130 Cal. Rptr. 3d 690, 709-10 (Cal. Ct. App. 2011) (“Regardless of whether a domain name is a registrant’s property or merely the product of a services contract . . . . ”).
[77] For example, many utility contracts between suppliers of goods and services, on one side, and consumers on the other, may not be canceled by the provider absent some specified type of default by the consumer. See, e.g., Consumer Protection, Maryland Office of People’s Counsel, (“Maryland law permits non-regulated competitive companies to offer electricity and gas supply services to residential customers in Maryland. These companies must receive a license from the [Maryland Public Service Commission], and must follow the Commission’s rules on marketing and solicitation, non-discrimination, contracts and termination of service.”) (emphasis added). This is because utilities (e.g., electricity suppliers) often provide essential services for which there are no alternatives available in a particular area.
[78] Within parameters defined by international intellectual property rules.
[79] Black’s Law Dictionary 1335–36 (9th ed. 2009) (defining property as “1. The right to possess, use, and enjoy a determinate thing (either a tract of land or a chattel); the right of ownership <the institution of private property is protected from undue governmental interference>. — Also termed bundle of rights. 2. Any external thing over which the rights of possession, use, and enjoyment are exercised <the airport is city property>.”).
[80] There are many things that are “intangible property,” but not “intellectual property.” For example, the electronic records of a hospital are “intangible” and a determinate thing over which the hospital may exercise control (i.e., property), but generally lack the characteristic of the established forms of intellectual property (e.g., as recognized in the WTO TRIPS Agreement). World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights, arts. 15-39. While the European Union has created a system of rights in favor of database owners, these rights are not generally considered “intellectual property.” Similarly, an electronic wire transfer instruction of a bank is intangible, and is a determinate thing over which the bank exercises control, but it is not “intellectual property.”
[81] See Int’l Bancorp, L.L.C. v. Societe des Baines de Mer et du Cercle des Etrangers a Monaco, 192 F. Supp. 2d 467, 488-89 (E.D. Va. 2002) (discussing whether trademark infringement by a domain name is an injury to property), aff’d on other grounds, 329 F.3d 359 (4th Cir. 2003).
[82] Kremen v. Cohen, 337 F. 3d 1024 (9th Cir. 2003).See also Hancock, supra note 4, at 194-96.
[83] Registration was free at the relevant time.
[84] Kremen, 337 F.3d at 1030 n.5.
[85] Id. at 1030.
[86] Id. at 1033.
[87] Id. at 1033-34.
[88] Id. at 1034-35. Hancock argues against characterization of domain names as intangible property largely because of some apparent inconsistency among U.S. states regarding whether the Restatement’s merger requirement allows such treatment.Hancock, supra note 4, at 197. The decision cited by Hancock to substantiate this concern is a 2007 District Court decision from the Northern District of Texas indicating that Texas conversion law concerns only physical property, and would apparently not extend to intangible domain names. Emke v. Compana, L.L.C., No. 3:06-CV-1416-L, 2007 WL 2781661 (N.D. Tex. Sept. 25, 2007). More recently, see Entm’t Merch. Tech., L.L.C. v. Houchin, 720 F. Supp. 2d 792, 799 (N.D. Tex. 2010) (holding that no cause of action arises under Texas law for conversion of intellectual property rights). A similar conversion statute problem leads the court in In re Paige, 413 B.R. 882 (Bankr. D. Utah 2009), discussed infra 91, to characterize domain names as tangible property. In In re Paige the bankruptcy court based its refusal to characterize domain names as intangible property on grounds that a prior federal district court decision considered that the Utah Supreme Court would follow the Restatement approach and reject the flexible document merger approach of the Ninth Circuit in Kremen v. Cohen (not that the Utah Supreme Court had actually done that). See Margae, Inc. v. Clear Link Techs., LLC, 620 F. Supp. 2d 1284, 1286-88 (D. Utah 2009). But even if some states have yet to recognize the importance of various forms of intangible property to modern commerce, this does not argue in favor of re-characterizing modern commerce to fit the mold of the steamboat era. The law of the State of New York appears to be evolving toward recognition of intangibles as the subjects of conversion. See generally Mark A. Berman & Aaron Zerykler, Can ‘Intangible’ Electronic ‘Property’ Be ‘Converted’ in NY?, N.Y. L.J. (Apr. 26, 2006),
[89] Kremen, 337 F.3d at 1036.
[90] In Office Depot v. Zuccarini, 596 F.3d 696, 701-02 (9th Cir. 2010), the Ninth Circuit acknowledged that the California Court of Appeal in Palacio Del Mar Homeowners Ass’n v. McMahon, 95 Cal. Rptr. 3d 445 (Ct. App. 2009), had decided that domain names were not property subject to a turnover order because they cannot be taken into custody, but observed that the California Court had cited Kremen with approval, and had made its decision on the basis of a specific interpretation of language in the California Civil Procedure Code. The California Court of Appeals in Palacio Del Mar reasoned that the relevant California Code provision:
[L]imitsitself to tangible property that can be “levied upon by taking it into custody” (or tangible, “documentary evidence of title” to property or a debt). . . . Domain name registration supplies the intangible “contractual right to use a unique domain name for a specified period of time.” . . . Even if this right constitutes property, it cannot be “taken into custody.”
Palacio, 95 Cal. Rptr. 3d at 448-49 (citations omitted). In this regard, the California Court of Appeals appeared to set a limit on the extent to which the database referred to by the Kremen court constituted a document for purposes of serving as a proxy for property. Presumably, the electronic database is not sufficiently tangible to be taken into custody.
[91] In re Paige, 413 B.R. 882 (Bankr. D. Utah 2009).
[92] Network Solutions, Inc. v. Umbro Int’l, Inc., 529 S.E.2d 80 (Va. 2000), discussed in supra text accompanying note 73.
[93] Margae, Inc. v. Clear Link Techs., LLC, 620 F. Supp. 2d 1284 (D. Utah 2009).
[94] Id. at 1288 (citation omitted).
[95] Paige, 413 B.R. at 918.
[96] Hancock, supra note 4, at 200-02, highlights the distinctions between domain names and websites to argue that the district court in In re Paige should have concluded that websites would meet the Restatement merger requirement as a collection of electronic documents, but that domain names do not meet the merger requirement because they are only data points on the DNS database.
[97] See supra note 90.
[98] The author is aware of science-fiction works, in particular those of Philip K. Dick (see, e.g., Valis (1981)), suggesting that there is no definable separation between intangible data, electronic or otherwise, and human biological material, but is reluctant to transpose this philosophical construct to the legal sphere.
[99] Hancock, supra note 4, at 202-09, acknowledges that treating domain names as tangible property is problematic from a conceptual standpoint, but argues that it makes better sense to treat them as such because it would facilitate legal actions based on ownership of property, such as conversion actions. In other words, because legislatures and courts in some jurisdictions refuse to acknowledge that intangible property is subject to conversion rules, they should be characterized as tangible property, something they clearly are not.
[100] See, e.g.,Ryan Abbott, Treating the Health Care Crisis: Complementary and Alternative Medicine for PPACA, 14 DePaul J. Health Care L. 35, 73 (2012) (discussing sui generis regimes for protecting unique IP subject matter).
[101] For a more detailed discussion of the case history, see Price, supra note 4, at 461-67.
[102] GoPets v. Hise, 657 F.3d 1024, 1027 (9th Cir. 2011).
[103] The Ninth Circuit decision in GoPets followed a WIPO panel decision, GoPets Ltd. v. Edward Hise, WIPO Case No. D2006-0636, that rejected the complaint based on respondent registration prior to complainant acquisition of trademark rights, although prior to related party transfer. The panelist in that decision quoted the first WIPO Overview of WIPO Panel Views on Selected UDRP Questions that stated “The UDRP makes no specific reference to the date of which the owner of the trade or service mark acquired rights. However, it can be difficult to prove that the domain name was registered in bad faith as it is difficult to show that the domain name was registered with a future trade mark in mind.”As the Ninth Circuit noted: “. . . the arbitrator held that WIPO rules only compel the transfer of a disputed domain name if the name was initially registered in bad faith. Since Edward Hise had registered five years before GoPets Ltd. was founded, was not registered in bad faith.” GoPets v. Hise, 657 F.3d 1024, 1028. See also Digital Overture Inc. v. Chris Bradfield, WIPO Case No. D2008-0091.
[104] GoPets, 657 F.3d at 1028.
[105] Id. at 1030.
[106] Id. at 1032.
[107] Transfers between related entities are generally not considered “new registration,” see, e.g., Schweizerische Bundesbahnen SBB v. Gerrie Villon, WIPO Case No. D2009-1426, absent some exceptional circumstance demonstrating that the related-party transfer was itself undertaken for bad faith purposes. See, e.g., Intelligen LLC v. Converg Media LLC, WIPO Case No. D2010-0246. The WIPO Overview of WIPO Panel Views on Selected UDRP Questions, Second Edition (“WIPO Overview 2.0”),, states:
Panels have tended to the view that formal changes in registration data are not necessarily deemed to constitute a new registration where evidence clearly establishes an unbroken chain of underlying ownership by a single entity or within a genuine conglomerate, and it is clear that any change in WhoIs registrant data is not being made to conceal an underlying owner’s identity for the purpose of frustrating assessment of liability in relation to registration or use of the domain name.
WIPO Overview 2.0, para. 3.7.
[108] GoPets v. Hise, 657 F.3d 1024, 1031-32 (9th Cir. 2011).
[109] Neither GoPets v. Hise on the definition of “registration,” nor Kremen v. Cohen on domain names as “intangible property,” are the uniform law of the United States. For example, in Schmidheiny v. Weber, 319 F.3d 581 (3d Cir. 2003), the Court of Appeals for the Third Circuit held that registration under a new contract at a different registrar to a different registrant constituted a new registration under the ACPA:
[W]e conclude that the language of the statute does not limit the word “registration” to the narrow concept of “creation registration.” . . . We hold that the word “registration” includes a new contract at a different registrar and to a different registrant. . . . To conclude otherwise would permit the domain names of living persons to be sold and purchased without the living persons’ consent, ad infinitum, so long as the name was first registered before the effective date of the Act. We do not believe that this is the correct construction of the Anti-cybersquatting Act.
Schmideiny, 319 F.3d at 583 (citations omitted). Note, however, that (as discussed and distinguished by the Ninth Circuit in GoPets) the decision in Schmidheiny v. Weber (1) addressed a claim under the living persons names provisions of the ACPA, (2) the domain name at issue had been registered before the effective date of the ACPA, and (3) this otherwise insulated it under those provisions. Unlike the trademark protective provisions of the ACPA, living person‘s name protection is not predicated on a pre-existing trademark. Had the disputed domain name in Schmidheiny v. Weber been registered after the effective date of the ACPA, it would have been subject to liability as abusive irrespective of whether a subsequent transfer was considered a new registration. The Ninth Circuit suggested this would eliminate the Third Circuit‘s cause for concern, though it did not explain how that might eliminate concerns raised by its own GoPets decision. GoPets, 657 F.3d at 1031.
[110] AIRFX.COM v. AirFX LLC, No. CV 11-01064-PHX-FJM, 2012 WL 3638721 (D. Ariz. Aug. 24, 2012). In a subsequent order, AIRFX.COM v. AIRFX, LLC, No., CV 11–01064–PHX–FJM, 2013 WL 857976 (D. Ariz. March 7, 2013), the Arizona District Court went on to consider a motion to award attorney’s fees to the plaintiff on grounds that defendant’s action (in the form of a counterclaim) was groundless and unreasonable. The District Court agreed and awarded attorney’s fees. The Court affirmed its reliance on GoPets in strong terms, saying:
As we noted in our order, GoPets is squarely on point in this matter, and there is nothing it its language indicating that it should be read as narrowly as defendant suggested in its briefs. . . . Defendant should have withdrawn its ACPA counterclaim once it discovered that the original registration date of preceded the registration of the AirFX mark.
Id. at *2. Clearly, the District Court has not had “second thoughts.”
[111] AIRFX.COM v. AirFX LLC, No. CV 11-01064-PHX-FJM, 2012 WL 3638721, at *2.
[112] See id. In so holding the District Court was rejecting a contrary determination under the Policy made by a National Arbitration Forum panel in AirFX, LLC v. ATTN AIRFX.COM, NAF Claim No. FA1104001384655. In the NAF case, the panelist was aware of a potential sequencing problem, but did not address it to any meaningful extent in ordering the transfer.
[113] See, e.g., Ticketmaster Corporation v. Global Access, WIPO Case No. D2007-1921, and references therein.
[114] See also, by this author as panelist, more recently, Urban Home v. Technology Online LLC / Whois Privacy Service Pty Ltd., WIPO Case No. D2012-2437.
[115] The question of the contract and/or property characteristics of domain names is addressed differently by courts in the United States. Compare Kremen v. Cohen, 337 F.3d 1024 (9th Cir. 2003), with Network Solutions v. Umbro, 529 S.E.2d 80 (Va. 2000).
[116] See, applicable to the parties in this proceeding, Network Solutions Service Agreement Version 9.22, Schedule A, para. 3, and Incorporated Schedule F, Registrant Name Change Agreement, para. 3 (“By applying for this Registrant Name Change, you agree to be bound by and to perform in accordance with the terms and conditions of the Agreement, which includes Network Solutions’ current Domain Name Dispute Policy.”).
[117] See Twitter, Inc. v. Geigo, Inc., WIPO Case No. D2011-1210.
[118] Compare Kremen v.Cohen, 337 F. 3d 1024 (9th Cir. 2003), with Schmidheiny v. Weber, 319 F.3d 581 (3d Cir. 2003). In the Schmidheiny case, the Third Circuit stated:
The words “initial” and “creation” appear nowhere in § 1129, and Congress did not add an exception for “non-creation registrations” in § 1129(1)(B) . . . . The District Court’s rationale that “if Congress chose to treat re-registrations as registrations, it could have used words appropriate to impart that definition,” is not a sufficient reason for courts to infer the word “initial.” Instead, we conclude that the language of the statute does not limit the word “registration” to the narrow concept of “creation registration.” See Sweger v. Chesney, 294 F.3d 506, 516 (3d Cir.2002 [sic]) (holding that if the language of a statute is plain, we need look no further to ascertain the intent of Congress). . . . We hold that the word “registration” includes a new contract at a different registrar and to a different registrant. In this case, with respect to—that occurs after the effective date of the Anti-cybersquatting Act. To conclude otherwise would permit the domain names of living persons to be sold and purchased without the living persons’ consent, ad infinitum, so long as the name was first registered before the effective date of the Act. We do not believe that this is the correct construction of the Anti-cybersquatting Act. We are therefore satisfied that, Inc. engaged in a “registration” that is covered by the Anti-cybersquatting Act . . . .
319 F.3d at 582-83. The Panel in the present proceeding further notes that although Respondent in this proceeding is situated within the Ninth Circuit, Complainant is situated within the Sixth Circuit.
[119] The Panel notes, however, that subject to meeting jurisdictional requirements, a domain name registrant may seek an injunction from a US court to prevent a registrar from transferring that name pursuant to a panel decision, and that the US court will thereupon apply the ACPA, and potentially the Lanham Act more broadly. Compare, e.g.,, Inc. v. Excelentisimo Ayuntamiento de Barcelona, 330 F.3d 617 (4th Cir. 2003), with Storey v. Cello, 347 F.3d 370 (2d Cir. 2003). Thus, while a panelist may choose to apply the Policy consistently with norms that have evolved within the WIPO UDRP administrative system, the panelist is also cognizant that enforceability of his or her decision may depend on interpretation of the ACPA. See id.
[120] As noted earlier, e.g., supra notes 25 and 107, the living persons name protection provisions of the ACPA do not establish the predicate of pre-existing trademark rights.
[121] In order to successfully pursue a claim under the ACPA, the express language requires that the complaining party possess trademark rights at the time the disputed domain name was registered. See 15 U.S.C. § 1125(d)(1)(A); Storey v. Cello, 347 F.3d 370, 386 (2d Cir. 2003) (cited by Lahoti v. Vericheck, 586 F.3d 1190 (9th Cir. 2009)) (followed in DSPT International v. Nahum, 624 F.3d 1213 (9th Cir. 2010)).
[122] See WIPO Overview 2.0, supra note 107, para. 3.1:
Consensus view: Generally speaking, although a trademark can form a basis for a UDRP action under the first element irrespective of its date [see further paragraph 1.4 above], when a domain name is registered by the respondent before the complainant’s relied-upon trademark right is shown to have been first established (whether on a registered or unregistered basis), the registration of the domain name would not have been in bad faith because the registrant could not have contemplated the complainant’s then non-existent right.
There has been a minority view expressed by certain WIPO panels. As stated by the WIPO Overview 2.0, id.,
Irrespective of whether the domain name was registered before the relevant trademark was registered or acquired, a small number of panels have begun to consider the effect of the requirement of paragraph 2 of the UDRP, which states: “By applying to register a domain name, or by asking us to maintain or renew a domain name registration, you hereby represent and warrant to us that . . . (d) you will not knowingly use the domain name in violation of any applicable laws or regulations. It is your responsibility to determine whether your domain name registration infringes or violates someone else’s rights.” Some panels have regarded this as a warranty at the time of registration that the domain name will not be used in bad faith, finding that, by breaching such warranty, use in bad faith may render the registration in bad faith. Other panels have looked at the totality of the circumstances in assessing “registration and use in bad faith,” as a unitary concept, given that some of the circumstances listed as evidence of bad faith registration and use in paragraph 4(b) of the UDRP appear to discuss only use and not registration. Still other panels that have considered these approaches have instead reaffirmed the “literal” interpretation of bad faith registration and bad faith use regardless of paragraphs 2 or 4(b) of the UDRP. This is a developing area of UDRP jurisprudence.
Proponents of a minority approach taken, for example, inCity Views Limited v. Moniker Privacy ServiceslXander, Jeduyu, ALGEBRALlVE, WIPO Case No. D2009-0643, <>, read the conjunctive “and” out of “has been registered and is being used in bad faith”. Decisions by such panelists might not be directly influenced by GoPets/AIRFX.COM because there apparently is no need to find bad faith registration. Whether the complainant holds a trademark at the time of registration is presumably not determinative; an unrelated transferee is subject to the same “use” rules as the initial registrant. Application of this approach, of course, would not resolve a conflict with the ACPA, since the ACPA imposes the condition that a trademark exist at the time of initial domain name registration.
[123] See Lahoti v. Vericheck, 586 F.3d 1190, 1202 (9th Cir. 2009) (“Evidence of bad faith may arise well after registration of the domain name. See Storey v. Cello Holdings, LLC, 347 F.3d 370, 385 (2d Cir. 2003) (‘Congress intended the cybersquatting statute to make rights to a domain-name registration contingent on ongoing conduct rather than to make them fixed at the time of registration.’).” See also DSPT International v. Nahum, 624 F.3d 1213, 1220 (9th Cir. 2010). Some language in GoPets v. Hise, 657 F. 3d 1024, 1030 (9th Cir. 2011), might seem to suggest otherwise:
To prevail on its ACPA claim, GoPets Ltd. must show (1) registration of a domain name, (2) that was “identical or confusingly similar to” a mark that was distinctive at the time of registration, and (3) “bad faith intent” at the time of registration. See 15 U.S.C. § 1125(d)(1). [emphasis added]
[124] UDRP, supra note 19, ¶ 4(a)(iii) & (b). The difference in jurisprudence between courts interpreting the ACPA and UDRP panelists regarding post-registration conduct has a basis in differences in terminology between the statute and the UDRP. Pursuant to the ACPA, liability attaches to a person who “registers, traffics in, or uses a domain name” [italics added] in bad faith. Registration and use are in the disjunctive “or.” Pursuant to the UDRP, a determination of abusive conduct requires “registration and use” in bad faith. Bad faith “use” in the absence of bad faith “registration” does not meet the UDRP abuse standard.
[125] See The Proprietors of Strata Plan No. 36, A Turks and Caicos Corporation v. Gift2Gift Corp., WIPO Case No. D2010-2180 (noting that ”allowing subsequent conduct to override actual intentions at the time of registration, as opposed to providing an inference about what those intentions were, would appear impermissible.”).
[126] Although in a few exceptional circumstances under the UDRP abuse has been found when trademark rights have not yet ripened. See WIPO Overview 2.0, para. 3.1.
[127] The author is not aware of an estimate of the number of such potentially “immunized domain names,” though it would not be surprising if a distinct market developed for them.
[128] Accord Price, supra note 4, at 482.
[129] Paragraph 2 of the UDRP reads as follows:
2. Your Representations. By applying to register a domain name, or by asking us to maintain or renew a domain name registration, you hereby represent and warrant to us that (a) the statements that you made in your Registration Agreement are complete and accurate; (b) to your knowledge, the registration of the domain name will not infringe upon or otherwise violate the rights of any third party; (c) you are not registering the domain name for an unlawful purpose; and (d) you will not knowingly use the domain name in violation of any applicable laws or regulations. It is your responsibility to determine whether your domain name registration infringes or violates someone else’s rights.
[130] Paragraph 4(a) of the UDRP provides:
a. Applicable Disputes. You are required to submit to a mandatory administrative proceeding in the event that a third party (a “complainant”) asserts to the applicable Provider, in compliance with the Rules of Procedure, that (i) your domain name is identical or confusingly similar to a trademark or service mark in which the complainant has rights; and (ii) you have no rights or legitimate interests in respect of the domain name; and (iii) your domain name has been registered and is being used in bad faith.
In the administrative proceeding, the complainant must prove that each of these three elements are present. Paragraph 4(c) of the UDRP provides:
Any of the following circumstances, in particular but without limitation, if found by the Panel to be proved based on its evaluation of all evidence presented, shall demonstrate your rights or legitimate interests to the domain name for purposes of Paragraph 4(a)(ii): (i) before any notice to you of the dispute, your use of, or demonstrable preparations to use, the domain name or a name corresponding to the domain name in connection with a bona fide offering of goods or services; or (ii) you (as an individual, business, or other organization) have been commonly known by the domain name, even if you have acquired no trademark or service mark rights; or (iii) you are making a legitimate noncommercial or fair use of the domain name, without intent for commercial gain to misleadingly divert consumers or to tarnish the trademark or service mark at issue.
[131] 15 USC §1125 (d)(1)(B)(i) provides, inter alia,
In determining whether a person has a bad faith intent . . . a court may consider factors such as, but not limited to— (I) the trademark or other intellectual property rights of the person, if any, in the domain name; (II) the extent to which the domain name consists of the legal name of the person or a name that is otherwise commonly used to identify that person; (III) the person’s prior use, if any, of the domain name in connection with the bona fide offering of any goods or services; (IV) the person’s bona fide noncommercial or fair use of the mark in a site accessible under the domain name;
Also, 15 USC §1125 (d)(1)(B)(ii), provides:
Bad faith intent . . . shall not be found in any case in which the court determines that the person believed and had reasonable grounds to believe that the use of the domain name was a fair use or otherwise lawful.
The ACPA does not expressly allocate the burden of proof regarding rights and legitimate interests as does paragraph 4(a) of the UDRP.
[132] Coincidently, this author as sole panelist recently rendered a decision involving a related set of facts. Saltworks, Inc. v. Gary Pedersen, Salt Works, WIPO Case No. D2013-0984. In this case, an Arizona provider of salt for utility purposes (e.g., to soften water for hotels) had engaged in business under the name “Salt Works” for a number of years prior to a Washington State business commencing the sale of gourmet and bath salts under the name SaltWorks, primarily on the Internet. The Arizona commercial supplier registered its disputed domain name after the Washington gourmet and bath salt retailer secured registration for the trademark Salt Works. The panel found that the domain name registrant established rights or legitimate interests in the disputed domain name because it had been commonly known by that name, and because it had made good-faith use of the term corresponding to the domain name in connection with the sale of products and services prior to notice of the dispute. There was, however, no transfer to an unrelated third party domain name purchaser involved in this case.
[133] It would also be possible to assess the purchase and sale transaction between unrelated parties under paragraph 4(b) of the UDRP dealing with the element of bad faith. Generally speaking, the good-faith purchaser of a domain name and associated business should not have difficulty demonstrating that it did not make the purchase with the intent to sell the domain name to the trademark owner or a third-party, to prevent the trademark owner from registering its trademark as a domain name (as part of a pattern), or to disrupt the competitor’s business, although specific evidence provided by the complaining party might prove otherwise. Analysis under paragraph 4(b)(iv) regarding confusingly similar use in connection with a website for commercial gain would be context specific. A third-party purchaser/transferee of a domain name that finds itself subject to an adverse ruling by a UDRP panel, and an order of transfer (or cancellation), may file a petition in federal court to block the transfer by the registrar. A UDRP panel ruling does not deprive the purchaser/transferee of its day in court.
[134] See Price, supra note 4, at 482. Note that Price does not suggest a specific definition, but rather one that would cast a wide net.
[135] 15 USC § 1125(d)(3) provides: “[t]he civil action established under paragraph (1) and the in rem action established under paragraph (2), and any remedy available under either such action, shall be in addition to any other civil action or remedy otherwise applicable.”

Three-Dimensional Printing and Open Source Hardware

Three-Dimensional Printing and Open Source Hardware
By Eli Greenbaum* A pdf version of this article may be downloaded here.  


Open source hardware, the physical equivalent of open source software, is a movement that advocates the public provision of hardware design documentation. For example, a purchaser of an Arduino open hardware circuit board has access to the full design documentation of the product, as well as the source code of all accompanying software.[1] The ambitions of the open hardware movement have been inspired by the successes of open source software. Open principles of design have been central to the creation of significant pieces of software including, to take only some of the most prominent examples, the Linux and Android operating systems. Indeed, estimates are that more than half the software acquired in the coming years will be open source.[2] While the open hardware movement remains in its infancy, it aspires to harness the open source philosophy for hardware design as successfully as those ideals have been applied in the context of software.[3] One of the factors central to the success of open source software has been effective and enforceable licensing frameworks.[4] On a theoretical level, licenses allow open source organizations to define community norms and the boundaries of acceptable behavior.[5] More practically, legally enforceable licenses provide an effective means of enforcing those community norms and standards on non-cooperative members of the community.[6] Unfortunately, it has proven difficult to construct a license to effectively implement an open hardware arrangement.[7] This Article, however, shows how the rapidly evolving technology of three-dimensional printing can be used to construct a robust open hardware license.[8] Those seeking to develop a sustainable model for open source hardware have struggled with both economic and legal obstacles. On the economic front, open source hardware differs in important ways from open source software. First, software can be compiled from source code and distributed at close to zero cost. In contrast, producing a piece of hardware involves a more involved and costly undertaking to source appropriate materials and structure an often-complex manufacturing process.[9] Similarly, while a work of software can be copied and distributed at zero cost, the manufacturing costs of hardware make the expense of reproduction and distribution not insignificant. Hardware manufacturers may therefore find that restrictive intellectual property protection is necessary to recoup any expenses of production.[10] Moreover, relatively small open source communities may find it difficult to compete with the economies of scale of commercial manufacturers.[11] While collaborators on a software project can easily test modifications proposed by the group, the cost of building and prototyping improvements in physical objects makes this more difficult in the hardware context.[12] Open source hardware must also overcome legal obstacles. Open source software can rely on copyright law to support its legal structure. As copyright automatically protects all original software works, a copyright license is necessary for the lawful reproduction, modification or distribution of software. This copyright license can be made subject to certain conditions such as, for example, the “copyleft” conditions of the most prominent open source software license, the General Public License (“GPL”).[13] The GPL grants licensees broad rights to copy, modify and distribute licensed works, only on the condition, however, that licensees make all works “based on” the licensed code available under the terms of the GPL as well.[14] This mechanism ensures that the GPL’s broad rights are also granted to any improvements to the licensed code.[15] Similar mechanisms are used in other open source software licenses to ensure, for example, the continued attribution of works to their authors.[16] Unfortunately, as discussed in greater detail below, since useful physical objects are generally not protected by copyright, these relatively simple legal devices cannot be used in the open source hardware context. Three-dimensional printing offers the opportunity to overcome these economic and legal hurdles. With regard to the economic obstacles, three-dimensional printing reduces the cost and complexity of obtaining raw materials from a variety of sources, and of constructing assembly lines and manufacturing plants. These efficiencies may allow open source communities to compete with the economies of scale of commercial manufacturers.[17] Three-dimensional printing also offers the possibility of easy and rapid prototyping of physical objects and thereby increases the opportunities for collaboration on open hardware projects. Against the backdrop of this economic potential, this Article describes how the technology of three-dimensional printing can also be employed to surmount the legal challenges in creating an effective open source hardware license. Section I of the Article describes the shortcomings of current open source hardware licenses, especially how such licenses fail to implement regimes to ensure that proper attribution for inventors is provided and that documentation for open source hardware designs is shared with the community. Section II provides some technological and historical background regarding three-dimensional printing, and analyzes the application of copyright law to this technology. Section III details a licensing regime that, applied to three-dimensional printing, can implement an effective and enforceable open hardware license. This section also discusses some of the advantages and disadvantages of the proposed regime. The Appendix includes a first draft of the Three-Dimensional Printing Open License, which implements the proposed open hardware licensing regime.

I. Open Hardware Licenses

To date, several open hardware licenses have been developed. The most prominent of these include the TAPR Open Hardware License and the CERN Open Hardware License.[18] This Section details the practical shortcomings of current open hardware licenses, and then goes on to explain why these shortcomings are the inevitable consequence of the legal foundations of those licenses.

A. The TAPR and CERN Open Hardware Licenses.

The TAPR license was developed under the auspices of the Tucson Amateur Packet Radio association, an international organization which supports research and development in the area of amateur digital communications.[19] The license is intended to emulate the “copyleft” provisions of the GPL in the arena of open hardware – in other words, to ensure that licensed design documentation (and modifications to that documentation) continues to be made available under the terms of the TAPR license itself.[20] The CERN license was created in 2011 by employees of CERN, the European Organization for Nuclear Research, in order to allow groups across organizations to collaborate on hardware projects.[21] The CERN license also includes copyleft provisions.[22] Unfortunately, neither the TAPR nor the CERN license successfully implements open hardware principles, and this failure is rooted in the tenuous legal foundations of the licenses themselves. For example, one of the fundamental goals of an open hardware framework should be the provision of design documentation to recipients of hardware.[23] This provision of design documentation allows recipients to modify and improve the hardware design. While the TAPR and CERN licenses provide that the initial recipient of an open hardware product should be supplied with design documentation, for reasons discussed below they do not provide that such design documentation should be passed on to downstream recipients.[24] Another important aim of open hardware should be the proper provision of attribution to designers of the products.[25] Attribution requirements can provide important incentives for designers, who may be assured that they will receive proper credit for their innovations.[26] Again, neither of the TAPR or CERN licenses provides that downstream recipients of hardware should receive attribution notices.[27] While the TAPR and CERN licenses may prove useful for allowing research collaboration or amateur experimentation, they do not provide an adequate legal framework for the integration of open hardware in manufacturing or distribution networks. Modern large scale manufacturing is characterized by complex supply chain structures, in which the ultimate manufacturer (an “original equipment manufacturer” or “OEM”) purchases components from a network of suppliers.[28] These first tier suppliers themselves integrate parts purchased from an array of second tier suppliers, and this structure continues to cascade in a pyramid form.[29] Such supply chain structures exist, to take a few examples, in the automotive,[30] aerospace,[31] computer[32] and mobile phone industries.[33] In a similar vein, a product (or spare parts for a product) may move through multiple tiers of distributors before reaching the final end user.[34] Given these arrangements, a robust open hardware framework must ensure that obligations of attribution and documentation are easily passed through complex supply chains, and that any such requirements are relatively frictionless and impose minimal transaction costs. The TAPR and CERN licenses, which do not address downstream recipients at all, do not provide an adequate framework for the easy integration of open hardware in these settings.

B. The Unsteady Legal Foundations of Open Hardware Licensing.

These shortcomings of current open hardware licenses reflect their unsteady legal foundations. Unfortunately, open hardware lacks the legal tools which allow the easy implementation of enforceable open source software licenses. Open source software licenses are generally based on copyright law. Since both the source code and compiled executable code of software are protected by copyright, a license is required to copy, modify, and distribute those works. These license permissions can be conditioned on compliance with, for example, copyleft and attribution requirements. In the hardware context, however, no copyright license is required to use design documentation to build or distribute hardware. Open hardware licenses therefore cannot use copyright law to impose such copyleft or attribution conditions. Moreover, as property rights, copyrights can be enforced against any third party – even third parties with which the copyright owner has no direct contractual relationship.[35] Open hardware licenses, however, cannot rely on copyright law to facilitate the enforcement of license conditions. Basing open hardware licenses on patent law also presents challenges.[36] On the one hand, patents are property rights that protect against the unauthorized use and distribution of patented hardware by any third party. As a result, a patent license can require compliance with certain obligations in order to engage in these activities, and these requirements can be enforced against downstream users of the hardware. Patents, however, are expensive to obtain and costly to enforce.[37] Unlike copyrights, patents are not provided for all inventions, but only those that meet relatively high standards of non-obviousness, novelty, and utility. Moreover, the “patent exhaustion” doctrine limits a patentee’s ability to impose requirements on the post-sale activities of a purchaser.[38] Given these constraints, patent law is an unwieldy tool for constructing an open hardware license.[39] Contract law could be another avenue to enforce the conditions of an open source license and does, in fact, form part of the foundations of both the TAPR and CERN licenses.[40] These licenses contractually bind the recipient of design documentation to pass on such documentation to recipients of physical hardware. The formation of a contract, however, generally requires the satisfaction of elements of offer, acceptance and consideration, so contract-based license conditions may not be enforceable against entities not party to the contract.[41] As a result, in order to bind downstream recipients, an open hardware license would need to require recipients to contractually bind all further recipients to the same obligations.[42] This chain of contracting and recontracting imposes transaction costs, which would be significant in industries characterized by long supply chains.[43] One break in this sequence of contracts would result in downstream recipients not being bound by the license terms. This inherent limitation of contract law seems to be the reason that the TAPR and CERN licenses do not pass on requirements to downstream recipients.[44] Contract law may prove inadequate in the open source context for other reasons. Damages for breach of contract are typically measured by the financial injury to the non-breaching party.[45] Such calculations may be impossible in the setting of open source licensing, where the material is provided without charge or for a nominal fee. Federal copyright law, in contrast, provides for remedies that are not measured by the injury to the licensor, such as the disgorgement of the infringer’s profits.[46] Other remedies available under copyright law include preliminary or permanent injunctions to enjoin copyright infringement.[47] Indeed, the Federal Circuit has opined that open source licenses restrictions “might well be rendered meaningless absent the ability to enforce through injunctive relief.”[48] Copyright law also provides for the possibility of attorney’s fees[49] and the destruction of infringing articles,[50] both of which can prove effective weapons in the open source context. The absence or limited availability of these remedies under contract law, however, makes contract law a weak foundation on which to build an open source framework. Efforts have been made towards designing a practical system that would provide downstream users with easy access to design documentation. Under a process proposed by the Open Source Hardware and Design Alliance (OHANDA), each manufactured piece of open hardware could receive a registration key to be engraved or printed on the hardware.[51] Recipients of the hardware would be able to use that registration key to locate and access the specific design documentation at the online OHANDA database. OHANDA, however, only offers a system for providing attribution information and distributing hardware documentation to the initial recipient of an article. Subsequent manufacturing activities with such documentation would presumably be governed by one of the open hardware licenses described above. OHANDA thereby provides a marginally improved open hardware arrangement, but does not address the fundamental legal issues with open hardware licenses themselves. For example, the OHANDA system cannot require the provision of hardware documentation to downstream recipients. Much of the success of open source software can be attributed to the fact that it has succeeded in integrating itself in the commercial software industry, and that open source software licenses provide robust legal structures for dictating and enforcing the terms of such integration. In the same way, a viable framework for open source hardware must be capable of incorporation in global manufacturing, and must be supported by enforceable licensing terms. Current open hardware frameworks, however, cannot easily impose documentation or attribution obligations on downstream users, and cannot enforce their terms with effective legal remedies. Even so, an open hardware license that satisfies these requirements can be built in the technological context of three-dimensional printing. The next Section reviews some technical nuts and bolts of three-dimensional printing, and provides some legal analysis of that background.

II. Three-Dimensional Printing and Copyright

A. Technology of Three-Dimensional Printing

Three-dimensional printers use digital designs to automate the manufacture of physical objects. Three-dimensional printing technologies were independently invented in the mid-1980s in a number of different countries.[52] 3D Systems, founded in 1986, was the first company to commercialize three-dimensional printing technology.[53] Since that time, more than 30 different techniques for three-dimensional printing have been commercialized.[54] The RepRap project, an open source project for the creation of inexpensive three-dimensional printers, was founded in 2006 after some of the initial patents that covered three-dimensional printing processes expired.[55] RepRap makes all of its designs and software publicly available under the terms of the GPL, such that they are available to the public to be used and improved.[56] Makerbot, for example, is a company that provides consumer three-dimensional printing machines based on the RepRap design.[57] The three-dimensional printing process typically begins with a digital design created using computer aided design (CAD) software. This design is transferred to the printer, which breaks down the design file into a series of thin two-dimensional slices. Each slice is used as a blueprint to construct a single layer of the three-dimensional object. The physical object is constructed as each layer is sequentially laid down by the three-dimensional printer. [58] A broad range of technologies is currently employed to lay down the individual layers in a three-dimensional printing process. “Fused Deposition Modeling,” the technique used by the RepRap machines as well as those developed by other companies, involves the controlled deposit of molten plastics or metal.[59] The molten material is deposited to create a single two-dimensional slice of the physical object. This material promptly hardens to form a single layer of the object, and this process is repeated to form successive layers. “Stereolithography,” the original method used by 3D Systems, uses an ultraviolet laser to harden successive layers of light-sensitive fluid.[60] Other prominent technologies use methods similar to standard ink-jet printing to inject powder with a binding material.[61] The common denominator of this diverse range of technologies is that they all involve an “additive” process, in which the final object is constructed from accumulations of raw material, in contrast to standard “subtractive” manufacturing technology, in which raw materials are cut and molded into the desired shape. Current technologies can use a variety of plastics, metals and ceramics to construct three-dimensional objects.[62] The additive nature of three-dimensional printing allows for the manufacture of objects that would be difficult to produce using more traditional methods, such as objects with complex geometries or internal moving parts.[63] Additive manufacturing technology can also be used to construct articles with novel combinations of materials,[64] or even generate materials with novel properties including increased resiliency and strength.[65] Companies and researchers are exploring the possibilities of “printing” electronic circuits or even biological tissues.[66] Current commercial technologies allow the printing of details a fraction of a millimeter large,[67] and some researchers have used advanced technologies to print with a resolution of hundreds of nanometers.[68] As the technology of three-dimensional printing has matured, both free and commercial services have developed to assist consumers in taking advantage of this progress. Thingiverse, for example, provides a free Internet platform for the sharing of digital designs.[69] Users who upload designs can choose to license them under a range of terms, including open source licenses. In addition, online commercial service bureaus provide consumers with printing services.[70] These businesses offer advanced printing technology with a variety of materials. Consumers can upload their designs to the business through the Internet, quickly obtain an automatic price quote of the cost of printing, and have the printed object shipped to their address.

B. CAD and STL Files

As noted, the printing process begins with a digital design of a three-dimensional object, typically created using computer-aided design (CAD) software. The standard CAD file formats, which can be understood and modified by humans, must be translated into a format that can be processed by three-dimensional printers.[71] The STL (STereoLithography) file format is the current de facto standard for three-dimensional printing.[72] An STL file format represents the outside surface of an object with a large number of tiny triangles.[73] The STL file format provides a relatively straightforward means of describing the geometry of a three-dimensional object in a manner that can be used by three-dimensional printers. Nevertheless, the format is not without its problems, and a number of alternative file formats or enhancements to the STL standard have been proposed.[74] Some alternatives to the STL format contain additional information, such as data regarding the color, texture and material of printed objects.[75] The relationship between CAD and STL files can be roughly compared to the distinction between software source code and object code. CAD files and source code are readily intelligible and modifiable by humans, while the STL files and object code designed to be used by computers are not.[76] CAD designs and STL files are not computer programs in the conventional sense of the term. Software is a set of instructions for a computer to generate a specific result. In contrast, CAD and STL files are more akin to engineering or technical drawings in that they contain data that represent the contours of a specific object, but do not provide instructions to a three-dimensional printer regarding how that object is to be constructed.[77]

C. Copyright in Printed Articles and Design Files

Copyright in the physical objects created by a three-dimensional printing process will be limited. In general, copyright law does not grant protection to utilitarian objects. Section 101 of the Copyright Act provides that the design of a useful article will be protected “only if, and only to the extent that, such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article.” The aspiration of this statutory provision is relatively clear: to distinguish works of applied art, which should be protectable by copyright, from works of industrial design, which should not.[78] The clarity of the objective, however, has been belied by the practical difficulty of implementing the distinction in concrete situations.[79] To this end, a number of courts and commentators have proposed tests to distinguish between the copyrightable expression and non-copyrightable utilitarian aspects of physical articles.[80] In contrast to the limited and uncertain copyright protection available for physical articles, both CAD and STL files easily qualify for copyright protection. Copyright law protects “pictorial, graphic and sculptural works,” which include: “two-dimensional and three-dimensional works of fine, graphic, and applied art, photographs, prints and art reproductions, maps, globes, charts, diagrams, models, and technical drawings, including architectural plans.”[81] Such files are protected by copyright law regardless of whether they are intelligible by humans or only by computers.[82] Courts have recognized and enforced copyrights in designs, even as they have also generally held that copyright law does not proscribe the use of copyrighted designs to manufacture physical objects.[83] The manufacture of a physical object in an automated three-dimensional printing process, however, will infringe the copyright of the underlying design file. First, copyright law grants the copyright holder the exclusive right to reproduce the copyrighted work.[84] The manufacture of an object in a three-dimensional printing process will infringe this right of reproduction, since the process requires the copying of an STL file into the memory of a three-dimensional printer.[85] Second, copyright law grants the copyright holder the exclusive right to prepare derivative works of the copyrighted work.[86] The printing of a physical article from a design file will also infringe this exclusive right, since the three-dimensional printing process requires the transformation of the CAD or STL file into a series of print-ready two-dimensional slices.[87] In other words, the owner of the copyright in an STL file cannot prevent the use of that file in a general manufacturing process. But three-dimensional printing is not a typical manufacturing process – the use of digital designs and automated manufacturing creates a physical article that corresponds directly to the specifications of the digital design, and which requires the copying and transformation of the original digital file. As such, without a license, the use of the design file in a three-dimensional printing process will infringe the copyright in the design file.

III. An Open Hardware License for Three-Dimensional Printing

Two aspects of three-dimensional printing can provide the foundation for an effective and enforceable open hardware legal framework. First, the printing of a physical object necessarily requires the copying of the digital design used to print that object, in the same way that using software on a computer necessarily involves the creation of a copy of that software product. Second, objects created by three-dimensional printing bear a one-to-one correspondence between the digital file and the object that is actually printed.[88] In these two respects, three-dimensional printing differs from traditional manufacturing methods. The author proposes the “Three-Dimensional Printing Open License” (the “TDPL”), an annotated draft of which is attached as an appendix to this Article. The TDPL draws on the unique characteristics of three-dimensional printing to construct a license that incorporates enforceable documentation, attribution and copyleft provisions. The application of the TDPL is limited to the specific technological setting of three-dimensional printing and, as described in more detail below, may not be appropriate in all circumstances. Nevertheless, as the technology improves and is gradually integrated into a broad swath of industries, the scope of the license’s application will increase. The next section describes the theory and structure of the license, and the section after that presents arguments in favor of and against the proposed framework, and analyzes certain limitations of the license. Matters more directly related to the specific language of the license are addressed in annotations to the draft.

A. Theory and Structure of the License

The TDPL acts as a copyright license for a digital design file and, in this sense, follows the precedent of open source software licenses. The TDPL provides that recipients of the licensed design file are granted rights to copy, modify and distribute the design file, subject to certain conditions.[89] Under this framework, as long as the recipient of the digital design file satisfies the conditions of the license, she will have the right to manufacture the designed object in a three-dimensional printing process. Without the permissions granted by the TDPL, however, the use of a digital design file in an automated printing process would involve the unauthorized copying of the design file and constitute copyright infringement.[90] The TDPL imposes certain minimum conditions on the copying and distribution of the design file itself. These conditions are broadly comparable to similar provisions in open source software and hardware licenses, and are intended to ensure the continued attribution of the file to its author and the continued distribution of the design to downstream recipients under the terms of the TDPL itself. The license thereby generally prohibits the removal of any copyright information or other notices from the design file.[91] Second, in broad outline, the license provides that any recipient who modifies the design file must provide notice of such changes.[92] Third, the license provides that a recipient may only distribute the file (and derivative works of the file) pursuant to the terms and conditions of the TDPL.[93] While these conditions do not materially differ from conditions in other open licenses, they can have consequential effects in the context of three-dimensional printing. For example, a design file may be structured such that certain copyright information or other notices will be imprinted on the printed physical object.[94] As the TDPL prohibits the removal of these notices from the design file, and as the printed article bears a one-to-one correspondence to the design file, the effect of this provision is that the license can require that all articles printed with the design file will incorporate specified notices. Such notices can include attribution information specifying the identity of the initial author of the file. No less importantly, such notices can include information, for example, regarding an Internet site where any recipient of the printed article can obtain the design file.[95] These notices would allow all downstream recipients of the printed, physical article to have access to the digital files needed to manufacture that article. As noted, the TDPL also requires that a recipient who modifies the design file must communicate that fact in notices incorporated in the design. The details of this condition differ somewhat from other open licenses, and are intended to implement a copyleft obligation in the context of three-dimensional printing. The license provides that recipients may modify the design file, provided that the recipient at the same time also inserts in the design file, a notice describing where the modified design file may be accessed.[96] This new notice must also be included on the printed physical object.[97] Again, as a result of the correspondence between the file and the printed object, this provision provides downstream recipients of the printed article with access to the modified design files of the modified object. As the unauthorized use of the design file in a three-dimensional manufacturing process would infringe the copyright in the design file, a recipient of the file will not be legally permitted to use the design file to print objects unless she has complied with the requirements of the license.

B. Advantages and Disadvantages of the Licensing Framework

The TDPL licensing regime presents several advantages. First, the license is designed to allow the easy integration of open hardware into complex supply chains.[98] The license ensures that all recipients of the hardware throughout a distribution chain have access to the original design file, but this accessibility is achieved without imposing complex contracting requirements on supply chain intermediaries. Downstream intermediaries and integrators that make no changes to the design documentation should be able to market and distribute hardware, or incorporate hardware into larger articles, without concern for any legal obligations imposed by the license. In general, the license is intended to be self-executing in that the required notices should be the automated output of the three-dimensional printing process. This absence of contractual obligations, and the concomitant lowering of administrative and transactional costs, should ease the integration of open source hardware into commercial items without sacrificing access to the design.[99] Another advantage of the TDPL regime is that it is straightforward to define the design information that must be made available. Developers of open source hardware licenses have struggled to specify the level of detail that should be provided in design documentation.[100] Arduino, for example, provides schematics and reference designs for its circuit boards, but does not provide the material composition and schematics for each individual component on that circuit board. The Arduino approach makes practical sense; the burden of disclosing the specifications of each and every component quickly becomes unwieldy, and recipients probably do not need that level of resolution in order to construct the Arduino circuit board from the design documentation. On the other hand, an effective licensing regime needs to ensure that recipients are provided with an adequate level of detail, and finding an ex ante definition for the proper level of resolution can prove difficult.[101] The TDPL regime, however, relies on the exact correspondence between the digital design file and the printed object to resolve this difficulty. The license simply provides that the recipient must be given access to the file used to generate the printed article. This file contains all the technical detail necessary for the recipient to print the article herself. The TDPL recognizes that it may be burdensome to require licensees to provide continuous updates of all modifications made to the design file. To address this problem, the TDPL contains a limited exception to the requirement to provide access to modified design files. The license provides that modifications created solely for the internal use of the licensee do not trigger the requirement to include a notice in the design file.[102] The license also provides that the distribution of physical objects printed with the design file to third parties creates a presumption that the modifications were not made solely for the internal use of the licensee.[103] The intent of these provisions is to allow licensees the freedom to experiment and test new designs without the costs of compliance with the TDPL obligations. At the same time, the provisions attempt to ensure that once a licensee begins to distribute physical objects created with the modified design file she will be obligated to make the modified design files available. Of course, the licensing framework of the TDPL also presents theoretical and practical disadvantages. Most importantly, the copyleft provisions of the TDPL to some extent depend on the use of the design document in a manufacturing process in which the design document is itself copied.[104] Otherwise, a recipient of the design would not require a copyright license to manufacture an article based on the design and, in such a situation, the use of the design could not be conditioned on compliance with the license. This suggests that the TDPL may be most appropriate for articles that are difficult or impractical to produce in a traditional manufacturing process, or in areas in which three-dimensional printing has a comparative advantage, such as the production of complex parts, customized articles, or articles incorporating novel materials.[105] As the technology of three-dimensional printing improves and its costs decrease, the TDPL will become appropriate for a growing and diverse number of articles. Second, even traditional manufacturing is increasingly making use of computer aided design.[106] Given this growing reliance on computers in the design process, the use of a design licensed under the TDPL will most likely be in the context of a process that does incorporate CAD, even if the entire process is not automated. Unauthorized use of the licensed design in such a process would also require a license. Third, to the extent this argument is a claim that an open hardware design can be easily reverse engineered and implemented in a separate, non-infringing design, the argument applies no less forcefully to the development of open source software.[107] A second disadvantage of the TDPL is that copyrights in digital design files would be limited to the expressive, non-functional aspects of the file. Black letter law provides that copyrights do not protect ideas or information, but only the specific expression of an idea.[108] Furthermore, the “merger” doctrine provides that copyright law will not protect any expression that must be copied to implement a particular idea.[109] As many physical articles produced with three-dimensional printing will be functional objects, the copyright in the design document that describes those articles may be limited. And, since the enforceability of the TDPL depends on the design file copyright, the license may not be effective for useful or functional designs. Even so, the same contentions would argue against the use of open source licenses for software programs. Software, like a design file, contains both expressive and functional elements.[110] Moreover, software is typically valued for those very functional elements, rather than the expressiveness or creativity of the code.[111] Nevertheless, courts have continued to uphold copyrights for the expressive elements of software files, even as they have held that such copyrights cannot protect the functional elements of a program, or the elements of a program that have been dictated by external standards.[112] Despite this limitation on copyright protection for software, the enforceability of software licenses in general, and of open source software licenses in particular, is generally accepted.[113] The TDPL should be no less enforceable than such software licenses. A third disadvantage of the TDPL is that the license requires recipients who modify a design to maintain an accessible, online repository of the modified design. This may require recipients to bear the costs of maintaining an Internet location where such designs can be accessed, as well as incurring the administrative costs of keeping and posting historical and up-to-date copies of such designs. Even so, this requirement does not significantly differ from similar obligations in open source software licenses. For example, version 3 of the GPL allows distributors to satisfy their copyleft obligations by providing recipients with a written offer to access source code from a network server.[114] In allowing distributors to satisfy their copyleft obligations in this fashion, the Free Software Foundation has noted that the advancement and proliferation of Internet technology should ensure that this option is not too burdensome for either distributors or recipients of source material.[115] The text of the TDPL attempts to preempt another possible complication of the licensing regime. To a large extent, the scope of a licensee’s copyleft obligations under the license is relatively clear: a licensee is only obligated to provide design documentation for the specific printed article. This provision should serve to alleviate concerns that the incorporation of an open hardware article in a larger product would require the disclosure of design documentation not related to the specific printed article.[116] Nevertheless, as the technology of three-dimensional printing advances and becomes more widespread, it is possible that designers would develop “hardware design blocks” – modular designs, representing self-contained hardware pieces, which could be incorporated in a more extensive design for the printing of larger, more complex objects. This would parallel the use of software libraries for the development of complex software products, or the use of intellectual property cores in the development of semiconductor chips.[117] In such event, concerns could be raised regarding the impact of the TDPL’s copyleft obligations on independently designed modules. Similar questions in the arena of open source software licensing have proven to be the source of much debate and confusion.[118] The TDPL attempts to preempt such matters by providing that any design work that may be represented in a separate digital file will not constitute a derivative work of the licensed design.[119] In other words, the incorporation of a TDPL licensed “design block” inside a larger design will not cause the larger design to be subject to the terms of the TDPL. The TDPL also attempts to address a situation where the techniques of three-dimensional printing may also be used to manufacture products on which no label could practically be attached. For example, it has been anticipated that future applications of three-dimensional printing may include the production of chemicals or even biological tissues.[120] The TDPL attempts to address such applications by providing that, in certain limited circumstances, the attribution and licensing notices may be imprinted on packaging ordinarily received by the end user.[121] In sum, the TDPL provides a framework for licensing open hardware designs. The TDPL is enforceable under copyright law, since the use of a design document in a three-dimensional printing process not in compliance with the license will infringe the copyright in the design document. Under this framework, the licensor of a design document can be confident that the TDPL will be enforceable against downstream users of the design document, and that the law will provide effective remedies to enforce the terms of the license. In addition, all downstream users of printed articles will be provided with the attribution and documentation information made available on the printed article itself.


Open hardware proponents have expressed concern that intellectual property laws could be used to stifle the growth of three-dimensional printing. Most obviously, the physical objects created by three-dimensional printing could be the subject of patent protection, and patent law could be applied to prevent the manufacture, use or sale of those articles.[122] Other commentators have noted that copyright law could be used to restrict the use of digital designs. First, digital rights management (“DRM”) and other content access restrictions could be applied to three-dimensional printers in order to ensure that such devices only construct pre-authorized designs, in the same way that such technological restrictions are already applied to other forms of digital content.[123] The Digital Millennium Copyright Act (DMCA) would criminalize the circumvention of those DRM restrictions, even as applied to legitimate uses of digital designs.[124] In addition, Internet sites that allow for the easy sharing of digital designs could be subject to infringement lawsuits unless they found safe harbor under the DMCA “notice and take down” provisions.[125] Intellectual property law can be used to restrain the advance of three-dimensional printing, but it can also be used to ensure broader access to such technology. This Article has shown that the construction of an open hardware license is possible in the technological domain of three-dimensional printing. As with open source software, this license is based on copyright law, and should therefore be relatively easy to apply and enforce. Moreover, and again as with open source software, such a license could be instrumental in creating a “commons” where the free exchange of design information can flourish.

