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MODULE I: UNDERSTANDING THE IP ECOSYSTEM

1.1 INTRODUCTION TO INTELLECTUAL PROPERTY

To understand the concept of intellectual property we need to understand some basic
fundamentals about such type of property.

Salmond a leading jurist defines property as:

Property




Jura in re aliena Jura in re propria




Leases Servitudes Securities, etc. Intangible Tangible


Patents, Copyrights, Land, Chattel
Trademarks etc., (IP)


INCORPOREAL PROPERTY
CORPOREAL

PROPERTY


There are two types of property Incorporeal Property and Corporeal Property

Corporeal Property: This is also known as tangible property. In other words they are
material things. Corporeal property can be divided into two kinds.
(i) Movable Property - Chattels
(ii) Immovable Property – Land, buildings

Incorporeal Property: Incorporeal property as the word suggests are property that is
intangible in nature. The right in Incorporeal property is a “right in rem” that is a right which
is against the entire world. Incorporeal Property can be divided into two categories
(i) Immaterial things – Patents, Copyrights, Trademarks etc.,
(ii) Rights over other property or Jura in re aliena - Leases, Servitudes, Securities

etc.,

Intellectual property is, as the word denotes, a property of the intellect. The creativity and
labor of the authors, inventors and creative individuals is what this property purportedly

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gives rights to. The law relating to intellectual property regulates the creation, use and
exploitation of mental or creative labor.1 The subject matter of Intellectual property laws is
very diversified, stretching from the design of a simple utilitarian object like a paperclip to as
complex as a space shuttle design produced by a commercial firm. It also pervades all
genres of life, be it food, health or commerce subject to restrictions in the light of the
utilitarian and greater good principle. The world around us has made it so that we are
constantly in contact with various intellectual property laws. Take, for example, the shirt
you are wearing or the pen with which you write, the razor you use every morning. The
objects are protected under various Intellectual Property laws. It may be protection of the
design that the object carries, or the function that it carries out, or even the name on the
object may be a subject matter of Intellectual property protection. Another vivid example is
the cellular phone, which is comprised of parts. These parts are obviously protected by
intellectual property laws pertaining to trade marks, patent and design.

The various Intellectual Property rights, while differing in their inherent characteristics and
the subject matter they protect, share a common feature in that they protect the creation
of the intellect and labor of the creator, which are intangible in nature. Also, it is an
attribute of every Intellectual property, that there is a commonality in the image of what it
means to “create.” It is, however, pertinent to note that while we can attribute an inherent
relationship between the tangible medium that carries the intellectual property and the
intangible nature of the right itself, the intellectual property right confers on its creator a
distinct and succinct right that is divorced from the property rights in the tangible medium.

Illustration:
Mr. A sends a letter to Mr. B. In this case the personal property right that exists in the ink
and the paper is transferred to Mr. B. However, Mr. A, retains the intellectual property
rights (copyright) in the letter. The conclusion derived is that Mr. A