Appendix: The Three-Dimensional Printing Open License

The Three-Dimensional Printing Open License (“License”) has been constructed specifically for situations in which a digital design is used to generate physical articles in an automated manufacturing process, and its application may not be clear in other situations. You may not use a work licensed under this License except in compliance with these terms. You are not obligated to agree to these terms, but nothing else grants you the right to use a work licensed hereunder.[126] 1. Definitions. The following terms, when capitalized in the body of this License, shall have the meanings set forth below.
1.1 “Build Form” means any form of the Work which is provided to any device for the manufacture of a Printed Article in an automated manufacturing process. 1.2 “Copyright” means copyright and any similar right (including any rights of industrial design and any semiconductor topography rights), whether registered or unregistered.[127] 1.3 “Derivative Work” means any work that is a derivative of the Work under applicable law. Notwithstanding the foregoing, a Derivative Work does not include any work that may be separately represented in a digital file that does not include any part of the Work itself. 1.4 “Internal Purposes” means for internal or personal research and development purposes. A distribution of Printed Articles to third parties not under your the sole control or not working solely on your behalf creates a presumption that your modifications are not for Internal Purposes. 1.5 “Licensor” means any individual or entity that creates or has knowingly contributed to the creation of the Work, but does not include an individual or entity that only distributes a Work or Printed Article. 1.6 “Modified Notice” means a notice (a) incorporating the information in a Required Notice, (b) stating that You have modified the Work, and (c) satisfying any other requirements of this License. 1.7 “Printed Article” means a physical article created by using digital files of the Work in an automated manufacturing process. 1.8 “Required Notice” means any element of a Work which provides (a) information regarding the authorship of the Work and stating that the Work is provided under this License, or (b) providing direction to a URL which displays the information listed under clause (a). A Required Notice also includes any element of a Work which causes the imprinting of the foregoing information on a Printed Article. 1.9 “Source Form” means the preferred form for making modifications to the Work. Source Form does not include file formats in which only minor changes (such as repair, resizing or changes of orientation may be made), such as STL file formats. 1.10 “Work” means any work licensed under this License and any work intentionally incorporated into a work licensed under this License. 1.11 “You” means any individual or entity in possession of a Work.
2. Copyright License. Subject to the terms and conditions of this License, each Licensor hereby grants to you a perpetual, worldwide, non-exclusive, royalty-free license under its Copyrights to (a) reproduce, modify, prepare Derivative Works of, publicly display, publicly perform and distribute the Work and such Derivative Works in Source Form or Build Form, and (b) generate Printed Articles using the Work. 3. Conditions. Your exercise of any rights under this License is subject to the following conditions:
3.1 You may not distribute the Source or Build forms of a Work under any terms other than the terms and conditions of this License. 3.2 You may not modify or remove any Required Notice, provided however that you may change the location or size of any Required Notice in the Work, or the location or size of information imprinted by a Required Notice on a Printed Article, so long as (a) the Required Notice remains easily readable by humans in the Source Form of the Work and (b) any imprint or representation of the Required Notice in the Printed Article generated using a Work remains accessible and easily readable by humans or electronic devices.[128] 3.3 If you create a Derivative Work, you must (a) insert a Modified Notice in such Derivative Work and (b) license the Source and Build Forms of such Derivative Work under the terms of this License, provided however that as a limited exception you are not required to insert a Modified Notice in respect of modifications to the Work made only for Internal Purposes. 3.4 If the Required Notice of a Work contains or provides direction to a URL displaying the Source Form of the Work, then the Modified Notice must also contain or provide direction to a URL displaying the Source Form of the Derivative Work. The Source Form available at such URL must be in a format that is easily downloadable and copied, and must be maintained for at least three years from the last time you generated Printed Articles using the Work and as long as you offer spare parts or customer support for the Printed Article.[129] Any attribution or copyright information in the Required Notice may be provided at such URL location rather than in the Modified Notice itself. 3.5 If the Required Notice of a Work causes the imprinting of information onto a Printed Article, the Modified Notice must cause the imprinting of the same type of information on the Printed Article in the same location and format as the imprinting caused by the Required Notice, subject to the exceptions in Section 3.2. 3.6 Notwithstanding anything to the contrary in this License, you may remove a Required Notice if the Modified Notice satisfies the conditions of this License. 3.7 As a limited exception to the requirements of this Section 3, if a Printed Article is a non-solid substance then the Required Notice or Modified Notice may be imprinted on the packaging in which the end user is expected to receive the Printed Article.
4. No Removal of Notices from Printed Articles. You may not remove the imprint of any Required Notice on a Printed Article. If You distribute a Printed Article to a third party, you agree to contractually obligate such third party to (a) observe such prohibition, and (b) contractually obligate any further transferees of the Printed Article to agree to observe the prohibitions of this Section as if such transferee were in your position. 5. Patent License. Subject to the terms and conditions of this License, each Licensor hereby grants to You a perpetual, worldwide, non-exclusive, royalty-free, irrevocable patent license to make, use, offer to sell, sell, and import the Work and any Printed Articles (including the right to exercise such rights through third parties). The license granted by a Licensor under this provision applies only to Printed Articles created in an automated manufacturing process in which a Copyright of the Work is necessarily infringed. This patent license does not apply to any Printed Works created in violation of the terms of this License. In addition, the license granted by a Licensor under this provision applies only to patent claims that are necessarily infringed by (a) elements of the Work that have been intentionally included in the Work by the Licensor or (b) the combination of such elements with the work in which such elements were originally included.[130] 6. No Trademark License. This License does not grant rights to use the trademarks of the Licensor, except for reproducing and describing the content of any Required Notice. 7. Disclaimer of Warranty. To the extent permitted under applicable law, the Work (including all Contributions) are provided on an “As Is” Basis, without warranties or representations of any kind. In addition, no warranty or representation is provided regarding any Printed Article that may be generated through use or application of the Work or any Derivative Work thereof. Licensor and all Contributors disclaims all express, implied or statutory warranties, including, without limitation, any warranties of merchantability, fitness for a particular purposes, title or non-infringement in respect of the Work or any Printed Article that may be generated through use or application of the Work or any Derivative Work thereof. 8. Limitation of Liability. Unless required pursuant to applicable law, no Licensor shall have any liability to You for damages under any cause of action, including any direct, indirect, special, incidental or consequential damages of any kind (including without limitation any commercial damages or damages in respect of loss or profits, loss of data, loss of economic opportunities, loss of goodwill), even if such Licensor has been advised of the possibility of such damages. Your use of the Work and any Printed Article is at your own risk. 9. Additional Warranties. You may choose to offer to third parties support, warranty and indemnity or liability obligations additional to those provided under the terms of this License, provided that such terms are consistent with the terms of this License. You may charge for the provision of the foregoing. In accepting such obligations, You may act only on Your own behalf and must clarify to any recipient of the Work or Printed Article that you are acting only on Your own behalf. 10. Interpretation. If any provision of Sections 7 (Disclaimer of Warranty) or 8 (Limitation of Liability) is unenforceable under applicable law, such provision shall be interpreted as necessary to give maximum effect to such provision as possible under applicable law.
* Attorney, Yigal Arnon & Co., Jerusalem, Israel. J.D., Yale Law School; M.S., Columbia University. The author would like to thank Daniel Green, Andrew Katz, Carlo Piana and Michael Weinberg for their comments on earlier drafts of this Article. All opinions and positions taken in this Article, and any mistakes or inaccuracies are, of course, the author’s own. [1] Arduino is an “open source physical computing platform,” which can be used to create hardware that interacts with the physical world. See Introduction, Arduino, (last updated Dec. 23, 2009). The original design files for the Arduino hardware are available from the Arduino Internet website under the Creative Commons Attribution Share-Alike license, and the software is available under either the GPL or LGPL licenses. See Frequently Asked Questions, Arduino, (last updated Mar. 11, 2011). See also Brian Evans, Beginning Arduino Programming 5 (2011). For background on the Arduino project, see Clive Thompson, Build It. Share It. Profit. Can Open Source Hardware Work? Wired Magazine, Oct. 20, 2008, available online at ff_openmanufacturing. [2] Rachel King, Big Companies Open up to Open-Source Software, Wall St. J., Sept. 6, 2012, available online at SB20000872396390443589304577633733725243996.html. [3] John Ackermann, Toward Open Source Hardware, 34 U. Dayton L. Rev. 183, 184 (2009); Thompson, supra note 1 (comparing the ambitions of Arduino to those of Linux and other successful open source software projects); Chris Anderson, Makers: The New Industrial Revolution 107 (2012). The “hardware” in “open hardware” can potentially refer to a variety of physical articles, from semiconductor chips to mechanical assemblies. This Article does not restrict the discussion to a particular category of article, but instead focuses on the range of objects that may be generated using the technology of three-dimensional printing. [4] As stated by the Debian Group, a prominent distributor of open source software, “[t]o stay free, software must be copyrighted and licensed.” What Does Free Mean? Or What Do You Mean by Free Software?, Debian Group, (last updated Mar. 19, 2013). See also Margit Osterloh & Sandra Rota, Open Source Software Development – Just Another Case of Collective Invention?, 36 Res. Pol’y 157,164 (2007); Steven Weber, The Success of Open Source 197 (2004) (describing business models that depend on licensing structures). [5] Weber, supra note 4at 179 (describing a license as a “de facto constitution” for an open source organization, which, “[i]n the absence of hierarchical authority, . . . becomes the core statement of the social structure that defines the community of . . . a project”). [6] The “BusyBox” litigation cases provide an example of the enforcement of open source licenses. BusyBox is software that is commonly used in consumer electronic devices. BusyBox is licensed under the GPLv2 open source license. From 2007 through 2009, the Software Freedom Law Center, representing several of the BusyBox copyright holders, filed suit against a number of entities that distributed BusyBox software, asserting that those distributors had breached the license. See Best Buy, Samsung, Westinghouse and Eleven Other Brands Named in SFLC Lawsuit, Software Freedom Law Center (Dec. 14, 2009), Many of these suits ended in a settlement in which the defendant agreed to comply with the terms of the license, and information regarding a number of these settlements is available at the Software Freedom Law Center Website. See, e.g., BusyBox Developers and Xterasys Corporation Agree to Settle GPL Lawsuit, Software Freedom Law Center (Dec. 17, 2007), [7] Richard Stallman, the founder of the Free Software Foundation and a central figure in the open source software movement, has opined on the difficulty of creating an open hardware legal framework. See Richard Stallman, On “Free Hardware”, Linux Today (June 22, 1999, 4:27 AM), See also Andrew Katz, Towards a Functional License for Open Hardware, 4 Int’l Free and Open Source Software L. Rev. 41, 45 (2012); Michael Weinberg, Open Source Hardware and the Law, Public Knowledge (Oct. 10, 2012), [8] This Article uses the term “three-dimensional printing” to refer to a range of a computer-aided manufacturing technologies, where a digital design is used to automate the manufacture of an article in an “additive manufacturing” process. Alternative terms may also be used for some of these methods such as, for example, rapid prototyping, desktop manufacturing and CAD oriented manufacturing. See generally C.K. Chua et al., Rapid Prototyping: Principles and Applications 18 (2nd ed. 2004). Additive manufacturing means that physical objects are constructed from the accumulation of a number of layers, rather than resulting from the removal of portions of raw material. See Anderson, supra note 3, at 90. [9] Christina Raasch, Product Development in Open Design Communities: A Process Perspective, 8 Int’l J. Innovation & Tech. Mgmt. 557, 568 (2011) (discussing the difficulty of sourcing parts in open hardware projects). See also Katz, supra note 7, at 51. [10] Raasch, supra note 9, at 567 (noting that open hardware projects may protect certain intellectual property in order to “attract manufacturers willing to produce the design as well as component suppliers”); Thompson, supra note 3 (stating that “nobody is going to risk money inventing and selling hardware unless they can prevent competitors from immediately ripping off their designs”). The recent decision of Makerbot Industries to refrain from distributing some of its hardware designs provides a real world example of these concerns. Makerbot is a prominent producer of three-dimensional printers and, until recently, pursued an open hardware strategy by making all of its device designs publicly available. In September 2012, Makerbot decided to not make available certain designs of its newest printer model. See Rich Brown, Pulling Back from Open Source Hardware, Makerbot Angers Some Adherents, CNET (Sept. 27, 2012, 5:00 AM), In justifying this decision, Makerbot noted that its open hardware business model resulted in competition from “carbon-copy cloning” of its products and stated that this undermined the company’s “ability to pay people to do development.” Bre Pettis, Let’s Try That Again, Makerbot Blog (Sept. 24, 2012), [11] Eric von Hippel, Horizontal Innovation Networks – By and For Users, 16 Indus. & Corp. Change 293, 311 (2007) (noting that the economies of scale involved in manufacturing may not allow open source networks to compete with commercial manufacturing); Eric von Hippel & Georg von Krogh, Open Source Software and the “Private-Collective” Innovation Model: Issues for Organization Science, 14 Organization Science 209, 215 (2003). See also Ackermann, supra note 3, at 210-11 (noting such economies of scale as a justification for including restrictions against the commercial use of designs in an open hardware license). [12] See Raasch, supra note 9,at 569 (discussing the relative infrequency of releases in the RepRap on Openmoko open hardware projects). See also Jim Turley, Open-Source Hardware, Embedded (May 31, 2002), [13] The text of version 3.0 of the GPL is available at the Free Software Foundation website. See GNU General Public License, Gnu Operating System, (last updated Oct. 6, 2012) [hereinafter, GPLv3]. Unless stated otherwise, references in this Article to the GPL are references to version 3.0 of that license. See Glyn Moody, Rebel Code 312-13 (2001) (stating that the GPL serves as the “de facto constitution for the entire free software movement”). For a summary of United States case law interpreting the GPL, see Eli Greenbaum, Open Source Semiconductor Core Licensing, 25 Harv. J.L. & Tech. 131, 140 (2011). [14] Section 5(c) of the GPL provides that a licensee “may convey a work based on” the licensed software, provided that the entire work must also be licensed under the terms of the GPL. GPLv3, supra note 13, § 5(c). [15] For a brief overview of the GPL copyleft conditions, see What is Copyleft?, Gnu Operating System, (last updated Oct. 6, 2012). [16] See Lawrence Rosen, Open Source Licensing: Software Freedom and Intellectual Property Law 80 (2005) (describing license conditions of the BSD open source software license). See also Jacobsen v. Katzer, 535 F.3d 1373, 1381-83 (Fed. Cir. 2008) (holding that the limitations found in the Artistic License were “enforceable copyright conditions”). [17] Von Hippel, supra note 11, at 313. [18] For background on the TAPR Open Hardware License, see Ackermann, supra note 3. A copy of the TAPR Open Hardware License is available online. See TAPR Open Hardware License, TAPR (May 25, 2007), [hereinafter TAPR license]. For background on the CERN Open Hardware License, see Myriam Ayass & Javier Serrano, The CERN Open Hardware License, 4 Int’l Free and Open Source Software Law Review 71, 71-73 (2012). A copy of the CERN Open Hardware License is available online. See CERN Open Hardware License, Open Hardware Repository, (last visited Apr. 4, 2013) [hereinafter CERN license]. A third prominent open hardware license is the Solderpad License, a copy of which is available in Katz, supra note 7, at 56. The Solderpad license does not attempt to impose copyleft obligations on the use of hardware. Rather, the Solderpad license limits itself to granting permissions to use, modify and distribute a design file. Id. Given the limited ambition of the Solderpad license, it is not addressed in this Article. Hardware designs are sometimes licensed under documentation licenses rather than licenses specifically designed for hardware. For example, the Open Compute Project is a project founded by Facebook engineers that shares designs for scalable data center hardware under Creative Commons licenses. See Licensing, Open Compute Project, (last visited Mar. 30, 2013). As with the Solderpad license, documentation licenses only provide permissions to use, modify and distribute a design file, but do not impose conditions regarding hardware manufactured with that design file. For information regarding the Creative Commons licenses, see About the Licenses, Creative Commons, (last visited Mar. 30, 2013). [19] Ackermann, supra note 3, at 204. [20] Id. at 205. See also About the OHL, TAPR, (last visited Apr. 2, 2013) (“Like the GNU General Public License, the [TAPR license] is designed to guarantee your freedom to share and to create.”). [21] Ayass & Serrano, supra note 18, at 71. [22] Id. at 72. [23] See Ackermann, supra note 3, at 192 (stating that one of the goals of open source hardware should be that the documentation received under an open source hardware license should be “available to all”). Section 1 of the definition of open hardware put forward by the Open Source Hardware Association similarly provides that “hardware must be released with documentation including design files, and must allow modification and distribution of the design files. Where documentation is not furnished with the physical product, there must be a well-publicized means of obtaining this documentation.” Definition, Open Source Hardware Association, (last visited Apr. 2, 2013). The OSHWA Definition is based on the Open Source Definition of the Open Source Initiative, a statement of principles for open source software, and bears substantial similarities to that definition. Id. The Open Source Hardware Foundation was founded in 2012 as an organization to promote open source hardware. Its board includes founders of several open hardware companies as well as prominent open hardware activists. See Board Members, OSHWA, (last visited Apr. 14, 2013). [24] The TAPR Open Source Hardware License generally requires licensees to distribute a copy of the design documentation together with the manufactured article. See TAPR license, supra note 18, § 5.2. However, the provision only applies to licensees that “make or have made” a product, and does not apply to downstream recipients of the articles. See id. Similarly, the CERN license provides that a licensee may distribute products developed with the licensed design documentation, provided that a copy of the design documentation is provided to each recipient of the hardware. See CERN license, supra note 18, § 4.1. This provision only applies to a “Licensee,” which is defined by the license as a person “exercising rights” under the license. Id. at § 1. In the absence of a patent, a downstream recipient does not require a grant of intellectual property rights to distribute products and, as such, does not exercise any rights under the license. [25] See OSHWA Definition, supra note 23, § 6 ( “The [open hardware] license may require . . . attribution to the licensors when distributing design files, manufactured products, and/or derivatives thereof. The license may require that this information be accessible to the end-user using the device normally, but shall not specify a specific format of display”). [26] See Catherine L. Fisk, Credit Where It’s Due: The Law and Norms of Attribution, 95 Geo. L.J. 49, 89-93 (2006) (providing an extensive discussion of the incentives created by attribution in the context of open source software development). See also Klaus M. Schmidt and Monika Schnitzer, Public Subsidies for Open Source? Some Economic Policy Issues of the Software Market, 16 Harv. J.L. & Tech. 473, 482 (2003). Even the most permissive open source software licenses contain attribution requirements that are passed on to downstream recipients of the software. For example, while the permissive BSD license does not include any copyleft obligations, it does require that distributions of the licensed software include a copy of the copyright notice and a copy of the license. See The BSD 2-Clause License, Open Source Initiative, licenses/BSD-2-Clause (last visited Apr. 15, 2013). Similarly, all six Creative Commons licenses include an attribution requirement. See Attribution, Creative Commons, (last updated Jan. 26, 2010). [27] Section 5.1 of the TAPR license provides that manufactured products must retain licensor’s notices, but this requirement does not apply to downstream recipients. See TAPR license, supra note 18, § 5.1. Section 3.1 of the CERN license provides that a licensee must retain all copyright, trademark and other notices. See CERN license, supra note 18, § 3.1. Again, this provision only applies to a “Licensee”, id., which is defined by the license as a person “exercising rights” under the license. Id. at § 1. A downstream recipient does not exercise any rights under the license. [28] See John Mangan et al., Global Logistics and Supply Chain Management 40 (2d. ed. 2012). See also Ronald J. Gilson et al., Contracting for Innovation: Vertical Disintegration and Interfirm Collaboration, 109 Colum. L. Rev. 431, 436 (2009). [29] Mangan, supra note 28, at 40. [30] Gilson, supra note 28, at 438. One estimate of the automobile manufacturing industry has a handful of OEMs purchasing from six hundred to eight hundred first tier suppliers. See Omri Ben-Shahar & James J. White, Boilerplate and Economic Power in Auto Manufacturing Contracts, 104 Mich. L. Rev. 953, 956 (2006). See also Anath Iyer et al., Toyota Supply Chain Management: A Strategic Approach to Toyota’s Renowned System 90-91 (2009). [31] Tim William, Demand Chain Management Theory: Constraints and Development from Global Aerospace Supply Webs, 20 J. Operations Mgmt. 691, 691 (2002). [32] Gilson, supra note 28, at 439.See Jason Dedrick et al., Who Profits from Innovation in Global Value Chains?: A Study of the iPod and Notebook PCs, 19 Indus. & Corp. Change 81, 81 (2009). [33] See Jason Dedrick et al., The Distribution of Value in the Mobile Supply Chain, 35 Telecomm. Pol’y 505, 507 (2011). [34] Julian Dent, Distribution Channels: Understanding & Managing Channels to Market 11-12 (2d. ed. 2011). [35] In the words of one of the original cases that enforced end user license agreements, “A copyright is a right against the world. Contracts, by contrast, generally affect only their parties; strangers may do as they please, so contracts do not create ‘exclusive rights.’” ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1454 (7th Cir. 1996). See also MDY Indus. LLC v. Blizzard Entm’t Inc., 629 F.3d 928, 941 n.3 (9th Cir. 2010). [36] Stallman, supra note 7. [37] See generally Ackermann, supra note 3, at 194. [38] See Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 628-31 (2008) (holding that LGE’s post-sale restrictions could not be enforced under patent law); Static Control Components, Inc. v. Lexmark Int’l, Inc., 615 F. Supp. 2d 575, 584 (E.D. Ky. 2009) (holding that Quanta barred the enforcement of post-sale restrictions on printer cartridges). [39] Notwithstanding these difficulties, the Open Innovation Network (OIN) provides an example of using patents to create an open licensing framework. OIN is a company owned by a number of prominent technology companies which freely licenses a patent portfolio to any company or institution that agrees not to assert its patents against the Linux operating system. See About OIN, Open Innovation Network, (last visited Apr. 15, 2013) (providing information regarding OIN). OIN may be a special case that could be difficult to generalize to new open source hardware projects. The OIN was founded by companies in order to protect their prior investments in the Linux operating system from patent infringement suits, rather than to create a new open source project. See id. The OIN patent licenses are not used to increase the enforceability of the Linux software licenses, but simply to protect Linux from patent infringement suits. See id. The copyleft and attribution obligations of the Linux system are imposed by the GPLv2 software license, rather than the OIN patent portfolio licenses. [40] Ackermann, supra note 3, at 205 (explaining how the TAPR license is built around both license and contract concepts); Ayass & Serrano, supra note 18, at 72 (stating that the license to design documentation could “be the basis on which to form a contractual relationship” on which the CERN license is built). See also Static Control Components, 615 F. Supp. 2d at 587 (allowing contract claims to proceed even though patent claims were barred as a result of the patent exhaustion doctrine). [41] See, e.g., Robert P. Merges, A Transactional View of Property Rights, 20 Berkeley Tech. L.J. 1477, 1507 (2005) (discussing the importance of intellectual property rights to a plaintiff where there is no privity of contract). These arguments against relying on contract law in an open hardware license recall similar claims against the enforceability of the GPL. Commentators had argued that the GPL was unenforceable because it was not validly accepted by licensees under the principles of contract law. See Heather Meeker, The Open Source Alternative: Understanding Risks and Leveraging Opportunities 177 (2008). The counterargument of the Free Software Foundation was that the GPL would be enforceable under copyright law, regardless of whether a licensee accepted its terms in accordance with contract law. See GPLv3 Second Discussion Draft Rationale at n.77, Free Software Foundation, Inc. (July 27, 2006), (“[The GPL was] intentionally structured . . . as a unilateral grant of copyright permissions, the basic operation of which exists outside of any law of contract. Whether and when a contractual relationship is formed between licensor and licensee under local law do not necessarily matter to the working of the license.”) [hereinafter GPL Second Draft]; Pamela Jones, The GPL is a License, not a Contract, (Dec. 3, 2003), An open hardware license based solely on contract law would not be able to rely on these arguments in favor of the enforceability of the GPL. [42] Katz, supra note 7, at 46. [43] Shahar & White, supra note 30, at 966-70 (discussing how OEMs in the automotive industry erected barriers to negotiations of standard form agreements). [44] It is possible to speculate that downstream recipients may be able to enforce the terms of an open hardware contract as third party beneficiaries. Generally, however, a third party beneficiary may only enforce the terms of a contract if the parties intended to grant the third party such right of enforcement, and neither the TAPR nor CERN licenses evidence such intent. See generally Melvin Aron Eisenberg, Third-Party Beneficiaries, 92 Colum. L. Rev. 1358, 1382 (1992). On a more theoretical level, current open source licenses generally envision enforcement by the copyright holder. See GPL Second Draft, supra note 41, at n.34 (stating that “enforcement of the GPL is always by the copyright holder”). Granting third parties the right to enforce open source obligations would introduce an unfamiliar and perhaps unwelcome dynamic. First, allowing any third party to enforce the license would expose a licensee to claims from a large range of individuals with which the licensee may have no prior or only a minimal relationship. Second, claims regarding open source obligations often depend on technical details regarding the content and use of the licensed material, details that a licensee may not want to publicize to a broad audience. In any event, enforcement by third party beneficiaries would not reach throughout a distribution chain, as the third party’s claims could only be directed at the specific party that should have provided open source material to the beneficiary. Last, third party beneficiaries would likely only advance claims to obtain hardware design or software code, but would be less likely to demand attribution information. [45] According to the Second Restatement of Contracts, “[c]ontract damages are ordinarily based on the injured party’s expectation interest and are intended to give him the benefit of his bargain by awarding him a sum of money that will, to the extent possible, put him in as good a position as he would have been in had the contract been performed.” Restatement (Second) of Contracts, § 347 cmt. a, (1981). See also David McGowan, The Tory Anarchism of F/OSS Licensing, 78 U. Chi. L. Rev. 207, 216 (2011) (discussing how the difference between approaching open source license documents as contracts or license permissions affects the remedies likely to be granted by a court, with expectation damages being the default remedy for breach of contract). [46] 17 U.S.C. § 504(b) (2012) (“The copyright owner is entitled to recover . . . any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.”). See also MDY Indus. LLC v. Blizzard Entm’t, Inc., 629 F.3d 928, 941 n.3 (9th Cir. 2010) (detailing additional remedies available under copyright law in comparison to a breach of contract claim); Omri Ben-Shahar, Damages for Unlicensed Use, 78 U. Chi. L. Rev. 7, 9 (2011) (discussing remedies available for copyright infringement but not in breach of contract). Plaintiffs in a copyright infringement action may also be entitled to statutory damages pursuant to 17 U.S.C. § 504(c). See Software Freedom Conservancy, Inc. v. Best Buy Co., No. 09 Civ. 10155, 2010 U.S. Dist. LEXIS 75208, at *11(S.D.N.Y July 27, 2010) (granting enhanced statutory damages for copying software in violation of the GPL). Statutory damages are generally limited, however, to a maximum of $150,000 per infringed work and, as such, may not prove a sufficient deterrent. See 17 U.S.C § 504(c)(2) (2012). [47] 17 U.S.C. § 502 (2012). Prior to the decision of the Supreme Court in eBay v. MercExchange, most courts were relatively liberal in granting injunctions to enjoin copyright infringement. See eBay v. MercExchange, 547 U.S. 388 (2006). See also H. Tomas Gomez-Arostegui, What History Teaches Us About Copyright Injunctions and the Inadequate-Remedy-At-Law Requirement, 81. S. Cal. L. Rev. 1197, 1205-06 (2008). In eBay, the Supreme Court held that courts must apply traditional principles of equity in determining whether to issue a permanent injunction against patent infringement, and that the Federal Circuit could not apply a general rule that “a permanent injunction will issue once infringement and validity have been adjudged”. 547 U.S. at 393-94 (internal quotation marks omitted). The practical effect of eBay in the context of copyright litigation is not yet completely clear. Nevertheless, commentators have noted that it remains relatively common to obtain an injunction against copyright infringement. See Jake Phillips, eBay’s Effect on Copyright Injunctions: When Property Rules Give Way to Liability Rules, 24 Berkeley Tech. L.J. 405, 420 (2009); Robert W. Gomulkiewicz, Conditions and Covenants in License Contracts: Tales From a Test of the Artistic License, 17 Tex. Intell. Prop. L.J. 335, 341 (2009) (stating that “injunctive relief is common for copyright infringement but granted rarely for breach of contract”). [48] Jacobsen v. Katzer, 535 F.3d 1373, 1382 (Fed. Cir. 2008). Even so, upon remand from the Federal Circuit, the district court in Jacobsen stated that “there is also evidence in the record attributing a monetary value” for the infringed work. Jacobsen v. Katzer, No. C 06-01905, 2009 U.S. Dist. LEXIS 115204, at *11 (N.D. Cal. Dec. 10, 2009). The district court did not give further details or analysis regarding such evidence. [49] 17 U.S.C. § 503 (2012) (setting forth impounding and disposition of infringing articles as potential remedies for infringement). See also Software Freedom Conservancy, Inc. v. Best Buy Co., No. 09 Civ. 10155, 2010 U.S. Dist. LEXIS 75208, at *15 (S.D.N.Y July 27, 2010) (ordering forfeiture of articles determined to be infringing the GPL). [50] 17 U.S.C. § 505 (2012) (setting forth courts’ ability to assess costs and attorney’s fees). See also Lawrence Rosen, Bad Facts Make Good Law: The Jacobsen Case and Open Source, 1 Int’l Free and Open Source Software L. Rev 27, 29 (2009) (discussing the possibility of obtaining attorney’s fees in open source disputes). [51] See Juergen Neumann et al., OHANDA Label for Open Source Hardware, OHANDA, (last visited Mar. 29, 2013). [52] Ian Gibson et al., Additive Manufacturing Technologies: Rapid Prototyping to Direct Digital Manufacturing 34 (2009). [53] Id. [54] Chua et al., supra note 8, at 10; Gibson et al., supra note 52, at 4. [55] Michael Wienberg, What Happens When Patent Lawsuits Hit Home 3D Printing, Public Knowledge (Nov. 27, 2012), blog/what-happens-when-patent-lawsuits-hit-home-3d. [56] See Adrian Bowyer, RepRap GPL License: Distributing and Copying RepRap, RepRap (Dec. 14, 2006), RepRapGPLLicence. [57] Anderson, supra note 3, at 94. [58] Chua et al., supra note 8, at 10. See also Layer by Layer: How 3D Printers Work, The Economist, Apr. 21, 2012, at 16, available at [hereinafter Layer by Layer]. See also Ormco Corp. v. Align Tech., Inc., 609 F. Supp. 2d 1057 (C.D. Cal. 2009) (hearing an action concerned with patent infringement, while also providing a detailed description of a specific proprietary three-dimensional printing process). [59] Chua et al., supra note 8, at 137; Fused Filament Fabrication, RepRap, (last visited Apr. 2, 2013) (stating that the RepRap Project uses the terms “fused filament fabrication” rather than “fused deposition modeling,” since the latter term has been trademarked). [60] Chua et al., supra note 8, at 10. See also Solid Print, Making Things with a 3D Printer Changes the Rules of Manufacturing, The Economist, Apr. 21, 2012, at 18, available at [61] Chua et al., supra note 8, at 220. [62] See Layer by Layer, supra note 58. Shapeways, a company that provides three-dimensional printing services over the Internet, provides a variety of materials including plastics, metals and glass. See Materials Comparison Sheet, Shapeways, material-options (last visited Apr. 2, 2013). [63] Gibson, supra note 52, at 290 (describing the capability of using three-dimensional printing to fabricate complex shapes). See also Gibson at 292-93 (describing the capability of using three-dimensional printing to create internal moving parts); The Shape of Things to Come, The Economist, Dec. 10, 2011, at 88, available at (describing the use of three-dimensional printing to create articles with novel geometries). [64] Gibson, supra note 52, at 295 (describing the use of additive manufacturing technology to combine materials). [65] Id. at 291 (describing the use of additive manufacturing technology to create materials with unique internal structures); Id. at 295 (creating “heterogeneous materials with unique properties”); The Shape of Things to Come, supra note 63(describing the use of three-dimensional printing technology to create the “fine, lattice-like internal structure of bone” and “the basic design of a plant stem – a bundle of vertical filaments of different technology.”) [66] Layer by Layer, supra note 58(discussing biological tissues); Print me a Phone, The Economist, Jul. 28, 2012, at 71, available at (discussing electronic circuits). [67] Materials Comparison Sheet, Shapeways, (last visited Apr. 2, 2013). [68] Florian Aigner, 3D-Printer with Nano-Precision, Vienna Univ. of Tech. (Mar. 12, 2012), 7444/ (reporting that researchers at the Vienna University of Technology have used advanced printing technologies to construct a 285 micrometer racecar and approximately 100 micrometer models of St. Stephen’s Cathedral and London Bridge). [69] Thingiverse, (last visited Mar. 28, 2013). [70] Examples of such business include Shapeways and Sculpteo. See Shapeways, (last visited Apr. 2, 2013); Sculpteo, (last visited Apr. 2, 2013). [71] The standard CAD file is represented in the IGES (Initial Graphics Exchange Specifications) format. For technical reasons, however. that format is not well-suited for three-dimensional printing. See Chua et al., supra note 8, at 337. [72] Id. at 301. [73] Id. at 28. Since the development of STL, other possible file formats for representing physical objects have been put forward as attempts to correct deficiencies in the STL format. Id. at 338. [74] Id. at 338. [75] See STL 2.0 May Replace Old, Limited File Format,, (last visited Mar. 28, 2013). [76] Bre Pettis et al., Getting Started with MakerBot 65 (2012) (describing the limited possibilities available for modifying STL files). [77] See Ormco Corp. v. Align Techs., Inc., 609 F. Supp. 2d 1057, 1071 (C.D. Cal. 2009) (describing a three-dimensional printing design file as “data file” rather than software in the context of an action for patent infringement). [78] See H.R. Rep. No. 94-1476, at 54 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5667 (stating that the provision is “an effort to make clearer the distinction between works of applied art protectable under the bill and industrial designs not subject to copyright protection.”) See also Robert C. Denicola, Applied Art and Industrial Design: A Suggested Approach to Copyright in Useful Articles, 67 Minn. L. Rev. 707, 722 (1983) (discussing the rationales for excluding industrial design from copyright protection). [79] See Pivot Point Int’l v. Charlene Prods., 372 F.3d. 913, 921 (7th Cir. 2004). [80] Id. [81] 17 U.S.C. § 101 (2012) (defining pictorial, graphic and sculptural works). See also Victor Stanley, Inc. v. Creative Pipe, Inc., No. MJG-06-2662, 2011 U.S. Dist. Lexis112846, at *7 (D. Md. Sept. 30, 2011) (holding that defendants infringed plaintiff’s copyright in manufacturing CAD files). But see Meshwerks, Inc. v. Toyota Motor Sales U.S.A., Inc., 528 F.3d 1258, 1268 (10th Cir. 2008) (denying copyright protection for 3D models of Toyota cars, since the models were “unadorned images of Toyota’s vehicles, the appearances of which do not owe their origins to Meshwerks.”). The rationale of the decision in Meshwerks seems to show that original 3D design files will generally be accorded copyright protection. The decision was based on the fact that Meshwerks did not add any creative content to the design of the pre-existing Toyota vehicles. Id. As such, the decision implies that 3D design files with original creative content will be accorded copyright protection. [82] 17 U.S.C. § 101 provides that “copies” may be perceived “either directly or with the aid of a machine or device.” 17 U.S.C. § 101 (2012). Cf. Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1249 (3d Cir. 1983) (affirming that the code of a computer program, embedded in a memory chip, is an appropriate subject for copyright). [83] See Victor Stanley, 2011 U.S. Dist. Lexis 112846, at *9-10 (holding that defendant could not be held liable for copyright infringement for using copied technical drawings to manufacture articles, but could be held liable for the unauthorized download, transmission, creation of derivative works and copying of the copyrighted drawings themselves); Forest River v. Heartland Rec. Vehicles, 753 F. Supp. 2d 753, 760 (N.D. Ind. 2010) (dismissing claims that the use of copyrighted design drawings to manufacture a trailer constitutes copyrighted infringement, but stating that allegations concerning the copying of the design drawing themselves “state a claim for copyright infringement as to the copies (as distinct from the actual trailer)”); Gusler v. Fischer, 580 F. Supp. 2d 309, 315 (S.D.N.Y. 2008) (stating that the plaintiff “holds a copyright in a technical drawing of a useful article, which does not preclude defendants’ manufacturing and marketing of the article itself”). Compare Niemi v. Am. Axle Mfg. & Holding Inc., No. 05-74210, 2006 U.S. Dist. LEXIS 50153, at *10 (E.D. Mich. July 24, 2006) (holding that the manufacture of a machine from a copyrighted technical drawing is not copyright infringement) with Niemi v. Am. Axle Mfg. & Holding Inc., No. 05-74210, 2008 U.S. Dist. Lexis 25995 (E.D. Mich. April 23, 2008) (analyzing claims regarding the copying of the technical drawings themselves, with such claims dismissed for lack of evidence of copying). [84] 17 U.S.C. § 106(1) (2012) (granting an exclusive right of reproduction to the copyright holder). [85] See Mai Sys. v. Peak Computer, 991 F.2d 511 (9th Cir. 1993) (holding that loading a copy of software onto a computer’s memory constitutes copyright infringement); Cartoon Network v. CSC Holdings 536 F.3d 121, 127 (2d Cir. 2008) (affirming the holding in Mai Systems, but interpreting MAI Systems to hold that the copy in the computer’s memory must be more than transitory). A digital design will be resident in the memory of a three-dimensional printer for more than transitory duration, since a printer will generally hold the file (or its derivatives) in memory for the period of time necessary to print the object, which can be several hours. Chua et al., supra note 8, at 31. The holding of Mai Systems applies to any copyrighted work (and not only software) that is loaded into a computer. See Nimmer on Copyright, § 8.08[A][1] (stating that “input of a work into a computer results in the making of a copy, and hence . . . such unauthorized input infringes the copyright owner’s reproduction right”). See also Jedson Eng’g Inc. v. Spirit Constr. Servs., 720 F. Supp. 2d 904, 919 (S.D. Oh. 2010) (copyright infringement resulting from unauthorized access of CAD files and technical drawings through Internet and CD-ROM); Gemel Precision Tool Co. v. Pharma Tool Corp., Civ.-A. No. 94-5305, 1995 U.S. Dist. LEXIS 2093, at *17 (E.D. Pa. Feb. 13, 1995) (holding that the defendant’s creation of CNC machine files infringed plaintiff’s copyright). Cf. Ormco Corp. v. Align Tech., Inc., 609 F. Supp 2d 1057, 1072 n.17 (C.D. Cal. 2009) (in a patent infringement claim, relying on copyright law to show that loading three-dimensional printing data files creates a copy of those files). But see Simon Bradshaw et al., The Intellectual Property Implications of Low-Cost 3D Printing, 7 Scripted 1, 25 (2010), available at Bradshaw states that, under the law of the United Kingdom, the copyright in a design document is not infringed by using the design to create an article in a three-dimensional printing process. Id. In reaching this conclusion, Bradshaw does not address or analyze the copying inherent to a computerized manufacturing process. [86] 17 U.S.C. § 106(2) (2012) (setting forth copyright holder’s exclusive right to prepare derivative works). [87] See Victor Stanley, 2011 U.S. Dist. Lexis 112846, at *10 (D. Md. 2011) (finding copyright infringement when defendants created derivative works of CAD manufacturing files). The printer may also manipulate the file in other ways as well, to ensure that “it is the correct size, position and orientation for building.” See Gibson, supra note 52, at 5. In other situations, the printer may be required to segment a single STL file or merge several STL files. See 45. [88] In actual fact, there may not be an exact one-to-one correspondence between the design file and the final printed article. First, a printed article may require some amount of post-processing, such as finishing, polishing, sand-papering or coating. Gibson, supra note 52, at 46. Second, certain printing technologies may require the printing of additional “supports” during the printing process to buttress manufactured articles. Id. at 53. [89] TDPL, § 2. [90] See supra text accompanying notes 83-87. [91] TDPL, § 3.2. [92] TDPL, § 3.3(a). [93] TDPL, §§ 3.1, 3.3(b). [94] See Gibson, supra note 52, at 56 (discussing software that can imprint identification information on printed articles). [95] TDPL, § 1.8 (stating that a Required Notice may provide “direction to a URL which displays” such attribution and licensing information). In situations where the inclusion of extensive attribution and licensing language would prove awkward or require the use of extensive area on a confined physical object, such notices could be composed of other digital means of providing such information. For example, two-dimensional bar codes could be used to provide an efficient means of directing users to the appropriate Internet site. A similar approach has recently been adopted by Thingiverse. See Help with Barcodes, Thingiverse, (last visited Apr. 2, 2013). Similarly, the Linux Foundation has proposed a similar means for tracking open source software components included in software products. See The Linux Foundation Announces New Tool for Tracking Free and Open Source Software Components, The Linux Foundation (May 30, 2012), [96] TDPL, § 3.4. An important feature of the TDPL is that it conditions the right to modify the design file on the concomitant insertion of this notice. In order to be enforceable under copyright law, the provisions of the TDPL must constitute conditions to a copyright license rather than additional contractual covenants. See Omri Ben-Shahar, Damages for Unlicensed Use, 78 U. Chi. L. Rev. 7, 11-12 (discussing the differences between license conditions and covenants). In order to constitute a condition to the license, the provision at question must relate to an action that (a) exceeds the license’s scope (b) in a manner that implicates one of the licensor’s exclusive statutory rights. See MDY Indus. LLC v. Blizzard Entm’t Inc., 629 F.3d 928, 940 (9th Cir. 2010). Provisions that condition a software user’s right to create derivative works or modifications are, under this test, considered license conditions rather than contractual covenants. Id. at n.3. As such, the requirement of the TDPL that modifications must be accompanied by an insertion of the modification notice should constitute a condition to the copyright license rather than an additional contractual covenant. The GPL operates in the same way: the copyleft provisions of the GPL are formulated as conditions to the GPL’s grant of distribution rights. In other words, a licensee is not permitted to distribute works under the GPL unless it also provides source code as required by the license. See Heather Meeker, The Gift that Keeps on Giving – Distribution and Copyleft in Open Source Software Licenses, 4 Int’l Free and Open Source Software L. Rev. 29, 29 (2012). The conditions of the TDPL are structured to apply to the modification of the design file rather than the distribution of a physical object since, in contrast to the GPL’s software setting, the distribution of physical articles may not implicate any rights under copyright law. See supra text accompanying notes 78-80. [97] TDPL, § 1.6 [98] Several industries with complex supply chains, such as the automotive and aerospace industries, have already begun to make use of three-dimensional printing. See Neil Hopkinson et al., Rapid Manufacturing: An Industrial Revolution for the Digital Age 13 (2006). See also supra note 30, noting the complex supply chains in these industries. [99] TDPL, § 4 does contain a contractual commitment not to remove any notices from any physical objects printed with the design file and an obligation to pass this commitment onto downstream recipients of the object. Unfortunately, it is unclear whether this prohibition could be achieved without resort to such a contractual commitment. The Digital Millennium Copyright Act does contain a prohibition to “remove or alter any copyright management information.” 17 U.S.C. § 1202(b) (2012). It is unclear whether this prohibition applies to notices printed on a physical object, since the statutory provision only concerns notices “conveyed in connection with copies . . . of a work or performances or displays of a work.” 17 U.S.C. § 1202(c) (2012); see Textile Secrets Int’l, Inc. v. Ya-Ya Brand, Inc., 524 F. Supp. 2d 1184, 1201-03 (C.D. Cal. 2007) (holding that the prohibition does not apply to the removal of a tag attached to fabric). At the same time, however, the Textile Secrets holding was limited to a situation where there was an “absence of any facts demonstrating that a technological process was utilized in connection with . . . applying the copyright information . . . .” Id. at 1201, n.17. [100] Katz, supra note 7, at 49-51. Katz attempts to resolve this problem by providing that an effective open hardware license could require the provision of complete design documentation, where that documentation could consist of components that are readily available with known specifications. This of course requires some judgment concerning which components should be considered “readily available.” In addition, what constitutes “readily available” could change over time. [101] Id. [102] TDPL, § 1.4 [103] TDPL, § 3.3. [104] As noted above, a limited copyright may be applicable to certain physical articles. See supra text accompanying notes 83-87. As such, it may also be possible to use such copyright to enforce the license conditions of the TDPL, and the text of the TDPL recognizes this possibility. See infra note 127. Even so, as the existence and scope of such copyrights can be contentious, the TDPL relies on the copyright in the design document instead. [105] See supra text accompanying notes 63-65(detailing the comparative advantage of three-dimensional printing in producing certain articles and materials). [106] Peter Marsh, The New Industrial Revolution 26-28 (2012) (describing the widespread use of computer aided design in modern manufacturing); Eric Von Hippel, Democratizing Innovation 104 (2005); Victoria Gomelsky, Computerized Machines Aid Human Watchmakers, NY Times (Sept. 4, 2012), (describing the “ubiquity of computer-aided design” in the Swiss watch making industry); Anderson, supra note 3, at 76 (stating that “[s]oftware is increasingly driving the design process”). [107] Indeed, in designing the Android platform, Google reverse engineered and reconstructed an equivalent to almost all of the Java programming language. Generally, Java was licensed by Oracle under either the GPL or pursuant to commercial terms. Google carried out this complex and costly process in order to circumvent these licensing terms. See Oracle Am., Inc. v. Google Inc., 872 F. Supp. 974, 978 (N.D. Cal 2012) (stating that “Google wrote or acquired its own source code to implement virtually all the functions of the 37 API packages in question. Significantly, all agree that these implementations — which account for 97 percent of the lines of code in the 37 API packages —are different from the Java implementations.”). The roots of the open source movement itself also grew out of such a feat of reverse engineering, when staff at UC Berkeley rewrote much of the Unix source code that was proprietary to AT&T. See Weber, supra note 4, at 40. The Linux operating system also grew out of a similar attempt to bypass the licensing restrictions imposed on the source code of Unix. See Moody, supra note 13, at 33-43. [108] 17 U.S.C. § 102 provides that “[i]n no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” 17 U.S.C. § 102(b) (2012). [109] For a summary of the application of the merger doctrine in the context of software programs, see Lexmark Int’l, Inc. v. Static Control Components, Inc., 387 F.3d 522, 535 (6th Cir. 2004). [110] See Computer Assocs. Int’l, Inc. v. Altai, Inc., 928 F.2d 693, 704 (2nd Cir. 1992) (noting that “[t]he essentially utilitarian nature of a computer program further complicates the task of distilling its idea from its expression”). [111] See, e.g., Pamela Samuelson et al., A Manifesto Concerning the Legal Protection of Computer Programs, 94 Colum. L. Rev. 2308, 2317 (1994) (“Behavior is not a secondary by-product of a program, but rather an essential part of what programs are. To put the point starkly: No one would want to buy a program that did not behave, i.e., that did nothing, no matter how elegant the source code ‘prose’ expressing that nothing.”). [112] See, e.g., Lexmark Int’l Inc. v. Static Control Components, Inc., 387 F.3d 522, 537-42 (6th Cir. 2004) (holding that Lexmark’s “Toner Loading Program” was not copyrightable since the expression of the program was constrained by compatibility requirements). [113] For a discussion of software license agreements in general, see Raymond T. Nimmer, Copyright First Sale and the Over-riding Role of Contract, 51 Santa Clara L. Rev. 1311, 1322 (2011). Nimmer notes that “[i]n the digital era, all of the traditional content industries have moved to a mixed model of distribution and many new industries only use digital distributions subject to license agreements.” Id. With respect to open source licenses, the Software Freedom Law Center, for example, has been successful in enforcing the GPL with respect to “BusyBox” software. See supra note 6. See also Software Freedom Conservancy, Inc. v. Best Buy Co., No. 09 Civ. 10155, 2010 U.S. Dist. LEXIS 75208, at *15 (S.D.N.Y July 27, 2010) (ordering forfeiture of articles determined to be infringing the GPL). [114] Section 6(b) of version 3 of the GPL provides that a licensee that may satisfy its obligations to provide source code by providing written notice regarding “access to copy the Corresponding Source from a network server at no charge.” GPLv3, supra note 13, § 6(b). In addition, Section 6(d) allows licensees to provide source code through a “network server” if object code was provided in the same manner. See id. at § 6(d). [115] See GPL Second Draft, supra note 41, at n. 51. See also OSHWA Definition, supra note 23, at § 1 (stating that download from the Internet is the preferred method for making source documentation available); The Open Source Definition, The Open Source Initiative, (providing that download from the Internet is the preferred method of making source code available). Section 5.2(ii) of the TAPR license also provides that hardware documentation can be distributed by providing a URL where documentation may be downloaded. On the other hand, the Software Freedom Law Center (SFLC) has opined that, for much of the world, downloading source code from the Internet is either not possible or not practical. See Bradley M. Kuhn et al., A Practical Guide to GPL Compliance, Software Freedom Law Center (Aug. 26, 2008), The opinion of the SFLC dates from 2008, and as Internet technology advances and become more accessible this well-grounded objection to Internet distribution should become less relevant. While the cost to licensors of establishing and maintaining an Internet website from which users could obtain source material is not negligible, this cost could be substantially lowered through the use of community websites such as Thingiverse, in the same way that software source code is made available on community Internet sites such as Sourceforge. See Sourceforge, (last visited Apr.2, 2013). [116] For example, Katz questions whether bolting a copyleft wheel to a car would require the distribution of design documentation for the entire car. See Katz, supra note 7, at 48. [117] See generally Eli Greenbaum, Open Source Semiconductor Core Licensing, 25 Harv. J.L. & Tech. 131 (2011). [118] See Malcolm Bain, Software Interactions and the GNU General Public License, 2 Int’l Free and Open Source Software L. Rev. 165, 165 (2010) (noting that “[t]he so-called ‘GPL linking’ debate has been raging for the last 18 years, and probably will go on for . . . quite a few more”). [119] TDPL, § 1.3. [120] See 3D printers could create customized drugs on demand, BBC News (Apr. 18, 2012), Commentators have noted the difficulty of applying open source development principles to biotechnology. See, e.g., David W. Opderbeck, The Penguin’s Genome, or Coase and Open Source Biotechnology, 18 Harv. J.L. & Tech. 167, 198-99 (2004). The TDPL, however, allows the easy application of open source principles to any biotechnology process that uses three-dimensional printing technology. [121] TDPL, § 3.7. [122] Michael Weinberg, It Will be Awesome if They Don’t Screw it Up: 3D Printing, Intellectual Property, and the Fight Over the Next Great Disruptive Technology (2010), Public Knowledge, [123] Fred Chasen et al., Your Printer is Like iTunes: DRM and the 3D Printing “Revolution,” Information Law and Policy Blog (Oct. 21, 2012), Intellectual Ventures, a well-known non-practicing entity, has been issued a patent for the application of DRM technology to three-dimensional printing. See U.S. Patent No. 8,286,236 (issued Oct. 9, 2012). [124] Section 1201 of the Copyright Act prohibits both acts of circumvention as well as trafficking in the tools and technologies of circumvention. 17 U.S.C. § 1201(a)(1)(A) (2012) (providing that “[n]o person shall circumvent a technological means that effectively controls access to a work protected under this title”); 17 U.S.C. § 1201(b)(1)(A) (2012) (providing that “[n]o person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology . . . primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof”). For a summary of concerns regarding the use of digital rights management, see DRM, Electronic Frontier Foundation, [125] The DMCA safe harbor provisions protect online service providers (“ISPs”) from copyright infringement claims in respect of user activity, so long as the service provider complies with specific conditions. 17 U.S.C. § 512(a)(1-5) (2012). To avoid liability, the ISP must promptly remove or block access to alleged infringing material when they receive notification of an infringement claim from a copyright holder. 17 U.S.C. § 512(c)(1)(C) (2012). Thingiverse has received at least one DMCA takedown notice in respect of a digital design. Bre Prettis, Copyright Policy, Thingiverse Blog (Feb. 18, 2011), [126] These annotations to the text of the TDPL describe certain drafting decisions made in creating the license. Capitalized terms used in annotations notes have the same meaning given to those terms in the body of the TDPL itself. [127] Certain circumstances might allow for a copyright in a Printed Articles itself. Such copyrights in Physical Articles often raise disputes as to their scope and enforceability. See supra text accompanying notes 78-80. As such, the TDPL does not rely on such copyrights to enforce the conditions of the license. Nevertheless, nothing in the TDPL prevents a licensor from claiming that the unauthorized copying of the Printing Article constitutes copyright infringement of the copyright in the Printed Article itself. [128] The TDPL recognizes that there may be legitimate situations that require a change in the location or size of a notice on a Printed Article, including for aesthetic purposes. At the same time, the TDPL also recognizes the interest of the Licensor in ensuring that such notices remain accessible. As such, the TDPL allows licensees to change the location or size of any notice, so long as it remains reasonably accessible. The reference to “electronic devices” is intended to capture the possibility that a Required Notice will only consist of a bar code that directs a recipient to an internet location. See supra note 95. [129] This requirement to maintain the URL providing the Source Form of the Work for at least three years is based on the three year time frame used in both Section 6(b) of GPLv3 and Section 5.2(ii) of the TAPR Open Hardware License. See GPLv3, supra note 13, at § 6(b). [130] The TDPL contains an express patent license. In this manner, the TDPL follows the precedent of several open source software licenses that also contain express patent licenses, such as version 3 of the GPL and the Mozilla Public License (“MPL”). See GPLv3, supra note 13, at § 11; Mozilla Public License, Mozilla, (last visited Apr. 2, 2013), at § 2.1(b). The TAPR and CERN licenses also contain express patent licenses. See TAPR license, supra note 18, at § 2; CERN license, supra note 18, at § 3.4. At the same time, the TDPL gives consideration to legitimate concerns that the scope of this license not be overly broad. First, the license is limited to the use of the licensed design in an automated printing process. As such, the patent license cannot be used a shield for the use of the design in a traditional manufacturing process that does not require the copyright license of the TDPL. In this way, the patent license is tied to the copyleft obligations of the TDPL – only a licensee that is prepared to share derivative works in compliance with the obligations of the TDPL can enjoy the benefit of the patent license. Second, only a “Licensor” grants a patent license under the TDPL. As such, an individual or entity that simply distributes a design or article does not grant any patent license. Third, the license does not apply to works created in violation of the license. As such, an individual that violates the copyright license of the TDPL will also not have the benefit of the express patent license.

Protecting Artistic Vandalism: Graffiti and Copyright Law

Protecting Artistic Vandalism: Graffiti and Copyright Law
By Celia Lerman* A pdf version of this article may be downloaded here.  


Does copyright law protect graffiti? This is a question of growing importance in today’s art scene. Books, CD’s, t-shirts and other items featuring graffiti images are often released without permission from the original graffiti artists. For a recent example, take the graffiti exhibition mounted in a Buenos Aires art gallery by Peruvian artist José Carlos Martinat. Martinat’s exhibition consisted of appropriated pieces of graffiti that he had carefully removed, without permission, from the walls of private properties in Buenos Aires. Martinat also offered these pieces for sale. Local graffiti artists reacted furiously to this exhibition and collectively destroyed all of their graffiti pieces in situ during the gallery’s opening night. Examples like this lead us to wonder if graffiti artists could receive any protection under copyright law.[1] At least some pieces of graffiti are suitable for copyright protection, insofar as they are original works, fixed in a tangible medium of expression. Still, why should we protect expressions created by an illegal act (painting a third party’s property without her permission)? Should the law help graffiti artists to benefit from their transgressions? Moreover, if the primary purpose of copyright is to incentivize the creation of valuable creative works, should we protect and promote illegal art? Following an overview of recent cases concerning graffiti in Section I of this Article, Section II will argue that when graffiti complies with the minimum requirements for copyright protection (an original work, fixed in a tangible medium of expression), it should be protected under copyright law despite its illegality. As will be explained in Section III, this is because copyright should be neutral towards works created by illegal means. Because copyright should only be concerned with the immaterial work, the artist’s material transgressions should not exclude the work from copyright protection. Section III will also show that copyright protection for graffiti may be justified even under the incentive-based scheme of the U.S. Copyright Act. Illegal graffiti pieces are creative works of authorship that can fit into the concept of promoting “the Progress of Science and useful Arts,” as stated in the United States Constitution.[2] Protecting graffiti under copyright law, moreover, may incentivize graffiti artists to create more legal works. Section IV analyzes the challenges that artists face when enforcing their rights in their graffiti under the Copyright Act and the Visual Artists Rights Act (“VARA”). I will claim that VARA can protect graffiti against modification and destruction from third parties, but not from the wall owner, whose property rights were violated when the graffiti was created. I will also argue that graffiti artists can fully claim their rights of attribution under VARA.

I. A Rising Artistic Movement Where Ownership Raises Concerns

Graffiti is one of the fastest growing artistic movements.[3] It has been compared to the cubist revolution,[4] and regarded as the twenty-first century heir to Pop Art.[5] Graffiti pieces can be found in all sorts of spaces with significant public exposure (streets, means of transport, and buildings), chosen carefully by graffiti artists to give high visibility to their work. The term “graffiti” has both a broad and a narrow meaning. The broad meaning refers to an artistic movement that includes several different styles (spray-paint graffiti, street art and stencils), which, in turn, are associated with different socio-cultural groups. The narrow meaning only refers to spray-paint graffiti. In this article, unless otherwise noted, I will use the term “graffiti” only in the broad sense.[6] Moreover, I will primarily focus on illegal graffiti, that is, graffiti that has been fixed to a surface without permission from the surface’s owner. Spray-paint graffiti includes elaborate signatures and tags, along with murals and other graphic pieces created with spray paint.[7] This technique is used not only by graffiti artists, but also by gangs to mark their territory, sports fans to support their teams, and by political groups to advance their causes. Spray-paint graffiti generally has a message that is written by and for the graffiti community: few people–generally those either from the same gang culture, or people from the same artistic community–understand the meaning of such graffiti pieces.
Spray-Paint Graffiti[8]
Spray-Paint Graffiti 1
Spray-Paint Graffiti 2
Spray-Paint Graffiti 3
Spray-Paint Graffiti 4
  By contrast, street art techniques go beyond just spray-cans.[9] They range from traditional painting with brushes, rollers and palettes, to more innovative forms of expression such as stickers, posters, lighting installations and mosaics.[10] Street art, moreover, is often purely artistic: by this I mean that, unlike spray-paint graffiti, street art is an aesthetic work that the general public is able to interpret and with which the public can connect.
Street Art[11]
Street Art 1
Street Art 2
Street Art 3
  Stencil graffiti combines elements from spray-paint graffiti and from street art. Stencil artists carefully prepare stencil blueprints on hand-made sheets, which they then place on a surface and cover with spray paint. Stencil graffiti works are the easiest and quickest pieces to replicate.[12] Like spray-paint graffiti, stencil art is created with spray-paint, and like street art, stencil art is generally artistic.
Stencil 1
Stencil 2
Stencil 3
Graffiti pieces increasingly attract the attention of numerous collectors, gallery owners, publishers, filmmakers, and journalists. Pieces from famous graffiti artists have sold for hundreds of thousands of dollars in the art market.[14] Graffiti pieces have even been given as diplomatic gifts.[15] Galleries are seeing record attendance at exhibitions of graffiti works,[16] and publishers have generated a boom of photographic books on graffiti and street art.[17] As graffiti has grown in popularity, several conflicts have highlighted issues regarding the rights graffiti artists have with respect to their work. The first group of examples involve the unauthorized reproduction of graffiti through other means of expression, such as books, clothing, film, and TV advertisements. For example, photographer and graffiti aficionado Peter Rosenstein published the book, Tattooed Walls,[18] which displays over one hundred pictures of New York City murals. Rosenstein had accumulated these photographs over the course of a decade; he then compiled and published these images without permission from the graffiti artists whose works were featured. Soon after publication, a dozen artists who created some of the book’s murals—including the group Tats Cru—sought a settlement from Rosenstein.[19] Rosenstein explained that he did not ask for permission because “the murals were in public spaces,”[20] and because he thought the publication “was covered under fair use provisions.”[21] However, US copyright law does not support these arguments, as we shall see below.[22] Eventually, a settlement was reached and the book was quickly taken out of the publisher’s catalogue.[23] Another example of a book that reproduced graffiti without permission is Tony Hawk’s Pro Skater 2 Official Strategy Guide, published by Pearson Education a/k/a Brady Publishing. The book features a mural by Chicago’s graffiti artist Hiram Villa, known as “UNONE,” without the artist’s consent. Villa brought copyright infringement and state law claims against the publishers, but the court initially dismissed his case for lack of copyright registration.[24] In its decision, however, the court explained that it “assumed, without deciding, that the work is copyrightable.”[25] Villa then registered his work with the Copyright Office and filed suit again. This time, the publisher moved to dismiss the complaint, and the court rejected the publisher’s motion.[26] Unfortunately for this paper’s analysis, the parties reached an agreement before the court could issue any substantive decision on the case, leaving the question unsettled.[27] Graffiti has also been reproduced on clothing. For example, Urban Outfitters recently printed t-shirts that featured a signature piece by street artist Cali Killa without his permission. Cali Killa and Urban Outfitters settled the dispute, and the clothing company stopped using the artwork.[28]
Cali Killa’s Graffiti and Urban Outfitter’s Clothing[29]
Cali Killa's Graffiti and Urban Outfitter's Clothing
  Another example of graffiti appropriation is the swimsuit worn by the Spanish synchronized swimming team in the 2008 Beijing Olympics. The swimsuit in question reproduced German artist Cantwo’s graffiti artwork without his permission.[30] Complicating the conflict, Spanish nationals performed the infringement of the German work in China.[31] The artist complained publicly, but it is unclear whether he took any legal action against the team.[32]
Cantwo’s Art and Swimsuits[33]
Cantwo 1
Cantwo 2
Cantwo 3
  Films and TV advertisements have also featured unauthorized uses of graffiti. In 2011, a mural painted by the group of artists known as Tats Cru was featured without permission in a Fiat 500 commercial with Jennifer Lopez. The commercial, My World by J.Lo, emphasized the connection between the Lopez and the Bronx, and included the graffiti murals, among other distinctive scenes from her neighborhood. The parties reached an agreement regarding the commercial’s use of the mural.[34]
Stills from JLo’s Fiat Commercial
JLo 1
JLo 2
JLo 3
Along with the unauthorized reproduction of graffiti pieces, there is a second group of conflicts; this group involves disputes over the preservation and ownership of physical graffiti works. One example concerns the 5 Pointz building in Long Island City, New York. The 5 Pointz building is an old, unused warehouse that has been curated by graffiti artist Meres One since 2002.[35] It serves as a center for graffiti artists in New York and is considered a landmark building both by the artists and by many locals.[36] The owner of the building, real estate developer Jerry Wolkoff, initially welcomed artists to the building[37] and currently tolerates the graffiti activity. Wolkoff has since announced, however, his intention to demolish the building in 2013.[38] Graffiti artists and supporters have started an online petition to protest the demolition of the building; the petition has received over 13,000 signatures.[39] It is unclear whether the graffiti works at 5 Pointz are legal. In order to avoid criminal liability for their graffiti, the artists would need to show that they received express consent to paint on the site.[40] However, as this piece will argue, any questions of civil liability remain intrinsically tied to determinations of copyright.[41] Peruvian artist José Carlos Martinat’s exhibition in Buenos Aires illustrates this category of conflicts as well. Martinat mounted an exhibition that consisted of appropriated pieces of graffiti that he had carefully removed without permission, using a special art-removal technique, from the walls of private properties in Buenos Aires.[42] He only removed art that was not signed (but whose authors could be found within the local street art scene, given their characteristic style and strong presence in the local graffiti community) and small sections of larger murals that were signed.
Graffiti Before and After Martinat’s Actions[43]
Martinat 1
Martinat 2
Martinat 3
Martinat 4
  In an act of “vandalism against vandalism,”[44] Martinat offered these removed pieces for sale in an art gallery. Local graffiti artists reacted furiously and collectively destroyed all of their own exhibited graffiti pieces during the gallery’s opening night.[45] Although some graffiti artists liked the conceptual foundations of the exhibition, most were enraged that an outsider had destroyed their artwork, harming not only the artists, but also the owners of the surfaces that had contained the art, as well as the local public who had previously enjoyed the art.[46] For these artists, the story would have been different if other graffiti artists painting over their work on the same walls; this is understood as part of the natural life cycle of graffiti and as part of the artistic dialogue that street art entails. In this case, however, Martinat purposely intended to remove and modify the art for his own benefit–hijacking and ending the dialogue.[47] Martinat responded to the artists’ raid by claiming their intervention was part of his conceptual work: the vandalized vandals were vandalizing back.[48] Due to this incident, subsequent exhibitions in Brazil were cancelled.[49]
Artists’ Reactions: “La Pared No Se Vende” (“The Wall Is Not For Sale”)
Reaction 1
Reaction 2
  Despite its increasing popularity, graffiti is punished severely by many local authorities. Artists may not only suffer fines for damaging property, but they may also be subject to criminal sanctions in many jurisdictions.[50] State and local laws usually punish graffiti production and associated conduct, such as the possession of graffiti instruments[51] and the sale and distribution of broad-tipped markers and spray paint to minors.[52] With these examples of conflicts and sanctions in mind, let us now analyze some central questions regarding the ownership of unauthorized graffiti art.

II. Graffiti as a Visual Work Under Copyright Law

In order to receive protection under copyright, an artistic expression must comply with the following minimum legal requirements: it must be a work of authorship that is original and fixed in any tangible medium of expression.[53] That is, the creative work must have originated with the author,[54] and its embodiment, by or under the authority of the author, must be sufficiently permanent or stable for it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.[55] These are the necessary and sufficient requirements for protection of artistic expression under copyright. Thus, like any other artistic piece, if a graffiti work complies with these minimum requirements, it can be protected under copyright. Consider, for example, Keith Haring’s famous street art in the New York City subway. These works featured dancing people drawn in Haring’s characteristic style, white chalk on unused black advertising panels in the subway.[56] These drawings were distinct, original, and were fixed on subway panels, which are a form of tangible media. Accordingly, Keith Haring’s art could have been protected under copyright law.
Keith Haring’s Subway Art[57]
Keith Haring 1
  Not all graffiti, however, qualifies for copyright protection. For instance, simple tags, signatures and other spray-paint graffiti may be too small or too simple to be considered artistic “work.” Graffiti that consists of words and short phrases, familiar symbols and designs, or mere variations of typographic ornamentation, lettering or coloring cannot be protected.[58] Nor are graffiti typefaces copyrightable as such, artistic though they might be, because typefaces are not considered protectable works.[59]
Examples of Graffiti That May Not Qualify for Copyright Protection[60]
Non-Qualifying 1
Non-Qualifying 2
  Copyright’s originality requirement could also prevent some works from being copyrightable. For example, take a common phrase, such as “Lucille, I love you,” “Laura was here,” or “Vote for Obama,” painted on a wall with one or two spray paint colors in simple handwriting. Even though this visual expression might constitute a “work of authorship,” it would lack sufficient originality to qualify for copyright protection. Usually, graffiti works are fixed in a tangible medium of expression by being painted on a wall. Since copyright law’s fixation requirement only demands that the work is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than a transitory duration,[61] we should be able to identify a protectable graffiti work even if its physical embodiment is later destroyed. Copyright law distinguishes between the work and the physical support that embodies it; it only protects the former, not the latter. Most graffiti works are ephemeral because they will be painted over (either by the owner of the wall, the local authorities or other graffiti artists), or they will fade out from weather and lack of maintenance. Nevertheless, this temporary existence should be sufficient to meet copyright’s fixation requirement.[62] Thus, if graffiti artwork is an original work of authorship fixed in a tangible medium of expression, it should be eligible for copyright protection. Moreover, a graffiti piece could be categorized as a work of visual art.[63] This categorization is relevant only for the rights extended to the artist under the Visual Artists Rights Act (VARA), which I will analyze below in Section IV. Such a designation, however, has no bearing on the copyrightability of a work under U.S. copyright law. A piece is considered a work of visual art under VARA if: it is a painting, drawing, or sculpture; it exists in a single copy or in a limited edition of 200 copies or less; and it is signed and consecutively numbered by the author.[64] The piece is excluded from this category, however, if (i) the author did not sign it and there were no other identifying marks of his in the work;[65] (ii) it was reproduced over two hundred times;[66] or (iii) if copyright requirements were not met in the visual aspect of the work.[67] Consider, for example, an original poem painted over a wall in a bar’s bathroom with plain ink. The poet could claim copyright protection over the written text of the poem, but it will be more difficult to claim copyright over the visual manifestation (the conjunction of a text on a wall), unless it is clear that the piece is an original visual artwork. Under the general rules of copyright ownership, notwithstanding other legal concerns about the work’s production, the author of a graffiti work should hold the copyright over it.[68] The wall owner has no claim to the copyright because he did not make any authorial contribution to the graffiti artwork. Owning the physical embodiment of a work does not confer title to the copyright.[69] The tangible and intangible aspects of a work are independent from the physical embodiment, and so are the rights over each aspect. As I will discuss in more detail below, this independence explains why a graffiti artist can validly claim copyright over a piece, even if he did not have permission to affix work to another’s property.

III. How Can We Protect Illegal Expression Like Graffiti Under Copyright?

A. Identifying Illegal Graffiti

For the analysis that follows, I will first identify instances where graffiti is illegal. Graffiti is illegal when it is created without permission from the owner of the surface upon which the graffiti is placed.[70] The graffiti can be illegal even when the graffiti does not harm the property owner; a graffiti painting may actually increase the value of the painted property, for instance, when it is placed on a run-down building, or when a famous graffiti artist creates it.[71] Even in those cases, however, the graffiti would still be considered illegal. Although creating graffiti could provide artists with the opportunity to receive monetary rewards for adding value to another’s property,[72] this potential does not justify the illegal act. If the owner consents to the artwork, no civil sanctions should occur because the act is covered under the owner’s property right (no matter how ugly or anti-aesthetic the graffiti is).[73] Property owners could even consent ex post facto to graffiti that was originally unauthorized. But whether such ex post consent would prevent criminal sanctions depends on the jurisdiction and on prosecutorial discretion. Consent plays an important role in determining the legal status of a graffiti work. For example, Banksy, Keith Haring and Jean-Michel Basquiat have all created graffiti pieces with the consent of the owners of the physical property on which they are embodied. The government of Bristol, United Kingdom decided to keep one of Banksy’s controversial graffiti pieces after an open poll showed that city residents favored preservation of the work.[74] The New York City government accepted the preservation of one of Haring’s murals, entitled “Crack is Wack,” and even renamed a playground after it.[75] Owners of works by Banksy and Jean-Michel Basquiat have offered their originals for sale at considerable prices, revealing the high value they saw in the works.[76] In these cases, property owners have embraced and accepted graffiti works that were embodied on their property, and the artists were never accused of any crimes. This ex post acceptance could provide a reason not to prosecute.[77] This is especially true where a government consents to a graffiti work, as it would be surprising if the same government both criminally prosecuted and rewarded a graffiti artist for his mural. Consent may even ratify the graffiti at 5 Pointz if the artists can show that the owner gave his implied consent.[78] Although the owner’s consent may not serve fully to deflect criminal charges under New York vandalism law, it might still help the artists fight any civil claims from the property owner. Some have argued that graffiti should not be illegal because it is protected under the constitutional right to freedom of speech. This is the view of many graffiti supporters, who maintain that a “real solution lies in a candid application of the First Amendment,” and that “graffiti falls under the realm of symbolic speech and therefore, should be afforded First Amendment protection and be subject to the rights and limitations of freedom-of-speech precedents.”[79] Internationally, political or meaningful graffiti could fall under freedom of speech protection when placed on public property.[80] In the Unites States, however, freedom of speech could protect graffiti in only a limited fashion, since regulations that are content-neutral, and which restrict time, place, and manner of expression, could validly restrict graffiti on public property. Content-neutral regulations are valid under first-amendment doctrine even when the public property in question could qualify as a public forum, such as a street or a park. In Members of City Council v. Taxpayers for Vincent,[81] the U.S. Supreme Court ruled that an ordinance prohibiting the posting of signs on public property did not violate the plaintiff’s freedom of speech, relying on precedent that established the the city’s “interest in avoiding visual clutter . . . was sufficiently substantial to provide an acceptable justification for a content-neutral prohibition against the posting of signs on public property.”[82] Content-neutral regulations that are aimed at a wide range of behaviour and only have an “incidental” effect on speech are permitted.[83] Under freedom of speech jurisprudence, a content-neutral restriction of time, place, and manner is accepted if it is “narrowly tailored to serve a significant governmental interest”[84] and “leaves open ample alternative channels for communication.”[85] For example, in Serra v. United States General Services Administration,[86] artist Richard Serra filed suit to prevent the removal of his Tilted Arc sculpture from public property, on the grounds that removal would violate his free expression rights.[87] Serra is not a graffiti artist, but this case is still illustrative due to its freedom-of-speech analysis. The United States government originally sanctioned and contracted the installation of Tilted Arc, although it later decided to remove the piece and change its location.[88] Serra maintained that Tilted Arc was site-specific, “designed for the Federal Plaza and artistically inseparable from its location,” and that removing the piece to another site would “destroy it,” depriving the work of meaning.[89] The court denied Serra’s complaint, stating that the removal of the sculpture was a permissible time, place and manner restriction.[90] This restriction conformed with the first-amendment requirements of “being narrowly tailored to serve a significant governmental interest”—namely, keeping the plaza clear of obstruction—and of there being “open ample alternative channels for communication of the information”–because there were other available means for Serra to express his artistic and political views that “did not entail obstructing the plaza”.[91] Similar arguments could be made regarding why graffiti may be regulated under the First Amendment. Where graffiti is restricted on a content-neutral basis, it may be difficult to overturn the restriction using freedom of speech jurisprudence.

B. Illegality Is Not a Basis for Denying Copyright Protection

Now that we have identified when a graffiti work is copyrightable and when it is illegal, I will discuss why we should protect graffiti under copyright. Protecting graffiti under copyright feels wrong, intuitively. How could we let graffiti artists benefit from their crimes? Can we reward them with copyright on the one hand, while punishing them criminally on the other? As a general legal principle, no one should benefit from his crimes. This principle is reflected in the Latin maxim ex turpi causa non oritur actio (“from a dishonorable cause, an action does not arise”). Courts have developed this principle as the doctrine of unclean hands: one cannot seek protection under the law if he has acted wrongly with respect to the matter of the complaint.[92] Does this mean that we cannot protect graffiti under copyright? I do not believe so. We should still grant protection to illegal graffiti because the wrongdoing (fixing the work on another’s property without permission) is not relevant to the copyrightability of the work itself. Copyright should be neutral towards works created by illegal means. Indeed, copyright law imposes no negative consequences for illegal acts. Civil sanctions and criminal penalties are sufficient punishment for bad actors; copyright exclusion would be an unnecessary addition.[93] Copyright is essentially a right in an intangible work, which is protected independent from its physical embodiment. Under copyright law, it is irrelevant if there are illegal elements in the tangible embodiment of a work (i.e., applying paint to a wall without the owner’s permission) or if the tangible embodiment of a work belongs to someone other than the author of the work. The rights (and wrongs) related to the work and to its tangible embodiment are independent, and one should not affect the other. Under the Copyright Act, “[o]wnership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. . . .”[94] As long as there is a physical means by which the work is fixed, copyright should not take into account precisely which physical means is used to create or fix the work when deciding whether to grant or deny protection. To illustrate this point, there are several examples outside of graffiti where copyright protects right-infringing works.[95] Copyright still attaches to photographs taken that violate privacy rights: a paparazzi photographer has obtained copyright protection over a picture that he took of a celebrity while violating her rights to privacy,[96] and a camp counsellor obtained copyright over a picture of a minor, taken without her parent’s permission.[97] A journalist has received copyright protection over an article that reveals state secrets.[98] A student may also obtain copyright protection for a painting of a minor killing a policeman, even though the work could constitute an illegal threat under criminal law.[99] Copyright protection is denied to a work only if the work itself violates copyright. If artist A’s work reproduces artist B’s old work without permission, then A’s work will not receive protection under copyright law. As the law establishes, “[P]rotection for a work employing preexisting material in which copyright subsists does not extend to any part of the work in which such material has been used unlawfully.”[100] Copyright law does not extend protection to works (or portions of works) that are created in violation of the exclusive rights of the same type that copyright law protects. If U.S. copyright law included a general “illegality clause,” then copyright would not protect works that offend any other body of law. Such clauses are contained in other copyright and trademark laws around the world.[101] U.S. copyright law does not include such a provision.[102] Presumably, general illegality clauses would not be accepted in an intellectual property system like that of the United States, where copyright’s purpose is to promote, not to discourage, expression. The unclean hands doctrine cannot be used to deny copyright protection to a work, unless the wrongful act alleged relates to the copyrightability of the work. The Fifth Circuit case Mitchell Brothers Film Group v. Cinema Adult Theater is illustrative of this point.[103] Mitchell Bros. Film Group (“Mitchell”) owned the copyright over an adult motion picture that was exhibited, without permission, on the premises of the Cinema Adult Theater (“Cinema”). When Mitchell sued for copyright infringement, Cinema alleged that the work was not copyrightable because its content was obscene. Cinema further responded that Mitchell could not sue, based on the unclean hands doctrine. Cinema’s argument was that if Mitchell’s motion picture was obscene and therefore illegal, then Mitchell would lack the “clean hands” necessary to claim legal protection under copyright law. The court, however, rejected Cinema’s argument and maintained Mitchell’s copyright. It explained “that there is not even a hint in the language of [the copyright act] that the obscene nature of a work renders it any less a copyrightable ‘writing’,” and interpreted this as a conscious decision by the legislature, designed to protect the broadest range of expressions.[104] The court also ruled that the doctrine of unclean hands was not applicable, because it requires that the plaintiff’s unethical behavior be related to the subject matter of the lawsuit. In other words, Mitchell’s obscene behavior was not related to the subject matter of its claim for copyright infringement. Specifically, the court stated: “The alleged wrongdoing of the plaintiff does not bar relief unless the defendant can show that he has been personally injured by the plaintiff’s conduct”[105] or that “the public injury . . . frustrate[s] the particular purposes of the copyright (or trademark or patent) statute.”[106] This suggests that the unclean hands doctrine might stand in a case like this, in the form of the copyright misuse doctrine.[107] The work would still be copyrightable, but the rights arising from copyright may not be enforceable against someone personally affected by the plaintiff’s conduct (such as, in graffiti, the owner of the wall), or where the particular purposes of copyright (“the promotion of originality”)[108] are frustrated in enforcing the rights over the work.[109] Mitchell illustrates the reason it is consistent to reward graffiti artists with copyright on the one hand, while punishing them with criminal sanctions on the other: just as Mitchell was subject to obscenity laws, graffiti artists are subject to vandalism laws. However, their work can still be protected under copyright, because vandalism does not preclude copyright protection.[110] As one commentator stated, “The defendant’s unethical behaviour would be vandalism, an act for which the artist may be criminally prosecuted” but that “is not the subject matter of a [copyright] infringement case.”[111] The clean hands analysis in Mitchell differs from the analysis in a typical graffiti case, however, in that Mitchell’s illegality resided in the content of the work, while the illegality in graffiti usually resides in the fixation of the work.[112] This difference, nevertheless, should not affect the analogy; in graffiti, the method of fixation itself could be considered part of the subject matter of the work. The work’s fixation provides context that could be regarded as part of the message of the work and its content. In both cases, moreover, the bad behavior of the author does not frustrate copyright’s purpose of promoting originality through exclusive rights.[113]

C. Illegal Art Can Be Protected in an Incentive-Based Copyright System

To complete the analysis, I still need to answer a fundamental question: how can we protect illegal art in an incentive-based copyright system? In such a system, the goal of copyright is to promote the creation of works that advance knowledge, or, as expressed in the United States Constitution, to “promote the progress of Science and the Useful Arts.”[114] Copyright historically protects works such as books, maps and charts, which are valuable for society. However, graffiti is made through illegal means and does not seem like the kind of work that was originally contemplated when the copyright system was established. If we protect graffiti, are we supporting and promoting the wrong type of creations? Would we be promoting the commission of illegal acts? In the face of the arguments supra, it has been claimed that a natural-rights based theory of copyright would be more suitable for protecting graffiti than an incentive-based one.[115] However, there are reasons that illegal art such as graffiti should still be protected under an incentive-based copyright system. Protecting graffiti is not the promotion of illegal acts, but merely the promotion of creative expressions, without looking into the legality of those expressions. Copyright does not incentivize artists to engage in illegal creative acts because copyright is neutral towards the legality of creative acts, as long as copyright laws are not violated. Granting copyright protection to graffiti will simply promote more art, regardless of whether that art is legal or illegal. Other bodies of law, such as criminal law, are charged with addressing the bad consequences of certain creative acts, but not copyright.[116] The copyright system may limit the undesirable or illegal consequences of enforcing a copyright by means of the copyright misuse doctrine; but this doctrine only stands to limit the enforceability of a copyright, not to determine the copyrightability of a work.[117] This is how illegal graffiti works can promote the progress of science and useful arts. Because copyrightable works do not need to be useful, as patentable inventions do, the Constitution does not restrict copyright protection to legal works only.[118] Furthermore, in an incentive-based copyright system it is not necessary that every work promote the progress of science, but instead, that the system as a whole promotes that desired end. The system does so by granting protection to all works, regardless of their legality. So concluded the court in Mitchell, maintaining that that the Copyright Clause of the U.S. Constitution was “best served by allowing all creative works (in a copyrightable format) to be accorded copyright protection regardless of subject matter or content.”[119] The court reasoned that:
“[B]y passing general laws to protect all works, Congress better fulfills its designated ends than it would by denying protection to all books the contents of which were open to real or imagined objection. . . . Judging by this standard, it is obvious that although Congress could require that each copyrighted work be shown to promote the useful arts (as it has with patents), it need not do so.”[120]
The Supreme Court has expressed a similar view in recent cases, stating that the Copyright Clause “empowers Congress to determine the intellectual property regimes that, overall, in that body’s judgment, will serve the ends of the Clause,” but not necessarily a system in which every element needs to serve the Clause’s goal.[121] Furthermore, as a practical matter, it is somewhat counterintuitive to believe that protecting graffiti under copyright would cause more artists to paint illegally on walls. On the contrary, granting protection may result in their looking for more legal places to paint. Copyright protection could help artists build their reputations faster and switch to painting legally on walls more quickly. Legal acceptance of the art form would also encourage graffiti artists, otherwise excluded by society, to accept the possibility of creating their art by legal means and help them to view the law as an ally rather than an obstacle. Many professional graffiti artists start painting on walls legally as their careers grow and their work becomes more prestigious, probably because it is very hard to develop an artistic career through illegal graffiti only.[122] Keith Haring, Jean-Michel Basquiat, Brazilian artists Os Gemeos, and many others switched to legal art when they gained renown, and realized the commercial potential of their work.[123] Of course, this does not mean that all graffiti artists would switch to legally painting if graffiti were copyrightable, since many artists choose to paint illegally in order to convey a rebellious message. However, copyright would give graffiti artists greater incentive to paint legally. Copyright is especially valuable for artists with growing reputations, as copyright protection could help them advance their careers. Although obtaining copyright protection for graffiti artists’ work would benefit all graffiti artists, it would benefit some more than others. It seems that copyright would be less valuable, for example, to spray-paint graffiti artists who write messages intended solely for the graffiti community, or to artists who reject property rights in general and do not want to keep control over reproductions of their works.[124] Conversely, copyright would be more valuable to artists who develop art for the broader community or who seek to commercialize their work.[125] Even though some graffiti artists would be unmoved by copyright’s incentives, we should still grant copyright protection to graffiti. Under the United States copyright regime, authors receive copyright protection for their qualifying works, regardless what motivated the author to create; it is not necessary that every work serves the Copyright Clause’s goal, but rather that the overall system does.[126]

IV. Challenges to the Enforcement of Artists’ Rights in Their Graffiti

As the examples and cases from Section I show, two important issues for graffiti artists are control over reproductions and preservation of works. We should keep in mind, however, that artists’ rights over their graffiti are limited. Indeed, an artist’s copyright extends only to the intangible aspect of the work, while rights over its physical embodiment remain with the property owner.[127] As a consequence, the owner of a wall containing graffiti could sell the original art piece as part of the structure that contains it, or as a separate item.[128] For example, the owners of a wall that had a Banksy piece affixed to it were able to sell their wall for $200,000.[129] The owner of the wall may also destroy the painting or paint it over completely. The new owner of a building that contained one of Banksy’s works recently did so in the UK,[130] and the same could have been done in the United States.[131] Wall owners can also defend their property against third parties who try to destroy, paint over, or remove original works that have been fixed without permission, as happened recently with two Banksy murals, removed from a factory in Detroit and from a hotel in London.[132]
Banksy’s “Gorilla in a Pink Mask,” Recently White-Washed and Restored[133]
JLo 2
JLo 3
JLo 1
  However, there are limits to the rights that graffiti artists can assert in their work. Because graffiti artists do not own the material embodiments of their work, and since artists violate property owner rights by painting their possessions without authorization, artists cannot claim any rights over the tangible embodiments of their unauthorized works. While artists have rights over the intangible aspect of their graffiti, including the right to prevent unauthorized reproductions, they have do not have equivalent rights regarding the tangible embodiment of their work, such as the right to preserve it in its original condition, against the wishes of the owner. But they may still have certain rights to protect the tangible embodiment from actions of third parties.

A. Challenges in Enforcing Copyright

Graffiti artists should hold the copyright over their work.[134] Holding a copyright means that an artist can prevent third parties from reproducing their work in copies[135] (for example, by taking pictures); preparing derivative works based upon the copyrighted work[136] (by including images of the graffiti in other media, such as videos or posters); and distributing copies of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending[137] (by commercializing or distributing images or other products which feature the graffiti). CaliKilla, Tats Cru and Villa enforced these rights in court when others reproduced their graffiti without permission and sold clothing, videos and books that infringed their copyrights.[138] The right to display the graffiti work publicly is a special case.[139] Despite being one of the rights granted by Copyright Law, the right to display could be considered a right in the tangible embodiment of a work, which should reasonably remain with the owner of the physical property in which the work is embodied.[140] This right to display also has a unique meaning in the context of graffiti because graffiti works are displayed publicly from their creation and being displayed publicly is part of their meaning.[141] Despite this fact, artists should not have the right to display their graffiti (or for that matter, not to display, after the graffiti is created) because they have no control over the tangible embodiment of their work, which belongs to someone else. Moreover, it should be noted that copyright actions may not prevail against a wall owner, who could allege a copyright misuse defense, showing that he has been personally injured by the plaintiff’s conduct.[142] The fact that a work is displayed in a public setting does not prevent an artist from enforcing these rights.[143] This is not true, however, in jurisdictions that provide exceptions for photographing or filming works displayed permanently to the public. This exception, with variations, exists in the United Kingdom,[144] Germany,[145] and New Zealand,[146] among other territories,[147] but not in the United States.[148] It has been pointed out that copyright protection for graffiti works could be problematic in practice because of the difficulty of establishing the authorship of unsigned works. Unsigned graffiti works may even qualify as “orphan works,” and reproducing them may entail significant infringement risk, at least until local laws address the issue of orphan works with proper legislation.[149] However, concerns over unsigned works are exaggerated. It is often easy to find a work’s author by asking the local graffiti community.[150] A work’s style, traces and colors usually make it relatively easy to find the artist; this is especially true today, with online communities of local artists and digital image search tools.[151] Moreover, many works are identifiable by their style even when they are not signed, and multiple artists are reachable through their websites where they publish pictures of their works.[152]

B. Challenges Under the Visual Artists Rights Act

The Visual Artist Rights Act (“VARA”) is also relevant for our analysis.[153] VARA, a piece of legislation inspired by continental moral rights and preservation laws,[154] grants authors of works of visual art the following rights: – Right of Authorship: Authors have a “right (1)(A) to claim authorship over their works; (1)(B) to prevent the use of his or her name as the author of any work of visual art which he or she did not create; and (2) to prevent the use of his or her name as the author of the work of visual art in the event of a distortion, mutilation or other modification of the work which would be prejudicial to his or her honor or reputation;”[155]Right of Integrity: Authors are entitled to prevent any intentional distortion, mutilation or other modification of that work which would be prejudicial to his or her honor or reputation. This excludes, however, modifications that are a result of the passage of time or the inherent nature of the materials.[156]Right Against Destruction: Authors have a right to prevent any intentional or grossly negligent destruction of a work of recognized stature.[157] The rights of integrity and against destruction do not protect the work from modifications that are a result of conservation, unless they are caused by gross negligence, or that result from the public presentation of the work, including lighting and placement.[158] VARA rights are preservationist in nature, since they only apply to the original works of art and not to reproductions.[159] Interestingly, there is only one court decision on the protection of illegal art under VARA to date. In English v. BFC & R. East 11th Street LLC,[160] the district court ruled that illegal murals could not be protected under VARA.[161] In this case, a group of six artists filed suit to prevent the removal of an art display in a community garden, consisting of several sculptures and murals, much of which had been set up without permission on New York City property.[162] The artists based their claims on their rights to integrity and against destruction under VARA.[163] The copyrightability of the work (the art display as a whole) was not discussed in the case. The district court dismissed the complaint on the grounds that VARA “does not apply to artwork that is illegally placed on the property of others, without their consent, when such artwork cannot be removed from the site in question.”[164] The court considered the special circumstances in which the case arose,[165] and reasoned that the illegality of the work, “[Was] a compelling argument [for preventing VARA protection], for otherwise parties could effectively freeze development of vacant lots by placing artwork there without permission. Such a construction of the statute would be constitutionally troubling, would defy rationality and cannot be what Congress intended in passing VARA.”[166] The court also rejected the plaintiffs’ arguments, based on the doctrine of estoppel, that the passage of time meant that the government accepted the works. According to the court, such a doctrine could not apply against the government’s inactivity.[167] The district judge did not expand on her reasoning about the potential problems with applying VARA to unauthorized art, but we may find arguments to support this finding in our analysis from Section III. The case’s finding is consistent with the application of the unclean hands doctrine. Under this doctrine, the artists could not invoke any rights over the tangible aspect of their work, including VARA rights that preserve the physical embodiment of the work, because the artists violated the city’s property rights over the same tangible object. In this case, the artists’ wrongdoings were relevant to preventing the application of VARA rights. The artists could not have gained rights over the tangible aspect of their works because the works were affixed onto another’s property without permission. Moreover, it would be unworkable to allow the author of an unauthorized work to claim the right to protect it, as this would prevent property owners from modifying their own possessions. In line with English, therefore, the owner of a wall can remove or destroy artwork affixed to that wall without being subject to the prior notification requirement of § 113(d)(2).[168] This is an interesting inference, considering that an important part of graffiti’s artistic meaning is its location on a public site.[169] Removing a graffiti piece from its site may be contrary to the creator’s artistic intent for the work,[170] but this artistic intent is not protected by VARA: (i) VARA cannot be invoked by an artist to protect the tangible aspect of a work, including its physical location, against modification by the owner of the property in which the work is embodied or situated, and (ii) in any event, VARA does not protect the public presentation and placement of a work.[171] Nevertheless, English should not be understood as excluding graffiti artists from having any claims under copyright law or under VARA. Under the reading proposed in this article, it is only the unclean hands doctrine and the property owner’s rights that prevent graffiti artists from asserting rights under copyright or VARA. Therefore, English should not be read as preventing simple copyright claims over unauthorized works.[172] The court’s ruling on VARA’s scope does not affect copyright protection against unauthorized reproductions of works. As the Copyright Act expressly provides, “ownership of [VARA] rights with respect to a work of visual art is distinct from ownership of any copy of that work, or of a copyright or any exclusive right under a copyright in that work.”[173] The copyright holder can enforce his exclusive rights even if VARA rights are not enforceable. Moreover, despite the ruling in English, artists may still have two types of claims under VARA:
1. Claims of Attribution over the Work
Artists could still enforce their VARA right of attribution over the original work. Since this right is not directly linked to the tangible aspect of the work, it is not pre-empted by an artist’s illegal acts. Because graffiti artists do not have rights over the physical embodiment of their work, they lack the right to affix their name to the physical painting on the wall; but they should still be able to claim attribution in other ways, for instance, by preventing others from claiming that they produced the work. Artists could still enforce a claim of attribution against any offenders, including the owner of the wall in some cases. Artists may not prevent wall-owners from erasing their signature on the wall, but they can still prevent owners from claiming that they authored the work. Because the owner made no authorial contribution to the work, they cannot claim authorship. Some have argued that graffiti artists would be unlikely to claim attribution, as doing so might draw unwanted attention from police and ultimately lead to criminal liability.[174] This may not be the case, however, because the life of VARA rights and the statute of limitations for VARA infringements may be longer than the statute of limitations for graffiti penalties.[175] Therefore, an artist might claim attribution without fearing prosecution.
2. Claims against Third Parties to Protect the Integrity of the Work and to Prevent Destruction of the Work
Graffiti artists could still enforce their VARA rights against third parties who have no rights in the physical property.[176] By painting illegally on the city’s property, the plaintiffs in English did not forfeit their VARA rights. Instead, they simply could not enforce them against the city (the victim of their illegal paintings) due to the unclean hands doctrine. However, the doctrine of unclean hands would not apply towards unaffected third parties, because the artists did nothing wrong towards them. Thus, VARA rights should remain fully applicable against third parties. In other words, although VARA rights to the integrity of a work and against destruction would not be enforceable against the owner of the property, they could be enforced against everyone else, such as bystanders who paint over a work or destroy it, including José Carlos Martinat.[177] However, in the context of graffiti, it is worth noting some factors that may prevent application of the VARA rights of integrity and against destruction to third parties. The right to integrity is shaped by the graffiti community’s codes of honor and reputation. Artists generally know that their work might be ephemeral and that someone else could paint the wall with other art or bring the wall back to its original state.[178] Some artistic modifications of the work are foreseen and expected by graffiti artists, and as such, might not implicate the artist’s right of integrity.[179] The rules of the graffiti community can help us evaluate whether a modification affects the honor and reputation of the artist or not. For example, if an artist responds to overlapping graffiti on his work with a new graffiti (she does not just restore the original work, but she creates a new work in response to the intervention), then its reasonable to think that there is an artistic dialogue and that the modification of the work does not “prejudice the author’s honor or reputation,” because modifications are understood to be an element of graffiti art.[180] The VARA right against destruction of a work, may be difficult for graffiti artists to use, as it only applies to works of “recognized stature.”[181] It may be difficult for many graffiti works to qualify for this status. Courts have interpreted the recognized stature requirement as a two-tiered standard, which demands: “(1) that the visual art in question has ‘stature’ i.e. is viewed as meritorious, and (2) that this stature is ‘recognized’ by art experts, other members of the artistic community, or by some cross-section of society.”[182] In graffiti art, this requirement was met in one case where the work was “a community work that exhibits the concerns of the community.”[183] The accepted work was a mural containing anti-drug, anti-alcohol and anti-smoking messages.[184] However, it is uncertain that the requirement would be met with regular street art that has no communitarian educational message in particular, or that was created by less than well-known artists. Some pieces by well-known graffiti artists would probably fulfill the recognized stature requirement without any communitarian or educational message because art experts, other members of the artistic community, and society as a whole recognize their stature.[185] However, works by less-famous artists may have more difficulty meeting the recognized stature standard.[186] This uncertainty is of real concern to artists who must embark on extensive legal research before litigation.[187]


In this article, I have argued that graffiti can and should be protected under copyright law. When an unauthorized graffiti work complies with the minimum requirements for copyright protection it should be protected under copyright law despite its illegality. This is because copyright should be neutral towards works created by illegal means. Copyright assigns rights over the intangible aspects of a work only; it does not exclude works that have been tangibly fixed in an illegal manner. This is true even under an incentive-based copyright system such as the one established by the United States Copyright Act. Illegal graffiti works are creative acts that comply with copyright’s goal of “promoting the Progress of Science and useful Arts.”[188] Protecting graffiti, moreover, may have the consequence of incentivizing graffiti artists to create more legal works. I have also explored the challenges that artists face when enforcing rights over their graffiti, both under the Copyright Act and VARA. Graffiti has a unique position in relation to copyright’s nature and scope. While “many people are too quick to view street art through the lens of vandalism,”[189] copyright law cannot simply dismiss graffiti works. Graffiti works must be treated on equal footing with other artistic works for the purposes of copyright law, without being discriminated against due to their illegality. Copyright protection is valuable to all graffiti artists since it gives them the ability to assert artistic control over how their works are reproduced and shared. It may be true that copyright is for losers, as Banksy has expressed.[190] But even if that is the case, graffiti artists should still have the option to be losers.
* Visiting IP Scholar, Kernochan Center for Law, Media & the Arts, Columbia Law School. Intellectual Property Law Professor, Universidad Torcuato Di Tella (Buenos Aires, Argentina). I am thankful to Jane Ginsburg, June Besek, Morgan Friedman, Agustin Waisman, Kali Nicole Murray, Michelle Pham, Jonny Robson and the Graffitimundo team in Argentina, the JIPEL editorial team, Philippa Loengard, and the participants of the Current Issues in Copyright seminar at Columbia Law School for their useful comments.
[1] This article focuses on United States copyright law. Many international examples will be used throughout this paper; however, they are used only as illustrative fact patterns, and all legal issues should ultimately be interpreted under US copyright law.
[2] U.S. Const. art. I, § 8, cl. 8.
[3] “Never before have we seen public art reach such a scale as we now see with the works of Blu, or become so pervasive as we see with Shepard Fairey’s, or so copied as that of Banksy, or so delicate as that of Swoon.” See Marc & Sara Schiller, Preface to Carlo McCormick et al., Trespass: A History Of Uncommissioned Urban Art 10 (Ethel Seno ed., 2010).
[4] See Magda Danysz & Mary-Noëlle Dana, From Style Writing To Art: A Street Art Anthology 18 (2011); see also Anna Waclawek, Graffiti and Street Art (2011) (surveying graffiti’s evolution).
[5] Lisa Gottlieb, Graffiti Art Styles: A Classification System And Theoretical Analysis 49 (2008).
[6] Even though many artists prefer to distance themselves from this word due to its illegal connotations, using this single term simplifies the analysis. I follow the practice of other writers who analyze graffiti art. See, e.g., Nicholas Ganz, Graffiti World 10 (Tristan Manco ed., 2004).
[7] “Letters used to dominate but today the culture has expanded: new forms are explored, and characters, symbols and abstractions have begun to proliferate.” Id. at 7.
[8] Graffiti: (Top left) King157, Oakland Graffiti Art (2008), Flickr, (photograph by Anarchosyn (2009)); (Top center) A Graffiti Mecca on Borrowed Time, N.Y. Times (Aug. 28, 2011), nyregion/20110828POINTZss-6.html?_r=0 (photograph by Todd Heisler/N.Y. Times); (Top right) Graffiti in Derby, UK, Flickr, (photograph by Orangeacid (2006)); (Bottom) Graffiti Mecca, supra, (photograph by Todd Heisler/N.Y. Times).
[9] Danysz, supra note 4, at 18.
[10] Id. at 19.
[11] Street art: (Top) Dave the Chimp, Human Beins (2009) in Christian Hundertmark, The Art Of Rebellion III: The Book About Street Art 54 (2010); (Bottom Left) L’Atlas, Gaffer Tape on Concrete (2010) id. at 15; (Bottom Right) Chu & Tec, Efectos Colaterales del Tamiflu [Side Effects of Tamiflu] (2009), Flickr,
[12] Even when replicated, it could be argued that there is uniqueness to each piece, despite the stencil mechanism. Stencil is an artisanal painting method, not a mechanical one.
[13] Stencil: (Left) Graffitimundo, (last visited Mar. 15, 2013) (sixth photograph in the homepage slideshow); (Center) Banksy, Flower Thrower; (Right) Stencil Land, Metal Gaucho, Graffitimundo, (last visited Mar. 15, 2013).
[14] Recently, for example, Stephan Keszler’s Gallery in the Hamptons has had street art works appraised for $200,000. Anny Shaw, Banksy Murals Prove To Be an Attribution Minefield, The Art Newspaper (February 16, 2012) [hereinafter, Banksy Murals], available at Banksy’s graffiti art has been sold in the United Kingdom for £200,000. Wall Painted by Banksy Sells for £200,000 – but the New Owner Must Also Fork Out To Move the Brick Canvas, MailOnline (Jan. 15, 2008, 9:16 AM) [hereinafter “Wall Painted”],–new-owner-fork-brick-canvas.html. In the film Exit Through the Gift Shop (Paranoid Pictures 2010), the narrator mentions, “Now, no serious contemporary art collection would be complete without a Banksy.”
[15] See David Cameron Presents Barack Obama with Graffiti Art, BBC News (July 21, 2010, 5:25 AM),
[16] An exhibition in Bristol by graffiti artist Banksy was among the top 30 most visited global exhibitions in the period 2008–2009. See Banksy Graffiti Works Enter World Exhibition Top 30, BBC News (Mar. 31, 2010, 2:02 AM), A group of artists is planning a new International Street Art Museum in Los Angeles. See Museum of International Street Art, index.html (last visited Feb. 22, 2013).
[17] See, e.g., Ganz, supra note 5; Roger Gastman & Caleb Neelon, The History of American Graffiti (2011); Hundertmark, supra, note 11; Riikka Kuittinen, Street Art: Contemporary Prints (2010); Jaime Rojo & Steven P. Harrington, Street Art New York (2010); see also Ket, Street Art: The Best Urban Art from Around the World (2011); Alain Maridueña, New York City: Black Book Masters (2009); Eleanor Mathieson & Xavier A. Tàpies, Street Artists: The Complete Guide (2009); Style Needs No Color, Schwarz Auf Weiss (2009); Guilherme Zauith & Matt Fox-Tucker, Textura Dos: Buenos Aires Street Art (2010).
[18] Peter Rosenstein with text by Isabel Bau Madden, Tattooed Walls (2006).
[19] See David Gonzalez, Walls of Art for Everyone, but Made by Not Just Anyone, N.Y. Times, June 4, 2007, at B1, available at
[20] Id.
[21] Id.
[22] See infra Part IV.A.
[23] See Gonzalez, Walls of Art for Everyone, supra note 19.
[24] Villa v. Brady Publ’g, No. 02 C 570, 2002 WL 1400345, at *1 (N.D. Ill. June 27, 2002).
[25] Id. at *3.
[26] Villa v. Pearson Educ., No. 03 C 3717, 2003 WL 22922178, at *1 (N.D. Ill. Dec. 9, 2003).
[27] E-mail from Hiram Villa. Pres., Momentum Art Tech., to Celia Lerman, Visiting IP Scholar, Kernochan Center for Law, Media & the Arts, Columbia Law School (Feb. 8, 2012) (on file with author).
[28] Hrag Vartanian, Street Artist Triumphs Over Urban Outfitters in Copyright Case, Hyperallergic (Sept. 20, 2011), cali-killa-urban-outfitters/.
[29] Id.
[30] Markus Balser, Cantwo Says “Can Not!” to Spanish Swimmers, Wall St. J. (Sept. 9, 2008, 4:44 PM), cantwo-says-can-not-to-spanish-swimwear/.
[31] Id.
[32] He told the Wall Street Journal: “Despite some color changes: To my mind the cartoon-style character was clearly taken from an artwork I sprayed on a wall legally in Muenster in 2001. [. . .] I have absolutely no idea how this Graffiti made its way to the Olympic stage, but I know: I can’t accept that somebody is copying my work, the work I have to live on.” Id.
[33] See Dean R. Karau, Will Spain’s Olympic Synchronized Swim Team Be Sunk by German Graffiti Artist?, Fredrikson & Byron P.A. (Sept. 2008)
[34] See David Gonzalez, Graffiti Muralists Reach Settlement in Case of Contentious Fiat 500 Commercial, N.Y. Times, (Dec. 2, 2011, 6:00 AM),
[35] Karen McVeigh, 5Pointz: New Yorkers Prepare To Say Goodbye To a Slice of Hip-Hop History, Guardian (Jan. 17, 2012, 12:43 PM),
[36] “‘This is a cultural landmark, not only for New York, but for hip-hop culture worldwide’ says Steve Harrington, the author of the book Street Art New York. . . .‘We need to keep our cultural institutions protected and preserved.’” Marlon Bishop, Queens Graffiti Mecca Faces Redevelopment, W.N.Y.C. (Mar. 7, 2011),; see also Robin Finn, Writing’s on the Wall (Art Is, Too, for Now), N.Y. Times, Aug. 27, 2011, at MB1, available at
[37] Clem Richardson, Word on His Street Is Art Businessman Offers Artists a Place To Create Murals, N.Y. Daily News (June 5, 2000, 12:00 AM),
[38] McVeigh, supra note 35; Averie Timm, Owner Says Queens Graffiti Mecca 5Pointz Will Stay for Now, but Not Forever, Village Voice (Apr. 8, 2011, 5:11 PM),
[40] See N.Y. Penal Law § 145.60 (McKinney 1992), which bars the making of graffiti without “the express permission of the owner or operator” of the property. See also N.Y. City Admin. Code § 10-117 (McKinney 2006) which is the municipal regulation barring graffiti without the “express permission of owner or operator of the property.”
[41] See infra Part III.A. Unfortunately, given the confidential nature of the matter, I was unable to obtain more details regarding Wilkoff’s consent and the relationship between Wilkoff and Meres One during my visit to 5Pointz in January 2012.
[42] See Claudio Iglesias, Pared Contra Pared [Wall Against Wall], Página/12 (Nov. 14, 2010), 9-6612-2010-11-14.html.
[43] See Paredes Robadas: Street Art Theft in Buenos Aires, Graffitimundo (Oct. 15, 2011),
[44] Id.
[45] See id.
[46] See id.
[47] Interview with Jonny Robson, Co-Founder, Graffitimundo, in Buenos Aires, Arg. (December, 2011). Graffitimundo is an organization dedicated to increasing awareness of the rich heritage and dynamic culture of street art, based in Buenos Aires. See About Us, Graffitimundo, (last visited April 6, 2013).
[48] See Iglesias, supra note 42.
[49] Id.
[50] See N.Y. Penal Code § 145.60 (McKinney 2012) (“1. For the purposes of this section, the term “graffiti” shall mean the etching, painting, covering, drawing upon or otherwise placing of a mark upon public or private property with intent to damage such property. 2. No person shall make graffiti of any type on any building, public or private, or any other property real or personal owned by any person, firm or corporation or any public agency or instrumentality, without the express permission of the owner or operator of said property. Making graffiti is a class A misdemeanor.”). Other states such as California, Colorado, Connecticut, Florida, Hawaii, Idaho, Illinois, Nevada, New Jersey, New Mexico, Oklahoma, Pennsylvania, Tennessee, Utah and Washington also criminalize graffiti activity. See Ralph E. Lerner & Judith Bresler, Art Law: The Guide for Collectors, Investors, Dealers, and Artists 947 (2005).
[51] See N.Y. Penal Code § 145.65 (McKinney 2012).
[52] See N.Y. City Admin. Code § 10-117 (2012) (on the defacement of property, possession, sale and display of aerosol spray paint cans, [and] broad tipped markers and etching acid prohibited in certain instances). See also L.A., Cal., Mun. Code ch. 1 § 47.11; Cal. Penal Code § 594; Colo. Rev. Mun. Code § 34-66.
[53] 17 U.S.C § 102a (2013).
[54] See Arthur Miller & Michael H. Davis, Intellectual Property in a Nutshell 294 (2000).
[55] 17 U.S.C. §101 provides that a work is fixed “when its embodiment [. . .] by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.”
[56] Keith Haring started his career painting illegal art in the New York subways from 1980 to 1985. See About Haring, The Keith Haring Foundation, (last visited April 6, 2013).
[57] Id.
[58] As per 37 C.F.R. § 201.1(a), “Words and short phrases such as names, titles, and slogans; familiar symbols or designs; mere variations of typographic ornamentation, lettering or coloring; mere listing of ingredients or contents” are not protected under copyright. It should be noted, however, that even despite not being protected by copyright, signatures could potentially be protected by other rules such as trademark law. See Justin Hughes, Size Matters (or Should) in Copyright Law, 74 Fordham L. Rev. 575, 583 (2005) (noting courts have given small pieces of expression intellectual property protection).
[59] 37 C.F.R. § 201.1.(e) establishes: “The following are examples of works not subject to copyright and applications for registration of such works cannot be entertained: [. . .] (e) Typeface as typeface.” See also Eltra Corp. v. Ringer, 579 F.2d 294 (4th Cir. 1978) (holding that the design submitted did not qualify as a “work of art” under the Copyright Law.
[60] Graffiti (left to right): Paul Insect (2008), Banksy (2011).
[61] See 17 U.S.C. § 101 (defining “fixation”).
[62] A period more than transitory duration needs not be more than a few minutes. See Advanced Computer Servs. of Mich., Inc. v. MAI Sys. Corp., 845 F. Supp. 356, (E.D. Va. 1994) (finding that a “random access memory (RAM) representation of copyrighted computer software program is sufficiently ‘fixed’ to be a ‘copy’ protected by Copyright Act when program is loaded from computer’s hard drive to RAM and maintained there for minutes or longer, even though RAM representation of program disappears when the computer is turned off”).
[63] Under 17 U.S.C. § 101, A “work of visual art” is—
(1) a painting, drawing, print, or sculpture, existing in a single copy, in a limited edition of 200 copies or fewer that are signed and consecutively numbered by the author, or, in the case of a sculpture, in multiple cast, carved, or fabricated sculptures of 200 or fewer that are consecutively numbered by the author and bear the signature or other identifying mark of the author; or (2) a still photographic image produced for exhibition purposes only, existing in a single copy that is signed by the author, or in a limited edition of 200 copies or fewer that are signed and consecutively numbered by the author.
A work of visual art does not include–


(i) any poster, map, globe, chart, technical drawing, diagram, model, applied art, motion picture or other audiovisual work, book, magazine, newspaper, periodical, data base, electronic information service, electronic publication, or similar publication;

(ii) any merchandising item or advertising, promotional, descriptive, covering, or packaging material or container;

(iii) any portion or part of any item described in clause (i) or (ii);

(B) any work made for hire; or

(C) any work not subject to copyright protection under this title.

[64] See §101.
[65] Under §101, paintings and drawings should be signed and numbered to be considered a “work of visual art,” and that sculptures should be numbered and bear the signature or other identifying mark of the author.” § 101(1).
[66] Id.
[67] Id. (listing visual forms of art—painting, drawing, print, or sculpture).
[68] Article I, Section 8, Clause 8 of the United States Constitution grants authors the exclusive right to their respective writings. It is codified in 17 U.S.C. § 201(a).
[69] See § 202 (“Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. . . . ”). See also Forward v. Thorogood, 985 F.2d 604 (1st Cir. 1993).
[70] Such is the definition of graffiti in state laws, see supra note 48.
[71] See Banksy Graffiti Can Push Up Property Price, The Sun (October 20, 2010), available at 3187949/Banksy-graffiti-can-push-up-property-price.html.
[72] If the graffiti is sold, graffiti artists could potentially benefit from the value they add to others’ property by the doctrine of accession, under which one who has “taken the property of another, and altered it in substance of form by his own labor” that “results in a change in the identity or an increase in the value of the property, the right to the property in its changed condition” may belong to the improver. See American Jurisprudence 2D, Accession and Confusion §1. I thank Columbia Law School students Laura Mergenthal and Jessica Fjeld for this observation. Nevertheless, this doctrine would rarely apply to graffiti, since graffiti is normally not done in good faith and it does not transform the substance of the property to which it is applied.
[73] However, in Los Angeles it is against zoning laws to create graffiti murals even with authorization and on private property. See L.A., Cal. Mun. Code ch. 1 §§ 14.4.2, 14.4.4, 14.4.20, 19.01. These regulations could be considered an unreasonable restriction of the property owner’s rights, and there are local efforts to obtain their repeal. See Los Angeles Mural Ordinance Would Legalize New & Vintage Murals, Huffington Post (December 8, 2011, 6:15 PM), AFQjCNFn7r7x0BX0gqFXgGojHYecCMM-Mg.
[74] One controversial example involving Banksy is his depiction of “a woman in underwear, her jealous husband, and her naked lover dangling from a window ledge,” painted on the wall of a clinic for venereal diseases in Bristol, United Kingdom. The clinic decided to keep the artwork, after a poll conducted by the Bristol City Council in which 93% of people voted in favor of the painting’s preservation. See Arifa Akbar, Art Or Eyesore? Public Asked If Banksy’s Mural Should Stay, The Independent, (June 23, 2006), available at
[75] Keith Haring illegally painted the “Crack is Wack” mural in a plaza in Harlem, New York City. After Haring’s death, the New York City government embraced the mural and the plaza was renamed “the Crack is Wack Playground.” For a description of the park, see Crack is Wack Playground Highlights, N.Y.C. Parks, (last visited April 6, 2013).
[76] See Wall Painted, supra note 14 (noting wall painted by Banksy sold for £200,000); Liza Ghorbani, The Devil on the Door: Could a Painting on a Dope Dealer’s Storefront Be the Last Work of Jean-Michel Basquiat?, N.Y. Mag. (Sept. 18, 2011) (describing Jean-Michele Basquiat’s door), available at
[77] As noted above, New York defines the offense of graffiti: “No person shall make graffiti of any type on any building, public or private, or any other property real or personal owned by any person, firm or corporation or any public agency or instrumentality, without the express permission of the owner or operator of said property.” N.Y. Penal Code § 145.60 (McKinney 2013). Upon first impression, the statute would not appear to permit ex post acceptance. However, as noted elsewhere in this piece, prosecutors would be unlikely to press charges when the victim welcomes the supposed intrusion.
[78] See Baumgart v. Spierings, 86 N.W.2d 413, 415 (WI 1957). Acceptance from the owner could be analogous to “implied consent to trespass,” as a physical analog. Implied consent to trespass occurs when the subject reasonably believes that the property is open to public.
[79] See J. Tony Serra, Graffiti and U.S. Law, in McCormick, supra note 3, at 313; see also L. L. Hanesworth, Are They Graffiti Artists or Vandals? Should They Be Able or Caned?: A Look at the Latest Legislative Attempts to Eradicate Graffiti, 6 DePaul J. Art & Ent. Law 225 (1995–1996); Kelly P. Welch, Graffiti And The Constitution: A First Amendment Analysis Of The Los Angeles Tagging Crew Injunction, 85 S. Cal. L. Rev. 205 (2011). In a separate but related line of arguments, other scholars have justified graffiti as a minor form of rebellion against an unjust government, according to a just war theory criterion. See Daniel J. D’Amico & Walter Block, A Legal And Economic Analysis Of Graffiti, in 23 Humanomics no. 1, 2007, at 29.
[80] Consider political or activist paintings under an oppressive regime, such as the paintings of the Mothers of Plaza de Mayo in the Plaza de Mayo square in Argentina, a sign of protest and remembrance for their children who went missing during the “dirty war.” The paintings have been regarded as legal, given their ties to freedom of speech, and were protected against later overlapping paintings by relatives of military members. See Cruces entre Madres y Pando por las pintadas en la Plaza, Infobae, (last visited April 7, 2013). Also, consider the use of Pixação in Brazil during its military dictatorship in the 1980’s. Pixação is a distinct type of graffiti art that developed in the poor neighborhoods of São Paulo as part of a social protest towards the dictatorship’s economic regime. It was pervasive and actively combated by the Brazilian government. See Simon Romero, At War With São Paulo’s Establishment, Black Paint in Hand, N.Y. Times, January 28, 2012, at A5; François Chastanet, Pixação: São Paulo Signature (2007).
[81] 466 U.S. 789 (1984).
[82] Id. at 806–807 (citing Metromedia, Inc. v. San Diego, 453 U.S. 490, 507–508 (1981) (White, J., plurality opinion)).
[83] See United States v. O’Brien, 391 U.S. 367, 376 (1968). Freedom of speech may be ineffective against anti-graffiti laws if it is considered that these laws may “further[] . . . important or substantial governmental interests,” and those interests are “unrelated to suppression of free expression,” id. at 377; and “the incidental restriction on alleged First Amendment freedom is no greater than is essential to furtherance of that interest.” Id.
[84] Clark v. Cmty. for Creative Non-Violence, 468 U.S. 288, 293 (1984).
[85] Lerner & Bresler, supra note 50, at 901.
[86] 847 F.2d 1045 (2d Cir. 1988).
[87] Id. at 1048.
[88] Id. at 1047. The decision to remove the sculpture was made after a public hearing in which artists, civil leaders, employees at the Federal Plaza complex, and community residents participated. Id.
[89] Id.
[90] Id. at 1049.
[91] Id. at 1045. The court decided to remove the sculpture “[n]otwithstanding that the sculpture is site-specific and may lose its artistic value if relocated.” Id. at 1050.
[92] The law “refuses to lend its aid in any manner to one . . . who has been guilty of unlawful or inequitable conduct in the matter,” because the law seeks to “prevent a party from taking advantage of its own wrong.” 30A C.J.S. Equity § 109 (2013).
[93] It should be noted that any state punishment involving stripping of copyright could create preemption issues. See Garner v. Teamsters, 346 U.S. 485, 498 (1953) (noting that “when two separate remedies are brought to bear on the same activity, a conflict [between state power and federal power] is imminent”). Analogous reasoning leads to the conclusion that to further punish graffiti artists beyond the sanctions imposed by the criminal justice system would disrupt these sanctions’ “fit” to the crime, possibly interfering with the legislative balancing of remedies in the criminal vandalism and civil copyright contexts. It could be objected that, in all unclean hands doctrines involving criminal acts, the infringer receives “additional punishment” when trying to benefit from the illegal act. I do not think this is correct: a successful unclean hands defense is not an additional punishment; rather it is the logical consequence of the same punishment, and thus does not violate the Eighth Amendment. We must remember that unclean hands prevent the plaintiff from benefitting from “inequitable activity regarding the very matter for which he seeks relief.” Mahaffy v. City of Woodson Terrace, 609 S.W.2d 233 (Mo. App. 1980). If the unclean hands defense arises from the very same matter that gave place to the punishment, then there is no additional punishment. See also Mitchell Bros. Film Group v. Cinema Adult Theatre, 604 F.2d 852, 863 (5th Cir. 1979) (quoting Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 245 (1933)) (stating that “the maxim of unclean hands is not applied where plaintiff’s misconduct is not directly related to the merits of the controversy between the parties, but only where the wrongful acts ‘in some measure affect the equitable relations between the parties in respect of something brought before the court for adjudication’”). In graffiti, it could reasonably be interpreted that a graffiti artist would have unclean hands if he tried to claim rights over the physical graffiti wall (the very matter of his wrongdoing: trespassing or damaging property), but not over the immaterial work in it (based on the clear distinction that copyright law provides between a protected work and its physical embodiment). Under this interpretation, sanctioning the artist by denying copyright protection to him would be a sanction from a different matter, and thus could constitute an additional punishment.
[94] See 17 U.S.C. § 202.
[95] Although in the following examples the infringers were not always criminally prosecuted, there was a potentially criminal charge that could have been raised to introduce an unclean hands defense. Moreover, we can still identify a civil offense in each case. These cases are still helpful to illustrate why an author can obtain copyright over a work even when the act of creation of the work can be considered unlawful. [Note: I believe that it does not matter whether these authors were actually criminally prosecuted as long as they could have been prosecuted: graffiti artists are often not prosecuted, though they could still have been liable.]
[96] See, e.g., Complaint for Plaintiff, Mavrix Photo Inc. v. (C.D. Cal. Oct. 12, 2010) (No. 10-7591), where a celebrity photography agency filed for copyright infringement of it picture of pregnant actress Penelope Cruz, which it took without permission. The judge finally dismissed the case without issuing an opinion.
[97] Alison Chang, whose photo taken by her youth counselor was distributed over the Internet and used by Virgin Mobile Australia without her consent, under a Creative Commons License. See Laura A. Heymann, Boundaries Of Intellectual Property Symposium: Crossing Boundaries: How To Write A Life: Some Thoughts On Fixation And The Copyright/Privacy Divide, 51 Wm. & Mary L. Rev. 825, 827 (2009). The counselor held copyright in the picture even though it was unauthorized by Chang and violated her privacy rights. While the photograph might technically have been unauthorized, the counselor uploaded the photo to Flickr and issued a license under Creative Commons. Id. Ultimately the court dismissed the suit for lack of personal jurisdiction without ruling on whether Chang could have asserted an invasion of privacy claim. Id. at 828, n. 10. For a further discussion of the relationship of privacy and copyright, see Susy Frankel, The Copyright and Privacy Nexus, 36 Victoria Univ. Wellington L. Rev. 507 (2005).
[98] Such is the case of journalist Robert D. Novak’s Mission to Niger article in the Washington Post, where he revealed the identity of CIA agent Valerie Plame. Robert D. Novak, Mission to Niger, Wash. Post (July 14, 2013), AR2005102000874.html. Novak was finally not convicted, but the reasoning would have been the same if he had been convicted.
[99] See Lerner & Bresler, Art Law, supra note 50, at 907 (citing In re Ryan D., 100 Cal. App. 4th 854 (Cal. Ct. App. 2002)). The juvenile court found that the minor made a criminal threat in violation of section 422 of the California Penal Code, but the decision was reversed on appeal. 100 Cal. App. 4th at 857, 858.
[100] 17 U.S.C. § 103(a).
[101] China has such a provision in Art. 4 of the Chinese copyright law. See Kong Qingjiang, The Doctrine of Ordre Public and the Sino-US Copyright Dispute, 2008 LAWAISA L. J. 34 (2008). Moreover, refusing trademark protection of signs that violate the local public order or morality is permitted by art. 6quinquies(B)(3) of the Paris Convention for the Protection of Industrial Property.
[102] Similarly, the court in Mitchell Bros. Film Group asserted: “The history of content-based restrictions on copyrights, trademarks and patents suggests that the absence of such limitations in the Copyright Act of 1909 is the result of an intentional policy choice and not simply an omission.” 604 F.2d 852, 854 (1979).
[103] 604 F.2d 852 (5th Cir. 1979); see also Jartech, Inc. v. Clancy, 666 F.2d 403, 406 (9th Cir. 1982) (endorsing the Mitchell court’s views).
[104] Id. at 854.
[105] See id. at 863. However, the court cites Lawler v. Gillam, 569 F.2d 1283, 1294 (4th Cir. 1978), a case that was later overruled, so its application should be reconsidered. Moreover, this case bases its quotation in J. Pomeroy, A Treatise on Equity Jurisprudence § 399, while the Mitchell court also says that “an equitable doctrine should not be applied in a way that will frustrate the purpose of a federal statute.” Mitchell, 604 F.2d at 864. Therefore, the requirement of “personal injury” should be carefully evaluated. Indeed, one could envision a regime in which the unclean hands defense would only apply if the artist brought suit against the property owner him or herself. In such a case, the court might reason that the dispute itself arises from the artist’s violation of the law and therefore has not entered the court with “clean hands.”
[106] Id.
[107] “[C]opyright misuse exists when plaintiff expands the statutory copyright monopoly in order to gain control over areas outside the scope of the monopoly. . . . The test is whether plaintiff’s use of his or her copyright violates the public policy embodied in the grant of a copyright.” In re Napster, Inc. Copyright Litigation, 191 F. Supp. 2d 1087, 1103 (N.D. Cal. 2002) (citing Practice Mgmt. Info. Corp. v. American Med. Assoc., 121 F.3d 516 (9th Cir. 1997)).
[108] Mitchell, 604 F.2d at 865 (emphasis added).
[109] In the context of applying the copyright misuse doctrine, such frustration of copyright’s purpose has been understood as “anticompetitive conduct,” Kathryn Judge, Rethinking Copyright Misuse, 57 Stan. L. Rev. 901, 924 (2005), “expansion of rights,” id. at 904, 925 (2005) (“any attempt by the copyright holder to extend the scope of his copyright beyond the exclusive rights granted to him under the Copyright Act,”), “abuse of process,” id. at 928–929 (such as when “a copyright holder uses the implicit or explicit threat of litigation to expand the scope of his monopoly,” for example by “‘advising would-be copiers that they are infringers even when the proposed copy would be a fair use’”) (quoting William F. Patry & Richard A Posner, Fair Use and Statutory Reform in the Wake of Eldred, 92 Cal. L. Rev. 1639, 1654 (2004)), or “principled guidelines,” id. at 930 (“copyright misuse arises when a copyright holder attempts to extend the scope of his copyright if in doing so he crosses certain lines identified as central to copyright policy”). Enforcing copyright in graffiti does not grant the artists broader rights in a work than those intended by copyright law; protecting graffiti may involve criminal and property law concerns, but not copyright-policy related concerns. It is hard to imagine how graffiti could be a misuse that frustrates the particular purposes of copyright.
[110] This could be one explanation for the ruling in Villa v. Brady Publishing, in which the court assumed that a graffiti piece, which was photographed and published in a book without artist Villa’s consent, was copyrightable. Villa v. Brady Publ’g, No. 02 C 570, 2002 WL 1400345, at *3 (N.D. Ill. June 27, 2002). For this point, it is not relevant that vandalism laws are often at the state level, whereas copyright is a federal system. Laws that prevent graffiti and obscenity are both state level, and thus make Mitchell analogous to illegal graffiti cases.
[111] See Stacie Sandifer, Unauthorized and Unsolicited: Is Graffiti Copyrightable Visual Communication?, 12 J.F.K. U.L. Rev. 141, 145 (2009).
[112] In graffiti, the act of fixation is not illegal under copyright law, given that under 17 U.S.C. § 101, fixation only demands “the authority of the author,” but not of the owner of the physical medium containing the work. However, the act of fixation may still be illegal under applicable criminal laws.
[113] The Mitchell court noted, “[L]imiting copyright protection on a broad public injury rationale would lead to absurd and unacceptable results. Unless the public injury rationale is limited . . . to misuses that frustrate the particular purposes of the copyright (or trademark or patent) statute, [the doctrine of unclean hands does not apply].” 604 F.2d at 864. I do not believe that limiting copyright protection based on an individual property owner’s trespass harm could be seen as a sufficiently well-targeted not to create “absurd results” of the type feared by the Mitchell court. Damage to individual property may count only to prevent copyright enforcement against the wall owner (for example, by application of a copyright misuse defense), but not to conclude that the work should receive no copyright protection at all.
[114] See U.S. Const. art. I, § 8, cl. 8.
[115] Owen Morgan, Graffiti – Who Owns The Rights?, Univ. of Auckland Bus. Sch., Working Paper 13 (Sept. 2006). Under a natural-rights based theory, works are protected because they spring from the author’s creation, not because they serve to promote a valuable goal like the progress of science. Id.
[116] See, e.g., Dream Games of Arizona v. PC Onsite, 561 F.3d 983 (9th Cir. 2009), (holding that the illegal operation of a copyrighted work (an electronic bingo videogame that had been offered in Utah and Wyoming where had been ruled to be illegal) did not preclude an award of damages).
[117] “The copyright misuse doctrine permits a court to refuse to enforce a copyright when the copyright owner has engaged in certain types of misconduct, particularly in licensing. If misuse is found, the copyright remains unenforceable until the owner purges itself of the misuse.” Julie E. Cohen, Lydia Pallas Loren, Ruth Gana Okediji & Maureen A. O’Rourke, Copyright in a Global Information Economy 671 (3d ed. 2002). Copyright misuse prevents copyright enforcement but does not denying absolute copyright protection.
[118] In the U.S. Constitution, moreover, the copyright clause is really “two provisions merged into one. The purpose of the first provision is to promote the progress of Science by securing to authors, for limited times, the exclusive rights to their Writings. The word ‘science’ in this context means knowledge in general, which is still one of its meanings today. The other provision is that Congress has the power to promote the Progress of useful arts by securing for limited times to inventors the exclusive right to their Discoveries.” H.R. Rep. No. 1923, 82d Cong. 2d Sess. 4 (1952), in Martin J. Adelman et al., Cases and Materials on Patent Law 18 (1998). This means that, constitutionally, the role of copyright is to promote the progress of science, and the usefulness of the individual works is not evaluated. Usefulness in patent law, moreover, was only originally interpreted as “legality”—i.e., “not . . . frivolous or injurious to the well-being, good policy or sound morals of society”, as Judge Story expressed in Lowell v. Lewis. 15 F.Cas. 1018, 1019 (Cir. Ct., D. Mass. 1817). In later cases, however, it was established that “where the device has several possible uses, of which only one may offend public policy, the courts have been reluctant to conclude that the invention does not possess utility.” See Martin J. Adelman et al.., op. cit., at 183. The same principles could be applied to graffiti art.
[119] Mitchell, 604 F.2d at 855.
[120] Id. at 856.
[121] See Golan v. Holder, 132 S.Ct. 873, 876 (2012) (emphasis added); Eldred v. Ashcroft, 537 U.S. 186, 222 (2004). Copyright engages in what is often called by the court as a “delicate balancing test” where many factors have been taken into account. As John Rawls has noted on the analysis of consequentialist rules, even when a rule is justified on utilitarian grounds, each action under that rule need not be justified also on a utilitarian basis. The reasons for justifying a rule are conceptually independent from the reasons justifying each action falling under that rule. See John Rawls, Two Concepts of Rules, in The Philosophical Review 64 (1955): 3-32.
[122] As graffiti artist Schmoo has expressed, “Many of the more serious writers end up taking all of their writing to the legal yards and walls.” Graffiti expert Susan Farrell explains that “that some of the most detailed and intricate pieces are done on legal walls, where writers can work undisturbed.” See Susan Farrell & Art Crimes, Graffiti Q & A,, (last visited April 7, 2013).
[123] Banksy is a special case because he has created unauthorized works throughout his career. Nevertheless, he is also a paradoxical example because his growth and media attention are closely related to people’s wide acceptance of his works, after they are created. Banksy’s case cannot be generalized.
[124] These artists are more “often motivated by the danger inherent in putting up the piece” than by the prospects of obtaining exclusive rights. Many of them want to share their works fully with the community and reject the idea of copyright. As graffiti experts Marc and Sara Schiller note, “Instilled in these artists is the concept that images and ideas are there to be co-opted, manipulated, and then transferred freely around the world.” McCormick, supra note 3, at 10. In his book Wall and Piece, Banksy expresses that “Copyright is for losers ©™,” despite having asserted copyright over said book. Banksy, Wall and Piece (2005). In the first page of the book, Banksy states, “[A]gainst his better judgment, Banksy has asserted his right under the [UK] Copyright, Designs and Patent Act, 1988 to be identified as the author of this work.” Id. at 1.
[125] One example is Shepard Fairey with his Obey line of works. While Obey started as a sticker and poster street art, today it has grown into a line of collectibles and clothing. See Manifesto, Obey Giant, (last visited April 7, 2013); Obey Clothing (last visited April 7, 2013).
[126] See supra note 121.
[127] This statement is in line with 17 U.S.C. § 202 (2006).
[128] We could interpret that the artist abandoned the physical work—the graffiti paint on the wall—which the owner of the wall now owns. Therefore, under the first sale doctrine, successive sales of the physical piece would produce no earnings or royalty fees for the artist. 17 U.S.C. §109 establishes that “(a) Notwithstanding the provisions of section 106 (3), 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.”
[129] See supra note 76.
[130] In July 2011, the new owner of the building that held one of Bansky’s first works painted over it. The owner did not know that the graffiti was Banksy’s and he whitewashed the wall to prepare it for his upcoming Muslim social center. See Banksy’s Gorilla In A Pink Mask Is Painted Over, The Guardian (July 15, 2011), available at
[131] Cf. Serra v. United States Gen. Servs. Admin., 847 F.2d 1045 (2d Cir. 1988).
[132] A Banksy mural was removed by artists of the non-profit space 555 Galleries from an abandoned car plant owned by Bioresource Inc. Biosource filed a lawsuit seeking the return of the mural. Moreover, when Banksy’s work “Sperm Alarm” was removed from London’s Hesperia Hotel, the alleged remover was charged with theft. See Anny Shaw, Banksy Murals. This rule would apply only if the graffiti did not violate any further regulations or time/place/manner restrictions, such as zoning regulations (see supra note 73). But see Margaret L. Mettler, Graffiti Museum: A First Amendment Argument for Protecting Uncommissioned Art on Private Property, 111 Mich. L. Rev. 249 (2012) (arguing that private property owners who wish to keep uncommissioned art on their property can successfully claim that graffiti abatement ordinances and sign regulations, as applied, violate their First Amendment speech rights).
[133] See supra note 130.
[134] See U.S. Constitution, art. I, § 8, cl. 8; 17 U.S.C. §201.(a), which grant the copyright to the author. As explained above, the wall owner would have no claim to the copyright, because he did not make any authorial contribution to the graffiti artwork: owning the physical embodiment of a work does not give the owner any title to the copyright. See supra note 68.
[135] § 106(1) (2006).
[136] § 106(2).
[137] § 106(3).
[138] See Villa v. Pearson Educ., Inc., No. 03 C 3717, 2003 WL 22922178 (N.D. Ill. Dec. 9, 2003); Gonzales, supra note 34, at 8; Vartanian, supra note 28, at 7.
[139] § 106(5).
[140] See supra note 69.
[141] See Susan Farrell & Art Crimes, Graffiti Q & A (1994), (where graffiti artist Schmoo expresses, “Graffiti is meant to be a public display.”).
[142] See Mitchell 604 F.2d at 24; see also Belcher v. Tarbox, 486 F.2d 1087, 1088 (9th Cir. 1973) (holding “fraudulent content is not a basis for denying copyright protection to a work, and is not a defense to infringement”) (citing Dream Games of Arizona, Inc. v. PC Onsite, 561 F.3d 983, 990 (9th Cir. 2009)). The wall owner, victim of the graffiti crime, could also potentially claim the transfer of any profits derived from the graffiti (even by third parties), as a matter of victim restitution. See N.Y. Exec. Law § 632(a) (McKinney 2011) (under which the victims (or in some cases, the state) obtains a right to any profits or income derived from the wrongful act). However, besides the unclean hands arguments against these potential claims, there is a content-based restriction argument. See Simon & Schuster, Inc., v. Members of New York State Crime Victims Bd., 502 U.S. 105, 512 (1991) (ruling unconstitutional a law that mandated the Crime Victims Board be paid all income from a book on a crime written with the assistance of the criminal, noting the law “ has singled out speech on a particular subject for a financial burden that it places on no other speech and no other income. The state’s interest in compensating victims from the fruits of crime is a compelling one, but the Son of Sam law is not narrowly tailored to advance that objective. As a result, the statute is consistent with the First Amendment.”).
[143] Despite what many photographers—such as Peter Rosenstein—think. See Gonzalez, Walls of Art for Everyone, supra note 19, at 6.
[144] Copyright, Designs and Patents Act, 1988, c. 48, § 62 (U.K.).
[145] Urheberrechtsgesetz, [UrhG] [Copyright Law], September 9, 1965, BGBL. I at 59(1), last amended by Gesetz [G], May 8, 1998, BGBl. I at 59 § 1 (Ger.).
[146] Copyright Act 1994, part 3(63) (N.Z.).
[147] Directive 2001/29/EC, of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society, 2001 O.J. (L 167) art. 5(3)(h).
[148] A similar exception in the U.S. only covers architectural works in buildings; graffiti works fall outside of this exception.17 U.S.C. § 120(a) (2006).
[149] Henry Lydiate, Street Legal, 336 Art Monthly 41, 41 (2010) (defining orphan works as works whose rights-holders are unlocatable); see Robert A. Gorman, Jane C. Ginsburg & R. Anthony Reese, Copyright Cases and Materials 528–29 (8th ed. 2011).
[150] Interview with Jonny Robson, Co-Founder of Graffitimundo, in Buenos Aires, Arg. (December 2011).
[151] See Marisa A. Gomez, Note, The Writing on Our Walls: Finding Solutions Through Distinguishing Graffiti Art From Graffiti Vandalism, 26 U. Mich. J. L. Reform 633, 645 (1993).
[152] See Murals, Graffiti Style, Art Crimes Directory, (last visited Feb. 23, 2013) (compiling a complete list of artists and graffiti local communities); Sara Schiller & Marc Schiller, Wooster Collective, (last visited Feb. 23, 2013) (showcasing street art).
[153] 17 U.S.C. § 106A (2006).
[154] Christopher Robinson, The “Recognized Stature” Standard in the Visual Artists Rights Act, 68 Fordham L. Rev. 1935, 1935–36 (2000).
[155] 17 U.S.C. §§ 106A(a)(1)–(2) (2006).
[156] §§ 106A(a)(3)(A), (c)(1).
[157] § 106A(a)(3)(B).
[158] § 106A(c)(1).
[159] § 106A(c)(3) (“The rights described in paragraphs (1) and (2) of subsection (a) shall not apply to any reproduction, depiction, portrayal, or other use of a work in, upon, or in any connection with any item described in subparagraph (A) or (B) of the definition of ‘work of visual art’ in section 101, and any such reproduction, depiction, portrayal, or other use of a work is not a destruction, distortion, mutilation, or other modification described in paragraph (3) of subsection (a).”).
[160] English v. BFC & R East 11th St. LLC, No. 97 Civ. 7446, 1997 WL 746444 (S.D.N.Y. Dec. 3, 1997).
[161] Id. at *5.
[162] Id. at *1.
[163] Id. at *2.
[164] Id. at *5.
[165] Several particulars of English seem to have affected the legal outcome more than the court expressed. First, English was preceded by an action brought by a New York gardens preservationist group (to which some of the English plaintiffs belonged) that unsuccessfully sought to enjoin the building’s development on environmental, zoning and real property arguments. See English v. BFC & R East 11th St. LLC, No. 97 Civ. 7446, 1997 WL 746444 at *1, n. 2 (S.D.N.Y. Dec. 3, 1997); In re New York City Coal. for the Preservation of Gardens v. Giuliani, 670 N.Y.S.2d 654 (N.Y. Sup. Ct. 1997). The court seems to have been careful about not applying VARA when the main intentions of the plaintiffs are to stop building development for non-artistic reasons. See English v. BFC & R East 11th St. LLC, No. 97 Civ. 7446, 1997 WL 746444 at *1 (S.D.N.Y. Dec. 3, 1997). Secondly, the murals at stake would not have been destroyed or touched, but instead would have been moved from public site by the construction of the building. Id. at *3. VARA does not prevent modifications which are based on the placement or lighting of a work.
[166] Id.
[167] Id. at *4.
[168] 17 U.S.C. §113(d)(2) (2006).
[169] McCormick, supra note 3, at 51 (“Location is everything; context and content are ultimately the most measurable difference between what is written in the bathroom stall and the profound bravado of more heroic feats [of graffiti].”).
[170] Anny Shaw, Banksy Murals Prove To Be an Attribution Minefield, The Art Newspaper, Feb. 16, 2012, available at (“[T]he artist’s belief [is that] that these works have been executed for the public to view and appreciate . . . [w]e do not condone [their] removal.”)(quoting street art specialist for Bonhams, Gareth Williams).
[171] § 106A(c)(2).
[172] For examples of simple copyright claims over unauthorized works, see those analyzed supra, Section IV.A.
[173] § 106A(e)(2).
[174] See Morgan, supra note 115, at 12–15; Stacie Sandifer, Unauthorized and Unsolicited: Is Graffiti Copyrightable Visual Communication?, 12 John F. Kennedy Univ. L. Rev. 141, 149 (2009).
[175] 17 U.S.C. § 106A(d)(1) (2006) (VARA rights “[e]ndure for a term consisting of the life of the author”); § 507(b) (statute of limitations is three years); N.Y. Penal Code § 30.10.2.(c) (McKinney 2008); N.Y. Penal Code § 145.60 (McKinney 1992). The statute of limitations of a graffiti offense, in New York, for example, where making graffiti is a class A misdemeanor is two years. Id.
[176] See, e.g., English v. BFC & R East 11th St. LLC, No. 97 Civ. 7446, 1997 WL 746444 (S.D.N.Y. Dec. 3, 1997), although this case doesn’t expressly deal with enforcement of rights against third parties.
[177] See supra Section I.
[178] For Schmoo and other graffiti artists’ views on having their graffiti pieces painted over, see Susan Farrell & Art Crimes, Graffiti Q & A, (last visited Feb. 23, 2013) (“When you become a writer, you know that your stuff won’t last forever. It is just accepted that either society won’t allow it, or other writers won’t. Battling and competition have been a part of graf [sic.] since its inception . . . [O]n the same note, graffiti is a temporary art form, like improvisational theatre. You take pictures of your pieces to remember them, and share them with other writers, but you know that your piece soon will be gone.”) (quoting Schmoo).
[179] Danysz, supra note 4 at 12 (“In graffiti . . . art, the codes are very precise, shaping a language that has been built over the years and transmitted from one artist to another.”). Artists often do not conceive of their works as static pieces, but as artwork immersed in an artistic dialogue, in which it is highly likely that another artist will come and intervene with their work. Consider, for example, the recent Robbo/Banksy artistic dialogue in the Camden Canal in London. In 1985, Robbo painted one of England’s first and best known graffiti pieces. This piece was later covered by several taggers and damaged by years without repainting; until in 2009, Banksy modified the art on the wall and created a new piece based on Robbo’s. That intervention started an artistic dialogue between both artists, where the artists “bombed” (covered up) each other’s work on the wall over a period of two years. For the evolution of the dialogue as documented on Banksy’s website, see Camden Canal, Banksy, (last visited April 7, 2013) The dialogue was also covered in detail in the documentary Graffiti Wars (Channel 4 in the United Kingdom 2010).
[180] See Massachusetts Museum of Contemporary Art Found. v. Büchel, 593 F.3d 38, 54 (1st Cir. 2010); Carter v. Helmsley-Spear, Inc., 861 F. Supp. 303, 323 (S.D.N.Y. 1994) (noting case law suggests that the damage to honor and reputation should be interpreted as the “injury or damage to plaintiffs’ good name, public esteem, or reputation in the artistic community”); see also H.R. Rep. 101-514, at 15 (1990), as reprinted in 1990 U.S.C.C.A.N. 6925, 6926 (“The formulation for determining whether harm to honor or reputation exists must of necessity be flexible. The trier of fact must examine the way in which a work has been modified and the professional reputation of the author of the work. Rules 701–706 of the Federal Rules of Evidence permit expert testimony on the issue of whether the modification affects the artist’s honor or reputation.”) (emphasis added). The standard used is not analogous to that of a defamation case, where the general character of the plaintiff is at issue, but rather “the artistic or professional honor or reputation of the individual as embodied in the work that is protected.” 17 U.S.C. § 106A(a)(3) (2006). In this context, the rules of the graffiti community will play a fundamental role in evaluating the affection to honor and reputation. Thus, if the Robbo/Banksy dialogue had taken place in the United States, it could be argued that Robbo could not assert his rights of integrity against Banksy once he consented to the dialogue. VARA’s right to integrity stifles the artistic dialogue to some extent, because the artist will decide if integrity is preferred to the dialogue or vice versa).
[181] 17 U.S.C. § 106A(a)(3)(B) (2006).
[182] Carter, 861 F. Supp. at 325.
[183] Hanrahan v. Ramirez, 1998 WL 34369997 (C.D. Cal. 1998).
[184] Michelle I. Bougdanos, The Visual Artists Rights Act and Its Application to Graffiti Murals: Whose Wall Is It Anyway?, 18 N.Y. L. Sch. J. Hum. Rts. 549, 564 (2002) (citing Hanrahan v. Ramirez, 1998 WL 34369997 (C.D. Cal. 1998) (finding that an anti-drug, alcohol and smoking mural had recognized stature)); see also Robinson, supra note 143, at 1954.
[185] For example, works of artists that are featured in specialized books on graffiti, or that are included in national and international graffiti and street art meetings like the Meeting of Styles, would fulfill the recognized stature requirement. See Meeting of Styles: Frequently Asked Questions, Wall Street Meeting, (last visited April 7, 2013).
[186] See Matilda Battersby, Mr. Brainwash: Banksy’s Street-Art Protégé And His Latest Brainwave, The Independent (August 3, 2012), This would include works by self-promoted artists, who take pictures of their works and upload them to their websites. In this line, it would be interesting to see if works by self-promoted artist Mr. Brainwash, the controversial protagonist in Banksy’s film, Exit Through the Gift Shop (2010), would be regarded as works of recognized stature if they are not recognized by the community, despite Mr. Brainwash’s fame.
[187] See McCormick, supra note 3, at 313.
[188] U.S. Const. art. I, § 8, cl. 8.
[189] McCormick, supra note 3, at 11.
[190] Banksky, supra note 124, at 10.

The Recent DOJ and FTC Policy Suggestions for Standard Setting Organizations – The Way out of Standard-Essential Patent Hold-Up

The Recent DOJ and FTC Policy Suggestions for Standard Setting Organizations – The Way out of Standard-Essential Patent Hold-Up
By Jonas Hein* A pdf version of this article may be downloaded here.  


“What hasn’t been said about patent hold-up in standard setting organizations (SSO)?” the discerning reader might ask. Since its beginnings[1] the issue has spurred an immense amount of research, has found its way into numerous litigations, and yet still appears to puzzle courts, economists and lawyers.[2] Antitrust agencies all over the world are discussing the problem. In the US, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) are focusing their efforts on reviewing the Intellectual Property Rights (IPR) policies of SSOs. Recently, both Renata Hesse,[3] Deputy Assistant Attorney General at the DOJ, and Joseph F. Wayland,[4] then Assistant Attorney General of the FTC, have introduced policy suggestions aimed at reducing the likelihood of hold-up in the standardization process.[5] This article focuses on three of these suggestions. It argues that while Hesse and Wayland address the crucial issues of standard-essential patent hold-up, they remain precariously vague on pivotal points and overlook important repercussions of their suggestions. Presumably this will leave SSOs in a disturbing haze of uncertainty. Both brevity and my intention to focus on a specific issue prompt me to establish some preliminary assumptions. I assume that patent hold-up does exist,[6] that it results in significant deadweight loss,[7] and that it reduces incentives of market players to invest in standard-specific applications, which are crucial to consumer welfare.[8] Therefore I assume that hold-up can result in inefficient accumulation of market power. Before analyzing the individual suggestions in detail and formulating a conclusion, expedience suggests providing a brief overview of patent hold-up and the standard setting process in SSOs.

I. Patent Hold-Up, Standard-Essential Patents, and Standard Setting Organizations

In Law and Economics the hold-up problem is seen as a form of duress.[9] A party to a contract uses the investment costs its counterpart incurred in reliance on reciprocal compliance as leverage to extract a return higher than the value of its contractual performance. To understand this, consider the following:
Example 1: A has won a machine with which he intends to produce widgets. As it happens, no worker skilled in the use and maintenance of widget machines can be found. Therefore, A agrees to the following: B will undergo widget-machine training that costs $1200 paid by A. Upon completion of this training, B will operate the machine for its entire 12-month durability at a monthly salary of $100. After B has successfully completed the training, he insists on a monthly salary of $199.91 instead.[10]
Here, B is holding up A by expropriating the return of his investment that cannot be recovered (so-called sunk costs).[11] Economists and intuition suggest that, once incurred, sunk costs should not influence a firm’s subsequent economic decisions.[12] A should ignore the costs of the training when comparing B’s offer to alternative strategies. He could either pay B a total wage of $2399 or he could pursue an alternative strategy by paying for training and wage of C, which, absent hold-up, would total $2400. Clearly, A has no rational choice but to accept the offer. Assume that the value of widget operation is the amount A and B agreed upon in the initial agreement, i.e. $100. Then B has extracted a wage that exceeds the market value of his labor by an amount slightly less than the cost of A’s alternative strategy. The specific hold-up problem this paper addresses pertains to the standardization process in SSOs. Standards can be defined as “any set of technical specifications that either provides or is intended to provide a common design for a product or process.”[13] They are especially important for modern, high technology products. For instance, they ensure interoperability and make possible the use of networks, such as mobile telephone networks or the Internet.[14] The pro-competitive benefits of standards are unanimously accepted.[15] Notwithstanding, standardization carries some potentially anticompetitive baggage because it reduces competition to provide consumers with more choice.[16] Standardization processes usually take place in private standard setting organizations, in which competing firms participate as members in a standard’s adoption.[17] For a number of reasons, the existence of SSOs is a conspicuous matter from the point of view of antitrust law.[18] First, they provide a communication forum amongst competitors that arguably facilitates collusion.[19] Furthermore, standardization processes can increase prices for consumers for the sake of other motives, e.g. social utility. For example, the members might agree to standardize certain minimum quality thresholds or eligibility requirements, sparing the consumer low quality goods but depriving them of the choice.[20] Finally, members might also be tempted to impose standards where there is no immediate need for them. This can decrease consumer choice and restrict competition for best designs.[21] Nonetheless, the general desirability of standardization has led to widespread acceptance of SSOs.[22] All that should be noted here is that the legality of the existence of SSOs is not obvious from the perspective of traditional antitrust doctrine. As we will see, this has implications for the limits of SSO policies and bylaws. Now, to understand the type of hold-up relevant to this paper, consider the following:
Example 2: Firms A, B, and C are members of the D-SSO and are seeking to set a standard relevant to mobile phones. Once adopted, B and C, who are manufacturers of mobile phones, invest considerably in production sites, equipment and design of their new cell phones based on the standard. After a while, A discloses that it in fact owns a patent essential[23] to and incorporated by the standard. What will A do?
Quite possibly, A will now demand royalty fees from B and C. This would not be of significance if not for the threat of A obtaining an injunction against the manufacture or sale of the cell phones by B and C. According to the standard view in the literature on patent hold-up, the threat of injunctive relief provides the patent holder with leverage to extract a royalty rate that exceeds the value of the patents’ contribution to the end product.[24] In other words, as in example 1 above, A can potentially extract a royalty rate from both B and C that is slightly below their respective sunk investment costs. On this view, the peculiarities of the standardization process make it susceptible to the misuse of patents and allow for the amplification of the effect of hold-up behavior. SSOs have reacted to this problem by implementing intellectual property rights (IPR) policies that structure the standardization process. These policies include obligations on the members that aim to protect manufacturers and assure uninhibited standard adoption and implementation. Yet, SSOs are confronted with a governance dilemma: the more extensive and effective the policy, the less attractive membership becomes and the lower the willingness of members to provide their efforts and technology to the adoption of a standard.[25] On the other hand, a lax IPR policy can raise serious anticompetitive concerns attracting the attention of antitrust agencies.[26] It is of no surprise then, that SSO IPR policies and their treatment of standard-essential patent hold-up have become central issues for antitrust law.

II. The Policy Suggestions

This section will focus on three of the policy suggestions for SSOs that have been made by both Joseph Wayland and Renata Hesse. It should be mentioned that Wayland and Hesse proposed these suggestions in speeches at international conferences, and thus they carry no binding legal weight. However, because FTC and DOJ enforcement decisions are largely discretionary, market participants will most definitely monitor any public comments made by antitrust officials. The suggestions will therefore likely have an immediate effect on the conduct of SSOs. The following three recommendations will form the basis of my analysis: (I) adopting disclosure requirements, (II) implementing rules concerning the permissibility of cross-licenses, and (III) limiting injunctive relief for patents subject to reasonable and non-discriminatory (RAND) commitments.[27] The analysis will be structured in three steps. After presenting the specific suggestion and explaining its context, the article will identify the problem at its core by skimming relevant literature and case law. Finally, the article will analyze whether the suggestion appropriately addresses the contentious issues. This framework is meant to elucidate the strengths and weaknesses of each suggestion and will lend support for the article’s conclusion.

A. Disclosure

1. The Policy Suggestions
With their first suggestion, Hesse and Wayland propose the adoption of disclosure rules for standardization processes. SSO members are to identify “in advance, if any proposed technology path involves IP which the patent holder has not agreed to license on RAND terms.”[28] Disclosure requirements are not at all new and can vary greatly in their scope and determinateness.[29] Essentially, they require some sort of publication of patents possibly tangential to the technology area of the standard.
2. The Problem
Patent hold-up is more likely to occur where SSO members are imperfectly informed about the existence of patents the adopted standard will be encumbered by. Yet, the patent application process does little to mitigate the issue. Patent applications are kept secret for 18 months after their filing date.[30] This will often allow patent holders to delay disclosure until after the standard is set. It leaves the other SSO members behind a “veil of ignorance”[31] which is only lifted after the “fundamental transformation” of the market has taken place.[32] In other words, while different technologies competed for inclusion before standardization, now competition for substitution is restricted as lock-in[33] and network effects[34] make redesign costly and unprofitable.[35] Moreover, patent law may even incentivize opportunism. A particularly egregious example of this is the divisional application procedure.[36] A divisional patent application is filed after a “parent” application has been filed and is pending. Such applications can “carve out” part of the subject matter of parent applications that encompass more than one invention. The result is, assuming the applications are successful, the grant of two (or more) individual patents by the United States Patent and Trademark Office (USPTO).[37] Alas, patent law considers the effective filing date of this type of subsequent application to be that of the parent application.[38] To understand how a divisional application can be misused in the standardization process, consider the following:
Example 3[39]: Firm B is a member of the D-SSO and is participating in a standardization process. It files an overly broad patent application with the USPTO that pertains to the technology potentially covered by the standard. By including more than one invention in the application, B ensures that it lacks the “unity of invention” condition to patentability.[40] The USPTO will now demand the “application to be restricted to one of the inventions.”[41] Because of its participation in the continuing standardization process, B knows which technology the standard covers. Therefore, B files a “divisional application” that “carves out” this technology from the parent application as an individual invention. Once the patent is granted, B sues its competitors for infringement.[42]
Strikingly, the Federal Circuit has approved the practice of amending a patent application with the intention “to cover a competitor’s product the applicant’s attorney has learned about during the prosecution of a patent application.”[43] Granted, “the new claims must find adequate support in the original application.”[44] Nonetheless, a firm participating in a standard setting process can secretly tailor an original application to encompass technologies it now knows are essential to the standard. Subsequently, it can hold-up competitors locked-in by sunk investments by threatening injunctions in order to procure unreasonable royalty payments.[45] Such conduct has also been the subject of antitrust litigation. In Rambus Inc. v. FTC[46] the court was confronted with a monopolization claim under § 2 of the Sherman Act brought by the FTC against Rambus, a developer of computer memory technologies. The FTC accused Rambus of using its membership in JEDEC, an SSO, to gain “information about the pending standard, and then amend[ing] its patent application to ensure that subsequently-issued patents would cover the ultimate standard.”[47] The court disagreed with the FTC on the monopolization claim. It had not been shown whether absent the alleged deception, JEDEC would either have used a “nonproprietary standard” or extracted a RAND commitment from Rambus.[48] If the FTC could not prove the former, it had only proven deceptive behavior, which in itself did not constitute an antitrust violation.[49] The case shows the vice and virtues of disclosure rules. First, JEDEC had adopted an IPR policy with a disclosure requirement. However, it proved insufficient in the case of divisional patents. In a case brought by one of Rambus’ competitors, the court found the requirement far too imprecise to create an obligation to disclose future plans to “modify applications.”[50] Arguably, had JEDEC’s disclosure requirement been more precise, Rambus would more likely have felt obligated to disclose its pending divisional patent applications. On the other hand, the case also shows that deception itself is not sufficient for a monopolization claim. The court required a showing of a harm “to the competitive process” precisely because of the deception.[51] In light of this, it is conceivable that the mere existence of a precise disclosure rule in a SSO’s IPR policy would not subject all forms of deceptive behavior to antitrust liability. Thus, a proposal to establish disclosure requirements is not surprising. It is consistent with the agencies’ earlier remarks[52] and has been mentioned by scholars as a tool to mitigate hold-up.[53] Rules for disclosure aim to enable participants to weigh the costs of available standardization paths in order to find the most cost-efficient outcome available. In this way they prevent the inefficient acquisition of market power.[54] The question of concern here is: does the policy suggestion address the contentious issues?
3. Analysis
The policy suggestion is, perhaps intentionally, unclear on which mechanisms would be most helpful in confronting patent hold-up. This section will focus on three possible mechanisms.[55]
i. Pure Disclosure Rule
A simple disclosure rule requires SSO members to inform other members of patents relevant to a possible technology path that are not yet subject to a RAND licensing obligation.[56] Such a rule would not however require a member to make specific RAND licensing commitments ex ante. The goal is generally to “minimize the possibility of inadvertent infringement of the IPR.”[57] However, while a pure disclosure rule certainly is helpful in some cases, it falls short of effectively countervailing patent hold-up.[58] Most SSOs have adopted disclosure rules in their patent policies.[59] Yet, as Rambus shows, IPR policies with pure disclosure requirements are often not sufficient to prevent hold-up. Therefore, it is unclear why Wayland and Hesse are stating the obvious, rather than addressing the more pressing questions. Are SSOs concerned about what constraints antitrust law places on the extent and permissibility of further-reaching ex ante disclosure mechanisms?[60] For example, could SSOs require disclosure of maximum royalty rates and most restrictive licensing terms?[61] Is a rule that establishes joint negotiation on licensing terms by SSO members or the SSO itself permissible?[62] The DOJ and FTC have principally accepted both joint negotiation and most restrictive licensing terms and have signaled their intent to apply mere rule of reason scrutiny in the past.[63] Surprisingly however, the suggestions make no mention of them. This silence is striking as it aggravates existing legal uncertainty. Notwithstanding, it seems necessary to assess whether these rules could potentially alleviate the hold-up problem.
ii. Joint Negotiation Rules
A joint negotiation procedure would enable SSO members to collectively negotiate the licensing terms of a patented technology during the standardization process. Such a rule would necessarily accompany an ex ante disclosure requirement as described above. Critics of joint negotiation rules focus on two efficiency concerns: allocative[64] and dynamic efficiency.[65] It is argued that joint negotiation rules could lead to a loss in allocative efficiency resulting from monopsony power[66] on behalf of the licensees.[67] Standard monopsonist models assume a static deadweight loss as the result of a decrease in demand below competitive levels.[68] Yet, Farrell et al. claim that such concerns are not relevant to IP licenses as supply curves in these markets are flat.[69] This is also true for the marginal cost curve of intellectual property, which equals zero.[70] This is because the use of an additional unit is cost-free. It follows that the price of a license is not a function of the buyers’ demand. Therefore, if the use of monopsony power by the jointly acting buyers leads to a reduction of the royalty rate of the patent, the amount of supply will not be affected. The effect of monopsony power is unnoticeable and the relation between demand and supply is much like in a competitive market.[71] The purchase of an additional unit does not affect the price of those already purchased. For antitrust purposes this is important because even if the royalty fee is set at a sub-competitive level on account of monopsony power, this merely leads to “redistribution of surplus from the sellers to buyers.”[72] However, a resource allocation problem, i.e. a decrease in total supply, does not ensue. If this is the case, rule of reason applies and SSOs can provide pro-competitive justifications by proving dynamic efficiencies resulting from joint conduct.[73] Specifically in the case of ex ante joint negotiations, SSOs could allege that they simply reschedule licensing negotiations to occur before lock-in and network effects take hold. In doing so, they mitigate the market power of patent holders and thereby allow for more vigorous price competition before standard adoption.[74] This could decrease royalty rates and lower prices of end products. But in the longer term, monopsony could lead to unsustainably low royalty rates thereby ultimately deterring future innovation.[75] Gregory Sidak claims joint negotiation results in dynamic inefficiencies as soon as it pressures royalty rates to equal marginal cost.[76] Only rates that enable licensors to recoup costs sunk on successful and unsuccessful inventions provide a reasonable incentive for firms to engage in high cost innovation.[77] The defendants in Sony Electronics, Inc. v. Soundview Technologies, Inc. challenged this view.[78] Sony argued that it was in the interest of the buyers of technology to uphold incentives for the innovation their business model depended on. The Court rejected the argument: “[B]usiness conduct is not always rational, and economic actors do not always have access to perfect information, the utopian ideal of economics.”[79] In my view, Sidak raises an important point about the source of patent hold-up. Patent law contains an incentive scheme, which grants an exclusive right to the licensor and allows him to charge whatever rate he can profitably obtain on the market.[80] Arguably, this is a structural flaw of patent law itself. But one should be mindful of modifying normal competitive market mechanisms to alter unreasonable, yet legislatively intended results of patent law. Policies enabling SSO members to collectively negotiate license terms come close to allowing oligopsonist collusion. Such market alterations directly impact the “implicit incentive/access tradeoff” scheme of patent law.[81] The resulting repercussions for dynamic efficiency are unclear. While there are pro-competitive benefits to joint negotiation rules, it seems preferable to support SSO policies that do not interfere with the market’s price system. Beyond that, a reform of patent law would more likely be able to avoid inconsistencies resulting from the prevention of the hold-up phenomenon.
iii. Most Restrictive Licensing Terms Disclosure Rules
These rules impose an obligation on the SSO’s members to make binding commitments ex ante as to the maximum royalty fee and other conditions they will use in licensing contracts.[82] In contrast to joint negotiation rules, they do not necessarily presuppose ex ante disclosure, although such conjunction might be advisable. There are a number of arguments for and against these rules. Obviously, such requirements could lessen uncertainty SSO members face when calculating the future cost of a specific standardization path.[83] Information on maximum rates and conditions could therefore improve the economic quality of standard adoption decisions. Accordingly, such terms could alleviate the probability of welfare losses on account of imperfect information.[84] Also, they could competitively restrain rates patent holders demand ex ante in order to increase the chances for their patent to be included in the standard.[85] Essentially, price competition could ensue before firms are locked into the standard. On the other hand, anticompetitive effects are conceivable.[86] It is argued that information on maximum licensing terms could allow SSO members to pressure patent holders into lowering rates, raising similar dynamic efficiency concerns as discussed above.[87] Moreover, ex ante RAND commitments are often vague and regularly entail costly disputes on their interpretation, specifically when licensors make sham proposals in order to formally fulfill their disclosure commitments.[88] These anticompetitive effects need to be addressed in the antitrust analysis, but the pro-competitive justifications available to SSOs are considerable. Nonetheless, if phrased correctly it seems that most restrictive licensing obligations provide necessary information that inform beneficial calculations and market-based results.
iv. Conclusion
Presumably, the policy suggestion will leave many SSOs disappointed. The agencies do not address the most pressing issues. What is more, the policy suggestion encompasses “any proposed technology path.”[89] Such a wording would leave disclosure obligations dangerously vague and broad. Two consequences should be noted here. First, transaction costs might rise to prohibitively high levels if firms, in order to comply with their obligations, were pressed to provide vast amounts of information. SSO members would need considerable time to review all submitted documents, leading to more lengthy standardization processes. It is also possible that members would be incentivized to be excessively compliant by disclosing a large amount of their patents and thereby further complicating the process. On the other hand, most restrictive licensing restrictions could lessen these incentives. If a firm has made ex ante licensing commitments, over-disclosure would create a risk of granting blanket licenses to all disclosed patents.[90] This might restrict the scope of disclosure to more manageable levels. Thus, a disclosure obligation in conjunction with a most restrictive licensing commitment could be an acceptable IPR policy for SSOs. At any rate, the silence concerning the permissibility of joint negotiations and most restrictive licensing terms revives uncertainty about their antitrust implications. Wayland and Hesse have chosen to make obvious as well as indeterminate statements. Conceivably, this may be detrimental to the standard setting process as SSOs balance the risk of hold-up with the chances of antitrust litigation. These uncertainties might also leave firms reassessing the benefit of further participation in SSOs.[91]

B. Cross-Licenses and Royalty Stacking

1. The Policy Suggestion
Wayland proposes to give licensees “the option to license RAND encumbered patents declared essential to a standard on a cash-only basis and allowing voluntary cross-licensing.”[92] Thus, the suggestion proposes a choice rule. Cross-licensing agreements involve two firms that license a number of their respective patents to each other.[93] Such cross-licenses will often not be a viable strategy for small firms or manufacturers with no particular patent portfolio. Cash-only licenses would seem more appropriate for such firms.
2. The Problem
In order to understand the problem this suggestion addresses, a brief analysis of the vices and virtues of cross-licensing is necessary. The practice of cross-licensing is believed to be a solution to the problem of “royalty stacking.”[94] This phenomenon occurs when a downstream firm[95] produces a product involving a standard, which carries a large number of patents, each owned by different patent holders, i.e. complementary patents. Then, the downstream firm is faced with a “stack” of royalties that it must pay in order to mitigate the risk of infringement litigation.[96] Consider the following:
Example 4: Firm A manufacturers mobile phones. Its newest creation, the Bphone, incorporates many different technologies: a camera, Internet access and wireless data transfer, a touchscreen, sleek casing and so on. All of these technologies incorporate patents owned by various firms. To A, this stack of patents is composed of strict complements, i.e. it needs to acquire licenses for all of them in order to manufacturer the Bphone without risking infringement suits. After its negotiation with all of the patent holders, A realizes that the cumulative royalty payments are so high that an economical production of the Bphone is no longer possible. What has happened?[97]
Economists call the underlying problem here the “Cournot complements” effect. Each patent holder can disregard negative externalities[98] that the royalty rate it charges imposes on the cumulative royalty rate paid by the manufacturer.[99] According to the “Cournot complements” effect, this results in an increase of marginal cost, leading the downstream firm to increase prices and reduce output below a level that would have been set by a vertically integrated monopolist.[100] In effect, these circumstances describe the “individual hold-up problem”: the effects of hold-up are exacerbated the more patents the standard encumbers.[101] Cross-licenses are a market-driven mechanism that can reduce the effects of royalty stacking.[102] However, incentives to cross-license are only prevalent in cases in which various vertically integrated firms hold the patents encumbered by the standard. Such firms can obtain profits with downstream sales, rather than royalties.[103] Hence, it is rational to exchange licenses in order to avoid potential costs of infringement suits. Yet, cross-licensing schemes can also have significant anticompetitive effects. The combined effect of patent hold-up and a strategy of market foreclosure by raising rivals’ costs may have considerable impact on the downstream market.[104] Consider the case where a non-integrated downstream firm faces vertically integrated firms that have all entered into cross-licensing agreements. A single integrated firm can raise the costs of its downstream rivals by simply raising its royalty rates.[105] Once the firm can undercut its rival’s end-product price, market foreclosure ensues. In other words “by restricting the supply available to rivals of a key input without similarly restricting the amount available to satisfy the purchaser’s demand,” the vertically integrated firm can attract consumers to switch to its product.[106] The result is an expansion of its downstream market share to the detriment of its competitors.[107] The situation here is slightly different from the classic models of raising rivals’ costs. These rely on either direct foreclosure by means of control of a bottleneck or a significant portion of market supply or by inducing vertical restraints through collusion on the upstream market.[108] In the case suggested here, the integrated firm’s patent need not represent a major part of the standard technology for the anticompetitive effect to arise. This is because an injunction based solely on this patent would prohibit the production of the entire product.[109] Also, upstream collusion is unnecessary as each patent is in itself essential to the standard. Finally, specifying RAND terms is extremely difficult for the downstream firm when all vertically integrated firms have entered into cross-licensing agreements, essentially excluding any reasonable comparative benchmark.
3. Analysis
By giving licensees the option to demand cash-only licenses and by permitting cross-licenses, the agencies attempt to strike a balance between the pro-competitive and anti-competitive implications of cross-licenses. An SSO policy defining an express claim for cash-only licenses could help downstream firms that are not party to cross-licensing agreements. However, considerable difficulties remain unresolved. A claim for a cash-only license in no way obviates the exercise of hold-up power by upstream firms. On the contrary, cross-license agreements can obscure the incremental contribution of the patent to the standard.[110] Moreover, upstream firms could quickly agree to cross-license in order to inhibit royalty rate negotiations amongst direct competitors. In such a case, a downstream firm would have little to gain by claims for cash-only licenses as it could hardly prove that the fees demanded exceeded RAND requirements. Moreover, cash-only licenses do not prevent the use of raising rivals’ costs strategies by vertically integrated firms in order to cut off downstream competitors from significant market shares. Thus, the implementation of this policy suggestion might result in vertical restraints potentially foreclosing non-integrated downstream firms from the market.

C. Limitation of Exclusion through Injunctions

1. The Policy Suggestion
As was shown in Example 2, injunctions are a central tool of patent hold-up strategies. In line with this, Hesse and Wayland suggest SSOs “[p]lace some limitations on the right of the patent holder who has made a F/RAND licensing commitment who seeks to exclude a willing and able licensee from the market through an injunction.”[111]
2. The Problem
In recent years a great deal has been said about the merits of and conditions for the issuance of injunctions following a finding of patent infringement by courts.[112] The policy suggestion points to the specific situation where a firm has committed to RAND terms in a standardization process. The literature on the relationship of hold-up and injunctions is too abundant to be treated in its entirety. Rather, this section will try to outline the general problem and focus on the two main conflicting positions. Importantly, different standards apply to federal courts and the International Trade Commission (ITC). The discussion is structured accordingly.
i. Injunctions by Federal Courts
Generally, there are two key remedies in patent litigation. First, a court can order an injunction to cease any further conduct in violation of the patent.[113] This remedial measure is essential to upholding the exclusive nature of the patent.[114] However, a court can also issue damages calculated by lost profits of the patentee or, in absence thereof, a “reasonable royalty.”[115] The requirements for ordering injunctions have recently been reviewed. Prior to the Supreme Court’s eBay decision, courts applied Federal Circuit precedent under which a finding of patent infringement triggered an automatic right to injunctive relief.[116] The Supreme Court reversed and pointed to the wording of 35 U.S.C. § 283. It prompted the court below to apply “traditional equitable considerations”.[117] Instead of a per se rule for the granting of injunctive relief, a four-factor test is to be applied by the courts. A plaintiff must now demonstrate “(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.”[118] Yet, the impact of eBay seems to have been humble. In 2007 Iancu & Nichols argued that “the vast majority of cases continue the traditional pattern of granting permanent injunctions to patentees who have successfully proven infringement.”[119] Other studies have reached similar conclusions.[120] Nonetheless, in some cases, perhaps more than before, injunctions were denied and compulsory licenses granted. As mentioned, injunctions are crucial to hold-up theory. Some argue that even the threat of an injunction can exacerbate the hold-up problem.Shapiro and Lemley claim that by threatening an injunction, the patent owner is likely to achieve a royalty fee that exceeds the marginal contribution of his patent to the total value of the final product.[121] Moreover, to a standard, a single patent is typically only one of many contributions.[122] Hence, the threat of an injunction allows the patent holder to exploit a value extrinsic to his own invention as leverage in royalty negotiations. The authors analyze the proportion of the negotiated rates attributable to hold-up by assuming a threshold royalty rate of θβν, i.e. the rate the patent holder would receive absent hold-up.[123] Here θ is the likelihood that a patent will be found valid. β is the fraction of the total gains a patent holder gets (generally taken to be 50%), ν is the per unit value of the patented feature.[124] They find that for relatively strong patents, the threat of an injunction will lead to a negotiated royalty rate that is twice as high as the benchmark level.[125] Accordingly, if Courts apply eBay, award reasonable royalty rates, and take caution when issuing injunctions, “the hold-up component of negotiated patent royalties will be reduced or eliminated”.[126] Others question the premise of this conclusion. Elhauge claims that the threshold level under appreciates the return necessary to incentivize socially desirable upstream innovation, because it assumes a monopsonistic downstream market.[127] He argues that the benchmark rate deters any innovation the costs of which (I) are I > (θβνX), where X is the number of units sold.[128] This leads to an unsatisfactory outcome. In a case where investment costs of an invention are less than its total value (θνX), it will only be pursued when the investment costs are lower “than β times the expected value of the investment.”[129] Elhauge claims that this result reflects the assumption that it is appropriate for the licensee to extract part of the value (β) of the upstream invention. By including β, the model essentially allows for a monopsonist licensee to hold-up the licensor in reverse. Then, θβν in fact does not assume the absence of hold-up.[130] He proposes a “natural” royalty rate of θν, that is the likelihood that the patent will be found valid multiplied by the per unit value of the patented feature.[131] Notably, the disagreement here lies not in whether issuance of an injunction or threat thereof could lead to higher royalty rates as a matter of fact. Rather, what is disputed is how interests and efficiencies should be balanced.[132] This is a matter of “economics of improvement.”[133] Hold-up theorists argue that the threat of hold-up ultimately leads to socially suboptimal investments by downstream firms and their consequent avoidance of “follow-up innovations.”[134] Their critics view injunctions as a means of the patent system to attribute to the patent holder the return necessary to incentivize innovation on the upstream market. In stressing equitable principles, the Supreme Court has assumed a more narrow interpretation of injunctive relief. This complicates matters for patent holders trying to demonstrate the inadequacy of damages.[135] Particularly, firms that have committed to RAND terms face significant difficulties in this respect, given that they have already committed to license.[136]
ii. Exclusion Orders by the ITC
The ITC is not obligated to follow the eBay mandate.[137] It has jurisdiction over matters relating to Section 337 of the Tariff Act of 1930.[138] Plaintiffs can obtain exclusion orders if they can show that the downstream product infringes “a valid and enforceable United States patent”.[139] An exclusion order effectively shuts down all imports of that product. It is to be granted after the ITC has considered “the effect of such exclusion upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers”.[140] Unsurprisingly, plaintiffs have increasingly chosen the ITC as their venue of choice for patent infringement claims.[141] A recent case reveals some of the difficulties of exclusion orders where the complainant had made RAND commitments. The complainant, Motorola Mobility, Inc. (MMI), accused Microsoft Corp. of violating five Motorola patents in the design and production of Microsoft’s Xbox 360 video game system.[142] Four of these patents were subject to RAND commitments MMI had made.[143] Microsoft sought to bar the exclusion order by means of equitable estoppel. First, it invoked a RAND defense. It claimed that by committing to license under RAND conditions, a patent holder had essentially forfeited the right of issuance of equitable remedies by the ITC.[144] In response to this, the ITC stated that Microsoft had not shown any precedent “in which a section 337 remedy was foreclosed due to the existence of RAND obligations.”[145] Therefore, the existence of a RAND commitment did not necessarily amount to a waiver of the right to seek equitable or exclusionary remedies. In an attempt to establish the three elements of equitable estoppel under the A.C. Aukerman Co. v. R.L. Chaides Constr. Co. standard,[146] Microsoft first accused MMI of misleading communication, because it had sent assurance to the SSO that it would license under RAND terms. Yet MMI could show that Microsoft had let two letters offering licenses go unanswered, and that MMI had thereby fulfilled its RAND obligation to engage in “good-faith negotiations.”[147] Microsoft in turn contested that the offered rate of 2.25% on the end price was a sham, unreasonable offer.[148] The ITC conceded that the rate offered by MMI “could not possibly have been accepted by Microsoft” and was thereby misleading.[149] In arguing the second element, Microsoft pointedly stated that it relied on MMI’s commitment because both firms benefited from the standardization process, “which depends on reliable and enforceable RAND assurances.”[150] Interestingly, the ITC disagreed. Microsoft had not proven that it had in fact relied on any of MMI’s statements. Because of this, Microsoft was denied equitable estoppel of MMI’s exclusion order. The example shows that the ITC is a potential venue for parties to engage in patent hold-up, even where district courts might not be. Yet, two further conclusions can be drawn. First, the case showcases conduct that could be called “reverse hold-up.” An alleged patent infringer could simply claim that the proposed rates are inconsistent with the RAND commitments and refuse to enter a licensing agreement. Suppose the patent holder has previously resigned the right to get an injunction, as the policy recommendation here suggests. Then it must essentially submit to compulsory damages based on a reasonable royalty as issued by a court. The patent infringer can effectively evade royalty negotiations thereby shifting the burden to the courts. Secondly, as the ITC states, the mere fact that a patent holder has committed itself to license on RAND terms in a SSO, does not prima facie create legally sufficient reliance of the SSO members to be eligible for equitable estoppel. This casts significant doubt on the effectiveness of ex ante RAND commitments.
3. Analysis
With this policy suggestion, the agencies attempt to strike a balance between the acknowledged rights of patent holders and the perceived menace hold-up exerts on the standardization process. After the eBay decision, this policy could more dominantly concern ITC cases. It reflects the view expressed by Microsoft as explained above: when a SSO member commits to license its patents under RAND, it is implicitly relinquishing its right to seek an injunction against those firms willing to agree on RAND terms.[151] This also seems to be the view of the 9th Circuit. It recently expressed doubts whether RAND commitments are consistent with the issuance of injunctions.[152] However, the wording of the suggestion leaves room for less radical solutions, i.e. that the patent holder retains a part of his right to get an injunction. For example, the patent holder could refrain from injunctions until the downstream firm can redesign non-infringing products.[153] Such a rule might be an option for SSOs intending to alleviate the threat of reverse hold-up and its repercussions on dynamic efficiencies on the upstream market. One of the policy suggestions not discussed here could further mitigate this issue: devising arbitration requirements directed to reach agreements on reasonable royalties.[154] In conclusion, the policy suggestion strikes an acceptable balance. Yet, limiting the right to receive injunctions can result in reverse hold-up. As stated above, certain policies might counteract such conduct.

Closing Remarks

Hesse and Wayland have chosen to voice these policy suggestions at a time when the strategic use of patents has reached alarming significance, particularly in the smartphone market.[155] For instance, in June 2012 the FTC issued subpoenas in an investigation of Google’s RAND licensing policies after the company’s acquisition of Motorola.[156] Hopefully, this article has shown where these suggestions provide useful guidance and where they lack necessary precision. Particularly with respect to the disclosure requirement, it is unclear what exactly Hesse and Wayland had in mind. A disclosure rule in conjunction with a most restrictive licensing terms commitment is a balanced way of providing SSO members with adequate information prior to standard adoption. However, joint negotiation rules would interfere with the market’s price system and therefore should not be pursued. Cross-licensing provisions can significantly reduce the Cournot complements effect, but the risk that vertically integrated firms will engage in strategies to raise rivals’ costs must be taken into account. The same is true for the potential lack of available comparative benchmarks for reasonable royalty rates that downstream firms might face when demanding cash-only licenses. Finally, restricting the right to seek injunctive relief addresses the focal point of patent hold-up. However, the possibility of reverse hold-up needs to be duly addressed. This might be accomplished by temporarily barring injunctive relief until the infringing features are redesigned. Clearly the suggestions offered by Wayland and Hesse do not provide definitive solutions to standard-essential hold-up. But it is unlikely that they intended to do so. As has been stated, the actions of the agencies and SSOs can only present part of the solution; eradicating standard-essential patent hold-up completely would inevitably require a legislative reform of patent law.[157]
* LL.M. candidate, NYU School of Law, 2013; First German State Exam, Humboldt University of Berlin and State of Berlin. I would like to thank Vaughn Morrison, Nick Walrath, Dustin Williamson, Josh Baker, David Sullivan, Sabrina Mawani and the staff of the NYU Journal of Intellectual Property and Entertainment Law Journal for their invaluable comments and critique. This paper was written as part of the Antitrust Law and Economics Seminar taught by Prof. Daniel Rubinfield, to whom I am indebted for an insightful and stimulating class. [1] See Robert P. Merges & Richard R. Nelson, On the Complex Economics of Patent Scope, 90 Colum. L. Rev. 839, 865 n. 115 (1990); see generally Oliver E. Williamson, The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting (1987). [2] For an overview of relevant literature until 2009, see Thomas F. Cotter, Patent Hold-up, Patent Remedies, and Antitrust Responses, 34 J. Corp. L. 1151, 1151 nn.1-14 (2009). [3] Renata Hesse, Deputy Assistant Attorney Gen., U.S. Dep’t of Justice, Six “Small” Proposals for SSOs Before Lunch, Remarks Prepared for the International Telecommunications Union Patent Roundtable (Oct. 10, 2012). [4] Joseph F. Wayland, Assistant Attorney Gen., U.S. Dep’t of Justice, Antitrust Policy in the Information Age: Protecting Innovation and Competition, Remarks Prepared for the Fordham Competition Law Institute Annual International Antitrust Law and Policy Conference 5 (Sept. 21, 2012). [5] Id. at 3. [6] For literature arguing the contrary, see Cotter, supra note 2, at 1152 n.7. [7] Deadweight loss is a comparative term. It describes the difference between the total (i.e. consumer and producer) surplus attained in an inefficient market and a market in perfect competitive equilibrium, i.e. the point at which the value a consumer attaches to an additional unit equals the additional cost of production. Such inefficiencies can be caused by any external cost-increasing distortion that inhibits some amount of consumption, e.g. monopolies, taxes or tariffs. See Dennis W. Carlton & Jeffrey M. Perloff, Modern Industrial Organization, 70-72 (4th ed. 2005); Paul A. Samuelson & William D. Nordhaus, Economics, 182-83 (16th ed. 1998). [8] See Joseph Farrell, John Hayes Carl Shapiro & Theresa Sullivan, Standard Setting, Patents and Hold-Up, 74 Antitrust L.J. 603, 632 (2007); see generally, Cotter, supra note 2, at 1152 nn.7-11. [9] Péter Cserne, Duress, in 6 Contract Law and Economics 57, 68 (Gerrit De Geest ed., 2d ed. 2011). [10] For similar examples see Robert Cooter & Thomas Ulen, Law & Economics 345 (6th ed. 2012); Antonio Nicita & Ugo Pagano, Incomplete Contracts and Institutions, in The Elgar Companion to Law and Economics 145, 148-49 (Jürgen G. Backhaus ed., 2d ed. 2005). [11] Robert S. Pindyck & Daniel L. Rubinfield, Microeconomics, 231-32 (8th ed. 2013). [12] Id.; Carlton & Perloff, supra note 7, at 29. [13] Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90 Cal. L. Rev. 1889, 1896 (2002). [14] Christine Varney, Assistant Attorney Gen., U.S. Dep’t of Justice, Promoting Innovation Through Patent and Antitrust Law and Policy, Remarks Prepared for the Joint Workshop of the U.S. Patent and Trademark Office, the Federal Trade Commission, and the Dep’t of Justice on the Intersection of Patent Policy and Competition Policy: Implications for Promoting Innovation, 5-6 (May 26, 2010); Damien Geradin & Miguel Rato, Can Standard-Setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-up, Royalty Stacking and the Meaning of Fraud, 3 Eur. Competition. J. 101, 103-04 (2007). [15] See, e.g., Herbert Hovenkamp et al., IP and Antitrust, An Analysis of Antitrust Principles Applied to Intellectual Property Law § 35.1. (2d ed., 2012); Lemley, supra note 13, at 1900-01. [16] Lemley, supra note 13, at 1900. [17] Hovenkamp et. al., supra note 15, at § 35.1 (stating that standards might also be adopted de facto or by government action). [18] Id. at § 35.2. [19] Id. [20] Id. [21] Id. [22] See Lemley, supra note 13, at 1900. [23] A patent is “essential” to a standard if “there are no alternative ways to implement a particular element of a standard without infringing the protected technology.” Rudi Bekkers & Andrew Updegrove, A study of IPR policies and practices of a representative group of Standards Setting Organizations worldwide, 34 (2012), This definition is not completely convincing, because alternative implementation paths often do exist that allow firms to design around the allegedly infringed patent. Yet, these design alternatives usually will be more cost-intensive than the royalty rates demanded by the patent owner and the firm might not know whether the re-design will itself infringe other patents. See Daniel L. Rubinfield & Robert Maness, Strategic Use of Patents: Implications for Antitrust, in Antitrust, Patents and Copyright: EU and US Perspectives, 85, 89 (Francois Leveque & Howard Shelanski eds. 2005); see Mark A. Lemley & Carl Shapiro, Probabilistic Patents, 19 J. Econ. Persp. 75, 82 (2005). [24] Cotter, supra note 2, at 1160-61 (citing Mark A. Lemley & Carl Shapiro, Patent Hold-up and Royalty Stacking, 85 Tex. L. Rev. 1991, 1992-93 (2007)). [25] See Bekkers & Updegrove, supra note 23, at 4; Joseph Scott Miller, Standard Setting, Patents, and Access Lock-in: RAND Licensing and the Theory of the Firm, 40 Ind. L. Rev. 351, 353 (2007) (detecting in this dilemma a “tension between free access and tight control.”). [26] See Bekkers & Updegrove, supra note 23, at 4. [27] What exactly “RAND” means in the ambit of standardization processes is the matter of some discussion. For a good overview and further literature, see generally Miller, supra note 25, at 355-59 (stating that “by making this promise all the participants who own patents in the resulting standard grant the adopter community an irrevocable right to use its patented technology to comply with the standard in exchange for a reasonable royalty and other reasonable terms, the details of which are negotiated later without any possibility of a court injunction.”). [28] Wayland, supra note 4,at 5; see Hesse, supra note 3, at 10. [29] See Bekkers & Updegrove, supra note 23, at 48-49. [30] 35 U.S.C. § 122(b) (2006). This is the result of the American Inventors Protection Act of 1999 that sought to prevent the existence of so-called “submarine patents.” Before, applications were kept secret until the issuance of the patent. This lead to duplicative research by inventors unaware of the pending application that now were potentially infringing the issued patent. See Janine M. Mueller, An Introduction to Patent Law 25 n.73, 53 (3d ed. 2009). [31] Miller, supra note 25, at 366-67 (citing John Rawls, Theory of Justice 136-142 (1971)). [32] Williamson, supra note 1, at 61-63 by which is meant “what was a large numbers bidding condition at the outset is effectively transformed into one of bilateral supply thereafter. See, e.g., Rambus, Inc., FTC Docket No. 9302, Opinion of the Comm’n 3 (Aug. 2, 2006), available at 060802commissionopinion.pdf. [33] “Lock-in” describes a situation in which the alteration of a given situation is uneconomical for an actor on account of switching and other transaction costs. Therefore, it “hinders customers from changing suppliers in response to (predictable or unpredictable) changes in efficiency, and gives vendors lucrative ex post market power over the same buyer in the case of switching costs (or brand loyalty), or over others with network effects.” Joseph Farrell & Paul Klemperer, Coordination and Lock-In: Competition with Switching Costs and Network Effects, in 3 Handbook of Industrial Organization 1968, 1970 (abstract) (Mark Armstrong & Robert Porter eds., 2007), available at Farrell_KlempererWP.pdf (found in Farrell et al., supra note 8, at 617 n49). [34] Also called “positive network externalities,” network effects refer to the increase of the individual value of a product in response to the growth of its purchase by others. See Pindyck & Rubinfield, supra note 11, at 135. In standardization processes, this means that the increased value of the product for the individual consumer due to network effects directly corresponds to an increase in the leverage power of the standard-essential patent holder vis-á-vis the alleged infringers; see Farrell et al., supra note 8, at 616. [35] See Farrell et al., supra note 8, at 607; George S. Cary, Mark W. Nelson, Steven J. Kaiser & Alex R. Sistla, The Case for Antitrust Law to Police the Patent Hold-up Problem in Standard Setting, 77 Antitrust L. J. 913, 914 (2011); Andreas Klees, Das Missbrauchsverbot für Beherrschende Unternehmen, in Computerrechts-Handbuch, ch. 1, pt 6, ¶ 75 (Wolfgang Kilian & Benno Heussen eds., 2012). [36] See 35 U.S.C. § 121 (2006). [37] See Mueller, supra note 30, at 55-56; Lester Horwitz, Patent Office Rules and Practice 201.06 (8d ed., 2003). [38] 35 U.S.C. § 120 (2005) (“Benefit of Earlier Filing Date in the United States“); see Mueller, supra note 30, at 45-46; Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 712a (3d ed. 2008). [39] See Areeda & Hovenkamp, supra note 38, at ¶ 712b. [40] Jon W. Henry, Some Comments on “Independent and Distinct” Inventions of 35 Usc 121 and Unity of Invention (Part i), 84 J. Pat. & Trademark Off. Soc’y 745, 777 (2002) (citing 37 C.F.R. 1.141(a) (2006)); see also Mueller, supra note 30, at 56 (“A patent may claim only a single invention, so any other invention must be “divided out” and claimed in a separate application.”). [41] A so-called “restriction requirement,” 35 U.S.C. § 121 (2005). [42] What is important to keep in mind is that if B had filed a first application after adoption of the standard, the standardized technology would be considered prior art and subsequently denied on account of the “novelty” requirement of 35 U.S.C. § 102 (2006). [43] Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F2d 867, 874 (Fed Cir 1988); Areeda & Hovenkamp, supra note 38 at ¶ 712a n.7. [44] Areeda & Hovenkamp, supra note 38 at ¶ 712n n.7. [45] Areeda & Hovenkamp, supra note 38 at ¶ 712b. [46] See Rambus Inc. v. F.T.C., 522 F.3d 456 (D.C. Cir. 2008); Areeda & Hovenkamp, supra note 38 at ¶ 712b. [47] Areeda & Hovenkamp, supra note 38 at ¶ 712b. [48] Rambus Inc., 522 F.3d at 462; Areeda & Hovenkamp, supra note 38 at ¶ 712b. [49] Rambus Inc., 522 F.3d at 464; Areeda & Hovenkamp, supra note 38 at ¶ 712b. [50] Rambus Inc. v. Infineon Tech. AG, 318 F.3d 1081, 1102 (Fed. Cir. 2003). It criticized JEDEC’s disclosure policy as containing “a staggering lack of defining details (. . .).” In fact, it found no express obligation of disclosure within JEDEC’s patent policy. Areeda & Hovenkamp, supra note 38 at ¶ 712b. [51] Rambus, 522 F.3d at 465 (citing NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 136, 139 (1998)); id. at 466 (distinguishing Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007)) (“To the extent that the ruling (which simply reversed a grant of dismissal) rested on the argument that deceit lured the SSO away from non-proprietary technology [. . .] it cannot help the Commission in view of its inability to find that Rambus’s behavior caused JEDEC’s choice; to the extent that it may have rested on a supposition that there is a cognizable violation of the Sherman Act when a lawful monopolist’s deceit has the effect of raising prices (without an effect on competitive structure), it conflicts with NYNEX.”). [52] See Letter from Thomas O. Barnett, Assistant Attorney Gen., U.S. Dep’t of Justice, to Michael A. Lindsey, Esq., Dorsey & Whitney LLP (April 30, 2007) (on file with Department of Justice), 9-10; Letter from Thomas O. Barnett, Assistant Attorney Gen., U.S. Dep’t of Justice, to Robert A. Skitol, Esq., Drinker, Biddle, and Reath, LLP (Oct. 30, 2006), (on file with Department of Justice) 9; R. Hewitt Pate, Assistant Attorney Gen., U.S. Dep’t of Justice, Remarks at EU Comp Workshop, Competition and Intellectual Property in the US: Licensing Freedom and the Limits of Antitrust (June 3, 2005), 10; Rambus, Inc., FTC Docket No. 9302, Opinion of the Comm’n 4 (Aug. 2, 2006), available at 060802commissionopinion.pdf. [53] Lemley, supra note 13, at 1904; Farrell et al., supra note 8, at 624; Gil Ohana, Marc Hansen, Omar Shah, Disclosure and Negotiation of Licensing Terms Prior to Adoption of Industry Standards: Preventing Another Patent Ambush?, 24 Eur. Competition L.R. 644, 646 (2003); David J. Teece & Edward F. Sherry, Standards Setting and Antitrust, 87 Minn. L. Rev. 1913, 1938 (2003). [54] See Farrell et al., supra note 8 at 609. [55] For a variety of possible disclosure and licensing rules in IPR policies, see generally Bekkers & Updegrove, supra note 23. [56] Sew, e.g., ETSI Rules of Procedure § 6.4 (2008), available at [57] NFC Forum, Inc. Intellectual Property Rights, 1 (2004), available at [58] Bekkers & Updegrove, supra note 23, at 98. [59] Lemley, supra note 13, at 1904. [60] See Farrell et al., supra note 8, at 626; John J. Kelly & Daniel L. Prywes, Safety Zone for the Ex Ante Communication of Licensing Terms at Standard-Setting Organizations, Antitrust Source (Mar. 2006), 1; see also Barnett (2007), supra note 52, at 4. [61] The VITA patent policy included this rule. Barnett (2006), supra note 52, at 4; Cotter, supra note 2, at 1202; Farrell et al., supra note 8, at 631. [62] E.g., Cotter, supra note 2, at 1202; Farrel et al., supra note 8, at 632. [63] Cotter, supra note 2, at 1202-3; Barnett (2006), supra note 52, at 8, 9 n.27; U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, 52 (2007). [64] “The use of economic resources that produces the maximum level of satisfaction possible with the given inputs and technology.” Samuelson & Nordhaus, supra note 7, at 744. [65] An economy is dynamically efficient if it not only ensures current, static efficiency benefits, but also long-term benefits, such as innovation. J. Gregory Sidak, Patent Hold-up and Oligopsonistic Collusion in Standard-Setting Organizations, 5(1) J. Comp. L. & Econ. 123, 141 (2009). [66] For a good explanation of monopsony power and monopsonist buyers, see Pindyck & Rubinfield, supra note 11, at 385. [67] Sidak, supra note 65 at 142; see Cotter, supra note 2, at 1202 n.282. [68] Roger D. Blair & Jeffrey L. Harrison, Antitrust Policy and Monopsony, 76 Cornell L. Rev. 297, 303 (1991); Pindyck & Rubinfield, supra note 11, at 382-84; see Farrell et al., supra note 8, at 632 (“The classic danger associated with collective negotiation is that, in order to depress prices, buyers collectively (facing an upward-sloping supply curve) will choose a smaller quantity than would be efficient or than they would individually.”). [69] Farrell et al., supra note 8, at 632; Hillary Greene, Non-Per Se Treatment of Buyer Price Fixing in Intellectual Property Settings, 2011 Duke L & Tech. Rev. 4, ¶ 31-32 (2011); Sidak, supra note 65, at 151-160. [70] Greene, supra note 69, at ¶ 31. [71] See Sidack, supra note 31, at 155-56, who accepts this premise if output represents the number of licenses, but calls the observation “trivial” because it doesn’t focus on the ramifications for dynamic efficiencies; see also Carlton & Perloff, supra note 7, at 57. [72] Greene, supra note 69, at ¶ 31. [73] See Cotter, supra note 2, at 1202-1203. [74] For ex ante group negotiations, see, e.g., U.S. Dep’t of Justice & Fed. Trade Comm’n, supra note 63, at 52. [75] Richard Schmalensee, Standard-Setting, Innovation Specialists, and Competition Policy, 24-25 (April 30, 2009), available at SSRN:; see also Greene, supra note 69, at ¶ 36. [76] Sidak, supra note 65, at 157. [77] Id. at 158; Sidak’s argument rests on his understanding that patent hold-up, if it exists, is merely a legitimate means to reap the benefits of the legally awarded position of exclusivity. Cotter, supra note 2, at 1204. As mentioned above, I presuppose the existence of patent hold-up for the purpose of this paper. [78] Sony Elecs., Inc. v. Soundview Tech., Inc., 157 F. Supp. 2d 180, 185 (D. Conn. 2001). [79] Id. at 186. [80] See Cotter, supra note 2, at 1205; Geradin & Rato, supra note 14, at 102, 111. The incentive argument has also been brought up by the Supreme Court, when it stated that “the opportunity to charge monopoly prices” attracts “business acumen”. Verizon Commc’ns, Inc. v. Trinko, 540 U.S. 398, 407 (2004). [81] Cotter, supra note 2, at 1205 (“As long as patent law allows patentees to charge whatever the market will bear for their technology, joint conduct aimed to lower that price interferes with patent law’s implicit incentive/access tradeoff.”). [82] See Bekkers & Updegrove, supra note 23, at 94. [83] See Knut Blind et al., Directorate Gen. for Enter. & Indus. of the Eur. Comm’n, Study on the Interplay between Standards and Intellectual Property Rights,25 (Apr. 2011), available at [84] Geradin & Rato, supra note 14, at 137–38; Schmalensee, supra note 75, at 27; U.S. Dep’t of Justice & Fed. Trade Comm’n, supra note 32, at 54; Letter from Thomas O. Barnett, Assistant Attorney Gen., U.S. Dep’t of Justice, to Michael A. Lindsey, Esq., supra note 52, at 10; Bekkers & Updegrove, supra note 23, at 95. [85] Bekkers & Updegrove, supra note 23, at 95. [86] For a full study, see Blind et al., supra note 83. [87] Damien Geradin & Anne Layne-Farrar, The Logic and Limits of Ex Ante Competition in a Standard-Setting Environment, 3 Comp. Pol. Int. 79, 103 (2007); Blind et al., supra note 83, at 26. [88] See, e.g., Certain Gaming & Entm’t Consoles, Related Software, & Components Thereof, Inv. No. 337-TA-752, 2012 WL 1704137, at *167 (USITC Apr. 23, 2012) (Initial Determination) (discussed infra C.III.2.b). [89] Wayland, supra note 4, at 9. [90] Mark A. Lemley, Ten Things to Do About Patent Hold-up of Standards, 47 B.C. L. Rev. 149, 157 (2007). [91] Lemley, supra note 13, at 1959. [92] Wayland, supra note 4, at 9. [93] U.S. Dep’t of Justice & Fed. Trade Comm’n, supra note 63, at 57; for an interesting description of the process, see Blind et al., supra note 83, at 74; Hovenkamp et. al., supra note 15, at § 34.2. [94] Geradin & Layne-Farrar, supra note 87, at 94; Mark A. Lemley & Carl Shapiro, Patent Hold-up and Royalty Stacking, 85 Tex. L. Rev. 1991, 2014 (2007). [95] This term simply refers to firms that manufacture goods, i.e. firms that are at the supply-end of the production process. Carlton & Perloff, supra note 7, at 406. [96] Lemley & Shapiro, supra note 94, at 1993. [97] Damien Geradin, Anne Layne-Farrar & A. Jorge Padilla, The Complements Problem Within Standard Setting: Assessing the Evidence on Royalty Stacking, 14 B. U. J. Sci. & Tech. L. 144, 146 (2008). [98] A negative “externality occurs when consumers or firms do not bear the full cost from the harm their actions do to others. Pollution is one of the most important examples of a negative externality.” Carlton & Perloff, supra note 7, at 82. [99] Geradin et al., supra note 97, at 145-46. [100] Lemley & Shapiro, supra note 94 at 1993; Geradin et al., supra note 97, at 146. [101] Lemley & Shapiro, supra note 94, at 2011; Geradin et al. supra note 97, at 154. [102] See Geradin et al., supra note 97, at 165-66; Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting, 1 Innovation Pol’y & the Econ. 119, 130 (2001). Another possibility by which to achieve this aim is creating patent pools. Id. at 134. [103] See Geradin et al., supra note 97, at 166. This solution is of no surprise as it is well known from the problem of “vertical double marginalization,” an effect that also plays into the royalty stacking problem displayed here. Double marginalization occurs when both upstream and downstream firms exert their market power resulting in a double markup. The remedy to the problem is often seen in vertical integration. See Carlton & Perloff, supra note 7, at 419; Klaus M. Schmidt, Licensing Complementary Patents and Vertical Integration 5 (Ctr. for Econ. Studies & Ifo Inst. for Econ. Research, Working Paper, Nov. 2006), available at [104] On the theory of this form of exclusionary conduct, see Rubinfield & Maness, supra note 23, at 87; Thomas G. Krattenmaker & Steven C. Salopp, Anticompetitive Exclusion: Raising Rivals’ Costs To Achieve Power over Price, 96 Yale L.J. 209 (1986). [105] Schmidt, supra note 103, at 6. [106] Krattenmaker & Salopp, supra note 104, at 230. [107] Rubinfield & Maness, supra note 23,at 87; Krattenmaker & Salopp, supra note 104, at 230. [108] Krattenmaker & Salopp, supra note 104, at 234-42. [109] See Farrell et al., supra note 8, at 638. [110] See id. [111] Hesse, supra note 3, at 11. [112] See Farrell et al., supra note 8, at 638; Cotter, supra note 2, at 1160; Lemley & Shapiro, supra note 94, at 1993; Carl Shapiro, Injunctions, Hold-Up, and Patent Royalties, 12 Am. L. & Econ. Rev. 280 (2010); Lemley, supra note 90; Mark A. Lemley & Philip J. Weiser, Should Property or Liability Rules Govern Information?, 85 Tex. L. Rev. 783 (2007); Einer Elhauge, Do Patent Hold-up and Royalty Stacking Lead to Systematically Excessive Royalties?, 4 J. Comp. L. & Econ. 535 (2008); Miller, supra note 25, at 366-67. [113] 35 U.S.C. § 283 (2005). [114] Mueller, supra note 30, at 482. [115] 35 U.S.C. § 284 (2005). [116] Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1247 (Fed. Cir. 1989) (“It is the general rule that an injunction will issue when infringement has been adjudged, absent a sound reason for denying it.”). There have been exceptions to this rule only if beneficial to public health and welfare. Mueller, supra note 30, at 483-84. [117] eBay Inc. v MercExchange, L.L.C., 547 U.S. 388, 393-94 (2006); see also Cotter, supra note 2, at 1174. [118] eBay, 547 U.S. at 391. [119] Andrei Iancu & W. Joss Nichols, Balancing the Four Factors in Permament Injunction Decisions: A Review of Post-eBay Case Law, 89 J. Pat. & Trademark Off. Soc’y 395, 404 (2007). [120] Rachel M. Janutis, The Supreme Court’s Unremarkable Decision in eBay Inc. v. MercExchange, L.L.C., 14 Lewis & Clark L. Rev. 597, 604 (2010) (citing Douglas Ellis, John Jarosz, Michael Chapman & L. Scott Oliver, The Economic Implications (and Uncertainties) of Obtaining Permanent Injunctive Relief After eBay v. MercExchange, 17 Fed. Cir. B.J. 437, 441-42 (2008)) (finding that injunctions were issued in 28 out of 36 cases); Benjamin Petersen, Injunctive Relief in the Post-eBay World, 23 Berkeley Tech. L.J. 193, 196 (2008) (finding that injunctions were issued in 24 out of 34 cases). [121] E.g., Lemley & Shapiro, supra note 24, at 1993; Farrell et al., supra note 8, at 638; see Shapiro, supra note 112, at 283; see also Lemley & Weiser, supra note 112, at 787 (claiming “injunctive relief . . . can increase the value of an entitlement and make a holdout strategy possible”). [122] Farrell et al., supra note 8, at 638. [123] Shapiro, supra note 112, at 289. [124] Id.; Lemley & Shapiro, supra note 94, at 1999; see generally Elhauge, supra note 112, at 538-42 (providing background to understand the implications of the findings). [125] Shapiro, supra note 112, at 289, 296-97 (reflecting strong value of the patented feature, versus a lower rate for a relatively weak patent). [126] Id. at 308. [127] Elhauge, supra note 112, at 541. [128] Id. [129] Id. [130] Id. at 542. [131] Id. [132] Cotter, supra note 2, at 1168. [133] Id. [134] Id. at 1164. [135] Julie Brill, Comm’r Fed. Trade Comm’n, The Intersection of Patent Law and Competition Policy, Keynote Address at the University of Colorado Law School, 5 (Oct. 3, 2012), available at [136] Id. [137] Id. [138] 19 U.S.C. § 1337 (2006). [139] 19 U.S.C. § 1337(a)(1)(B)(i), (d)(1). [140] 19 U.S.C. § 1337(d)(1). [141] Brill, supra note 135, at 5. [142] Certain Gaming & Entm’t Consoles, Related Software, & Components Thereof, Inv. No. 337-TA-752 at *2-4. [143] Id. at *159. [144] Id. at *162. [145] Id. at *163. [146] A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1041 (Fed. Cir. 1992) (“[1] The actor, who usually must have knowledge of the true facts, communicates something in a misleading way, either by words, conduct or silence. [2] The other relies upon that communication. [3] And the other would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct.”). [147] Certain Gaming & Entm’t Consoles, Related Software, & Components Thereof, Inv. No. 337-TA-752,at *167. [148] Id. [149] Id. at *168. [150] Id. at *170. [151] Brill, supra note 135, at 5; see Wayland, supra note 4, at 4; Hesse, supra note 3, at 10; Jon Leibowitz, Chairman, Fed. Trade Comm’n, Remarks at Georgetown Law Global Antitrust Enforcement Symposium, 9 (Sept. 19, 2012), available at 120919jdlgeorgetownspeech.pdf; cf. Third Party United States Fed. Trade Comm’n Statement on the Public Interest at 5, Certain Wireless Commc’n Devices, Portable Music & Data Processing Devices, Computers & Components Thereof, Inv. No. 337-TA-745 (USITC June 6, 2012), available at [152] See Microsoft Corp. v Motorola, Inc., 696 F.3d 872, 885 (9th Cir. 2012) (“injunctive relief against infringement is arguably a remedy inconsistent with the licensing commitment.”). [153] See Shapiro, supra note 112, at 308 (proposing courts grant stays pending redesign). [154] Hesse, supra note 3, at 10; Wayland, supra note 4, at 9. [155] See generally Charles Duhigg & Steve Lohr, The Patent, Used as a Sword, N.Y. Times, Oct. 7, 2012, at A1 (explaining recent developments in patent litigation). [156] Steve Lohr, Widening Scrutiny of Google’s Smartphone Patents, N.Y. Times, Oct. 9, 2012, at B1. [157] Shapiro, supra note 102, at 126.

Part of the Team: Building Closer Relationships Between MLB Teams and Independent Agents in the Dominican Republic through an MLB Code of Conduct

Part of the Team: Building Closer Relationships Between MLB Teams and Independent Agents in the Dominican Republic through an MLB Code of Conduct
By Dustin Williamson* A pdf version of this article may be downloaded here.  


Every year in the Dominican Republic, hundreds of boys enter baseball academies run by one of Major League Baseball’s (MLB) franchise teams.[1] While there, the players pursue baseball with a single-minded passion, with drills, games, and other instructional activities from dawn until dusk.[2] Competition is fierce, and many players take performance-enhancing drugs to better their chances of advancing within the system.[3] The dream of every player is to be sent to the team’s farm system in the United States and from there to be called up to the major leagues, where many Dominican players, including the New York Yankee’s Robinson Cano and the Boston Red Sox’s David Ortiz, have gone on to make millions of dollars. The reality of the situation, however, is much less glamorous. Over the last decade, only two percent of players signed out of the Dominican Republic made it to the major leagues.[4] That means that for every Cano or Ortiz, there are 50 players who never even make the League’s minimum salary. While academies provide shelter and a salary for the athletes, only an exceptional few provide an educational component beyond some basic English classes and classes on American culture.[5] This means that when the vast majority of these athletes, who have devoted their lives to baseball, eventually wash out of the academy system after two or three years, they are thrown back into the working population with little education and no transferrable skills to show for the years they spent playing baseball.[6] The situation is exacerbated by the treatment that players receive before they even get to the MLB academies. In the Dominican Republic, potential baseball players are cultivated as early as their preteen years by independent handler-agents known as buscones.[7] Children represented by buscones may be encouraged (or possibly coerced) to drop out of school in order to focus on baseball full time.[8] Most buscones operate independent baseball academies, which, unlike the MLB academies, may not provide any education outside of that needed to develop as a baseball player.[9] And again in contrast to the official academies that are overseen by MLB and governed by MLB rules, (insofar as the latter provide any guidance) the buscón-run academies receive little oversight. Given the young age at which many athletes join unofficial academies, not only are they deprived of secondary education, but potentially primary education as well. While MLB does not contract with buscones or have any official connection with the independent camps, MLB, with its network of official academies and scouts throughout the Caribbean, is the only significant outlet for players produced through this system.[10] This article proposes that, given the type and scope of labor rights violations that occur as a result of MLB’s presence in the Dominican Republic, MLB should promulgate a voluntary corporate code of conduct to govern the relationship between MLB and buscones in the Dominican Republic. In Part I, I explain the differences between the recruitment processes for players in the United States, the United States’ territories, and Canada, who are covered by the draft, and for players from the rest of the world, who are signed through international free agency. I then explain the practical effects of international free agency on how MLB operates in the Dominican Republic. In Part II, I draw an analogy between the academy system in the Dominican Republic, which produces MLB players, and a multinational corporation’s (“MNC”) supply chain. I then use this analogy to identify potential labor and human rights violations that may occur in the Dominican Republic as a result of the system that produces MLB players. In Part III, I introduce the example of corporate social responsibility as a movement under which MNCs have made efforts to self-regulate both their behavior and the behavior of their suppliers, through corporate codes of conduct. In Part IV, I examine the unique features of MLB and how these features affect the potential scope and shape of a code of conduct. In Part V, I examine specific aspects of a code of conduct that could be implemented, including a licensing program for buscones and independent academies. While at least one commentator has suggested an MLB code of conduct that would govern behavior in the Dominican Republic academies, I argue that a strict, penalty-based code of conduct would likely be counterproductive. A licensing program with a commitment to dialog instead of punishment might have a better chance of positively affecting the lives of young baseball players. Central to my argument is the recognition that, while MLB may contribute to labor law violations in the Dominican Republic, it also spends a substantial amount of money in the country. Additionally, players who “make it” in in the major leagues typically send some part of their earnings back to their families and communities in the Dominican Republic. As such, any solution should encourage cooperation between MLB, the teams, buscones, and the Dominican government, instead of punishing players or forcing teams to leave the Dominican Republic if violations are found. In Part VI, I discuss the problem of applying pressure to MLB to adopt a corporate code of conduct for the Dominican Republic.

I. The Selection of Players and Its Effect on the Dominican Republic

A. Major League Baseball Recruiting

The Major League Rules (MLR) governs the method by which MLB teams recruit baseball players.[11] Under the current rules, teams wishing to sign players who are not already within the MLB system must abide by the draft rules for players from the United States, Puerto Rico, and Canada, or by a different set of rules for international players who are not covered by the draft. Under Rule 3 of the MLR, players who are residents of the United States, Puerto Rico, and Canada are subject to the amateur draft[12] held every June.[13] Players who are eligible for the draft cannot bargain for the best deal that they can reach with any team; rather, teams pick individual players during successive rounds of drafting. MLB supplies suggested signing bonuses for different draft slots. The slotting system is not binding, and the most eagerly sought after players often garner signing bonuses far above the suggested value.[14] Players who do not sign with the team that drafted them are prohibited from signing with a different team but may enter the draft again in the future.[15] This often occurs with players who are just out of high school and would rather go to college before signing with a team, or players who are already in college and would either like to wait for a better offer in the future or finish college. The most significant restriction on draft eligibility is that teams may not draft players who are currently in high school.[16] In addition, although teams may sign high school graduates, they are typically prohibited from signing college players until after their junior year.[17] The NCAA and other university regulatory systems may also require teams to abide by additional rules when dealing with college players. Therefore, although there are a few players who sign when they are as young as 17, most players are adults, and a large portion have at least a couple of years of junior college or university education when they sign with an MLB team.[18] Players from the rest of the world are not subject to the draft, but instead are signed as international free agents. The MLR puts few restrictions on how such players are signed. The main restriction is the 17-year-old rule, which prohibits teams from signing international players younger than 17.[19] Even under this rule, a player may be signed when they are 16, so long as they will turn 17 by the end of the current baseball season.[20] Under this system, teams may bid against each other for a player’s talents; though if a player is relatively unknown, a team may be the only one to make an offer.[21] In addition to the MLB’s 17-year-old rule, the country from which the player is drafted may impose additional restrictions on MLB recruitment. For instance, in Japan, another country with a developed professional baseball league, an MLB team wishing to sign a player must pay the player’s team a substantial sum even to open negotiations with the player.[22] The Dominican Republic, on the other hand, does not have its own professional league, nor does it have independent requirements supplemental to the 17-year-old rule. This means that players from the Dominican Republic are usually lesser known than players coming out of other countries MLB teams target, such as Japan and South Korea. Given the lack of regulation, the chance of finding an underexposed player, and the economic conditions, which lead to lower bonuses and salaries for Dominican players, teams are highly motivated to scout the Dominican Republic for cheap players.

B. MLB in the Dominican Republic

MLB scouting in the Dominican Republic is run out of each team’s baseball academy. Once signed by an MLB team, the vast majority of players, whether signed through the draft or as an international free agent, spend years honing their skills in the team’s minor-league affiliates, spread throughout the United States.[23] Most players from the Dominican Republic begin by playing for up to three years at the MLB team’s academy before even being called up to the United States to play in the minor leagues. Currently, 28 out of the 30 MLB teams run a baseball academy in the Dominican Republic.[24] It has been estimated that MLB has invested more than $75 million in the Dominican Republic and created more than 2,000 jobs in the country.[25] Players in the academies are signed according to the 17-year-old rule. In the past, teams may have hidden younger players at academies and then signed them when eligible; this practice allowed them to avoid having to bid against another team for the player’s services and kept the signing bonus owed to the player much lower.[26] This type of subterfuge may not be as much of a problem as it once was, since under the current rules teams may only allow an unsigned player to remain at an academy for a month.[27] On the other hand, given deficiencies in the Dominican Republic’s record keeping system, players younger than the signing age may routinely be admitted to academies under a false birth certificate.[28] In a highly publicized case, it was discovered that employees of the Los Angeles Dodgers falsified records to sign the Dominican baseball player Adrian Beltre, who was found to have been 15 when he signed with the team.[29] As a result, MLB shut down the Dodger’s academy in the Dominican Republic for a year.[30] Conditions at the camps vary. While some may be relatively luxurious, others are more spartan.[31] When journalists first reported on the academies, they found the facilities to be overcrowded and lacking in basic medical facilities—resembling prisons more than athletic training facilities.[32] Today, even on the low end, the academies are much improved, though there are exceptions. After visiting the Chicago Cubs academy for a 2010 article, Time magazine reporter Sean Gregory gave the following account of the facility:
At the Cubs academy one hazy afternoon, 10 prospects piled into a room that, at best, could comfortably fit two or three. There were four bunk beds crammed into the space; two kids napped while sharing a mattress on the floor. Several players said they all lived in that room. I snapped a picture of the scene and showed it to Sandy Alderson, the veteran baseball executive who was tapped by MLB commissioner Bud Selig earlier this year to clean up the sport in the D.R. He said the conditions were “not acceptable,” though he later insisted that not all 10 prospects actually lived in that room and that players sometimes sleep on the floor because it’s cooler. Still, he stood by his “unacceptable” assessment. It’s difficult to disagree with a Dominican man who also saw the scene. “It looked like f______ county lockup,” he said.[33]
In most academies there is little to do besides play baseball. Players in the academies get up, have breakfast, and are on the field by 7:30; other than a lunch break, they practice until the sun goes down.[34] Competition within the camps is fierce. Given the lower cost of signing and training Dominican players, teams are able to take a “quantity over quality approach,” signing a large number of players for the same price it would have cost to sign a single American player.[35] Because the investment in most Dominican players is small, teams are more concerned with finding a diamond in the rough than developing talent.[36] Consequently, only about two percent of academy players ever make it to the American major league system.[37] The small percentage of players who make it to America through the minor leagues and onto an MLB team will be able to provide for themselves, their families, and their communities, even if they only play in the majors for a short period, since the league minimum salary is high. For instance, in 2011, players who made the league minimum were paid $400,000 for the season.[38] By comparison, the per capita GDP in the Dominican Republic is $8,300,[39] and 34.4% of the country lives below the poverty line.[40] Therefore, the players’ incentive is to gain any advantage they can over other players. This includes pushing themselves to their physical limits day after day. It may also include hiding injuries—and thereby exacerbating them—for fear of being cut from the academy.[41] The pressure to succeed may also lead to the use of performance-enhancing drugs.[42] Such drugs both exacerbate the risk of immediate injury and can contribute to life-long health problems.[43] At most camps, the only supplemental education that the participants receive are classes in basic English and classes designed to prepare athletes for life in the United States,[44] although some camps have partnered with local schools.[45] A few camps provide educational facilities on site.[46] When compared with the astronomical salaries paid to MLB players, the cost of running an educational program is small. In 2010, the Pittsburg Pirates, MLB’s poorest team, spent only $75,000 to run its educational program, a partnership with a local provider that offered high school classes to the athletes in its Dominican academy.[47] Before players ever get to an academy, most spend time either at an independent camp or under the control of a Dominican agent, known as a buscón.[48] A buscón is similar to an agent in that he or she represents unsigned Dominican players in negotiations with a team that wishes to sign the athlete. However, instead of representing a player for a span of his professional career, a player’s relationship with a buscón ends when he is signed by an academy.[49] The player receives a signing bonus; the buscón takes a percentage cut; and the relationship is severed.[50] While players younger than 16 may occasionally make it into an MLB academy because of forged papers, buscones routinely recruit players as young as 10 or 12.[51] These children may drop out of school and enter the custody of the buscón.[52] Instead of completing compulsory education, which in the Dominican Republic is 8 years,[53] these children spend their formative years developing their baseball skills with the sole goal of being signed by an MLB academy. Unlike the MLB camps, which are regulated to some extent by the league through its office in Santo Domingo,[54] the buscones and independent academies have no substantive supervision. Simply put, the Dominican Republic has not made it a priority to regulate the system that places Dominican youths with teams in MLB, an organization that has made significant capital investments in the country.[55] Therefore, the worrisome behavior that may occur at an MLB academy, including overwork and the use of performance-enhancing drugs, is rampant throughout the domestic system that produces players.[56] Likewise, problems that may occur less frequently in the MLB system, such as players younger than 16 taking part in the academies, are a fact of life in domestic Dominican baseball.[57] Exacerbating all of these problems is the fact that a buscón has no financial stake in a player once he has signed with an academy. Therefore, a buscón may not care about players’ long-term health or ability to play baseball for any length of time after leaving their care.

II. Potential Labor and Human Rights Violations: An Analogy to a Multinational Corporation Supply Chain

A. Overview

While it may seem unfair in some general, moral sense that MLB academies do not provide transferrable skills for many of the players that pass through their gates, by itself, this treatment is not that much different from how any minor league player is treated; most players wash out of baseball before making it to the majors and without ever making significant money.[58] The major difference between the treatment of players in the Dominican Republic and in the United States is that while most U.S.-born players will enter professional baseball with at least a high school education,[59] the combination of the rules governing the signing of international players and the Dominican Republic’s poor education system, leads many young players to drop out of school at a much earlier age. Since there is no domestic professional baseball,[60] the only reason these children take up baseball (either willingly or because they are coerced by a buscón or parent) is the hope of being signed by an MLB team. Because MLB is the dominant employer of Dominican baseball players who take up baseball with the aim of playing professionally, we should establish a legal duty that runs from MLB to the players to protect the labor and human rights of Dominican players inside official MLB academies, as well as children who have not signed but have spent their childhood preparing for the opportunity, under a buscón’s care. While it may be difficult to bring a legal claim based on the duty, the existence of one would provide labor and human rights advocates leverage to convince MLB to better regulate their behavior. Any solution must also take into account MLB’s large investment in the country and the fact that those players who are signed, especially those who eventually make major league salaries, typically send a large percentage of their earnings to their families and communities.[61] The first step is to identify the ways in which MLB owes an obligation to protect labor and human rights. Then, Part D will identify, which, if any, labor and human rights standards have been violated.

B. Is This Labor At All? An Analogy to the Multinational Corporation Supply Chain

In the globalized economy, MNCs operate across national borders. While the international scope of economic activity is nothing new, globalized MNCs exhibit a cohesiveness that prior forms of international economic activity did not.[62] As described by Gary Gereffi, globalized supply chains may be divided into two types – “producer-driven” and “buyer-driven” global commodity chains:[63]
Producer-driven commodity chains are those in which large, usually transnational, manufacturers play the central roles in coordinating production networks . . . . This is characteristic of capital- and technology intensive industries such as automobiles, aircraft, computers, semiconductors, and heavy machinery. Buyer driven commodity chains, on the other hand, refer to those industries in which large retailers, marketers, and branded manufacturers play the pivotal roles in setting up decentralized production networks in a variety of exporting countries, typically located in the third world. This pattern of trade-led industrialization has become common in labor-intensive, consumer goods industries such as garments, footwear, toys, handicrafts, and consumer electronics. Tiered networks of third world contractors that make finished goods for foreign buyers carry out production. Large retailers or marketers that order the goods supply the specifications.[64]
In a buyer-driven commodity chain, companies often receive goods or services from many low-level suppliers, or through an intermediary.[65] While a lead firm may have a contract with some of its suppliers, those suppliers, in turn, deal with their own constellation of lower-level suppliers.[66] At the lowest end, or in very small shops, individuals supply piecemeal work to other unregulated firms—some within a lead firm’s chain, but often supplying to many different firms.[67] While a lead firm may have a direct relationship with some other firms on the supply chain, it likely does not know that the firms on the lowest end even exist, let alone have a contractual relationship with them.[68] Typically, even if an MNC would like to do so, lead firms have a difficult time policing the bottom rungs of their supply chain.[69] However, as I show in the following sections, through the advent of corporate codes of conduct, MNCs have developed a system to attempt to regulate the behavior of their suppliers, as well as those their suppliers buy from. MLB shares characteristics with both producer-driven and buyer-driven supply chains. At higher levels, such as in MLB’s minor leagues, or even the MLB-owned academies in Latin America, MLB teams are directly responsible for molding the growth of their potential major leaguers, even though that development is relegated to a lower rung of the organization. In this way, MLB teams can be seen as producer-driven: a central entity coordinating its disparate production network.[70] The independent academies and the demand for cheap players from the Dominican Republic (and other parts of Latin America) lends this arrangement an aspect of the buyer-driven supply chain, in which MLB teams “buy” players. However, even though this arrangement may, at first glance, resemble the bottom rung of a buyer-driven supply chain, there are aspects of the relationship between MLB and the buscones that run the independent academies that may allow us to categorize these academies as entities analogous to a subsidiary branch of the MLB. While MLB teams do sign players from these independent academies, the players are neither raw recruits nor fully formed baseball players. Unlike a buyer-driven supply chain, in which the producers at the lowest rung produce textiles or shoes,[71] players produced by the independent academies are not fungible; MLB teams must scout players at the independent academies, deal directly with buscones, and decide which players to sign.[72] Finally, as noted earlier, MLB’s presence in the Dominican Republic is responsible for the development of the independent academy system.[73] Although the MLB teams do not have a contract with the buscones, similar to low-level suppliers in a buyer-driven supply chain, the actual teams operate in the Dominican Republic and deal directly with the buscones and players in the independent academies.[74] As such, MLB’s relationship with the bottom rung is, in some ways, more like a producer-driven supply chain and is certainly a closer relationship than a typical MNC with its suppliers in a buyer-driven supply chain.[75] The lack of a contractual relationship and the fact that buscones operate according to their own prerogatives may prevent us from defining the independent academies as subsidiaries of MLB as a legal matter, but the analogy to a supply chain would lend legitimacy to a movement to pressure MLB to adopt a code of conduct for dealing with buscones. Even if independent academies can be analogized to the bottom rung of a supply chain, can the activities performed by Dominican players be defined as labor in such a way that it would be recognized under international labor and human rights standards? In the case of athletes who enter the official academies, this question is easily answered in the affirmative. Quite simply, the players in the official academies are employees as defined by common law master-servant agency principles,[76] and accordingly, the employment relationship is subject to the international laws described in the proceeding section, which apply to employment conditions. Under agency law, although no one factor is determinative, the issues to consider when determining whether someone is an employee include the following:
[T]he skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party . . . .[77]
In the case of the official MLB academies, these factors weigh heavily in favor of classifying the players as employees. The players sign contracts with the individual teams, receive pay for the time spent playing and training at the academy, and while there, are under the control of the staff of the academy.[78] However, as noted in the previous section, while there may remain a problem within the official academies, MLB understands that they bear some responsibility to the players in those academies. The argument about the regulation of official academies is an argument over the scope, not the existence of a duty. The independent academies, on the other hand, are a substantively different problem. It is not immediately clear that what the players at these academies do is labor in a traditional sense, despite the long hours and physical toll that life in the academy may have on their bodies. Although many have argued that the activity of amateur college athletes constitutes labor and should be covered by U.S. labor and employment law,[79] unlike college athletes, players in independent academies do not play for revenue generating teams. Just because one trains to become a baseball player does not automatically qualify that activity as labor. Millions of children spend substantial amounts of time practicing an athletic or artistic skill; whatever obligations the parent(s) of a young oboe player owes the child, it would be a stretch to argue that international labor standards apply to teenage musicians’ practice regimes. Similarly, although attending school may require a good deal of work in the form of studying, writing papers, and taking tests, that activity is not labor; rather, it is a personal investment in cultivating skills that will lead to a better job than one could get without such education. However, the role of the buscones in the independent academies lends a unique feature to the situation that is not present in typical training programs; the children in the academies spend their time training to become the player that is produced by the academies, from which the buscones make their living.[80] Unlike the intensive training that takes place under the tutelage of, say, a gymnastics or swimming coach in the United States, the buscones receive their money when the player signs with a team, not upfront from a parent whose child is an Olympic hopeful. Buscones make a living by training players and then taking a cut of the player’s signing bonus or receiving a finder’s fee for their services.[81] While the time at which the trainer receives her money might seem like a semantic distinction, under the master-servant principles enumerated above, this distinction militates in favor of treating the young athletes under the care of a buscón as servants and thus employees. If a parent sends his child to an independent academy, as opposed to paying to board their child with a coach, the food, shelter, and training provided by the buscón is a form of payment for the athlete’s services. The fact that not every child under the buscón’s care eventually makes it to an MLB team makes this more like a traditional employment relationship than some sort of deferred payment scheme for the training that the athletes receive, since the buscón pays out whether or not the athlete makes him money. If one views the room, board, and potential stipend as payment, the rest of the factors for determining whether the athletes under the buscón’s care are employees weigh in favor of categorizing them as such.[82] The athletes train on facilities controlled by the buscones; the relationships can exist from the time the athletes are in their preteens until they are signed by an MLB academy; the type and extent of training is dictated by the buscones; and, the buscones are in the business of training players, from which they make their living.[83] Also, the temporal difference likely has a large effect on how the child athletes are treated. While children under both a traditional coach and a buscón may be pressed to their physical limit, a coach also has a stronger incentive to maintain her reputation. If, for instance, word gets out that a coach treats the athletes under her care poorly, she may lose customers. Similarly, if a parent discovers that her child is being neglected in favor of another athlete, that parent may simply find another coach. The buscón’s incentives, on the other hand, only run towards getting the largest signing bonuses for the athletes under his care. This means he is likely to push a large number of athletes whose skills are on the margins to the breaking point in search of the handful that have the talent and training necessary to sign with an MLB academy.[84] A parent may object to the treatment of players, but given the poverty and lack of education in the Dominican Republic, they may feel they have little choice other than to send their children to train with the buscón who gives them the best deal.[85] This feature further highlights the particularly coercive and controlling nature of the buscón-athlete relationship under the master-servant analysis. Because there is no other significant outlet for the training the players receive at the academies, the academies operate as the de facto bottom rung of MLB’s supply chain, analogous to very low-level manufacturing on an integrated supply chain that ultimately provides players—as both goods and laborers—to MLB teams. Since the players produce themselves and the buscones make a living off of those players, it is sufficiently analogous to labor to be so understood when determining whether the regulated party, in this case the buscones, is violating international human rights and labor laws. Although independent academies and the buscones who run them are similar to typical low-level suppliers in some ways, such as their lack of contracts with MLB, there are ways in which they are different that would make it easier for the league to regulate them. Unlike low-level manufactures that supply goods to MNCs, either to a number of MNCs or a large supplier of goods, independent academies only supply MLB teams and the number of players “sold” is small.[86] Agents of the teams must scout the players represented by a buscón and come to an agreement with both the player and the buscón.[87] As described above, the connection in this regard has elements of a production-based supply chain, in which the MNC is more finely attuned to the behavior down the supply chain.[88] This means that the connection between MLB and the independent academies, despite the lack of a legal contract, may be much tighter than that between a supplier of widgets and the MNC that eventually buys them, thereby making it more feasible to regulate than it would be in a scenario in which hundreds of micro manufacturers ship fungible products to the next step up the supply chain.[89]

C. Sources of Potentially Applicable Labor and Human Rights Standards

Given the fact that under an analogy to an MNC supply chain, MLB may owe a duty to child athletes in independent academies, the next step is identifying the duties that MLB and the Dominican Republic may have under international law, as well as potential violations of such duties. Although I am not advocating bringing a claim before an international body, especially given the fact that the duty owed by MLB is only analogous to a typical MNC supply chain, sources of international law serve as a reference point for corporate codes of conduct developed under a corporate social responsibility model.
1. International Labor Organization (ILO)
The International Labor Organization (ILO) promulgates conventions that set international labor standards.[90] Both the United States and the Dominican Republic are members of the ILO.[91] Countries that ratify any given convention are obligated to make the convention a part of their national law.[92] However, in addition to voluntary ratification, in 1998 the ILO adopted the “Declaration of Fundamental Principles and Rights at Work.”[93] In the declaration, the ILO noted that the following are fundamental rights: “(a) freedom of association and the effective recognition of the right to collective bargaining; (b) the elimination of all forms of forced or compulsory labour; (c) the effective abolition of child labour; and (d) the elimination of discrimination in respect of employment and occupation.”[94] Whether or not a country has ratified the conventions underlying the fundamental rights, they “have an obligation arising from the very fact of membership in the Organization to respect, to promote and to realize, in good faith and in accordance with the Constitution, the principles concerning the fundamental rights which are the subject of those Conventions.”[95]
2. UN Convention of the Rights of the Child
In 1989, the UN General Assembly adopted and opened for ratification the Convention of the Rights of the Child.[96] The Convention covers a broad spectrum of rights tailored to the specific needs and dangers present for developing, non-autonomous children, covering such topics as child labor,[97] education,[98] and health and safety.[99] Both the United States and the Dominican Republic have ratified the Convention without reservation.[100] The UN Committee on the Rights of the Child oversees compliance with the Convention.[101] The countries that have ratified the Convention are required to prepare reports documenting their compliance.[102] In addition, NGOs are allowed to file “alternative reports” with the committee if they believe the government’s report is not an accurate reflection of the conditions for children in the country.[103]

D. Potential Violations

1. Child Labor
One of the ILO’s core tenets is the prohibition of child labor, including the Minimum Age Convention (No. 138),[104] to which the Dominican Republic is a signatory.[105] The fundamental convention sets the minimum age for employment at 15.[106] However, there is an exception for countries “where the economy and educational facilities are insufficiently developed,” in which case the minimum allowable working age is 14[107] (13 for light work).[108] The Dominican Republic ratified under the exemption.[109] No matter which standard governs the Dominican Republic, if official MLB academies admit children under the age of 14, either because the children lie about their age or are taken in without a contract, the team’s actions would violate the treaty. Although there may be ambiguity as to whether players in unofficial academies are employees, players in the official academies undoubtedly are, as they receive a salary and the MLB academies are an extension of their respective team’s minor league system. However, it appears such violations are isolated, and if not accidental, then at least not flagrantly willful either.[110] If we extend the earlier analogy of the independent academy as a small firm, at the domestic level there may be widespread violations of the child labor standard.[111] Although baseball may be a game and buscones would likely dispute the characterization of their young charges as employees, these independent agents make their living by “producing” baseball players for the official MLB academies. In such a situation, to the extent that the production of players results in conditions that would violate the convention, it makes sense to apply the convention to the players as a means of regulating the buscones. Therefore, in instances where a Dominican player is under the age threshold and is primarily pursuing baseball as a career—instead of playing in a school or recreational league as an ancillary matter to attending school—under the above conception of the domestic Dominican baseball industry as the bottom rung of a multinational supply chain, that activity is sufficiently analogous to employment to be a violation of the Minimum Age Convention.
2. Education
The UN Convention of the Rights of the Child (Article 28)[112] and the UN Declaration of Human Rights (Article 26)[113] raise education to the level of a human right. The right to education is a human right with a labor rights connection since it puts a laborer in a better position to realize her other rights, whether human, labor, political, or economic. The declarations and conventions call for compulsory primary education and insist on the right to secondary education.[114] Other than in the rare instance in which a player would use deception to get into an MLB academy, it does not appear that the academies directly violate the right to education by taking players of an age that the international and regional communities declare should otherwise receive primary education. And while there might be pressure to drop out of high school to attend an academy, it does not appear that athletes are, strictly speaking, required to do so. On the other hand, the presence of the MLB academies is the sole reason for the existence of the domestic baseball training system. In the domestic system, there is no doubt that children are dropping out of school to pursue playing baseball in the academies.[115] The buscones and independent academies that take in young children and prevent them from going to school directly violate the child’s right to education. The players that are then lucky enough to be signed by an academy often arrive without the requisite education. The players that are not signed by MLB academies are returned to the labor market with very little education—not even the rudimentary English skills taught in most MLB academies.[116] Although the Dominican Republic requires nine years of compulsory education, it is clear that most children do not receive the required level.[117] Therefore, the argument could be made that the independent academy system does not make the situation any worse in the Dominican Republic than it would be without such a system. However, even if most participants in baseball academies might drop out in any event, the academies arguably violate the right to education by providing a reason for doing so. This argument is made stronger in cases in which it would be impossible or at least incredibly difficult, given the time commitment, for children both to train at a buscón-run facility and to finish compulsory education. As outlined above and developed further below, I believe MLB should bear responsibility for the actions further down the player production chain as the party ultimately responsible for the existence of the buscones and independent academies.
3. Health and Safety
The ILO has promulgated standards regarding occupational health and safety.[118] Although the Dominican Republic has ratified some health and safety standards for particularly dangerous employment sectors, such as construction,[119] it has not ratified broader, cross-industry standards.[120] While academy athletes do not toil under life-threatening working conditions, they may be at risk of preventable injuries, and may not receive adequate care for the injuries they do receive (perhaps just getting cut from the program instead of receiving any treatment for injuries). Likewise, to the extent that steroid use is under regulated, it presents health and safety concerns. Given the fierce competition and the all-or-nothing stakes, despite a testing program, players appear to abuse steroids in high numbers.[121] As with any of the potential violations noted in this article, the violations are likely worse and more pervasive in buscón-run independent academies. Since the buscón has no economic commitment to the players outside of the bonus they receive—a relationship that is severed the moment the buscón gets his cut of the bonus—some may actively promote steroid use or otherwise disregard player’s injuries and long-term health.[122] More broadly, Article 32 of the UN Convention of the Rights of the Child recognizes the right of children to be “protected from economic exploitation and from performing any work that is likely to be hazardous or to interfere with the child’s education, or to be harmful to the child’s health or physical, mental, spiritual, moral or social development.”[123] There is no question that steroid use that is either forced or enabled by baseball organizations and personnel in the Dominican Republic violates Article 32. Likewise, a system of child labor that leaves the child susceptible to routine injury, as is the case in baseball—both as a matter of accidents and stress injuries that result in muscle, tendon, and ligament damage—without adequate preventative measure, would violate the Convention. Moreover, even without steroid use and injury concerns, any situation in which adults make money by taking a share of any eventual signing bonus received by children coerced to drop out of school and take up a profession that provides few transferrable skills and a low probability of success is surely both economically exploitative and harmful to a child’s development. As such, no matter how pervasive the use of steroids is,[124] the treatment of young baseball players in the Dominican Republic surely violates Article 32.

III. Corporate Codes of Conduct

A. Overview

There are two obvious places at which pressure could be directed to remedy the labor and human rights abuses taking place within baseball academies: the Dominican government and Major League Baseball. Most commentators have suggested primarily pressuring one or the other.[125] At least one writer has suggested that the situation in the baseball academies is primarily a Dominican problem, since she believes that to the extent abuses occur, they occur almost exclusively within independent Dominican-run academies; therefore, any violation of domestic or international law falls squarely at the feet of the nation responsible for such conditions.[126] Even if this claim is true, I believe that MLB is responsible for conditions in the independent academies. The presence of MLB is the primary, if not the only, reason such academies exist.[127] In that way, as outlined above, the independent academies are analogous to supplier factories from which MNCs buy commodities to make their goods. In fact, since the independent academies (and the Dominican Republic more generally) are producing players almost exclusively for MLB teams, MLB’s connection to the player protection chain is tighter than it might be for other MNCs, even when a MNC has a supplier contract with a factory in a buyer-driven commodity chain.[128] While buscones may not be employees of MLB, independent academies are sufficiently analogous to supplier factories to apply pressure to MLB to help regulate the behavior of buscones. In other words, both the Dominican Republic and MLB should share responsibility for abuses. If pressure is only applied to the Dominican Republic, there is little hope of changing the status quo. Although the Dominican Republic is a signatory to the ILO and has education laws on the books that ostensibly make some of the practices within the independent academies illegal, because of intense poverty and an otherwise low level of development, there is little chance that increased scrutiny of labor practices alone would provide sufficient incentives to the Dominican Republic to turn off or even regulate the spout of cheap, young talent flowing into the MLB academies.[129] This is doubly unlikely given the island nation’s fascination with baseball and the large amount of money that MLB spends in the Dominican Republic each year.[130] As such, it is necessary to make MLB shoulder some of the burden to ensure that players have not had their rights abused. Unlike the Dominican Republic, MLB is highly susceptible to public pressure. Part of the product they sell is a sense of sportsmanship and fair play. In this way, MLB is no different than the countless consumer brands that offer a good or service that depends in some degree on the goodwill of the consumer.[131] I believe that a combined approach, bringing attention to the Dominican Republic’s failure to protect its young players and using that information to expose MLB’s role in that failure, stands the best chance of improving the conditions for Dominican baseball players. Although legal channels may be technically available, such as bringing a claim against MLB under the Alien Tort Claims Act (ATCA), such a claim is highly unlikely even to get far enough to expose MLB to substantial negative publicity.[132] Although the ATCA has been used to prosecute torts “in violation of the law of nations,”[133] the state of the law is in flux.[134] It is currently unclear whether a corporation can be found responsible under the ATCA, and if one is, to what degree a corporation must be aiding and abetting a state action.[135] In this case, it is even less clear whether MLB owes a duty to the players in the independent academies that could be violated under the ATCA. Even if someone brought a claim against the Dominican Republic for labor rights abuses, the claim is highly unlikely to get any traction with a court. In its broadest reading, claims under the ATCA typically deal with extreme issues, such as political murder and forced labor.[136] Therefore, the most efficacious way to improve conditions for young baseball players in the Dominican Republic is for the public and NGOs to push MLB to develop a code of conduct that puts MLB in the position of working with the Dominican Republic to ensure that players who enter MLB academies have received the proper education and are not exploited as child laborers. Recognizing the limits of a legal challenge to conditions in the academies, this type of campaign would rely on the moral underpinnings of the domestic and international law as opposed to the formal mechanisms of the various international institutions. In this way, the campaign would resemble the anti-sweat shop campaigns that led MNCs such as Nike and Levi Strauss to develop corporate codes of conduct (CCOC) under which these companies attempt to regulate their suppliers. While another commentator has suggested a code of conduct as a method to remedy potential abuses,[137] previous scholarship has promoted an “all-or-nothing” approach that would do more harm than good to both the children in independent academies as well as the Dominican Republic more broadly.

B. MLB and a Corporate Code of Conduct

Major League Baseball is a MNC whose success is highly dependent on fan perception.[138] One way in which other MNCs whose business depends on public goodwill have attempted to garner approval is through the development of a CCOC for dealing with supplier factories and other contractors in the developing world.[139] Because of their vast economic power, the presence of MNCs may overwhelm the public regulatory system of many developing states. This outcome occurs even in situations where the company does not make a conscious effort to subvert regulation of labor standards. Where the country and its citizens are desperate for contract work, the race (to the bottom) to produce goods at low cost creates a situation where the country would rather have jobs than enforce the domestic labor laws. During the 1990s, in response to a number of reports on horrible working conditions in supplier factories for some of the leading apparel and sporting goods companies,[140] companies began to see the benefit of corporate social responsibility (CSR), one part of which was establishing CCOC as a method of dealing with public outrage over MNCs’ complicity in labor and human rights abuses. While some of the codes of conduct may have been drafted proactively and presented to the public as an altruistic reflection of the corporation’s moral principles, many such codes were passed in response to a human or labor rights scandal, uncovered by activists, non-governmental organizations (NGOs), or journalists, implicating the company.[141] Over time, some corporations have also seen CCOC as a means to achieve other business ends, such as efficiency and retention of employees[142] and not merely as a public relations ploy. Whatever the reason for passing the code of conduct, the measure of success of any code of conduct is both the substance of the code itself, and, more importantly, the tangible steps taken by the MNC to prevent abuses. Although many CCOC began as vague, aspirational statements of principles, increased transparency, monitoring and enforcement efforts, including the use of independent agencies, have moved many CCOC past hortatory claims to enforceable regulatory mechanisms. [143] Companies such as Levi Strauss,[144] Nike,[145] and Reebok[146] want to appear to be good corporate citizens. They have done so, in part, by developing codes meant to establish the company’s commitment to core labor, human, social, or economic rights. Organizations such as the Federation Internationale de Football Association (FIFA), the Swiss organization that governs international professional soccer, have created labeling programs that require suppliers of “official” gear to abide by such standards.[147] Under either type of code, many CCOC incorporate labor standards as set out by the ILO “Declaration of Fundamental Principles and Rights at Work.”[148] This often means making sure that the factories that are part of their production chain, either as producers of the product or the raw materials from which the products are made, respect certain minimum rights. Because it appears to be particularly frowned upon by Western consumers, the use of child labor is of core importance. Levi Strauss is an example of a MNC with a highly developed, self-imposed code of conduct. Levi Strauss initially developed its code not just for ethical reasons, but also to protect its brand image in the face of other scandals implicating apparel companies in the abusive labor practices of their overseas contractors.[149] Levi’s dealings with contractors in countries across the globe are governed by the two-part “global sourcing and operating guidelines.”[150] Through its “country assessment guidelines,” Levi Strauss determines if a country in which it is considering doing business meets minimum levels of health and safety protections, human rights guarantees, a functioning legal system, and political stability.[151] If Levi Strauss decides to do business within a country, it then monitors the conditions in its contracting factories under its “Terms of Engagement” (TOE).[152] The TOE covers wages and benefits, working hours, child labor, prison and other kinds of forced labor, discrimination, and disciplinary practices.[153] Levi Strauss works with the third party, non-profit monitoring organization, Verité, to ensure that its suppliers comply with the code of conduct.[154] In some instances, Levi Strauss has withdrawn from countries for violations of the TOE.[155] According to a self-published case study, Levi Strauss says it withdrew production from Mauritius because of TOE violations as a result of discrimination against migrant workers in Mauritian factories.[156] According to the company, it met with the U.S. government to ask them to pressure Mauritius to investigate and change labor practices within the country as a condition to retaining trade benefits with the U.S.[157] Levi Strauss maintains that its actions led the Mauritian government to create the “Inter-Ministerial Committee on Foreign Labor” to examine labor conditions for migrant workers and strengthen labor protections.[158]

IV. An MLB Corporate Code of Conduct for the Dominican Republic

A. Features of MLB that Would Effect the Implementation of a CCOC

The hierarchy of the League is a unique feature that could make it easier to monitor and enforce a code of conduct. MLB as an organization oversees and coordinates 30 franchise teams. It, along with the players association, has developed a complicated set of rules governing how teams operate and how they treat their players.[159] Since MLB already operates as a top-down governing body of the teams, it is in a position to promulgate a CCOC that applies to the behavior of the franchises. It is also better able to monitor and enforce a code against teams, since unlike a manufacturer who receives the products produced by noncompliant suppliers, violations by low level producers (independent academies and buscones) directly benefit only the franchises. Because the League has less of a stake in whether a team is able to exploit players,[160] it will be better able to make sure that the teams are living up to their obligations. However, while this might be theoretically true, it is also true that MLB has been reticent to act as a monitor and enforcer in the past, such as when it was pressured to institute a drug-screening program in the wake of steroid scandals in the league.[161] The issue of developing a code of conduct for MLB academies would not likely be contentious in the same way, since the players association does not represent the players in the Dominican academies. There are also a number of ways in which MLB’s relationship with the Dominican Republic is different than the typical MNC-developing country relationship, which make it difficult for MLB to enforce a code or create a situation in which strictly enforcing a code would have a deleterious impact on the same young athletes MLB should be trying to help. For instance, MLB’s relationship with buscones and independent academies is different than that between MNCs and in-country contractors. As noted earlier, MLB academies do not have an ongoing contractual relationship with independent academies and buscones. In fact, although MLB teams may visit independent academies or meet with scouts to determine which players they would like to sign, the only contractual relationship is likely to be between the boys and the buscones who represent them. The lack of a contractual relationship makes it even harder to regulate the behavior at the very bottom.[162] Even if MLB develops a CCOC that calls for compulsory education and the prevention of the usage of child labor, buscones, parents, and players will continue to see a system that results in very large payout for those that make it to the top. CCOC or not, it would be nearly impossible for MLB to have in-school monitors to make sure potential future players are receiving an adequate education. Likewise, if a young boy is a promising baseball talent, but dropped out of school before completing compulsory education, there is an incredibly strong incentive for that child to forge the proper documentation or otherwise shirk the CCOC. This problem is exacerbated by the fact that the education system is poor in the Dominican Republic to begin with, and that, baseball player or not, many children drop out of school after the 5th grade.[163] After all, the player very literally has nothing to lose and everything to gain. Similarly, even if MLB were to institute a code that requires players to receive compulsory education and prohibits independent academies from engaging in practices that amount to the use of child labor, an all-or-nothing approach would likely end up only hurting the Dominican Republic as a whole. This is analogous to a CCOC that requires a company to pull out of a country entirely if it finds that the factory or the country in which it operates is a flagrant violator of code provisions. A CCOC with such an enforcement mechanism gives the MNC leverage to make its partner accede to its demands—at least where the partner country or factory is able to meet those demands.[164] However, there are situations in which a partner cannot meet the standards set by the MNC. If the only recourse is ending business with that firm or in that country, while it might assuage the guilt of Western consumers, it does little to improve the conditions for workers in that country or factory who could have used the capital that the MNC would have expended to improve their economic situation, perhaps long term. This situation is exacerbated in an industry like baseball and in a country like the Dominican Republic, where the primary focus of the code would be the regulation of behavior at the very bottom of the production chain. This behavior is typically difficult to regulate, given the fact that employees’ only competitive advantage is the low cost of their labor. This is especially true since every boy is in competition with every other boy; there is every incentive to cheat the system, especially when complaining about one’s treatment is likely the surest way to lose one’s chance to advance.[165] Even in the face of MLB pulling out of the country, as long as individual buscones see that other scouts and players are able to get an advantage out of not following the CCOC, they will also cheat the system. If an individual follows the rules and others do not, the individual loses out. If MLB pulls out of the country because the independent academies and buscones refuse to follow the rules en mass, the individual does not lose any more, but the rest of the country does, since MLB takes its $75 million a year investment with it. Also, without MLB in the country developing talent, there would be fewer Dominican players in the league and, therefore, less money being sent back by such players to families and communities throughout the Dominican Republic. Instituting a corporate code of conduct vis-a-vis independent academies in the Dominican Republic presents another unique challenge. The product that the academies produce is not a good but a laborer in the form of baseball players. This presents problems because, in addition to creating ambiguity as to whether a player should be considered a laborer at all, it compounds the enforcement issues outlined above. If a code of conduct prohibits an MLB academy from signing a player who was taken out of school or otherwise exploited, it is an injury almost exclusively borne by the individual player. Therefore, any code of conduct adopted by MLB regarding the Dominican Republic should be drafted to avoid harming players, who, through little fault or their own, may have already been exploited by overzealous buscones. Any solution should work to create a closer connection between MLB and the independent academies and scouts who provide the academies with players. Likewise, instead of merely pulling out of the country or even scaling back its investment, any solution should provide incentives for MLB, the Dominican Republic, and domestic academies to work together to make sure core labor and human rights standards are met. This would go beyond the all-or-nothing approach of many codes and could lead to both a greater investment in the country by MLB and an increased commitment to public regulation by the Dominican Republic.

B. Suggested Features of an MLB Code of Conduct

1. Establish a Buscón Licensing Program
One way that MLB could potentially attempt to remedy the situation would be the adoption of a code of conduct that includes a buscón licensing program under which buscones would not be allowed to represent players unless they can verify that players under their control have finished compulsory education and have not been exposed to unduly hazardous conditions while under a buscón’s care. In the Dominican Republic, children are currently required to finish eight years of compulsory education.[166] However, most children drop out after the fifth grade.[167] Even if this is the case, since entrance to MLB is the primary reason such children take up baseball and its academies are the only real conduit for talent off of the island, MLB has an imperative to make sure that it is not responsible for children leaving school. Given both the state of the Dominican education system and the international norm of requiring only compulsory education,[168] requiring players to have graduated high school is currently an unrealistic goal. In fact, such a standard would do more harm than good. If MLB teams were unable to sign Dominican players who have not completed high school, MLB teams would have to scale back their operations in the Dominican Republic without a corresponding educational benefit to potential players. A code of conduct provision requiring documentation of completion of compulsory education would also have the effect of reducing any child labor violations within the independent academies. Requiring children to finish compulsory education would help correct the school-baseball balance. If baseball training was relegated to an after school activity, it would be less likely to qualify as employment under common law agency principles, since both the duration of the activity would be shortened and the player would be better able to set the bounds of his participation.[169] One Note has argued that creating an obligation on the part of MLB to make sure academy players received an adequate education is not feasible because, even if MLB has an obligation to make sure the children who play in its academies have received an education, MLB’s efforts would not affect the children playing in independent academies.[170] If a code of conduct results in only baseball players receiving a better education in the Dominican Republic, I would consider it a success. MLB might have a general obligation to all children on some vague moral level, but as I argue in my prior analysis, it has a specific obligation to the children who drop out of school to become baseball players and enter the independent academies that supply players to MLB academies. There are also the indirect effects of both drawing more attention to the Dominican Republic’s poor educational system and contributing to the solution.[171] Heightened public awareness of the educational crisis in the Dominican Republic may spur further action by the Dominican government, NGOs, and other MNCs. Therefore, even if MLB only has an obligation to its players, that encompasses an obligation to verify that baseball players entering its academies have received adequate education. By enforcing such a rule, MLB would help children throughout the Dominican Republic. Commentator Adam Wasch, focusing on prohibiting child athletes from working at the expense of education, provides an example of what a code of conduct of this kind might look like:
Enforcement of MLB’s Child Labor Code of Conduct. Major League Baseball will discontinue cooperation with any third-party that persists in non-compliance with our MLB Child Labor Code of Conduct. Apprenticeship Programs. Major League Baseball accepts apprenticeship programs for children between the ages of fourteen and sixteen years, but only under certain conditions. The total number of hours spent on work and school together should never exceed seven hours per day. The apprentice must prove that work is not interfering with the child’s education, that the apprenticeship is limited to a few hours per day, that the work is light and clearly aimed at training, and that the child is properly cared for, housed, and fed. Apprenticeship program directors must file a report with the league that details that their apprentices are receiving a quality, formal education. We will not work with apprenticeship programs that do not comply with these terms. Special Recommendations. Major League Baseball acknowledges that according to Article 1 of the UN Convention on the Rights of the Child, a person is a child until the age of eighteen. We therefore recommend that children in the age group of 14-18 be treated accordingly (i.e., by limiting the total number of working hours per day and implementing appropriate rules for overtime). Children in this age group are not allowed to perform strenuous work that will impair their ability to receive an education.[172]
While his proposed Child Labor Code of Conduct is a decent first step, it would likely be insufficient to remedy the child labor and education violations committed by buscones. First, it has been established that the record keeping system in the Dominican Republic is open to manipulation.[173] As such, an enterprising player or buscón could likely forge any required documentation to show that the requisite education has been received. This is especially true for exceptionally talented players, for whom there is an incentive to forge documentation or to do a less than thorough job of investigating dubious documents.[174] On the other hand, it is necessary because it makes the Dominican Republic responsible for enforcing its own education laws if it wishes to keep MLB academies in the country. After all, if verification becomes too difficult, MLB teams might significantly scale back their operations in the country. Likewise, Wasch’s code suffers from an adversarial, all-or-nothing approach. Under his code, independent providers of baseball players would operate under a cloud of suspicion; and, if they fail to meet the strictures of the code, they will be cut out.[175] In a country without adequate regulation to prevent buscones from violating labor rights, a code that treats each buscón or academy as an independent data point will likely be ineffective in bringing the domestic system in line with international labor standards. As long as some independent actors are able to get away with violating labor standards, there will be intense pressure for others to push their luck. A potentially more effective approach, which would retain the same thrust as Wasch’s code, is one that creates a closer partnership between MLB and the independent actors which supply the MLB academies with players, as well as the government of the Dominican Republic. For instance, the code could require Dominican scouts and independent academies to apply for a license from MLB. The license would require the independent provider to abide by certain minimum labor and educational standards, as set by Dominican law. In turn, MLB would require the teams in the league to sign only players who are represented either by a licensed scout or institution. Alternatively, MLB teams could sign players who are at least 17 years old and are currently attending or have already graduated from high school and, therefore, have received both the compulsory education required by Dominican law and are eligible to be signed under MLB rules governing international players. This combined approach would provide incentives for independent providers to abide by Dominican law but would not punish those players who decided to stay in school past the compulsory period. In fact, creating a closer relationship with buscones would inure to the benefit of the scouts, since only they would be allowed to make a premium off of players signed by MLB teams, likely more than offsetting the cost of compliance with the code. The franchise structure of MLB could be useful in facilitating a partnership between the teams, buscones, and government. Since MLB is a corporation that exists outside of the teams it oversees, it has the ability to implement a code that governs the teams and buscones without the need for an outside monitoring group (though perhaps there is a role for such a group). Through the monitoring program, MLB would oversee the independent producers. Under this approach, instead of immediately withdrawing a license when violations are found, MLB should require the independent actors to demonstrate why they are unable to meet their obligations and what steps they are taking to reach compliance. MLB already has an international office in Santo Domingo.[176] If it implements a licensing program for buscones, it could use its office in the Dominican Republic to serve as a meeting place for all of the regulated entities to discuss violations, as well as successes and concerns with the program. For instance, buscones may complain that the education system in the country is in bad shape; children are not actually required to finish compulsory education and, in fact, most do not—therefore, the independent operators are unable to meet their obligations under the licensing program. The dialogue created through a partnership between MLB and independent baseball scouts could then be used to pressure the government to better enforce its education laws.[177] A code that produces communication instead of merely the threat of withdrawal of benefits would likely benefit young baseball players and the Dominican Republic.
2. Require Teams to Provide Additional Education, Either On-Campus or Through a Partnership with Local Schools
Even if MLB develops partnerships with buscones and independent academies, given the economic jackpot that a player receives if they are skilled enough to make it to the major leagues, the pressure to cheat would still be intense. Therefore, MLB may need to take additional proactive steps to ensure that its presence in the Dominican Republic does more good than harm. One method would be to require MLB academies to offer additional education to players in the academy. This could be accomplished either by bringing teachers to the academies to teach classes in addition to the English and American culture classes already taught, or alternatively, academies could provide busing from the academies to nearby schools. This educational component would be required for the high-school-age players (16-18) and, perhaps, could also be offered to older players who did not graduate high school as an optional program. In fact, some MLB teams have already instituted additional education at the academies. As noted earlier, five teams currently either bus players to nearby schools[178] or have on-site educational facilities.[179] Given the relatively low cost to the teams,[180] the high value to the players, and the remedial benefit for athletes who dropped out of school to pursue baseball, there should be a push to get MLB to add such a provision to any code of conduct it adopts. The policies of the MLB academies would be easier to monitor than those in the independent academies. If MLB discovers that a team is not fulfilling the educational requirement, the league could impose fines and implement the program itself, charging the cost to the team. While MLB should be more willing to penalize a team than they would an independent operator, the penalty should be aimed at improving conditions for players and should not include forcing the team to close the academy, since the effects of that penalty would be felt most strongly by the Dominican players.
3. International Draft
Perhaps the mechanism most likely to change the fortunes of players in the Dominican Republic is the institution of an international draft. In fact, the latest collective bargaining agreement (CBA) between MLB and the Major League Baseball Players Association calls for an investigation into instituting such a draft.[181] An international draft would require teams to pick all first-time signers, instead of leaving those players subject to free agency and the vagaries of the market. Players chosen in an international draft may fall into “slots” with corresponding signing bonus values.[182] Even if there were not a hard slotting system with mandatory signing bonuses, a player would only be able to negotiate with the team that picked him. Proponents of an international draft believe it would be more fair, both to players from developing countries as well as to players already subject to the draft, who may not be able to command the same kind of premium that a proven talent from Japan or Korea could get.[183] Most significantly, the institution of an international draft would largely undercut an MLB team’s incentive to maintain an academy in the Dominican Republic. The academy could still be the first stop for many drafted Dominican players; however, the reason that teams run academies is so they are able to give a large number of cheap players a test run before making a larger commitment to the players and sending them to the U.S. to play in the minor, and perhaps eventually, the major leagues. If teams were only allowed to sign the limited number of players that fell to them through a draft, which encompassed not only Dominican players but players from all over the world, this key function of the academies would be lost. Some have argued that undercutting MLB teams’ incentive to operate academies in the Dominican Republic is a good thing.[184] While MLB’s current policies may contribute to labor and human rights violations in the country, the background conditions in the Dominican Republic are not rosy. MLB teams spend a significant amount of money in the country, including providing some infrastructure improvements.[185] Likewise, players in the official MLB academies make a wage that is many times higher than the prevailing factory wages.[186] Therefore, while there may be gains, such as more children pursuing occupations other than baseball, the goal should be for MLB to make a greater commitment to helping the Dominican Republic reach international standards—not reducing MLB’s investment in the country. After the institution of an international draft, there might not even be an appreciable decline in Dominican boys dropping out of school to pursue it; even without an academy system, there is still the lure of the enormous payday and a tradition of players who went on to become international sporting celebrities. Likewise, while there may be less money to go around, an international draft would likely not undercut the incentives for buscones to develop, represent, and garnish the signing bonuses of players to the same degree that it would reduce MLB’s investment in the country. Therefore, while it might be an inevitable development, it is not likely a good one for the Dominican Republic or its baseball players.

V. Development of an MLB Corporate Code of Conduct

Currently, MLB does not have a corporate code of conduct independent of the collective bargaining agreement (CBA) negotiated between team owners and the Major League Baseball Players Association (MLBPA), whose only relevant provision for this discussion is the requirement that MLB teams offer English-as-a-second-language courses if any major league player requests it.[187] Additionally, MLB maintains an office in Santo Domingo in the Dominican Republic, which has established rules regarding field conditions, housing, and nutrition in the academies.[188] Therefore, the rules governing MLB’s conduct in the Dominican Republic are the bare-bones requirements found in Rule 3(a)(1)(B)(i) and (ii) requiring that players are either 17 when signed, or will be 17 by the end of the current season.[189] That means most players in the Dominican MLB academies receive little outside training besides baseball-related English classes, and even then it is generally agreed that players do not develop English skills until they come to the United States.[190] Given the unique features of the academy system—including very young players, dire poverty, lack of government regulation, and an incredibly small chance of success—it is unlikely that Dominican players will develop the bargaining power necessary to substantially change their conditions. Any player who speaks out would likely be immediately let go from the academy. As such, the pressure to develop a code of conduct will need to come from an outside combination of public and MLBPA pressure, backed by the guidelines furnished by international labor and human rights law. Although the MLB rules govern player selection and development, whenever there is conflict between the rules and the CBA, the CBA governs.[191] This means that players through the MLBPA have the ability to shape the rules to protect labor rights in the Dominican Republic. In fact, given the strength of the player’s association, its cooperation may be required to institute any rule change or corporate code of conduct governing MLB behavior in the Dominican Republic. Therefore, while an independent corporate code of conduct would help protect Dominican players, the player’s association insistence on adding the code to the CBA would carry additional moral force and operate not only as a self-imposed code but also as a binding contract with the MLBPA. One potential problem with taking this approach is convincing the MLBPA to use their bargaining power to protect players not currently in the association. Even Dominican players, who make up a substantial minority of MLB players,[192] may not see the benefit in pushing for better treatment of other Dominican players; after all, they made it out of the Dominican system—some of them as millionaires. Also, as one commentator has pointed out, Dominican players may also be acutely aware of their fragile position as foreign baseball players, and may not be willing to stick their neck out, lest they be labeled troublemakers.[193] In fact, given the precarious position of most MLB players, even those who believe the situation in the Dominican Republic needs to change may be unwilling to rock the boat for the benefit of young future players. However, if the issue in the Dominican Republic could be shown to have a negative effect on the major leagues, the MLBPA might make a greater push toward remedying the education and child labor problems in the Dominican Republic. Perhaps the MLBPA would become stronger advocates for change in the Dominican Republic if it could be shown that the lower bonuses and salaries paid to players signed in the Dominican Republic suppress salaries across the league. Similarly, the MLBPA might take a lead role if the relatively unregulated international free-agent market leads MLB to focus attention on the Dominican Republic, churning through many players, few of whom become members of the association, instead of focusing on countries covered by the draft, in which a higher percentage of players initially signed, eventually make it to the majors. In that instance, the MLBPA would be most likely to push for a fix that levels the playing field for all potential major league players, such as the institution of an international draft. Even without the involvement of the player’s association, MLB could adopt a corporate code of conduct that requires MLB teams operating in the Dominican Republic or elsewhere to abide by a set of rules, since those players are not currently covered by the CBA. In fact, unlike other codes of conduct, by which companies self-regulate, there is more distance between MLB and its independently owned franchises; while still self-regulation, this structure separates enforcement and compliance. However, MLB has been reticent to fully confront the labor rights violations that their presence in the Dominican Republic might cause. This reticence persists despite years of media coverage on the potential problems caused by academies.[194] The plight of Dominican players was even documented in the feature film Sugar.[195] Therefore, it may require additional public pressure for MLB to see that a CCOC is in its best interest. Admittedly, a public campaign faces some pitfalls that were not present in the campaigns against sweatshop labor in the 1990s. For one, the problem is potentially more nuanced. Unlike a sweatshop where all of the workers, perhaps including child laborers, make subsistence (or lower) wages for work performed under dangerous conditions, there are large numbers of Dominican-born players in MLB that make millions of dollars a year, some of whom are the face of their franchise.[196] The plight of school-age children may not seem so pressing when there is such dramatic upside for a few lucky players. Similarly, unlike the anti-sweatshop movement, which drew strength from many interrelated groups and causes,[197] there may not be a similar block of baseball fans dedicated to labor rights. I have no doubt that there are individual baseball fans who care about labor conditions in the Dominican Republic, but baseball is, after all, a spectator sport, and many baseball fans wish to escape real-world problems. If the average fan’s critical faculties are engaged, they are likely directed toward dissecting the decisions of the team on the field, not the labor conditions that produced the players on the team.[198] However, it is likely that the prospect of getting Western consumers to care about the conditions under which their jeans and shoes were produced seemed similarly dire in early days of the anti-sweatshop movement. On the other hand, because the problem is less extreme than some labor law violations, such as widespread labor and health and safety violations throughout a global supply chain, and the fixes would cost less, it may take less pressure before MLB decides that the benefit of implementing a code of conduct regarding players in the Dominican Republic is worth the cost. In fact, through continued discussions about possibly instituting an international draft, MLB may be coming to the conclusion that its brand will suffer if it continues to ignore the circumstances that produce players in the Dominican Republic. The degree to which a commitment to even an international draft is real, and not just a way of kicking the can down the road, is yet to be seen.[199] Although management and the players association may both agree with the draft in principle, neither appears to be willing to expend bargaining power to make it a reality. Without additional public pressure, even this small change may never come to pass.


While MLB has delivered benefits to the Dominican Republic, including making some of its citizens very rich, baseball has left many aspiring Dominican players who pursue a career in the big leagues with little educational or vocational skills. Exacerbating this problem is the presence of buscones, who have no incentive to make sure the children they train get a proper education or receive sufficient medical care. Given that MLB has contributed to this situation, as the only organization paying for young baseball players, it should bear some responsibility for remedying the educational and health deficit. Like MNCs, MLB should adopt a corporate code of conduct to regulate its behavior in the Dominican Republic. A corporate code of conduct, which institutes a licensing program for buscones, would go part of the way toward ensuring that children receive a better education and are not otherwise abused by licensed buscones. However, since such a licensing program would promote dialog over rigid punishment, the code of conduct may also need to require MLB academies to provide supplemental education, at least until improvement is shown in school attendance and conditions improve for child players at independent academies. Some commentators have called for the institution of an international draft. While an international draft may help prevent abuses, it would also have the effect of removing the incentives for MLB to invest in the Dominican Republic. Finally, any solution to the problem would require increased public pressure, since MLB has been slow to confront the scope of its obligation in the Dominican Republic. Although the prospect of rallying baseball fans around labor conditions in the Dominican Republic may seem daunting, given the scope of the harm and the relatively small changes required, it may not be as insurmountable a task as it seems.
* J.D., 2013, New York University School of Law; B.A., 2005, University of Wisconsin-Milwaukee. I would like to thank Cynthia Estlund for her helpful substantive and structural suggestions. [1] See Sean Gregory, Baseball Dreams: Striking Out in the Dominican Republic, Time, Monday July 26, 2010, available at time/magazine/article/0,9171,2004099-1,00.html. [2] See Diana L. Spagnuolo, Swinging for the Fence: A Call for Institutional Reform as Dominican Boys Risk Their Futures for a Chance in Major League Baseball, 24 U. Pa. J. Int’l Econ. L. 263. [3] See Gregory, supra note 1. [4] Id. [5] See Jesse Sanchez, Creating Complete, Healthy Players,, 2215646&vkey=news_mlb&fext=.jsp&c_id=mlb. [6] See Gregory, supra note 1. [7] Id.; Steve Fainaru, The Business of Building Ballplayers, Washington Post, June 17, 2001, at A01, available at [hereinafter Fainaru, Business of Building]. [8] See Gregory, supra note 1. [9] See Spagnuolo, supra note 2, at 275. [10] See Bob Ruck, Baseball’s Recruiting Abuses, Americas Quarterly, available at (describing MLB’s overwhelming presence in the Caribbean, and how this presence led to the development of the buscón system). [11] See Major League Rules, available at [hereinafter MLR]. [12] Id. § 3(a)(1)(A) (“A player who has not previously contracted with a Major or Minor League Club, and who is a resident of the United States or Canada, may be signed to a contract only after having been eligible for selection in the First-Year Player draft.”). [13] Id. § 4(a). [14] J.P. Breen, Hard Slotting is Bad for Baseball, Fangraphs (Nov. 9, 2011), [15] MLR, supra note 11, § 4(h) (“A player who is selected at a First-Year Player Draft and who does not sign a Major or Minor League contract before being removed from the selecting Club’s Negotiation List . . . shall be subject to selection at the next First-Year Player Draft at which the player is eligible for selection.”). [16] Id. § 3(a)(2)(A). [17] Id. § 3(a)(3)(B)-(E). [18] Even though the percentage of high school players drafted rose between the 2011 and 2012 draft, high school players still only make up 30% of the players drafted. See Kevin Askeland, MLB Draft 2012 by the Numbers, Max Preps, Yb40hby1E0Ocecbsw72k9w/mlb-draft-2012-by-the-numbers.htm. [19] MLR, supra note 11, § 3(a)(1)(B)(i). [20] Id. § 3(a)(1)(B)(ii). [21] Arturo Marcano & David P. Fidler, The Globalization of Baseball: Major League Baseball and the Mistreatment of Latin American Players, 6 Ind. J. Global Legal Stud. 511, 538 (1999) (“The power of the MLB scouts vis-a-vis a baseball prospect in Latin America is greater than it was in the United States (generally speaking) because of the poverty and relative lack of education suffered by the prospect and his family. As a representative of a MLB team, a scout with the power to sign prospects has tremendous leverage over a vulnerable young player from a poverty-stricken country. In addition, although many MLB teams scout in Latin America, potential prospects may not see scouting frenzies over their talent because the scouting system is not as well structured as the pre-draft American system was. These factors lead to Latino prospects who are generally willing to sign anything a MLB scout puts in front of them without receiving anything close to the kind of signing bonuses received by American baseball draftees.”). [22] See Posting System, Baseball Reference, (in 2011, MLB’s Texas Rangers paid the Hokkaido Nippon Ham Fighters over $51 million to negotiate a contract with their star pitcher Yu Darvish). [23] See Teams by Affiliation,, [24] See Sanchez, supra note 5. [25] See Adam Wasch, Children Left Behind: The Effects of Major League Baseball on Education in the Dominican Republic, 11 Tex. Rev. Ent. & Sports L. 99 (citing Office of the Commissioner MLB-Dominican Republic, MLB Investment in the Dominican Republic, [26] See Spagnuolo, supra note 2, at 269-270 (“Many allege that not all players at the academies are actually signed, and that boys between the ages of twelve and sixteen often attend the camps.”). [27] See Spagnuolo, supra note 2, at 275; Vanessa Marie Zimmer, Dragging Their Devotion: The Role of International Law in Major League Baseball’s Dominican Affairs, 4 Nw. U. J. Int’l Hum. Rts. 418, 421 (2005). [28] See Zimmer, supra note 27, at 421 (noting that while it is clear that forging documentation is a problem, it might be more prevalent at the other end of the spectrum with players falsifying their ages to appear younger than they are. This behavior only reinforces the notion that players believe teams put a premium on youth.). [29] See Spagnuolo, supra note 2, at 270. [30] Id. [31] See Gregory, supra note 1. [32] Id. [33] Id. [34] See Spagnuolo, supra note 2, at 272-73. [35] See id., at 271 (referring to this method of signing Dominican players as the “Boatload Mentality”). [36] See Spagnuolo, supra note 2, at 271(“Critics argue that this unabashed behavior by scouts only proves their point: MLB sees these players as commodities and fails to recognize the long-term negative implications that some of their actions might have on the players’ lives.”). [37] See Gregory, supra note 1. [38] Major League Baseball-Major League Baseball Player’s Association Collective Bargaining Agreement, § 7(B)(1) [hereinafter CBA]. In November 2011, MLB and MLBPA negotiated a new CBA extending through the 2015 season, by the end of which the minimum salary will be $500,000 per season. Jayson Stark, Major League Baseball Players, Owners Sign New Labor Agreement,, major-league-baseball-players-owners-sign-new-labor-agreement. [39] See Gregory, supra note 1. [40] CIA, The World Factbook, [41] In fact, it appears that those players who are cut due to injury after they sign may never receive their signing bonus. See Marcano & Fidler, supra note 21, at 545. [42] If fact, it appears this “succeed at all costs” mentality does not end once Dominican players reach the United States. Between 2005 and 2007, 58.5% of all players who tested positive for performance-enhancing drugs across major and minor league operations, including those in Latin America, came from the Dominican Republic. See Arturo J. Marcano Guevara & David Fidler, Fighting Baseball Doping in Latin America: A Critical Analysis of Major League Baseball’s Drug Prevent and Treatment Program in the Dominican Republic and Venezuela, 15 U. Miami Int’l & Comp. L. Rev. 107, 123-24 (2007). [43] The dangers are exacerbated by the fact that many players take steroids intended for animals. See Fainaru, Injecting Hope—and Risk: Dominican Prospects Turn to Supplements Designed for Animals, Washington Post, June 23, 2003, at A01, available at forums/mess-hall/122165-injecting-hope-risk.html [hereinafter Fainaru, Injecting Hope]. [44] See Sanchez, supra note 5. [45] See Sanchez, supra note 5. The article notes that four MLB teams, the Boston Red Sox, Cleveland Indians, New York Mets and Seattle Mariners, have established connections with high schools in Santo Domingo. [46] See Wasch, supra note 25, at 108 (noting that the San Diego Padres built class rooms at their facility and have also “partnered with the Dominican Government, the American Chamber of Commerce in the Dominican Republic and the U.S. Agency for International Development (USAID) to improve the quality of basic public education in the Dominican Republic, specifically, . . . the surrounding schools that sit only a few miles away from the team’s new multi-million dollar baseball academy”). [47] See Gregory, supra note 1(noting that in 2010, of the 31 prospects in the academy during that school year, 29 passed their current grade level and 5 were expected to earn high school diplomas). [48] See Gregory, supra note 1; Fainaru, Business of Building, supra note 7. [49] See Gregory, supra note 1; Fainaru, Business of Building, supra note 7. [50] Fainaru, Business of Building, supra note 7 (stating that not only do buscones take a cut, but in some cases steal the signing bonus from the player). [51] Fainaru, Business of Building, supra note 7. [52] Fainaru, Business of Building, supra note 7. [53] U.S. Dep’t of Labor, Bureau of Int’l Labor Affairs, Dominican Republic (2005) available at dominican-republic.htm#_ftnref1332 [hereinafter ILAB]. [54] See Santo Domingo Office Mission Statement, MLB.comDR, [55] See Wasch, supra note 25. [56] See Fainaru, Injecting Hope, supra note 43. [57] See Gregory, supra note 1. [58] See Mike Rosenbaum, Examining the Percentage of MLB Draft Picks Who Reach the Major Leagues, Bleacher Report (June 12, 2002), While Rosenbaum notes that sixty-six percent of first round draft picks reach the major leagues, the percentage drops precipitously from there, with players in the last rounds of the draft reaching the major leagues less than ten percent of the time. [59] Id. [60] There is a professional “winter league” in the Dominican Republic, but its players are drawn mostly from MLB players looking to stay in shape in the offseason, as opposed to a long-term domestic employment opportunity. See Dominican League,, (last visited Feb. 20, 2013). [61] Spagnulo, supra note 2, at 278 (“Remittances from family members in the United States are one of the largest contributors to the Dominican economy.”). [62] “‘Internationalization’ refers to the geographic spread of economic activities across national boundaries. As such, it is not a new phenomenon. Indeed, it has been a prominent feature of the world economy since at least the seventeenth century when colonial empires began to carve up the globe in search of raw materials and new markets for their manufactured exports. ‘Globalization’ is much more recent than internationalization because it implies functional integration between internationally dispersed activities.” Gary Gereffi, Outsourcing and Changing Patterns of International Competition in the Apparel Commodity Chain (2002), available at [63] Id. [64] Id. [65] Citing a Department of Labor Study, one commentator mapped J.C. Penny’s complex supply chain: “J.C. Penney purchases its childrens’ apparel from Renzo, a U.S.-based importer; Renzo imports from Robillard Resources, its Filipino agent; Robillard purchases from a number of contractors in the Philippines, one of whom is Castleberrry [sic]; Castleberry subcontracts to about thirty plants; these plants employ factory workers and subcontract out certain jobs like smocking or embroidery to home workers on a piece work basis.” Maria Gillen, The Apparel Industry Partnership’s Free Labor Association: A Solution to the Overseas Sweatshop Problem or the Emperor’s New Clothes?, 32 N.Y.U J. Int’l. L. & Pol. 1059, 1085 (2000). [66] Id. [67] Id. [68] Id. [69] See Gillen, supra note 65 and accompanying text. For instance, the soccer federation, FIFA, has had difficulty regulating the production of soccer balls, in part because the production is spread between many low-level suppliers. In 1996, after the use of child labor to make “official” FIFA soccer balls was exposed, labor unions and international soccer’s governing body reached an agreement by which FIFA would regulate the labor conditions of soccer ball manufacturers. See Frederick B. Jonassen, A Baby-Step to Global Labor Reform: Corporate Codes of Conduct and the Child, 17 Minn. J. Int’l L. 7, 39-40 (2008). In addition to the physical requirements (such as size and weight), manufactures that wished to produce FIFA soccer balls, which included the corresponding label, would be required to meet the core ILO labor standards. Id. However, after FIFA established the program, NGOs uncovered continued use of child labor in the manufacturer of “official” FIFA soccer balls. Id. In 2003, FIFA and the ILO entered into an agreement to try and stop the use of child labor called “The Red Card to Child Labor.” Id. (citing FIFA Tolerates Massive Violations of Labour Law, Berne Declaration, (Feb. 5, 2002), available at However, as late as 2010, NGOs were still reporting widespread use of child labor in the manufacture of soccer balls. See Press Release, World Cup Soccer Balls: Exploitation Still the Norm, Clean Clothes Campaign, (June 7, 2010), available at [70] See Gereffi, supra note 62. [71] See id. [72] See Ruck, supra note 10. [73] Id. [74] See Gereffi, supra note 62. [75] See Gillen, supra note 65 and accompanying text. When set against the attenuated buyer-side supply chain that Gillen describes, the relationship between MLB teams and buscones seems exceedingly familiar. [76] In a series of cases, the United States Supreme Court has determined the statutory scope of the term “employee,” when used in a statute, and otherwise undefined, as describing the master-servant relationship as understood by common-law agency doctrine. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322-23 (1992) (citing Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 439-40 (1989). In looking at the situation in the Dominican Republic, I believe common-law agency principles are applicable here, especially since I am proposing guidelines to govern the behavior of a U.S. multinational. [77] Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 751-752 (1989). This list is adapted from the Restatement (Second) of Agency, which provides the following factors to determine whether one is a servant or independent contractor:
(a) the extent of control which, by the agreement, the master may exercise over the details of the work; (b) whether or not the one employed is engaged in a distinct occupation or business; (c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; (d) the skill required in the particular occupation; (e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (f) the length of time for which the person is employed; (g) the method of payment, whether by the time or by the job; (h) whether or not the work is a part of the regular business of the employer; (i) whether or not the parties believe they are creating the relation of master and servant; and (j) whether the principal is or is not in business.
§ 220(2). [78] See Gregory, supra, note 1. [79] See, e.g., Robert A. McCormick & Amy Christian McCormick, The Myth of the Student-Athlete: The College Athlete as Employee, 81 Wash. L. Rev. 71 (2006); Jonathan L. H. Nygren, Forcing the NCAA to Listen: Using Labor Law to Force the NCAA to Bargain Collectively with Student-Athletes, 2 Va. Sports & Ent. L.J. 359 (2003); Stephen L. Ukeiley, No Salary, No Union, No Collective Bargaining: Scholarship Athletes Are an Employer’s Dream Come True, 6 Seton Hall J. Sports L. 167 (1996). [80] See Fainaru, Business of Building, supra note 7. [81] Id. [82] See Cmty. for Creative Non-Violence, 490 U.S. 730. [83] See Gregory, supra, note 1. [84] As noted above, this can include the use of steroids. See Fainaru, Injecting Hope, supra note 43. [85] See Ruck, supra note 10 (“Parents, who are most often poorly educated and know little about the business of baseball, rarely serve as a check on less-than-ethical buscones.”). [86] The number of players entering the academies each year is only in the hundreds, as opposed to the millions of small pieces that may be manufactured when making small machinery, or, say, shoes. See Gregory, supra note 1. [87] See Fainaru, Business of Building, supra note 7. [88] See Gereffi, supra note 62. [89] Id. (noting that an “attenuated supply chain is . . . perhaps the biggest obstacle to ensuring a code of conduct is implemented at all levels of production.”). [90] Constitution of the International Labour Organisation, available at (last visited Apr. 13, 2012) [hereinafter ILO]. [91] Alphabetical List of ILO Member Countries, (last visited Apr. 13, 2012). [92] See ILO, supra note 90, 19 ¶ 5(d). [93] ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up (adopted June 18, 1998 (Annex revised June 15, 2010)), available at–en/index.htm (last visited Apr. 13, 2012). [94] Id. ¶ 2 (emphasis added). [95] Id. [96] UN Convention on the Rights of the Child, adopted Nov. 20, 1989, 1577 U.N.T.S. 44 (entry into force Sep. 2, 1990), available at [97] Id. at Article 32. [98] Id. at Article 28. [99] Id. at Article 32. [100] Status of treaty ratification as of Apr. 13, 2012, available at [101] Monitoring the Fulfilment of States Obligations, UNICEF, (last updated Nov. 5, 2005). [102] Id. [103] Id. [104] Convention Concerning Minimum Age for Admission to Employment, June 26, 1973, 1015 U.N.T.S. 297 [hereinafter Minimum Age Convention]. [105] Ratifications of C138 – Minimum Age Convention, 1973 (No. 138), Int’l Lab. Org., (last visited Mar. 8, 2013) [hereinafter Ratifications C138]. [106] Minimum Age Convention, supra note 104, art. 2, no. 3, at 300. [107] Id. at art. 2, no. 4. [108] Id. at art. 7, no. 1, at 302. [109] Ratifications C138, supra note 105. [110] See Zimmer, supra note 27, at 421 and text accompanying note 128. [111] See Fainaru, Business of Building, supra note 7; Gregory, supra note 1. [112] See UN Convention of the Rights of the Child, supra note 96, art. 28, at 53. [113] Universal Declaration of Human Rights, G.A. Res. 217 (III) A, art. 26, U.N. Doc. A/RES/217(III) (Dec. 10, 1948). [114] See id.; United Nations Convention of the Rights of the Child, supra note 96, art. 28, at 53. [115] See Fainaru, Business of Building, supra note 7. [116] See Gregory, supra note 1. [117] See Wasch, supra note 25, at 107 (noting that only the Dominican Republic spends only 2.3% of GDP on education and that only 58.9% of Dominican boys who enter first grade complete fifth grade). [118] Occupational Health and Safety, Int’l Lab. Org., occupational-safety-and-health/lang–en/index.htm (last visited Mar. 7, 2013). [119] Ratifications of C167 – Safety and Health in Construction Convention, 1988 (No. 167), Int’l Lab. Org., (last visited Mar. 7, 2013). [120] Ratifications of C155 – Occupational Safety and Health Convention, 1981 (No. 155), Int’l Lab. Org., (last visited Mar. 22, 2013). [121] See Guevara & Fidler, supra note 42, at 123-24. [122] See Fainaru, Injecting Hope, supra note 43. [123] See U.N. Convention of the Rights of the Child, supra note 96, art. 32, at 54. [124] See Fainaru, Injecting Hope, supra note 43; Guevara & Fidler, supra note 42, at 123-24. [125] Also, one writer has suggested that the United States and Latin American countries producing baseball players enter into a multinational agreement that would govern the situation. See Jessica N. Trotter, Rooting for the “Home Team”: How Major League Baseball and Latin America Can Better Provide for the “Safe”-ty of Their Players, 13 Sw. J.L. & Trade Am. 445 (2006). [126] See Zimmer, supra note 27. [127] See Ruck, supra note 10. [128] See Gillen, supra note 65, at 1065-67 (identifying attenuation in the international production chain that “allows multinationals to disclaim responsibility for the inhumane labor standards” in developing countries). [129] See Natasha Rossel Jaffe & Jordan D. Weiss, The Self-Regulating Corporation: How Corporate Codes Can Save Our Children, 11 Fordham J. Corp. & Fin. L. 893, 901 (2005) (“Underdeveloped countries benefit greatly from the presence of MNCs, and the incentives are skewed against regulating them. They create wealth in the states where they operate by providing jobs, producing goods and services, introducing technologies, and developing markets.” (footnotes omitted)). [130] See Wasch, supra note 25, at 101. [131] See Jonassen, supra note 69, at 42-48 (describing the responses of a number of MNCs to scandals over labor conditions within their supply chains). [132] Terry Collingsworth, The Key Human Rights Challenge: Developing Enforcement Mechanisms, 15 Harv. Hum. Rts. J. 183, 202 (2002) (“The ATCA presents the potential to address claims involving intentional physical or mental harm, but is not likely to reach less extreme but much more common claims, including abominable working conditions.”). [133] 28 U.S.C. § 1350 (2006). [134] The Supreme Court is currently deciding Kiobel v. Royal Dutch Petroleum Co., where the questions include whether the ATCA applies to corporations, and whether and under what circumstances the ATCA applies to violations occurring within the territory of a sovereign other than the United States. No. 10-1491 (U.S. argued Oct. 1, 2012). [135] See Collingsworth, supra note 132, at 197. [136] See Collingsworth, supra note 132, at 185-95. [137] See Wasch, supra note 25, at 123. [138] One needs look no further than the ongoing steroid scandals in baseball for evidence of how difficult it is for baseball to deal with issues of integrity. Although baseball attendance did not decline during the so-called “steroid” era, that period of baseball history has left a stain on the current game, including seriously tarnishing the reputations and post-baseball careers of those persons implicated. See Wayne G. McDonnell, Jr., A Hall of Fame Quandary Involving Sportsmanship, Integrity and Character, Forbes (Jan. 4, 2013, 9:25 PM), [139] Of course, a CCOC need not only apply to a MNC’s operations in the developing world. I am focusing on codes that do so apply because they represent a private regulatory enforcement function that is likely to exist in the absence of a functioning public regulatory system in many developing countries. [140] See Jonassen, supra note 69, 42-46. [141] Famous sweatshop scandals include the discovery by a New York Times journalist of sweatshop conditions in a factory in El Salvador where GAP clothing was made, and the National Labor Committee allegations that Kathie Lee Gifford-brand clothing was made with the use of child labor in Honduras. Kathie Lee Gifford later became an outspoken advocate against the use of child labor. See Jonassen, supra note 69, 42-46. [142] These values are espoused by consultancy organizations such as Business for Social Responsibility. BSR, (last visited Mar. 7, 2013). [143] The movement from code to a regulatory mechanism often requires additional public pressure. For example, media scrutiny of—and subsequent consumer displeasure with—the conditions under which Apple products are made at the FoxxConn Factories in China has led Apple and FoxxConn to agree to a more intrusive self-regulatory scheme, including allowing independent monitoring firms access to the factories. See Charles Duhigg & Steven Greenhouse, Electronic Giant Vowing Reforms in China Plants, N.Y. Times (Mar. 29, 2012), 2012/03/30/business/apple-supplier-in-china-pledges-changes-in-working-conditions.html?pagewanted=1. [144] See Levi Strauss & Co., Social and Environmental Sustainability Guidebook (2010), available at librarydocument/2010/6/ses-2010-guidebook.pdf. [145] See Nike, Inc., Code of Conduct (2010), available at [146] See Adidas Grp., Workplace Standards (2007), available at English_Workplace%20Standards.pdf. [147] See Jonassen, supra note 69, at 39-40. [148] In fact, Levi-Strauss references ILO-equivalent standards throughout its code of conduct. See Levi Strauss & Co., Levi Strauss and Co. Global Sourcing and Operating Guidelines [hereinafter Levi Global Sourcing], available at librarydocument/2010/4/CitizenshipCodeOfConduct.pdf. [149] See Jonassen, supra note 69, at 43. [150] See Levi Global Sourcing, supra note 148. [151] See Levi Global Sourcing, supra note 148. [152] See Levi Global Sourcing, supra note 148. [153] Id. [154] Verité, Client Testimonials, (last visited Apr. 12, 2012). [155] Lisa G. Baltazar, Government Sanctions and Private Initiatives: Striking a New Balance for U.S. Enforcement of Internationally-Recognized Worker’s Rights, 29 Colum. Hum. Rts. L. Rev. 687, 719 (1998). [156] Levi Strauss, “LS & CO. Affects Positive Change in Mauritian Labor Conditions,” available at [157] Id. [158] Id. [159] See MLR, supra note 11. [160] Though of course MLB has a stake in the production of star players, since such players drive interest in MLB generally. [161] For a timeline of MLB’s response and eventual implementation of a drug testing program see Drug Policy Coverage,, (last visited Apr. 20, 2012). [162] See Gillen, supra note 65, at 1085. [163] See Wasch, supra note 25, at 107. [164] See Baltazar, supra note 155, at 718-19 (noting that under Levi-Strauss’s guidelines, it may withdraw from countries which fail to comply with its code of conduct). [165] See Zimmer, supra note 27, at 428. [166] See ILAB, supra note 53, at 152. [167] See Wasch, supra note 25, at 107. [168] See Wasch, supra note 25, at 107. [169] See Cmty. for Creative Non-Violence, 490 U.S. 730. [170] See Zimmer, supra note 27, at 427. [171] See Robert J. Liubicic, Corporate Codes of Conduct and Product Labeling Schemes: The Limits and Possibilities of Promoting International Labor Rights Through Private Initiatives, 30 Law & Pol’y Int’l Bus. 111, 152-56 (1998) (detailing indirect effects of CCOC). [172] See Wasch, supra note 25, at 123-4. [173] See Zimmer, supra note 27, at 421. [174] Note the case of Adrian Beltre, who was signed at age 15, perhaps knowingly, by the Los Angeles Dodgers. See Spagnuolo, supra note 2, at 270. [175] See Wasch, supra note 25, at 123 (“Major League Baseball will discontinue cooperation with any third-party that persists in non-compliance with our MLB Child Labor Code of Conduct.”). [176] See Sanchez, supra note 5. [177] Although Levi’s did withdraw before it entered into negotiations to push the Mariatas to adopt stronger anti-discrimination laws, given MLB’s position as the major employer of Dominican baseball players, it likely has more leverage to negotiate with the Dominican government without taking such a drastic measure. See Levi Strauss, “LS & CO. Affects Positive Change in Mauritian Labor Conditions,” supra note 156. [178] See Wasch, supra note 25, at 108-9. [179] See Gregory, supra note 1. [180] As noted earlier, the Pittsburg Pirates, MLB’s poorest team, paid $75,000 in 2010 to run an educational program at its academy. Id. [181], “MLB, MLBPA reach new five-year labor agreement,” 26025138&vkey=pr_mlb&c_id=mlb (last accessed Apr. 12, 2012) (“By December 15, 2011, the parties will form an International Talent Committee to discuss the development and acquisition of international players, including the potential inclusion of international amateur players in a draft or in multiple drafts.”). [182] Although the current draft also has a suggested slotting system, it is not clear that teams and players feel bound by the suggested signing bonus figures. [183] Incredibly, one commentator has argued that the current system disadvantageous players in the draft to the benefit of international free agents to such a degree that it amounts to national origin discrimination. See Daniel Hauptman, The Need for a Worldwide Draft to Level the Playing Field and Strike Out the National Origin Discrimination in Major League Baseball, 30 Loy. L.A. Ent. L. Rev. 263 (2010). In fact, some players have threatened to establish residency in another country to escape the strictures of the draft, and presumably command a higher signing value. See id. at 264. However, the bargaining power that a player in that position has is greater than a player with equal skills who grew up in a developing country. [184] See Timothy Poydenis, The Unfair Treatment of Dominican-Born Baseball Players: How Major League Baseball Abuses the Current System and Why it Should Implement a Worldwide Draft in 2012, 18 Sports Law. J. 305 (2011); Wasch, supra note 25; Spagnuolo, supra note 2. [185] See Wasch, supra note 25, at 108. [186] According to the interviews conducted by Spagnuolo in 2001, players in the academies made between $600 and $700 per month, while garment workers made around $100 per month. See Spagnuolo, supra note 2, at 273. [187] CBA, supra note 38, § 15(F). [188] See Wasch, supra note 25, at 106 (quoting [189] MLR, supra note 11, § 3(a)(1)(B)(i)-(ii). [190] Tom Weir and Blane Bachelor, Spanish-Speaking Players Get Lesson in American Life, USA Today (Apr. 4, 2004), sports/baseball/2004-04-13-cover-latinos_x.htm. [191] See CBA, supra note 38. [192] In 2010, over 10% (86 of 833) of players on MLB opening day rosters were from the Dominican Republic. See Gregory, supra note 1. [193] See Zimmer, supra note 27, at 428. [194] See Gregory, supra note 1; Fainaru, Business of Building, supra note 7. [195] Sugar (2008). Although Sugar was a drama, not a documentary, it showed the path of one player who began his career in the Dominican academies, made it to the American minor leagues, but due to injury and lack of an adequate support system, dropped out of baseball. Unlike players who stop playing baseball while still in the Dominican Republic, after the protagonist in Sugar leaves baseball, he is left to fend for himself in the United States with no education and rudimentary English skills. [196] David Ortiz of the Boston Red Sox and Robinson Cano of the New York Yankees, to give two prominent examples. [197] See Michele Micheletti & Dietlind Stolle, The Politics of Consumption/The Consumption of Politics: Mobilizing Consumers to Take Responsibility for Global Social Justice, 611 Annals 157, 163-64 (2007) (noting that the global anti-sweatshop movement was made up of “more than one hundred organizations representing church groups; student groups; think tanks; policy institutes; foundations; consumer organizations; international organizations; local to global labor unions; labor-oriented groups; specific antisweatshop groups; no-sweat businesses; business investors; and international humanitarian and human rights organizations, networks, and groups.”). [198] Commentators such as Noam Chomsky have posited that there is a real danger in the vigor with which people consume sports, in that the energy used to follow, and criticize a sports team takes up critical thinking skills and might otherwise be used to examine and criticize institutional power. See Noam Chomsky, Manufacturing Consent: Noam Chomsky and the Media (1992). [199] Although, the institution of an international draft has been floated for many years, the latest collective bargaining agreement merely says that the issue will be revisited at the end of the current agreement, which expires at the end of 2015. See, supra note 181.

Inventions Made for Hire

Inventions Made for Hire
Joshua L. Simmons* A pdf version of this article may be downloaded here.  


Despite the persistent notion that modern invention is performed by individual inventors in their garages, few would disagree that today most patentable inventive activity occurs in corporate and university settings and that most individuals who would be labeled “inventors” in the twenty-first century are employees of corporate entities.[1] In the corporate setting, if an employee creates a copyrightable work within the scope of his or her employment, the Copyright Act not only grants ownership of the work to the employer but actually considers the employer the “author” of the work.[2] By contrast, under the Patent Act, one who creates an invention is its inventor, and ownership will only pass to another, including an employer, through a written assignment.[3] In other words, unless there is an agreement to the contrary, an employer does not have any rights in an invention “which is the original conception of the employee alone.”[4] Given the close relationship between copyright law and patent law,[5] it is puzzling that employees’ works and inventions would be treated so differently under the two disciplines. Yet, when one considers their historical foundation, it becomes clear that there were pivotal differences between the needs of the two disciplines in the nineteenth century that led to their modern formulations.[6] In particular, whereas the type of copyrightable works created in the nineteenth century transitioned from individual labors to collaborative labors among multiple individuals working together, which necessitated the collecting of rights in order to make use of the resulting copyrightable work, patentable inventions continued to be perceived during the nineteenth century as the work of individuals. Moreover, patent law developed other, more limited doctrines that provided some rights to inventors’ employers. Today, however, most patentable inventions are invented by multiple inventors in a collaborative environment.[7] In fact between 1885 and 1950, the percentage of U.S. patents issued to corporations grew from 12% to at least 75%.[8] These numbers have only continued to increase in the past decade.[9] Moreover, the recently passed Leahy-Smith America Invents Act partially recognizes this change by permitting an “applicant for patent” to file a “substitute statement” instead of an inventor’s oath or declaration in certain circumstances.[10] Nevertheless, patent law remains stuck in the past. The failure to modernize how patent law handles employee invention has led to a string of significant court opinions, including from the Supreme Court and the Federal Circuit, holding that employers had not received adequate assignments to their employees’ patented inventions and thus could not bring suit based thereon.[11] In order to resolve these issues and bring patent law into the twenty-first century, the Patent Act should be amended to borrow from the Copyright Act and adopt a principle similar to the work made for hire doctrine that would grant employers the rights to their employees’ inventions made within the scope of their employment.[12] This article proceeds in four parts. Part I discusses the current state of copyright and patent law vis-à-vis employers’ rights in their employees’ intellectual labor. This part will compare copyright’s work made for hire doctrine to three patent law doctrines: the shop rights doctrine; the hired-to-invent doctrine, and the employee improvements doctrine. Part II describes the evolution of copyright law during the nineteenth century from the former regime, which vested employees with presumptive ownership of their work, to the current regime, which grants employers presumptive rights to their employees’ efforts. Part III describes patent law during the time that copyright law was changing so dramatically—including the development of the patent law doctrines described in Part I—and posits potential reasons that patent law did not make a similar move. In particular, (a) patent law’s development of the doctrines described in Part I provided similar benefits, although in the form of different rights, to those provided by copyright law’s work made for hire doctrine, and (b) the perceived nature of invention in the nineteenth century did not call for a unification and codification of those doctrines the way copyright law’s did. Finally, Part IV argues that patent law should modernize and develop an “inventions made for hire” doctrine.

I. IP and the Employer-Employee Relationship

It is well settled in the United States that copyright law and patent law treat legal title in the intellectual labor of employees differently.[13] Section A discusses the copyright law doctrine of work made for hire and its benefits for employers. Section B discusses doctrines that provide some of those benefits in patent law.

A. Copyright Law

Under the Copyright Act, title in a copyrightable work initially vests in the author or authors of a work.[14] However, “author” is a term of art with meaning beyond the creator of or “person who originates or gives existence” to a work.[15] In particular, where a “work made for hire”—another term of art—is concerned, the employer is “considered the author” unless the parties agree otherwise.[16] A work may be considered made for hire if (1) it was prepared within the scope of an employee’s employment, or (2) it is a certain type of commissioned work and the parties have so agreed previously.[17] Whether the creator of a copyrightable work is an employee for purposes of the work made for hire doctrine is determined by looking to the common law doctrine of agency.[18] In Community for Creative Non-Violence v. Reid, the Supreme Court identified thirteen factors that it considered relevant to whether an individual was considered an employee as a matter of agency law.[19] The Supreme Court declared that “[n]o one of these factors [was] determinative,”[20] but at least one circuit has held that not all factors are created equal and some will be important in “virtually every situation” while others “will often have little or no significance.”[21] The more important factors are to be given “more weight in the analysis.”[22] Once a work is considered made for hire, the employing or commissioning party enjoys several benefits over a work that is not considered made for hire, but rather is transferred to the employing party. First, unlike in patent law, it immediately becomes the owner of a legal right to the work.[23] In patent law, an inventor must first file an application with the United States Patent and Trademark Office (“PTO”), which is then examined by a PTO employee to determine if the alleged new invention is entitled to a patent.[24] Copyrights, on the other hand, vest immediately once an original work of authorship is fixed in a tangible medium of expression.[25] For a company to gain an ownership interest in a copyrighted work not made for hire, the interest must be negotiated for and transferred in a signed written document.[26] When a work qualifying as a work made for hire is created, however, no negotiation or written instrument is required for that specific work because, for copyright purposes, as long as agency would hold that the work’s creator was an employee working within the scope of his employment, his employer is considered the work’s author.[27] There are two subsidiary benefits to the immediate grant to the employer of a work’s copyrights. First, no court intervention is required to transfer the rights. As will be described below, in certain cases, patent law will grant employers rights in their employee’s patents, but to vest those rights the employee must still sign a document transferring ownership to his employer. If he refuses, a court order may substitute for the transfer. Second, the work made for hire doctrine allows a grant of rights without needing to define what is being granted. Whereas when a grant of rights is negotiated, the transferor may come back to the transferee to argue about which rights were actually transferred and the scope of the intended transfer.[28] Second, an employer holding the rights in a work made for hire may register the work in the Copyright Office in its own name.[29] This is an optional but important step, because without registration a copyright infringement action may not be initiated,[30] and generally, statutory damages are not available for infringements prior to registration.[31] Third, the work made for hire doctrine grants employers all of the rights associated with copyright ownership. Thus, they can exclude others from using the work, and leverage that right to extract rents in exchange for a license authorizing someone else to use the work.[32] Further, employers using works made for hire are authorized to then transfer their ownership of the works’ copyrights to another party, either in whole or in part.[33] They can also, of course, exercise any of the rights authorized under the Copyright Act itself, including creating derivative works.[34] One set of rights an employer is not granted under the Copyright Act, however, is the right to attribution and integrity granted for works of visual art.[35] Fourth, the work made for hire doctrine also protects employers from future rights granted to authors. For example, the Copyright Act of 1976 granted authors the right to terminate transfers, but those new rights did not apply to creators of works made for hire because their employers were considered the author.[36] In addition, after the 1976 revisions, employers remained shielded from the exercise of the transfer termination provisions because no transfer is considered to have taken place under the work made for hire doctrine;[37] the employer was the work’s original “author.” Fifth, the work made for hire doctrine grants employers certainty with regard to the duration of their copyrights. Works not made for hire subsist for the life of the author plus 70 years.[38] This means that those to whom the original author transfers must know the duration of the original author’s lifetime in order to calculate the duration of the copyrighted work’s term. Works made for hire, however, are merely granted a term of 95 years from publication or 120 years from creation, whichever expires first.[39] This time frame serves two functions. First, it simplifies the requirements of an employer to keep track of the duration of its copyrights. Second—grim though it may be—if the employee were to die within 25 years of publication or 50 years of creation, the employer would benefit from a longer copyright term than if the work were considered made for hire.[40] Finally, the work made for hire doctrine applies to all works universally, regardless of the type of work or the employee’s level of contribution. In other words, a work created and conceptualized entirely by only one employee is treated the same as a work created by hundreds of employees, each of whom contributed minor improvements and expression to the work.

B. Patent Law

Some of the benefits described in the previous section are mirrored by certain patent law doctrines—or are irrelevant with regard to patents—but others have no patent law equivalent. Section A described eleven benefits associated with copyright law’s work made for hire doctrine: (1) grant of title without negotiation;[41] (2) grant of title without transfer/assignment; (3) grant of title without court intervention; (4) registrability in the employer’s own name; (5) exclusion of others from using the work and licensing rights in the work to others; (6) use of the work; (7) transfer of title to others; (8) protection from future rights granted to work’s creator; (9) shield from transfer termination; (10) benefits with regard to copyright term duration; and (11) universal application regardless of level of contribution.[42]
Table 1: Work Made For Hire Benefits
No Negotiation
No Assignment from Employee
No Court Intervention
Exclusion and Licensing
Transfer to Others
Protection from Future Rights
Termination Shield
Universal Application
It is immediately apparent that the benefits of the termination shield and duration are not relevant to patent law because patents are granted for a set term of years—whether the base of 20 years or an extended term due to regulatory or PTO review[43]—not tied to the inventor’s lifetime. Therefore, there would be no special duration benefits should an inventor’s employer be considered an “inventor” for purposes of the Patent Act. In addition, unlike copyright transfers, which as discussed above may be terminated upon notice, patent assignments are not subject to termination.[44] The other benefits, however, require additional consideration. The three following sections describe modern patent law doctrines that give employers some, but not all, of the benefits of copyright law’s work made for hire doctrine.
1. Employer Use and Shop Rights
One of the benefits of the work made for hire doctrine is that an employer is guaranteed the right to make use of an employee’s creative work. Employers may receive a similar benefit from patent law’s shop rights doctrine.[45] However, because patent law describes negative rights, it is a protection against infringement actions by the employee patent holder and her assigns, and not an affirmative grant of use of the patented invention. Shop rights arise when an employee, “during his hours of employment, [and] working with his [employer’s] materials and appliances, conceives and perfects an invention for which he obtains a patent.”[46] The courts have held that in such circumstances, the employee by force of law must give his employer a nonexclusive, royalty-free right to practice the invention.[47] The doctrinal basis behind the shop right remains fuzzy,[48] as courts have described it being based on (a) a license implied in fact,[49] (b) estoppel,[50] and (c) equity and fairness.[51] Shop rights do not have the same scope as work made for hire, however. A shop right is not an ownership interest in the patent, which means that an employer does not have either the right to exclude others by threatening to sue for infringement or the right to file a patent application.[52] Similarly, a shop right is non-exclusive, which means that the employee patent holder is free to assign rights to others by granting them a patent license. In addition, a shop right is not transferable other than with the sale of the entire appurtenant business.[53]
Table2: Work Made For Hire v. Shop Rights
No Negotiation
No Assignment from Employee
No Court Intervention
Exclusion and Licensing
Transfer to Others
Protection from Future Rights
Termination Shield n/a
Duration n/a
Universal Application
2. Commissioned Invention and the Hired-to-Invent Doctrine
As mentioned in section A, under copyright law a work will be considered for hire if it was made by an employee within the scope of his or her employment. Similarly, patent law’s hired-to-invent doctrine grants an employer rights to the inventions of its employees if the employee was hired to invent them. Under this doctrine, an employee hired to solve a particular problem or to invent in a certain field will forfeit his patent rights even without a written contract.[54] Just as in the work made for hire context, courts have established a number of factors to indicate whether an inventor has been hired to invent.[55] However, unlike work made for hire, the hired-to-invent doctrine requires the employee to assign any patent obtained; it does not vest title immediately in the employer upon invention.[56] Although, failure to assign after a court order to do so may result in the order having the same effect as an assignment.[57] At first blush, this patent law doctrine would appear to accomplish much of what the copyright law work made for hire doctrine does. However, there are differences. First, work made for hire vests title in an employer immediately. The hired-to-invent doctrine merely obligates the inventor to assign the invention to his or her employer. True, no negotiation is required after the inventive activity occurs, but until an assignment is signed, the invention’s creator continues to hold the patent on the invention—albeit in trust for his employer. Furthermore, if the invention’s creator refuses to assign his patent rights, then a court order is required. Second, the doctrine is only effective against employees who are actually hired to invent. Employees who create an invention within the scope of their employment but who were not specifically directed to do so retain their patent rights.[58] Third, unlike the work made for hire doctrine, which permits an employer to file a copyright registration in its own name, the hired-to-invent doctrine still requires the patent application to be filed in the inventor’s name, even if the employer, as assignee, files a patent application on his behalf. Finally, as the employee is still considered the “inventor” under the Patent Act, it is possible for future rights to be given to the “inventor” that would not be automatically vested in the inventor’s employer. For example, in the copyright context, when the right to terminate transfers of ownership was introduced as a right of “authors,” it did not apply to those whose works were made for hire, as their employers were considered the “authors.” Similar rights could be granted to “inventors” that would affect the assignees of the inventors’ patent rights.
Table3: Work Made For Hire v. Hired-to-Invent
No Negotiation
No Assignment from Employee
No Court Intervention
Exclusion and Licensing
Transfer to Others
Protection from Future Rights
Termination Shield n/a
Duration n/a
Universal Application
3. Employer Inventions and Employee Improvements
In addition to the situation where an employer hires an employee to invent, an employer will also receive the benefit of insignificant improvements by his employees on inventions the employer has conceived of himself.[59] Under this doctrine, when an employer conceives of an invention, but receives ancillary suggestions or improvements from his employee, he retains all rights in the invention, including any employee improvements.[60] To qualify under the employee improvements doctrine, the employer must have had a “plan and preconceived design,”[61] and the improver must be an employee.[62] The employee improvements doctrine provides a minimal step toward the work made for hire doctrine, but does not come anywhere close to providing a substitute. First, the doctrine still requires there to be an inventor. All the doctrine does is subsume improvements by another person into the inventive exercise of the employing inventor; it does not operate to grant an employing corporation rights. In addition, the improvements that are granted must be ancillary, so any benefits from the doctrine will be minimal. Thus, if the employee creates a non-ancillary invention or improvement, the employer still needs to qualify under one of the previous doctrines or negotiate an assignment. At base, the employee improvements doctrine determines whether an employee should be considered a joint inventor or not, which does not come close to achieving the same benefits of the work made for hire doctrine.
Table4: Work Made For Hire v. Employee Improvements
No Negotiation
No Assignment from Employee
No Court Intervention
Exclusion and Licensing
Transfer to Others
Protection from Future Rights
Termination Shield n/a
Duration n/a
Universal Application
Given that patent law never developed a doctrine that defaulted patent rights to an employer the way copyright law did, one is left to wonder why. Why is it that copyright law in the nineteenth century began to apply an employer presumption? And why did the courts not feel the need to apply a similar presumption in patent cases? Part II discusses the development of the work made for hire doctrine in the nineteenth century, and Part III discusses potential reasons that a similar doctrine was not developed in patent law.

II. Development of the Work Made for Hire Doctrine

The work made for hire doctrine predated the Copyright Act of 1976. In fact, although it was first codified in the Copyright Act of 1909,[63] Professor Catherine L. Fisk has claimed that the doctrine “neither was invented by the drafters of the 1909 Act, nor was it well recognized in the cases before 1909.”[64] Instead, between the American Civil War and the passage of the Copyright Act of 1909 the default rule in copyright cases quietly switched from employee ownership to employer ownership. Professor Fisk argues that this move was justified by “cloaking” artists in an “aura of . . . romantic genius” to argue for greater legal protection, while simultaneously “downplaying or ignoring individual creative genius so as to assert corporate ownership over those copyrighted works.”[65]

A. Antebellum

Prior to the American Civil War, the default—and essentially the rule—was that the employee author was the owner of his works.[66] In the early days of copyright, protection was of limited application. The first copyright act—the Copyright Act of 1790—only protected maps, charts, and books.[67] Among the books that received copyright protection were the books in which court decisions were reported. Thus, it was only natural for the first copyright cases concerning employment to involve books containing those decisions and the authors that authored them. In the first case involving an employed author, the author of twelve volumes reporting the caselaw of the United States Supreme Court assigned his copyrights to a publisher. The publisher then sued a subsequent case reporter for copyright infringement because he had produced a volume titled “Condensed Reports of Cases in the Supreme Court of the United States,” which included the work of the prior reporter.[68] The Supreme Court, noting that the original reporter had failed to satisfy the formality requirements, held that it could not confer common law copyright on the initial reporter. However, what is telling about the opinion is that it appears to assume that the original reporter—and not the publisher—would be entitled to the copyrights in his work, even though his status as an employee was uncertain at best.[69] Later cases in the antebellum era involved school books,[70] theatrical works,[71] and cartography.[72] What is particularly interesting about this period of time is the courts’ clear pro-employee stance. In later decades, courts’ rhetoric would be inconsistent with the holdings of their decisions. While courts would claim to celebrate the genius and romanticism of the independent author, they would simultaneously grant first publishing houses and later employers the rights to that labor. During the antebellum nineteenth century, however, courts’ rhetoric praising the individual was consistent with the holdings of their decisions, which largely gave employees ownership of the copyrights in their works. The only cases where employers were held to have been granted copyrights in their employees’ works involved expressed contracts and cartography which, by its very nature, requires coordination among various individuals. True, smaller scale maps could be created by one person on their own, but for anything of a greater scale, coordination among various parties would be required.

B. The Nineteenth Century Postbellum

In the period during and after the American Civil War, courts began to hold that employers had been granted copyrights in their employees’ works, not by operation of contract, but based on the employment relationship. Particularly important to the discussion in Part III is that while cases originally held that the employment relationship granted an employer rights in his employees’ work by virtue of the involvement of a corporate president, later cases created the legal fiction of the company as author.[73] In the postbellum period, like the antebellum period, the relevant cases generally involved legal publications,[74] as well as theatrical works.[75] One of the theatrical work cases is particularly important for the purposes of this article. In Keene v. Wheatley, the court ruled against the plaintiff-employer on many of her arguments, but with regard to ownership of one of her employee’s works, the court stated:
Here, [the employee], while in the general theatrical employment of the [employer], engaged in the particular office of assisting in the adaptation of this play; and made the additions in question in the course of his willing performance of this duty. [The employer] consequently became the proprietor of them as products of his intellectual exertion in a particular service in her employment.[76]
For this proposition, the court did not rely on copyright law. Instead, the court looked to patent law, and determined that since “[w]here an inventor, in the course of his experimental essays, employs an assistant who suggests, and adapts, a subordinate improvement, it is, in law, an incident, or part, of the employer’s main invention,” the plaintiff in Keene was entitled to the “literary proprietorship” of her employee’s work.[77] In the eyes of the Keene court, the employee was merely adding minor enhancements akin to the patent doctrine of employee improvement. Yet, over time the doctrine of work made for hire found increasing judicial support and eventually became a default rule in favor of employers.[78] Over the next several years, this new doctrine was mentioned in dicta, but in no case did a court rule that an employer possessed rights over its employee by virtue of the default rule.[79] Instead, the presumption was switched surreptitiously. In Callaghan v. Myers, for example, while holding that a court reporter-employee held the copyrights in his work instead of his government employer, the Supreme Court determined that this was the case only due to “a tacit assent by the government to his exercising such privilege,”[80] This shift in emphasis made employer ownership a presumption that was only rebutted by tacit agreements and expressed contracts. Why did the courts make this shift? Professor Fisk posits three potential factors:
[1] Courts might have felt that a default rule of employer ownership was more likely to reflect the intent of most parties and wanted to save the parties the trouble of negotiating for employer ownership. . . . [2] [C]ourts might have begun to see employers as possessing a stronger moral claim and believed that any employee who planned to assert copyright ownership ought to be forced to disclose that intent and negotiate for it. . . . [3] [A]s changing assumptions about the nature of authorship strengthened the rhetorical force of the employer’s claim, a default rule of employer ownership might have seemed more intrinsically appealing, irrespective of whether the parties might negotiate around it.[81]
In response to the shifting sands of copyright law doctrine of the nineteenth century, one might expect that parties would have begun contracting around the default rules, but two factors may have made contracting prohibitively difficult:
First, the costs of transacting might be high when the parties have to discuss something as touchy as authorship. Employers might have been afraid to alienate employees by demanding assignment of the copyright, preferring to run the risk of litigation later. Employees may have lacked legal sophistication to realize that it was necessary to contract for copyright ownership. Second, the instability of the law may have made enforcement of any contract they did reach highly uncertain.[82]
In any case, by the nineteenth century, the work made for hire doctrine was in the wind, whether because of changes in the parties themselves, or merely the impressions of those sitting on the bench.

C. Corporate Ownership and Codification

The work made for hire doctrine was codified by Congress in 1909, but its foundations had existed prior to that time. As described in section B, the concept of authorship and ownership of copyright were shifting over the last half of the nineteenth century. However, it was not until 1885 that a court held that a corporation, and not an individual employer, held the copyrights in a work.[83] It was at this time that the legal fiction arose that a corporation could be an author. This idea makes sense when viewed one way: corporations are merely collections of individuals working toward, generally, hierarchically determined joint goals. However, it flies in the face of the entire notion of the individual romantic author. The concept behind the expression embodied in a copyrightable work can be created by any number of different people as it moves through the corporate process. This is particularly clear today when one looks at the large corporations behind music, television, and film.[84] These corporations are made up of hundreds of thousands of employees, and even more independent contractors. To produce one blockbuster film may require hiring and coordinating thousands of individuals, each of whom may contribute to a portion of the film. Without the work made for hire doctrine, these companies would have to rely on a messy web of contracts and the employee improvements doctrine, and even then, it is unlikely that they would be assured that all the relevant rights had been secured. By 1899, however, the courts had come to realize the need for a doctrine that allowed corporate employers to control the copyrights in the works of their employees by default. In Collier Engineer Co. v. United Correspondence Schools, a salaried employee hired “to compile, prepare, and revise . . . instruction and question papers” had moved to a new employer and prepared similar materials.[85] His former employer made a motion for a preliminary injunction, which the court denied, but in so doing determined that the employer was entitled to any copyright in the original materials.[86] This idea of protecting employers when their employees move to other employers will resurface in Part III as a justification for employer ownership of patent rights. Later cases embraced the idea that when an employer hired individuals to produce copyrightable works, the copyrights in those works were granted to the employer.[87] In this way, by the turn of the century, copyright law and patent law had developed fairly parallel doctrines with regard to employee works and inventions. In 1909, however, the Copyright Act was revised to codify the work made for hire doctrine by adding the following language:
[T]he word ‘author’ shall include an employer in the case of works made for hire.[88]
By including employers of those that create works made for hire within the definition of the term “author,” Congress continued in the direction the courts had been heading, but went farther by creating an explicit employer presumption. Professor Fisk identifies three reasons for this change: (1) an ease in drafting the Act, (2) avoiding constitutionality challenges, and (3) ensuring that copyright ownership would vest initially in employers so they could benefit from copyright renewals.[89] And that, ladies and gentlemen, was history. Since 1909, work made for hire has remained a mainstay of American copyright law. Yet, despite over one hundred years of the work made for hire doctrine in copyright law, patent law remains based on the rule that only the individuals that create an invention can be considered inventors. Moreover, for an employer to claim patent rights, he must either negotiate an assignment, or rely on one of the doctrines discussed in Part I.B.: shop rights, hired-to-invent, or employee improvements. Barring one of these options, an employer holds no rights in a patent absent a written assignment. Part III will explore the patent cases of the late nineteenth century, and posit potential reasons that patent law did not take a similar route.

III. Employment in Patent Law

As previously described, patent law never developed a doctrine that provided all of the benefits of copyright law’s now well-established work made for hire doctrine. This divergence between the two disciplines can be explained by two factors. First, inventive activity in the nineteenth century was perceived to be individualized and not to require significant coordination among individuals. Second, patent law developed the three doctrines described in Part I.B., which provided satisfactory protection to employers who wanted to continue using their employees’ inventions.

A. Antebellum

In order to understand the nature of inventive activity during the nineteenth century, one must understand that fundamental shifts were occurring in society at the time that changed both who the inventors were and what they were inventing. The United States has always been a country of inventors. In fact, both George Washington and Thomas Jefferson are credited with numerous inventions, including plows, adjustable writing desks and swivel chairs.[90] However, at the end of eighteenth century, there were “probably no more than 300 people who we would now class as scientists in the entire world,”[91] By 1800, there were about a thousand, and by 1900 there were approximately 100,000.[92] Due to the growth in the number of scientists, science began to shift from “a gentlemanly hobby, where the interests and abilities of a single individual [could] have a profound impact, to a well-populated profession, where progress depend[ed] on the work of many individuals who [were], to some extent, interchangeable.”[93] Similarly, the number of non-scientist inventors blossomed throughout the nineteenth century leading to an increased ability to appreciate the “interplay between science and technology, particularly in the fields of electricity and engine building,” which “led to a host of new practical machines that changed communications, transportation, the home, the workplace, and the farm,”[94] For example, at the beginning of the nineteenth century, America remained a nation of farmers who used the same hand implements that had been used for centuries to harvest their crops and who would travel primarily by horse or boat.[95] In the time before the Civil War, however, non-scientist inventors made many advances, including the invention of the steamboat, farming machinery, the telegraph, and synthetic materials.[96]  Such advances were only possible due to the increased interplay between science and technology that continued to grow throughout the nineteenth century.[97] These developments also led to societal changes, including increased prosperity and the end of slavery as new equipment was developed that could perform the work better and more cheaply.[98] Despite the democratization of science and invention in the nineteenth century, however, inventive activity continued to be considered the work of individuals. In fact, there are “no reported cases before 1843 in which an employer claimed, as against an employee, ownership of a patent because the inventor had been working for him at the time of the invention,”[99] Thus, in the nineteenth century, the general perception was that inventorship was the work of certain individuals, who were considered the great men of the time. One visual example of this mentality is Christian Schussele’s 1857 painting titled Men of Progress, which depicts Benjamin Franklin overlooking nineteen nineteenth century inventors:[100]
Figure 2
Figure 2: Men of Progress
Despite this public perception, however, the reality was that even these great men had assistance in creating their famous inventions. Among those depicted in Schussele’s painting is Charles Goodyear, who is remembered for his invention of vulcanized rubber in 1839.[101] He received a patent on his process in 1844,[102] and almost immediately became embroiled in patent litigation.[103] Not only was Goodyear forced to litigate against his competitors, however, but also against his own employees, one of whom attempted to patent one of Goodyear’s inventions.[104] Fortunately for Goodyear, despite recognizing a presumption in favor of the employee—who actually made the machine—the courts considered Goodyear’s employee’s activities to have been at Goodyear’s direction, and thus, they determined that it was Goodyear, and not his employee, that was the true inventor.[105] Despite the favorable result for Goodyear, the case only underscored the presumption that employees owned their inventions, as the court continued to articulate employee-ownership as the general presumption in such cases. Thus, time and time again, courts were required to find exceptions in order to protect employers from the presumption’s consequences. For example, in 1843 the Supreme Court, in McClurg v. Kingsland, determined that a license or grant from the employee to the employer may be presumed by virtue of the fact that the employee:
was employed by the defendants . . . receiving wages from them by the week; while so employed, he claimed to have invented the improvement patented, and after unsuccessful experiments made a successful one . . . the experiments were made in the [employer’s] foundry, and wholly at their expense, while [the employee] was receiving his wages, which were increased on account of the useful result.[106]
This implied license, or shop right, prevented the assignees of the employee’s patent from bringing suit against the former employer for infringement when all the employer was doing was continuing to use the process it had been using prior to the employee’s departure.[107] The Court reached this result without requiring an assignment of the patent. Rather, the Court held that the plaintiffs took their assignment from the employee subject to his license to his former employer.[108] As such, McClurg is generally thought of as the first shop rights case.[109] It can also be seen as a fairly pro-employee case, for the employer received no rights to the invention other than the right to use it despite the fact that the employee would not have been able to make his improvement but for his employer’s time, money and equipment.[110] During this same time period, other inventors were creating major innovations in both science and industry. For example, in 1844 Samuel Morse—also depicted in Men of Progress—connected the first intercity line between Washington and Baltimore and sent the message, “What hath God wrought!”[111] Moreover, scientists were making significant advances in electric theory, evolution, and thermodynamics.[112] Similarly, in the decade that followed, solo inventors continued to be credited with major breakthroughs in both science and industry. For example, during the 1850s, Heinrich Geissler is credited with the leaps forward that resulted in the invention of the vacuum tube.[113] Further, the 1850s saw huge advances in telecommunications technology, including Morse’s testing of the first transatlantic telegraph cable.[114] Even Abraham Lincoln took the time to consider the discoveries, inventions and improvements that resulted from America’s willingness to observe, reflect and experiment.[115] Despite the attribution of these major advances to individual inventors, the reality was that even in the 1840s, teams of workers were working together to develop new technologies, which “somewhat undermine[s] the heroic mythology surrounding the great individualistic and entrepreneurial American inventors,”[116] The dichotomy between the myth of the sole inventor and the reality that inventive activity was being carried out by groups of individuals in many ways mirrors the shift that was occurring in copyright law at that time. However, instead of acknowledging that multiple individuals were involved in the inventive process, courts turned a blind eye to the significant contributions employees were making to their employers’ inventions and dismissed those contributions as small modifications.[117] In King v. Gedney, for example, the court disregarded the following evidence as “vague and equivocal,” and instead determined that the employer “might have” given the employee—a draftsmen and general foreman—general directions about the improvement:
[The employee] was the foreman, and directed the making the alterations in the factory. [The employer] gave him no directions in relation to those alterations; [another employee] asked him for directions during the time that he was making alternations, and his answer was, ‘I do not know anything about it; go to [the employee].’ He said it was [the employee’s] improvement, and he knew nothing about it; if it did not work it was [the employee’s] fault; [the other employee] must go to him for all instructions. [The other employee] did not hear [the employer] give directions to any of the workmen in the shop. He has seen [the employer] and [the employee] conversing together at the factory, when chalk marks were made upon the floor by [the employee] to convey to [the employer] the manner in which he was going to prosecute the work.[118]
The court determined that if the general idea was the employing inventor’s, then the employee “could only be considered as acting as [his] servant,” and held the employer to be the original and sole inventor.[119] Thus, by crediting employers with being sole inventors, courts were able to continue to articulate the presumption that those who do the actual inventing will own the rights to their inventions. However, as employees became more and more involved with the inventive process, courts would find it increasingly difficult to rely on the employee improvements doctrine to rebut the presumption of employee ownership.[120]

B. The Nineteenth Century Postbellum

American invention did not stop during the American Civil War. In fact, the war spurred increased invention, particularly in agriculture. For example, Cyrus McCormick—another famed inventor depicted in Men of Progress—developed a reaper in 1861, which allowed northerners to increase food production “to the highest levels of surplus ever known” even though they had fewer farm hands due to the war.[121] Similarly, in the mid-1860s, scientists were making major advances in chemistry and thermodynamics.[122] Then, in 1865, George Westinghouse received his first patent for a rotary steam engine, followed by patents for railroad frogs and air brakes.[123] A few years later, a “self-taught practical innovator” by the name of Thomas Alva Edison would apply for his first patent.[124] Edison is a particularly interesting example of a nineteenth century inventor, because it is well documented that he “regularly employed not only mechanics and craftsmen but also college-trained chemists and engineers in his invention workshop,”[125] In some ways, then, it is not surprising that the Supreme Court first recognized the employee improvements doctrine in its 1868 Agawam Co. v. Jordan opinion. In Agawam, an inventor named John Goulding hired a blacksmith, Edward Winslow, to help in his machine shop.[126] Goulding had been working on his invention and was at the point of experimentation when Winslow, having visited another factory, made a suggestion of replacing a piece of Goulding’s invention with a spool and drum.[127]  Goulding went back and forth about the value of the suggestion, but after making another modification to make the change practicable, he adopted Winslow’s suggestion.[128] The new invention was patented and eventually assigned to the plaintiff who then sued the Agawam Woolen Company for infringement.[129] Agawam defended, in part, by arguing that it was Winslow, and not Goulding, that invented the improvements for which the patent was granted.[130] The Court held that Goulding’s claim to invention of the patent was sustained, because all that Agawam could prove was that Winslow suggested the spool and drum—an “auxiliary” part of the invention.[131] In handing another victory to an employer, however, the Court continued to recite that the general presumption is that employees hold rights to their inventions.[132] Similarly, as discussed above, during this time employers in copyright cases began to see the presumption switch from employee ownership to employer ownership. For example, five years prior to Agawam, the influential case of Kenne v. Wheatley was decided in favor of the employer relying on an employee improvements-type argument to grant a theater proprietor the copyrights to a play adapted by her and her theatrical company.[133] Whereas in theater it was undeniable that multiple individuals were required to develop new materials and produce it for the stage, invention in the 1870s continued to be perceived as the work of individuals with minimal help from employees instructed to carryout manual labor. Significant changes, however, were on the horizon for those industries that employed workers to design and construct their products. The “United States began to develop a single price and market system,” which led to capital intensive industries that “employed workers who owned no tools and had few skills, leading to social inequalities that created new political crises,”[134] Those inequities led to the formation of labor unions, which employed a variety of tactics to effect the status of workers in this country. “The decades from the 1870s through the early 20th century saw one disruptive strike after another and the beginning of the appeal of ideologies and reform strategies that would characterize the labor movement—agrarian reform, populism, socialism, anarchism, and progressive reformism.”[135] Despite these changes, inventive activity in the United States soldiered on. For example, Edison—who, as discussed above, employed a variety of workers in his invention workshop[136]—had filed for patents on 21 inventions by 1871.[137] As inventive activity began to involve more complex technology, the proportion of inventions devised by solo inventors continued to decline.[138] Perhaps in recognition of these changes, the Supreme Court began to hint at a willingness to recognize employers’ ownership of patented inventions that they hired employees to create.[139] Nevertheless, there were limits to the Court’s willingness to grant patent rights to one who employed another to invent. In Collar Co. v. Van Dusen, for example, the Supreme Court determined that the plaintiff, despite employing a set of paper-makers to create a paper collar that would be perceived as a real starched linen collar, was not entitled to a patent because only the paper-makers had invented something patentable.[140] The plaintiff had argued that the paper-makers had received inspiration and direction, but the Court determined that the paper-markers had provided the whole improvement and therefore the plaintiff had no rights to their invention under Agawam’s ancillary discoveries rule.[141] Despite its use of the terms “employer” and “employee,” however, the Collar case is better understood as concerning, using our modern parlance, independent contractors, who, even if Collar was a modern copyright case, would be unlikely to fall within the work made for hire doctrine. Rather than inspiring and directing the paper-makers’ improvement, the patentee derived all of the improvements he attempted to patent from the paper-makers. Similarly, other courts in the 1870s held that if an employee’s invention was outside the employee’s inventive arena, the employer would receive no more than a shop right to the invention.[142] By the 1880s, “farmers and industrial workers represented a force for political insurgency that began to coalesce into new movements that threatened to change the nature of society,”[143] These movements reflected a general anti-monopoly and big business sentiment at the turn of the century, as they began to lead to discussions of new government regulations “to control railroad rates and other large enterprises . . . to address the growing power of bankers and railroad magnates,”[144] At the same time, entrepreneur inventors, like Westinghouse, were beginning to build empires of their own from their own companies and inventions, as well as those of others.[145] These companies employed various individuals who developed patentable inventions during their employment. During the remainder of the nineteenth century, disputes over employees’ inventions became more frequent and led to cases that further developed the shop right[146] and employee improvements doctrines.[147] The courts, however, failed to develop a mechanism for dealing with employees that were explicitly hired to invent,[148] until the hired-to-invent doctrine was formally recognized by the Supreme Court in 1924.[149] Also, the rise of the corporate form introduced additional complications,[150] such as whether a shop right could be assigned.[151] Despite these developments, however, in not one of these cases was an employing company considered an “inventor” by virtue of its employees’ activity. Rather, for a company to receive patent ownership, an employee needed to assign it his or her rights. By the turn of the century, each and every person in the United States had been affected by the inventions of the nineteenth century. In particular, the poor were being put to work in factories using newly invented machinery and tools. Even the middle classes indirectly benefited from the benefits of the day:
For the middle classes, such as physicians, attorneys, engineers, academics, journalists, and managers, whose employment was less dependent on machinery and tools than on their education, the new technologies provided new sources of entertainment, comfort, and opportunities. By 1890, a person who worked in such a profession could come home, switch on the electric light, make a phone call, go to the refrigerator and take out a cold beer, light a factory-made cigarette with a safety match, then sit down to listen to a phonograph record while reading a newspaper with news of the day from all over the planet. It was a new world, for none of those experiences had been possible 40 years earlier, even to the wealthy.[152]

IV. Is Patent Law Stuck in the Past?

For inventors in the twentieth century, more and more inventive activity would occur within corporate settings. However, patentable inventive activity would continue to be credited to individuals, not groups, until late into the century. In fact, the average number of inventors per patent would not begin to change dramatically until the 1970s, when a “dramatic increase in the proportion of ‘highly collaborative’ inventions” would drive the average up:[153]
Chart 1
  Yet, despite the fact that today the “ordinary inventor is . . . a joint inventor who invents as part of a team,”[154] patent law continues to require that corporate employers receive assignments from their employees in order to effect a transfer of the ownership of the employees’ patent rights. In Part II, several reasons behind copyright law’s move toward the work made for hire doctrine were posited: (1) courts were attempting to reflect the intent of the parties; (2) courts felt that employees were in the best position to determine ex ante whether they intended to assert copyright ownership; (3) changing notions of the nature of authorship; (4) ease of statutory drafting; (5) avoiding constitutional concerns; and (6) concern about renewal terms. Three of these reasons simply do not apply to patent law. First, patents in the United States do not have renewal terms. Second, the copyright statute was being revised in 1909 for reasons beyond the codification of the work made for hire doctrine. The patent statute, by contrast, was not significantly revised until 1952. Without an independent push to redraft the Patent Act, the need to ease statutory drafting was absent, and constitutional concerns in granting patent rights to non-“inventors” would not need to be addressed. As for the remaining reasons for the shift in copyright law, patent law simply did not share those factors. First, the perceived nature of inventive activity in the nineteenth century did not lend itself to an argument for the need of a doctrine like work made for hire. As discussed in Part II, copyrighted works grew in complexity over the course of the nineteenth century. While copyrighted works were originally only embodied in single author books, they steadily grew to include complicated works involving the input of the multiple creative individuals. In particular, the creation of maps and theatrical works required coordination among multiple parties to insure that works could be exploited. Once the 1909 Act was passed, that complication grew exponentially as additional works were brought under the copyright statute. The perception of inventive activity in the nineteenth century, on the other hand, did not appear to require significant coordination among parties. Rather, credit for advances was given to individual inventors, whether or not they, like Edison, employed others in their invention workshops. Moreover, even in the nineteenth century, most patents were on incremental improvements of existing technologies, which made it even more likely that the number of individuals involved in each inventive push forward would be small. Further, even if an invention required multiple individuals to reduce it to practice, the individual credited with the invention could subsume any other inventive activity into his invention under the employee improvements doctrine.  In fact, in 1916, three-quarters of U.S. patents were issued to individuals.[155] Thu­­s, the need to coordinate among multiple individuals that existed in copyright law in the nineteenth century did not exist in patent law.[156] Second, the existing doctrines that had developed, including the hired-to-invent doctrine, provided sufficient ex ante protection to employers. The shop rights doctrine, which was well established in the early part of the century, provided employers with a way of ensuring that their expectations were met. Unlike today where many organizations that own patent rights merely license those rights to others to use, in the nineteenth century, most companies used patent rights merely to exclude competitors while they themselves developed products to sell to consumers. Without the need to license, companies merely needed the right to use, which the shop rights doctrine provided. Moreover, as described above, when an inventor did use assistance in the process of developing his invention, the employee improvements doctrine protected him from needing to secure rights from each assistant in his workshop. As long as the inventor couldn’t be seen as deriving his invention from someone else, he could be fairly content that his rights in the invention would be secure. Finally, by the end of the nineteenth century, employers were securing contracts with their employees that included provisions requiring the assignment of any patented inventions later developed.[157] In 1885, only 12% of U.S. patents were issued to corporations.[158] By 1950, it had grown to 75%, and by the 1980s, 84% of U.S. patents were assigned to corporations, “usually the employer of the actual inventor,”[159] In the past decade, those efforts have become increasingly successful.[160]
Chart 2
  In fact, it will come as no surprise that the Intellectual Property Owners Association’s list of top patent owners does not include the name of a single individual.[161] Further, by the turn of the century, when an employer hired an inventor, the hired-to-invent doctrine would require the inventor to assign their rights to the employer. Despite the protection of the existing patent law doctrines that give employers some of the benefits of the work made for hire doctrine, it is clear from Table 5 that not one doctrine captures all of the benefits from that doctrine:[162]
Table 5: Work Made For Hire Benefits v. Patent Doctrines
Shop Rights Hired-to-Invent Employee Improv.
No Negotiation
No Assignment from Employee
No Court Intervention
Exclusion and Licensing
Transfer to Others
Protection from Future Rights
Termination Shield n/a n/a n/a
Duration n/a n/a n/a
Universal Application
Moreover, as recent cases make clear, companies cannot rely on the patent law doctrines and contracts with their employees to ensure ownership of the rights to their employees’ inventions.[163] For example, the Supreme Court recently held that although an inventor working as a research fellow at Stanford University signed a Copyright and Patent Agreement that stated that he “‘agree[d] to assign’ to Stanford his ‘right, title and interest in’ inventions resulting from his employment at the University” and written assignments of rights, which Stanford used to file several patent applications, Stanford did not receive the inventor’s patent rights because he signed a Visitor’s Confidentiality Agreement that provided that he “‘will assign and do[es] hereby assign’ to Cetus his ‘right, title and interest in each of the ideas, inventions and improvements’ made ‘as a consequence of [his] access’ to Cetus” between signing the CPA and the assignments.[164] Further, many modern employers intend to license, rather than use, their employees’ inventions, which a shop right would not permit. Similarly, in Abbott Point of Care Inc. v. Epocal Inc., Abbott filed a patent infringement suit against Epocal, a competitor in the diagnostic field, alleging infringement of patents that “cover systems and devices for testing blood samples,”[165] Epocal, however, was founded by Dr. Imants Lauks, the named inventor of the patents at issue and a former employee of Abbott’s predecessors.[166] Despite the fact that Dr. Lauks had entered into two employment agreements, one of which contained a provision requiring him to assign all of his rights to any inventions that he might conceive, the Federal Circuit determined that Abbot did not hold rights to the patents and, thus, lacked standing to bring the lawsuit.[167] The court determined that Dr. Lauks had resigned from his previous employment in 1999, and that while the consulting agreement that he entered into after his resignation stated that various provisions of Dr. Lauks’ employment agreement remained in effect, it did not address invention assignments or obligations.[168] Thus, the two patent applications Dr. Lauks filed after entering into the consulting agreement did not belong to Abbot.[169] Additionally, despite the high assignment rate discussed above, when a patent assignment is found to be ineffective, the consequences can be extreme. This is particularly true where the employer acts on its belief that an assignment is effective and incurs costs associated with the patented technology, only to learn that they do not, in fact, hold any patent rights. As such, it is time for patent law to come to terms with the fact that it is stuck in the past and adopt an inventions made for hire doctrine. To do so, Congress need only pass an act amending two sections of the Patent Act.  First, Congress would add a subsection (c) to 35 U.S.C. § 111 as follows:
(c) In the case of an invention made for hire, the employer is considered the inventor for purposes of this title, and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all patents rights to the invention.
Second, Congress would add a subsection (f) to 35 U.S.C. § 100 as follows:
(f) An “invention made for hire” is an invention invented or discovered by an employee within the scope of his or her employment.
Whether an individual is an employee for purposes of the invention made for hire doctrine will be determined by looking to the same common law doctrine of agency that the Supreme Court identified in Community for Creative Non-Violence v. Reid.[170] Moreover, there is over two decades of caselaw interpreting agency doctrine in light of the Copyright Act and over a century of caselaw interpreting the work made for hire doctrine for courts to rely on in implementing this new provision.[171]


As this article has suggested, patent law remains stuck in the past by continuing to rely on the rhetorical device that modern invention is performed by individual inventors in their garages, when, in fact, most patentable inventive activity occurs in corporate and university settings. Moreover, contrary to popular perception, most individuals who would be labeled “inventors” in the twenty-first century are employees of a corporate entity and assign their patent rights to their employer. Nevertheless, patent law continues to require written assignments to give employers ownership of their employees’ inventions. While that formulation may have made sense when invention was credited to individuals and required little coordination among inventors, it no longer does. Rather, employers should be able to feel secure in the knowledge that any inventions invented or discovered by their employees within the scope of their employment are owned by the party that financed and supported them (i.e., their employers). As such, it is time for the Patent Act to be amended to borrow from the Copyright Act and adopt an inventions made for hire doctrine.
* Mr. Simmons is an attorney in Kirkland & Ellis LLP’s New York office, specializing in intellectual property litigation, including copyright, patent and trademark. He received a B.A. from Brandeis University in 2006 and a J.D. from Columbia Law School in 2010, where he was awarded the Caroll G. Harper Prize for achievement in intellectual property. The author thanks Professor Harold Edgar, Henry Lebowitz and David Harris for their helpful suggestions for and reactions to this piece. The views, opinions, statements, analysis and information contained in this article are those of Mr. Simmons and do not reflect the views of Kirkland & Ellis LLP or any of its past, present or future clients.
[1] See infra Part IV.
[2] See Copyright Act of 1976, 17 U.S.C. § 201(b) (2006) (“In the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author for purposes of this title, and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright.”).
[3] See United States v. Dubilier Condenser Corp., 289 U.S. 178, 188 (1933) (noting that invention is “the product of original thought”); Solomons v. United States, 137 U.S. 342, 346 (1890) (“[W]hatever invention [an inventor] may thus conceive and perfect is his individual property.”); Gayler v. Wilder, 51 U.S. 477, 493 (1851) (“[T]he discoverer of a new and useful improvement is vested by law with an inchoate right to its exclusive use, which he may perfect and make absolute by proceeding in the manner which the law requires.”); 8 Chisum on Patents § 22.01 (2012) (“The presumptive owner of the property right in a patentable invention is the single human inventor . . . .”); see also Patent Act of 1952, 35 U.S.C. § 152 (2006) (“Patents may be granted to the assignee of the inventor of record in the Patent and Trademark Office, upon the application made and the specification sworn to by the inventor, except as otherwise provided in this title.”); id. § 261 (“Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing.”); Bd. of Trustees Trs. of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S. Ct. 2188, 2192 (2011) (“Since 1790, the patent law has operated on the premise that rights in an invention belong to the inventor.”); Dubilier Condenser, 289 U.S. at 187 (“A patent is property and title to it can pass only by assignment.”); 8 Chisum on Patents § 22.01 (2012) (“The inventor . . . [may] transfer ownership interests by written assignment to anyone . . . .”). In fact, only the actual inventor is entitled to a patent, and only the inventor or someone he has assigned his patent rights to in writing may file a patent application, which in either case must be made on the inventor’s behalf. See 35 U.S.C. § 111(a)(2)(C) (“Such application shall include . . . an oath by the applicant as prescribed by section 115 of this title.”); id. § 115 (“The applicant shall make oath that he believes himself to be the original and first inventor of the process, machine, manufacture, or composition of matter, or improvement thereof, for which he solicits a patent . . . .”) (emphasis added); id. § 118 (“Whenever an inventor refuses to execute an application for patent, or cannot be found or reached after diligent effort, a person to whom the inventor has assigned or agreed in writing to assign the invention or who otherwise shows sufficient proprietary interest in the matter justifying such action, may make application for patent on behalf of and as agent for the inventor . . . and the Director may grant a patent to such inventor . . . .”) (emphasis added).
[4] Dubilier Condenser, 289 U.S. at 189; see also Stanford, 131 S. Ct. at 2196 (“We have rejected the idea that mere employment is sufficient to vest title to an employee’s invention in the employer.”).
[5] Certainly copyrights and patents share an affinity due to their finding support in the same clause of the Constitution. U.S. Const. art. I, § 8, cl. 8 (“The Congress shall have Power . . . [t]o 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 . . . .”).
[6] As described below, in the nineteenth century, copyright law had a strong presumption of employee ownership, which slowly moved to an employer presumption that was finally codified in the twentieth century. See infra Part II. Patent law, on the other hand, developed various doctrines that permitted employers to be considered the owners of patent rights in certain circumstances, but not in others. See infra Part III.
[7] See infra Part IV.
[8] David F. Noble, America by Design: Science, Technology, and the Rise of Corporate Capitalism 87 (Alfred A. Knopf, Inc. 1977).
[9] Dennis Crouch & Jason Rantanen, Assignment of US Patents, Patent Law Blog (Patently-O) (Dec. 18, 2011, 9:07 PM),
[10] Leahy-Smith American Invents Act, Pub. L. No. 112-29, § 4, 125 Stat. 284, 294 (2011) (“A substitute statement . . . is permitted with respect to any individual who—(A) is unable to file the oath or declaration . . . because the individual—(i) is deceased; (ii) is under legal incapacity; or (iii) cannot be found or reached after diligent effort; or (B) is under an obligation to assign the invention but has refused to make the oath or declaration required. . . .”) (emphasis added); see also Dennis Crouch, AIA Shifts USPTO Focus from Inventors to Patent owners, Patent Law Blog (Patently-O) (Aug. 14, 2012, 9:35 AM), (describing the shift).
[11] See Stanford, 131 S. Ct. 2188 (2011) (holding that Stanford did not hold the rights to a patent that was allegedly infringed by Roche’s HIV test kits); Abbott Point of Care Inc. v. Epocal Inc., 666 F.3d 1299 (Fed. Cir. 2012) (affirming the dismissal of Abbott complaint for lack of standing to bring suit based on blood sample testing patents).
[12] Patent law and copyright law borrowing from each other is nothing new. The Supreme Court borrowed patent law’s construction of secondary liability to inform its copyright decision in Sony Corp. of America v. Universal City Studios. 464 U.S. 417, 439 (1984) (“There is no precedent in the law of copyright for the imposition of vicarious liability on such a theory. The closest analogy is provided by the patent law cases to which it is appropriate to refer because of the historic kinship between patent law and copyright law.”). That analysis was then expounded on in the copyright case of Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005), and then the copyright focused construction was used as precedent in later patent cases.  See, e.g., Ricoh Co. v. Quanta Computer Inc., 550 F.3d 1325, 1336–40 (Fed. Cir. 2008) (citing Sony and Grokster to determine the standard for contributory infringement); DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1303–04 (Fed. Cir. 2006) (same).
[13] 3 R. Carl Moy, Moy’s Walker on Patents § 10:17 (4th ed. 2012).
[14] Copyright Act of 1976, 17 U.S.C. § 201(a) (2006) (“Copyright in a work protected under this title vests initially in the author or authors of the work. The authors of a joint work are coowners of copyright in the work.”).
[15] Oxford English Dictionary (2d ed. 1989).
[16] 17 U.S.C. § 201(b) (“In the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author for purposes of this title, and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright.”).
[17] Id. § 101 (“A ‘work made for hire’ is—
(1) a work prepared by an employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.”).
For example, comic book authors generally are required to sign agreements establishing that their work is commissioned as a work made for hire. See Joshua L. Simmons, Catwoman or the Kingpin: Potential Reasons Comic Book Publishers Do Not Enforce Their Copyrights Against Comic Book Infringers, 33 Colum. J.L. & Arts 267, 272 (2010) (describing comic book work made for hire agreements and caselaw).
[18] Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 750–51 (1989) (holding the sculpture at issue was not a work made for hire, because the sculptor was an independent contractor and CCNV could not satisfy Section 101(2)).
[19] Id. at 751–52 (“In determining whether a hired party is an employee under the general common law of agency, we consider [1] the hiring party’s right to control the manner and means by which the product is accomplished.  Among the other factors relevant to this inquiry are [2] the skill required; [3] the source of the instrumentalities and tools; [4] the location of the work; [5] the duration of the relationship between the parties; [6] whether the hiring party has the right to assign additional projects to the hired party; [7] the extent of the hired party’s discretion over when and how long to work; [8] the method of payment; [9] the hired party’s role in hiring and paying assistants; [10] whether the work is part of the regular business of the hiring party; [11] whether the hiring party is in business; [12] the provision of employee benefits; [13] and the tax treatment of the hired party.”) (citations omitted).
[20] Id. at 752 (citing Ward v. Atl. Coast Line R.R., 362 US 396, 400 (1960); Hilton Int’l Co. v. NLRB, 690 F.2d 318, 321 (2d Cir. 1982)).
[21] Aymes v. Bonelli, 980 F.2d 857, 861 (2d Cir. 1992) (“Some factors, therefore, will often have little or no significance in determining whether a party is an independent contractor or an employee. In contrast, there are some factors that will be significant in virtually every situation. These include: (1) the hiring party’s right to control the manner and means of creation; (2) the skill required; (3) the provision of employee benefits; (4) the tax treatment of the hired party; and (5) whether the hiring party has the right to assign additional projects to the hired party.”).
[22] Id. (“These factors will almost always be relevant and should be given more weight in the analysis, because they will usually be highly probative of the true nature of the employment relationship.”).
[23] Under the Copyright Act of 1976, copyright vests “initially in the author or authors of the work,” 17 U.S.C. § 201(a) (2006). As “the employer or other person for whom the work was prepared is considered the author” when a work made for hire is involved, however, a work made for hire initially invests in the employer or commissioning party. Id. § 201(b).
[24] See Patent Act of 1952, 35 U.S.C. § 131 (2006).
[25] See Copyright Act of 1976, 17 U.S.C. § 102(a) (2006).
[26] See id. § 204(a).
[27] As described above, even works that are not created within the scope of an employee’s employment may be considered works made for hire. See supra note 17. However, works that are specially ordered or commissioned and considered works made for hire under Subsection 2 are outside the scope of this article.
[28] For example, in 2009, the founders of Skype, after selling the company to eBay, sued their former company and eBay for copyright infringement because, although eBay had purchased the good will in Skype, they had only licensed the source code to the program. See Complaint, Joltid Ltd. v. Skype Techs. S.A., 2009 WL 2958651 (N.D. Cal. Sept. 16, 2009) (No. 09 Civ. 4299); see also Brad Stone, Skype Founders File Copyright Suit Against eBay, N.Y. Times, Sept. 17, 2009, at B3, available at companies/17skype.html.
[29] See 17 U.S.C. § 408(a) (2006) (“[T]he owner of copyright or of any exclusive right in the work may obtain registration of the copyright claim . . . .”); id. at § 409 (“The application for copyright registration . . . shall include — (1) the name and address of the copyright claimant . . . (4) in the case of a work made for hire, a statement to this effect . . . .”).
[30] See id. § 411(a).
[31] See id. § 412.
[32] See id. § 106.
[33] See id. § 201(d).
[34] Id.
[35] Section 106A grants certain rights to “the author of a work of visual art,” See id. § 106A(a). However, section 101 defines a “work of visual art” as not including “any work made for hire,” Id. at § 101. In addition, in Dastar Corp. v. Twentieth Century Fox Film Corp., the Supreme Court held that trademark law cannot be used to require attribution “to the author of any idea, concept, or communication embodied in [tangible] goods,” 539 U.S. 23, 37 (2003).
[36] See 17 U.S.C. § 203(a) (stating that exclusive or nonexclusive transfers or licenses of copyrights to works created on or after January 1, 1978 and not works made for hire may be terminated); id. § 304(c) (noting that exclusive or nonexclusive transfers or licenses of the renewal copyrights to works within its first or renewal term on January 1, 1978 and not works made for hire may be terminated).
[37] Id. § 203; see Simmons, supra note 17, at 274–75 (describing cases of termination involving comic book talent); cf. James Grimmelmann, The Worst Part of Copyright: Termination of Transfers, The Laboratorium (Feb. 15, 2012, 10:23 AM), 02/15/the_worst_part_of_copyright_termination_of_transfe (arguing that the inalienability created by the termination transfer provisions of the Copyright Act is unsupported by moral intuitions or logic).
[38] 17 U.S.C. § 302(a). A potential infringer may seek a certified report from the Copyright Office after 95 years for a published work or 120 years for an unpublished work. If the certified report does not disclose that the author of a work is alive or died less than 70 years prior to the report, the infringer is entitled to a presumption that shields her from infringement liability. Id. § 302(e).
[39] Id. § 302(c).
[40] On the other hand, a long-lived author could result in a significantly longer period of protection.
[41] By avoiding negotiation, parties also avoid the possibility that a court would interpret contract terms later in a way that the original parties to the agreement would not have anticipated. See, e.g., Marvel Characters, Inc. v. Simon, 310 F.3d 280 (2d Cir. 2002) (holding that although both parties had signed a settlement agreement stipulating that a work was made for hire, the provision was ineffective because it was signed subsequent to the work’s creation with purported retroactive effect).
[42] An additional societal benefit might include the idea that the work made for hire doctrine may permit and even incentivize the creation of works that would be impossible to create if the employing company had to negotiate with each employed author.
[43] Patent Act of 1952, 35 U.S.C. § 154(a)(2) (2006) (“[S]uch grant shall be for a term beginning on the date on which the patent issues and ending 20 years from the date on which the application for the patent was filed in the United States . . . .”). The Patent Act contains provisions providing for extensions to the patent term in certain circumstances. See id. § 154(b) (describing patent term adjustment for PTO delays); id. § 155 (describing patent term extension for Food and Drug Administration approval); id. § 156 (describing patent term extensions for other regulatory review).
[44] See id. § 261 (“Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing. The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the United States.”).
[45] Kurtzon v. Sterling Indus., Inc., 228 F. Supp. 696, 697 (E.D. Pa. 1964) (“[A] ‘shop right’ or license to use, manufacture and sell.”).
[46] United States v. Dubilier Condenser Corp., 289 U.S. 178, 188 (1933) (holding that two employees of the radio section of the Bureau of Standards, who had received patents based on a “power amplifier” invention, were not required to assign their patents to the United States—their employer—instead the United States was entitled to a shop right, if anything); McClurg v. Kingsland, 42 U.S. 202 (1843) (affirming the Circuit Court’s jury instruction that a license between the patent holder and the employer-defendants could be presumed allowing the employer to continue to use the patented invention without liability, even if the patent was valid); Lariscey v. United States, 949 F.2d 1137, 1144 (Fed. Cir. 1991) (“A common law doctrine founded on equitable principles, the shop right rule allows an employer to use, without payment to the employee, an employee’s invention that was made using the employer’s time and/or materials, facilities, or equipment.”); see also Terry B. McDaniel, Shop Rights, Rights in Copyrights, Supersession of Prior Agreements, Modification of Agreement, Right of Assignment and Other Contracts, 14 AIPLA Q.J. 35, 38 (1986) (“The concept of shop right developed as a form of equitable compensation for situations where the employer has financed the employee’s invention, normally where the employee has used his employer’s time, facilities, and materials.”) (citation omitted).
[47] See McDaniel, supra note 46, at 36.
[48] Lariscey, 949 F. 2d at 1144 (“The shop right has variously been described as a form of implied license, founded on estoppel or acquiescence.”).
[49] See McClurg, 42 U.S. 202; see also Chisum,  supra note 3, at § 22.03[3][a] (“The actions of both the employee and the employer may warrant the assumption that the employee had consented to allow limited use of his invention in return for assistance in the development of the idea.”).
[50] See Gill v. United States, 160 U.S. 426 (1896); see also Chisum, supra note 3, at § 22.03[3][a] (“By participating in the installation of an embodiment of the invention in the employer’s business without demanding a royalty or other compensation, the employee is estopped from later demanding compensation or charging infringement after issuance of the patent.”).
[51] See Dubilier Condenser, 289 U.S. at 188; Beecroft & Blackman, Inc. v. Rooney, 268 F. 545 (S.D.N.Y. 1920); see also Chisum, supra note 3, at § 22.03[3][a] (“Because the employee has used employer resources to develop the invention, it is only fair and equitable that the employer have a limited right to use the invention. The party who invests in a project and risks the cost of failure should enjoy a return on his/her investment and should share in the benefits of success.”).
[52] See Dubilier Condenser, 289 U.S. at 188 (“[W]here a servant, during his hours of employment, working with his master’s materials and appliances, conceives and perfects an invention for which he obtains a patent, he must accord his master a non-exclusive right to practice the invention.”); Kurtzon, 228 F. Supp. at 697 (“[The employer] has the right to use the plaintiff’s invention but pays no royalties to the patentee. It has no property or title interest in the invention or the patent.  [It] has no exclusive contract with the [employee] that others shall not practice the invention. At most [it] has a ‘shop right’ or license to use, manufacture and sell the [product] which is not an exclusive contract and amounts to a bare license protecting [the employer] from a claim of infringement by [the employee]. . . . Such a licensee may neither sue alone nor join with the licensor patentee in an infringement action.”) (citations omitted).
[53] See Lane & Bodley Co. v. Locke, 150 U.S. 193 (1893) (holding that the Hapgood doctrine would not be extended to a company that “was organized upon the same basis as the [predecessor company]; that the business of the company was to be the same as that carried on by [the predecessor], and to be carried on in the same premises; that the entire property and assets of the firm and its liabilities and obligations were devolved upon the [successor] company”); Hapgood v. Hewitt, 119 U.S. 226 (1886) (holding that although after the original corporation entitled to a shop right dissolved, the stockholders had created a new corporation—its successor in interest—the shop right did not cover the new corporation).
[54] See Standard Parts Co. v. Peck, 264 U.S. 52 (1924) (holding that the invention’s creator held the legal title to the patented invention in trust for his former employer, and ordering him to assign the title in the patent to him employer’s successor); see also Houghton v. United States, 23 F.2d 386 (4th Cir. 1928) (“An employ[ee], performing all the duties assigned to him in his department of service, may exercise his inventive faculties in any direction he chooses, with the assurance that whatever invention he may thus conceive and perfect is his individual property. . . . But this general rule is subject to these limitations. If one is employed to devise or perfect an instrument, or a means for accomplishing a prescribed result, he cannot, after successfully accomplishing the work for which he was employed, plead title thereto as against his employer.  That which he has been employed and paid to accomplish becomes, when accomplished, the property of his employer.  Whatever rights as an individual he may have had in and to his inventive powers, and that which they are able to accomplish, he has sold in advance to his employer.” (citing Solomons v. United States, 137 U.S. 342, 346 (1890)); Nat’l Dev. Co. v. Gray, 55 N.E.2d 783, 787 (Mass. 1944) (“If the employee fails to reach his goal the loss falls upon the employer, but if he succeeds in accomplishing the prescribed result then the invention belongs to the employer even though the terms of employment contain no express provision dealing with the ownership of whatever inventions may be developed.”).
[55] Chisum, supra note 3, at § 22.03[2] (“The primary factor . . . is the specificity of the task assigned to the employee. . . . Evidentiary factors that carry some weight include (1) previous assignments of patents on other inventions by the employee; (2) a customary practice within the company for other similarly situated employees to assign; (3) whether the invention was conceived during the period of employment; (4) who originally posed the problem solved by the invention; (5) the employee’s authority within the company to determine to whom to give a problem for solution; (6) the relative importance of the idea to the employer’s business; (7) a previous inconsistent position on inventorship by the employer; (8) an agreement by the employer to pay royalties to the employee; (9) payment of patent procurement expenses by the employer or employee; and (10) the absence of initial interest by the employer when the employee first exposed the idea.”).
[56] See Standard Parts, 264 U.S. at 56–57 (Upholding the district court’s formal decree that the patentee, “within ten days from the date of the decree, assign and transfer to the company the legal title to the letters patent, and also transfer to it all other patents or pending applications for patents for inventions made by him, in connection with the processes and machinery developed in the performance of the agreement with the [company],” Furthermore, “if [the patentee] failed to perform the decree, ‘then and in that event’ the ‘decree [would] have the same force and effect as such assignments and transfers would have had if made.’”).
[57] Id. But see Leon Jaroff, Intellectual Chain Gang, Time Vol. 149, 64 (Feb. 10, 1997), available at article/0,9171,985892,00.html (describing employee that chose to go to jail rather than to comply with a court order to assign his invention to his employer).
[58] See 1-5 Milgrim on Trade Secrets § 5.02[4][b] (“The general rule of law is that inventions made by an employee, although made during the hours of employment and with the use of his employer’s materials, facilities and personnel, are the employee’s property unless by the terms of his employment, or otherwise, he agreed to transfer the ownership (as distinguished from the use) of such inventions.”); see also United States v. Dubilier Condenser Corp., 289 U.S. 178, 187 (1933) (stating that inventions created by employees not hired to invent—even if the invention is within the same field as their employment—follow the general rule that title may only pass through negotiated assignments).
[59] Agawam Co. v. Jordan, 74 U.S. 583, 602 (1868) (“No one is entitled to a patent for that which he did not invent unless he can show a legal title to the same from the inventor or by operation of law; but where a person has discovered an improved principle in a machine, manufacture, or composition of matter, and employs other persons to assist him in carrying out that principle, and they, in the course of experiments arising from that employment, make valuable discoveries ancillary to the plan and preconceived design of the employer, such suggested improvements are in general to be regarded as the property of the party who discovered the original improved principle, and may be embodied in his patent as a part of his invention.”).
[60] Id. at 602 (“[W]here a person has discovered an improved principle in a machine, manufacture, or composition of matter, and employs other persons to assist him in carrying out that principle, and they, in the course of experiments arising from that employment, make valuable discoveries ancillary to the plan and preconceived design of the employer, such suggested improvements are in general to be regarded as the property of the party who discovered the original improved principle, and may be embodied in his patent as a part of his invention.”).
[61] Id.; see also Int’l Carrier Call & Television Corp. v. Radio Corp. of Am., 142 F.2d 493, 496 (2d Cir. 1944) (“An employer who seeks to patent the fruits of his employees’ labors must go further than merely to express a purpose to be realized.”).
[62] Agawam, 74 U.S. at 603 (“Persons employed, as much as employers, are entitled to their own independent inventions, but where the employer has conceived the plan of an invention and is engaged in experiments to perfect it, no suggestions from an employee, not amounting to a new method or arrangement, which, in itself is a complete invention, is sufficient to deprive the employer of the exclusive property in the perfected improvement.”); Larson v. Crowther, 26 F.2d 780, 790 (8th Cir. 1928) (“Where a party has discovered an improved principle in a manufacture, and employs another to assist him in carrying out that principle, and the employee makes valuable additions to the preconceived design of the employer, such improvements are, in general, to be regarded as the property of the employer, and may be embodied in his patent as part of his invention,” (citations omitted)).
[63] See Copyright Act of 1909, ch. 320, § 62, 35 Stat. 1075 (amended 1976) (“[T]he word “author” shall include an employer in the case of works made for hire.”).
[64] Catherine L. Fisk, Authors At Work: The Origins of the Work-For-Hire Doctrine, 15 Yale J.L. & Hum. 1, 5 (2003).
[65] Id. at 7 (“[S]ome courts did focus on the employer’s contribution or the employer’s right to control. But over time many came to rely simply on the legal fiction that employment renders the employer the author. The ‘crude legal fiction’ was not that the employer’s right to control made it the author; it was that the employer was the author.”).
[66] But see id. at 15 (discussing that despite courts’ statements to the contrary, studies have shown that “between forty-four and forty-nine percent of copyright registration between 1790 and 1800 were by a person other than the actual author.”) (citation omitted).
[67] Copyright Act of 1790, ch. 15 §1, 1 Stat. 124 (amended 1976). The first thing you notice in this group of works is that while books can certainly be created by an individual author, the most useful maps require coordinated effort by multiple individuals.
[68] See Wheaton v. Peters, 33 U.S. 591 (1834) (holding that the author of twelve volumes reporting the cases of the United States Supreme Court held copyright in his original elements added to the reports, although not the work of the justices themselves).
[69] See Fisk, supra note 64, at 16–18 (discussing early American legal publishing and the status of legal reporters, who were hired by the courts as independent contractors—although not called that—and encouraged to find publishers for their work by selling their copyrights). Fisk believes that the fact that early cases involved case reporters who, like Wheaton vis-à-vis the United States Supreme Court, had relationships with the judges likely deciding these cases, likely influenced their outcome. See id. at 21. The reporters were not traditional employees, but rather important and well-educated men who had agreed to perform a function that that was essential to the profession. See id.
[70] See Pierpont v. Fowle, 19 F. Cas. 652 (C.C.D. Mass. 1846) (holding that the renewal rights in a copyrighted work are not included in an assignment of the initial copyrights).
[71] See Atwill v. Ferrett, 2 F. Cas. 195 (1846) (holding that an author commissioned to create an opera remained the author of the work, but that an involved theater manager retained copyright in the version performed in his theater).
[72] See Pennsylvania v. Desilver, 3 Phila. 31 (C.P. 1858) (holding that the state employing a coordinating cartographer held the copyrights in his work); Heine v. Appleton, 11 F. Cas. 1031 (C.C.S.D.N.Y. 1857) (holding that an artist that had participated in a government funded expedition could not enjoin publication of books containing his illustrations, because he had expressly agreed otherwise and he had been paid to alter the images for that very purpose).
[73] See Fisk, supra note 64, at 32 (“[C]ourts came to understand that a corporation—the quintessential “corporate” (as in collective) author—should own the rights to the work created by all the persons who worked for the corporation.”); see also infra Part II.C.
[74] See Lawrence v. Dana, 15 F. Cas. 26 (C.C.D. Mass. 1869) (holding that an employer’s use of an employee’s work on a legal treatise, which she had contracted not to make use of in future editions, is an infringement). In Lawrence, the court in dicta noted that the employee had not acquired “any right to demand a copyright” in his work, but rather his employer held that right. Id. at 51.
[75] In both Roberts v. Myers and Boucicault v. Fox, the author of a commissioned play sued the theater manager who commissioned the piece for having it performed after the author, who was also acting in the piece, had quit. Roberts v. Myers, 20 F. Cas. 898 (C.C.D. Mass. 1860) (finding the author was entitled to the copyright in the work, despite being commissioned to write the play); Boucicault v. Fox, 3 F. Cas. 977 (C.C.S.D.N.Y. 1862) (finding that only an express agreement to assign copyright in the work would be sufficient to transfer copyright ownership). In Keene v. Wheatley, the proprietor of a New York theater had been given the rights to perform Our American Cousin, and in the process, she and her company adapted the play. 14 F. Cas. 180 (C.C.E.D. Pa. 1861).
Figure 1
Figure 1: Our American Cousin Playbill
[76] Keene, 14 F. Cas. at 187.
[77] Id. Although the court ultimately held that the employee’s work was not copyrightable, the court did determine that equitable principles permitted the plaintiff to recover based on the employee’s giving his work to the defendants to add to their production. Id. at 188.
[78] Professor Fisk makes much of the fact that the doctrine “slipped into the cases without the usual adversary process,” because in both Keene and Lawrence, the employees did not lose the rights to their work. Fisk, supra note 64, at 43–44. In Keene, the employee had already assigned whatever he had to the theater producer defendants; if anyone was going to lose out it would have been them. Keene v. Wheatley, 14 F. Cas. 180 (C.C.E.D. Pa. 1861). In Lawrence, despite the court acknowledging a copyright interest in the employer, the parties’ express contract protected the employee. Lawrence v. Dana, 15 F. Cas. 26 (C.C.D. Mass. 1869).
[79] See Callaghan v. Myers, 128 U.S. 617 (1888); Sarony v. Burrow-Giles Lithographic Co., 17 F. 591 (C.C.S.D.N.Y. 1883); In re Gould & Co., 2 A. 886 (Conn. 1885).
[80] Callaghan, 128 U.S. at 647.
[81] Fisk, supra note 64, at 45 (emphasis added).
[82] Id. at 50 (citing Rochelle Cooper Dreyfuss, Collaborative Research: Conflicts on Authorship, Ownership, and Accountability, 53 Vand. L. Rev. 1161, 1172–79 (2000)). But see Press Publishing Co. v. Monroe, 73 F. 196 (2d Cir. 1896) (holding that a contract provided copyright to the author); Mallory v. Mackaye, 86 F. 122 (C.C.N.Y. 1898) (holding that a contract allocated copyright in a theater manager over the playwright); Carte v. Evans, 27 F. 861 (C.C.D. Mass. 1886).
[83] Schumacher v. Schwencke, 25 F. 466 (C.C.S.D.N.Y. 1885). But see Edward Thompson Co. v. Am. Law Book Co., 119 F. 217, 219 (C.C.S.D.N.Y. 1902) (“It is conceded that the question whether a corporation can be an author within the meaning of the copyright laws has never been decided.”).
[84] In Aalmuhammed v. Lee, the plaintiff was hired to work on, without a written agreement, and made “very extensive” contributions to the film Malcolm X.  202 F.3d 1227, 1229 (9th Cir. 2000). However, the Ninth Circuit held that in the same way that the person who controlled the film’s hue was not a joint author of the film, the plaintiff would not be considered one either. Id. at 1233. Instead, the “superintended” or “master mind” of the whole work—in this case Spike Lee, who had signed a work for hire agreement—would be considered the work’s author. Id. at 1233, 1235. To have held otherwise would have opened authors to claims by “research assistants, editors, and former spouses, lovers and friends,” not to mention dramaturgies, actors, cinematographers, film editors, art directors, and costume, makeup, set and sound designers. See id. at 1235–36.
[85] 94 F. 152, 153 (C.C.S.D.N.Y. 1899).
[86] Id. at 153 (“[U]nder his contract . . . the literary product of [the employee’s] work became the property of the [employer], which it was entitled to copyright, and which, when copyrighted, [the employee] would have no more right than any stranger to copy or reproduce.”). The court denied the motion because it was unclear whether the newly created pamphlets infringed because both sets of pamphlets were compilations. Id.
[87] See Edward Thompson, 119 F. at 219 (In response to the defendant’s demurrer that the plaintiff corporation was not the copyright holder, the court stated, “It sufficiently appears that complainant’s publication is the result of the intellectual labor of the editors and compilers employed by complainant.  It is unnecessary, as it might be impracticable, to set forth the names of the persons engaged in the preparation of the work.”);
[88] Copyright Act of 1909, ch. 320, § 62, 35 Stat. 1075 (amended 1976).
[89] Fisk, supra note 64, at 62 (“First, it was a matter of ease in statutory drafting (“author” is a term of art used throughout the statute). Second, it avoided constitutional doubts about a default rule of employer ownership stemming from the constitutional provision that Congress may give “authors” a copyright.  Third, and most importantly, the drafters of the revision wanted to be sure that the employer would be the initial copyright owner rather than an assignee, because only the initial owner is entitled to obtain a renewal.”) (citations omitted).
[90] Jon Noonan, Nineteenth-Century Inventors, at ix (Facts on File 1992).
[91] John Gribbin, The Scientists: A History of Science Told Through the Lives of Its Greatest Inventors 359–61 (Random House 2002) (citing Frank Greenaway, John Dalton and the Atom (Heinermann, London, 1966)).
[92] Id. “But remember that the whole population of Europe doubled, from about 100 million to about 200 million, between 1750 and 1850, and the population of Britain alone doubled between 1800 and 1850, from roughly 9 million to roughly 18 million. The number of scientists did increase as a proportion of the population, but not as dramatically as the figures for scientists alone suggested at first sight,” Id.
[93] Id. at 359.
[94] Rodney P. Carlisle, Inventions and Discoveries, Scientific American 224 (John Wiley & Sons, Inc. 2004).
[95] Noonan, supra note 90, at xi.
[96] Id. (“In 1830, there were only 23 miles of usable track in the United States, but that was soon to change. By 1850, there were 5,000 miles of track and 20 years later, 75,000 miles. Steamboats increased in size and number; new farming equipment filled the country with food; the telegraph lines grew alongside the expanding railroads; and a thousand uses were found for vulcanized rubber and other new materials.”).
[97] Carlisle, supra note 94, at 223 (“The machines were built first; then the principles that governed them were thought through. With the newly discovered principles in place, it was possible to build better machines.”).
[98] Noonan, supra note 90, at x–xi.
[99] Catherine L. Fisk, Removing the ‘Fuel of Interest’ from the ‘Fire of Genius’: Law and the Employee-Inventor, 1830–1930, 65 U. Chi. L. Rev. 1127, 1138 (1998); see also id. 1138 n.33 (explaining that it is “implausible that there were no such cases before 1843,” but there were fewer opinions written and reported at that time).
[100] Depicted left to right: William Morton; James Bogardus; Samuel Colt; Cyrus Hall McCormick; Joseph Saxton; Charles Goodyear; Peter Cooper; Jordan Mott; Joseph Henry; Eliphalet Nott; John Ericsson; Frederick Sickels; Samuel F. B. Morse; Henry Burden; Richard Hoe; Erastus Bigelow; Isaiah Jennings; Thomas Blanchard; Elias Howe.
[101] Noonan, supra note 90, at 33–34, 39 (“A sample of his rubber, composed of his most recent chemical formula, came in contact with a hot stove. The natural gum always softened in summer heat. With the extreme heat of the stove, the gum should have melted. Instead of softening, however, Goodyear’s newest rubber charred like leather. It could still stretch but it wasn’t soft or sticky! Goodyear noticed that the edge of his sample was perfectly cured and not charred. If he could find the correct temperature, he could make fully cured rubber.”).
[102] Id. at 36.
[103] Id.  (“Several companies honored licenses from Goodyear to make rubber products using his methods. Some did not. These other companies copied Goodyear’s process without paying royalty fees. Goodyear had to get involved in lawsuits to protect his rights.”).
[104] In Warner v. Goodyear, Charles Goodyear patented an invention and then Solomon C. Warner, who had been employed as a machinist for Goodyear, attempted to patent the same invention. 29 F. Cas. 256, 256 (C.C.D.C. 1846). The invention at issue was a combination for “manufacturing corrugated or shirred India-rubber goods” using “metallic calendar rollers an elastic endless apron and a stretching-frame,” Id.
[105] The patent commissioner refused Warner’s patent, and when he appealed, the court found that although an inference could be drawn for Warner because he made the machine, it was rebutted by his employment and that while still employed he “stood by and saw Mr. Goodyear apply for and obtain a patent for it without objection,” Id. at 257. Moreover, the court found a presumption in Goodyear’s favor:
from the fact that Warner made the machine for Goodyear at his request, for his benefit, and at his expense, [the presumption] is that it was made according to his directions; and the burden of proof is then on Warner to show that the machine was not according to his directions.
Id. The court went on to find that Goodyear had conducted a number of experiments and that Warner had merely reduced to practice Goodyear’s combination. Id. Furthermore, the court may have been swayed by some evidence of bad faith, as Wilson did not apply for a patent for 18 months, six months after Goodyear had obtained his patent, and had reached an agreement with another company to pay for the costs in getting the patent. Id. Cf. Collier Eng’r Co. v. United Correspondence Sch., 94 F. 152 (C.C.S.D.N.Y. 1899), discussed supra notes 85–86 and accompanying text.
[106] 42 U.S. 202, 205 (1843). Furthermore, the employee continued to work at the foundry making rollers, and although his employer declined his proposal to apply for a patent and have the employer purchase his rights,
he made no demand on theme for any compensation for using his improvement, nor gave them any notice not to use it, till, on some misunderstanding on another subject, he gave them such notice, about the time of his leaving their foundry, and after making the agreement with the plaintiffs, who owned [another] foundry . . . for an assignment to them of his right.
[107] Id. at 204. The patent had been granted on an “improvement in the mode of casting chilled rollers and other metallic cylinders and cones . . . [so that] iron rollers or cylinders could be so cast that when the metal was introduced into the mould it should cause a sw[i]rl or rotary motion, by which the flog or dross would be thrown into the centre instead of the surface of the cylinder,” Id. The improvement was to change the direction of a tube exiting a furnace and entering the cylindrical mold from a perpendicular position to an angular one. Id. at 204–05 (“The tube or tubes, or passages called gates, through which the metal to be conveyed into the moulds shall not enter the mould perpendicularly at the bottom, but slanting, or in a direction approaching to a tangent of the cylinder, or if the gates enter the moulds horizontally or nearly so, shall not enter in the direction of the axis of the cylinder, but in a tangent form, or inclining towards a tangent of the cylinder.”).
[108] Id. at 206.
[109] Interestingly, McClurg has reasserted itself in modern copyright law to establish the idea that legislative expansion of intellectual property rights does not conflict with the constitution’s requirement that copyrights and patents be only for “limited times,” See Golan v. Holder, 132 S. Ct. 873, 886–87 (2012). (“This Court again upheld Congress’ restoration of an invention to protected status in McClurg v. Kingsland . . . . There we enforced an 1839 amendment that recognized a patent on an invention despite its prior use by the inventor’s employer. Absent such dispensation, the employer’s use would have rendered the invention unpatentable, and therefore open to exploitation without the inventor’s leave.”) (citations omitted); Eldred v. Ashcroft, 537 U.S. 186, 187–88 (2003); Golan v. Ashcroft, 310 F. Supp. 2d 1215, 1219 (D. Colo. 2004) (“As explained in Eldred, the McClurg court determined that [the employee] was ‘unprotected under the law in force when the patent issued because he had allowed his [ex-]employer briefly to practice the invention before he obtained the patent. Only upon enactment, two years later, of an exemption for such allowances did the patent become valid, retroactive to the time it issued.’ The McClurg Court upheld retroactive application of the new amended laws ‘for though they may be retrospective in their operation, that is not a sound objection to their validity.’”) (citations omitted).
[110] Cf. Fuller & Johnson Mfg. Co. v. Bartlett, 31 N.W. 747, 752 (Wis. 1887) (“The mere fact that, in making the invention, an employe [sic] uses the materials of his employer, and is aided by the services and suggestions of his co-employes [sic] and employer in perfecting and bringing the same into successful use, is insufficient to preclude him from all right thereto as an inventor.”).
[111] Noonan, supra note 90, at 26.
[112] In 1841, James Joule produced papers on the relationship between electricity and head for the Philosophical Magazine and the Manchester Literary and Philosophical Society. Gribbin, supra note 91, at 384. Between 1839 and 1845, Darwin made significant advances in developing his theory of evolution. Id. at 349. In 1848 and 1849 respectively, Julius Robert von Mayer developed ideas about heat and energy into a discussion of the age of the Earth and the Sun, and William Thomson coined the term thermodynamics. Id. at 381, 383.
[113] First, Geissler invented a better kind of vacuum tube that used mercury to make airtight contact. Id. at 487. Then, he pushed the invention further and “sealed two electrodes into the evacuated glass vessel, creating a tube in which there was a permanent vacuum,” Id. at 488.
[114] Noonan, supra note 90, at 14–15, 26. In 1851, over 50 telegraph companies “started stretching wires,” and within 15 years, “almost half a million miles of lines in America, Europe, and Asia would be connected,” Id. at 23–24.
[115] Abraham Lincoln, Sole Hope of the Future (Feb. 11, 1859), in Mario M. Cuomo & Harold Holzer, Lincoln on Democracy 148, 150 (Fordham Univ. Press 2004).
[116] Gribbin, supra note 91, at 224.
[117] For example, in Wellman v. Blood, an employer attempted to patent an invention, and an interference party argued that he was not the inventor, but rather the inventor was a man who had created a drawing of the invention with a modification of his own. 29 F. Cas. 628, 629–31 (C.C.D.C. 1856) (involving improved machinery for “cleaning top cards of carding machines”). The court determined, however, that
[i]f the employer conceives the result embraced in the invention, or the general idea of a machine upon a particular principle, and in order to carry his conception into effect, it is necessary to employ manual dexterity, or even inventive skill, in the mechanical details and arrangements requisite for carrying out the original conception; in such cases the employer will be the inventor, and the servant will be a mere instrument through which he realizes his idea.
Id. at 631. It went on to decide that Wellman had conceived of the improvement first and “practically reduced it,” even though the final invention included the employee’s small modification. Id.
[118] King v. Gedney, 14 F. Cas. 526, 530 (C.C.D.C 1856) (involving improvement on washing machinery that included a four-way valve at the breach end of the tub). In King, the employer sought a patent on an improvement to a previously patented machine, his employee also sought a patent, and an interference was declared. Id. at 526. The patent commissioner decided invention priority in favor of the employee, and the employer appealed. Id. at 527.
[119] Id. at 530–31; see also Dental Vulcanite Co. v. Wetherbee, 7 F. Cas. 498, 502–03 (C.C.D. Mass. 1866); Goodyear v. Day, 10 F. Cas. 677, 677 (C.C.D.N.J. 1852); Sparkman v. Higgins, 22 F. Cas. 879, 880 (C.C.S.D.N.Y. 1846); Alden v. Dewey, 1 F. Cas. 329, 330 (C.C.D. Mass. 1840); Dixon v. Moyer, 7 F. Cas. 758, 759 (C.C.D. Pa. 1821). The court also repeated the rule stated in Wellman, supra note 117, but attributed it to Curtis on Patents. King, 14 F. Cas. at 530.
[120] Dwight B. Cheever, The Rights of Employer and Employee to Inventions Made by Either During the Relationship, 1 Mich. L. Rev. 384, 385 (1902–1903) (“[T]here is . . . no question for the courts where the employer does all the inventing and the employee does only work requiring ‘mechanical skill,” As soon, however, as the employee begins to think that his ‘mechanical skill’ has turned to inventive skill the trouble begins . . . .”).
[121] Noonan, supra note 90, at 48–49.
[122] Gribbin, supra note 91, at 382, 376–77. Moreover, in 1864, James Maxwell published his “tour de force paper, ‘A Dynamic Theory of the Electromagnetic Field,’ which summed up everything that it is possible to say about classical electricity and magnetism in a set of four equations, now known as Maxwell’s equations,” Id. at 431. These equations would be the basis for Albert Einstein’s work on the special theory of relativity. Id. at 435.
[123] Noonan, supra note 90, at 57–58, 65; see also Improvements in Rotary Steam-Engines, U.S. Patent No. 50,759 (issued Oct. 31, 1865) (see Figure 3). Railroad frogs are “used for keeping cars on the correct rails at intersections and track switches,” Noonan, supra note 90, at 57. Westinghouse’s invention was to use reversible cast steel frogs to prevent them from wearing out. Id.
Figure 3
Figure 3: U.S. Patent No. 50,759
[124] Carlisle, supra note 94, at 224; see also Improvement in Electrographic Vote-Recorder, U.S. Patent No. 90,646 (issued Jun. 1, 1869) (see Figure 4).
Figure 4
Figure 4: U.S. Patent No. 90,646
[125] Carlisle, supra note 94, at 224. Cf. Fisk, supra note 99, at 1139 (“In the late nineteenth century, research laboratories dedicated to invention and technological innovation—like Thomas Edison’s famed laboratory enclave at Menlo Park, New Jersey—were unusual”).
[126] 74 U.S. 583, 586 (1868). The invention in Agawam was a new mechanical combination for manufacturing wool and other fibrous materials using a carding machine that was fed a continuous roll. Id. at 584–86, 599–602.
[127] Id. at 587.
[128] Id.
[129] Id. at 588, 593. Interestingly, Goulding actually failed to apply for a renewal of his patent right due to “erroneous information given him by the Commissioner of Patents,” and the patent expired. Id. at 588, 594. Twenty-one years after the patent expired, Goulding persuaded Congress to pass a special act, authorizing the patents commissioner to entertain an application for extension, and the patent reissued. Id. at 588, 594; see also An Act for the Relief of John Goulding, ch. 88, 12 Stat. 904 (1862). In a previous case involving Goulding’s patent, the constitutionality of the grant was questioned, but the circuit court rejected the argument. Jordan v. Donson, 13 F. Cas. 1092, 1095–96 (C.C.E.D. Pa. 1870).
[130] Agawam, 74 U.S. at 589, 595.
[131] Agawam, 74 U.S. at 605–07. In so holding, the Court repeated over and over that while only the inventor is entitled to a patent, if he employed other persons to help and they made “valuable discoveries ancillary” to the employer’s plan, the employer who invented the original idea is regarded as the owner of them. Id. at 602–03.  Rather, the employee’s contribution would need to meet the derivation requirements to preempt the employer’s rights from vesting. Id. (citing various derivation cases, including Pitts v. Hall, 19 F. Cas. 754 (C.C.N.D.N.Y. 1851); Reed v. Cutter, 20 F. Cas. 435 (C.C.D. Mass. 1841); Alden v. Dewey, 1 F. Cas. 329 (C.C.D. Mass. 1840)).
[132] Agawam, 74 U.S. at 603 (“Persons employed . . . are entitled to their own independent inventions.”).
[133] See supra notes 75–79 and accompanying text.
[134] Carlisle, supra note 94, at 225.
[135] Id. at 226–27.
[136] See supra note 125 and accompanying text.
[137] Noonan, supra note 90, at 74. By 1872, “Edison had filed patents for 52 inventions, most of them on printing-telegraph improvements. In the next three years, Edison created inventions such as the electric pen and mimeograph for making copies of letters and the quadruplex telegraph. The quadruplex handled two messages simultaneously to and from each end of the telegraph line, making a total of four messages on a single wire,” Id.
[138] Fisk, supra note 99, at 1141 (citing B. Zorina Khan & Kenneth L. Sokoloff, “Schemes of Practical Utility”: Entrepreneurship and Innovation Among “Great Inventors” in the United States, 1790–1865, 53 J. Econ. Hist. 289, 295–301 (1993) and Naomi R. Lamoreaux & Kenneth L. Sokoloff, Inventors, Firms, and the Market for Technology in the Late Nineteenth and Early Twentieth Century United States, in Naomi R. Lamoreaux, et al., Learning by Doing in Firms, Markets, and Nations (University of Chicago Press 1999)).
[139] See United States v. Burns, 79 U.S. 246, 252 (1871) (hinting at the hired-to-invent doctrine in dicta).
[140] 90 U.S. 530, 536, 564 (1874). Andrew Evans had previously received a patent for an improvement in the creation of shirt collars, which turned out to be a flop. Id. The shirt collars were “made of parchment-paper and coated with varnish of bleached shellac,” which—according to the reporter—evidently did not look like linen, much less starched linen, became discolored over time, emitted an odor when wearers sweated, and was not amenable to the new fashion of turned down collars. Id. at 537. So Evans employed Crane & Co. to create “something which while it was paper and could be produced cheaply should yet have such a thickness, tenacity, pliability united with strength, and have moreover that polish of surface, and that exact bluish tint which is found in the best starched linen—as distinguished from yellowness and from dead white—which would deceive even critical observers who had no opportunity of judging otherwise than by eye,” Id. Crane & Co. after laborious effort were able to create just such a collar, and after it was created, Evans assigned his patent rights to the Union Paper Collar Company and they applied for and received a reissue of the patent. Id. at 537, 539. Collar Co. then brought suit against Van Dusen.
[141] Id. at 550, 564 (“[P]ersons employed, as much as employers, are entitled to their own independent inventions, and if the suggestions communicated constitute the whole substance of the improvement the rule is otherwise, and the patent, if granted to the employer, is invalid, because the real invention or discovery belongs to the person who made the suggestions.”). The court first noted that Evans likely knew nothing about the process of manufacturing paper and that the original patent did not describe the process added in the reissue. Id. at 561. It then found that Evans “did not communicate any information to [Crane & Co.] respecting the process by which such paper could be produced, nor did he give [them] any directions upon the subject,” because without knowledge of making paper he was unable to do so. Id. at 562.
[142] See Whiting v. Graves, 3 Ban. & A. 222 (C.C.D. Mass. 1878). In Whiting, an employer hired a machinist to maintain the machines in his new dry goods factors and to make any other machinery that would be necessary, but did not include a provision in his service contract related to patents. Id. at 223. Instead, the employer would have the machinist assign his inventions prior to application for patents on them, which worked fine for the employer’s dry goods machines, but then the machinist made an improvement on sewing-machines. Id. The court determined that while the employer would be afforded a shop right in the machinist’s inventions by virtue of his original contract, an additional assignment would be required for the employer to take legal title. Id. at 224. The court went on to hold, based on various testimony, that the employer was only entitled to a one-half interest in the patents, by virtue of an agreement to pay the patent expenses for one-half of the profits from the manufacture of the invention, and that the machinist was entitled to assign his interests to the defendants, which meant they could not infringe. Id. at 1061; see also Niagara Radiator Co. v. Meyers, 40 N.Y.S. 572, 573–76 (N.Y.S. Ct. 1896) (finding machine shop foreman not hired to invent); Connelly Mfg. Co v. Wattles, 23 A. 123, 124 (1891) (finding a shop foreman would not be hired to invent).
[143] Carlisle, supra note 94, at 226.
[144] Id.
[145] Noonan, supra note 90, at 60 (“By the 1880s, Westinghouse was involved in several enterprises. As well as companies and patents he originated on his own, he also started purchasing the companies and patents of others, too. He seemed to find opportunities everywhere.”).
[146] See Clark v. Fernoline Chem. Co., 5 N.Y.S. 190, 191 (N.Y. Sup. Ct. 1889) (In a case primarily concerned with a dispute over unpaid wages, the New York Superior Court held that although an employee had been hired as a chemical expert and chemist, his employer was only entitled to a shop right and not an assignment of any patents granted to the employee.); see also Gill v. United States, 160 U.S. 426 (1896) (holding that the patentee had acquiesced to the government’s use of his invention—a shop right); McAleer v. United States, 150 U.S. 424, 432 (1893) (finding an expressed contract permitting government use); Lane & Brodley Co. v. Locke, 150 U.S. 193, 196, 198–99 (1893) (finding implied license—or shop right—from inventor to partnership, which was incorporated while he was still working there); Solomons v. United States, 137 U.S. 342, 346–48 (1890) (finding an implied license permitting government use—a shop right). In Dalzell v. Dueber Watch Case Manufacturing Co., an individual, who had been employed at various times within a company as an electroplater, slider and toolmaker, invented various things and applied for and was granted patents on them. 149 U.S. 315, 315–19 (1893) (the inventions involved improvement in the making of watch case cores). The employee sued the employer fro infringement, and the employer responded by seeking specific performance of an oral agreement to assign the right to obtain patents on them. Id. at 317–20. The Court held that an oral agreement for the “assignment of the right to obtain a patent for an invention” was neither within the statute of frauds nor covered by the requirements that all patent assignments be in writing. Id. at 320. However, the Court determined that the testimony was in hopeless conflict and therefore refused to afford specific performance; thus, allowing the infringement action to proceed. Id. at 326. The Court did, however, leave open the possibility that a shop right had been granted. Id. (“It is proper to add that the question whether the [employer], by virtue of the relations and transactions between it and [the employee], had the right, as by an implied license, to use [the employee’s] patents in its establishment is not presented by either of these records, but may be raised in the further proceedings upon the bill against the [employer] for an infringement.”).
[147] See Eclipse Mfg. Co. v. Adkins, 44 F. 280, 281–82 (C.C.N.D. Ill. 1890) (determining that employer who came up with the idea of putting ornamenting on radiator pipes, but had his employees create the design and build the pipes, was entitled to his patent, as the patent was on the idea, not the specific ornamentation); Streat v. White, 35 F. 426, 426, 428 (C.C.S.D.N.Y. 1888) (involving a design patent for textiles intended to be employed to create imitation “seersucker” fabrics, the court determined that because the plaintiff only had the idea of imitation seersucker, which did not constitute a novel idea, and employed a cotton goods factory manager to produce it by whatever means were necessary, he could not patent the resulting design). In Streat, the factory manager and the designer “were furnished a sample of a seersucker, and with a photographic copy of the sample, and where told to imitate it, and that the way in which the imitation was to be effected was left with the designer, who was solely responsible for a successful result, and to whom the task of finding an idea or conception of the method of imitating the crinkle was solely committed,” Id. at 428; see also Streat v. Simpson, 53 F. 358, 359 (C.C.S.D.N.Y. 1893) (finding in a subsequent infringement suit that the plaintiff “had nothing to do about designing or engraving the tools for printing the imitation, but through [the factory manager]; and that the designer and engraver were controlled by anything but the sample and photograph given to them by [the factory manager] is not made to appear”).
[148] Compare Dalzell, 149 U.S. at 320 (“[A] manufacturing corporation which has employed a skilled workman, for a state compensation, to take charge of its works, and to devote his time and services to devising and making improvements in articles there manufactured, is not entitled to a conveyance of patents obtained for inventions made by him while so employed, in the absence of express agreement to that effect.”) with Solomons, 137 U.S. at 346 (1890) (stating in dicta that “[i]f one is employed to devise or perfect an instrument, or a means for accomplishing a prescribed result, he cannot, after successfully accomplishing the work for which he was employed, plead title thereto as against his employer. That which he has been employed and paid to accomplish becomes, when accomplished, the property of his employer. Whatever rights as an individual he may have had in and to his inventive powers, and that which they are able to accomplish, he has sold in advance to his employer.”); Annin v. Wren, 44 Hun. 352, 353 (N. Y. Sup. Ct. 2d Dept. 1887) (holding that equity required a skilled draughtsman—hired by an iron truck and wheelbarrow manufacturer to develop his business—to assi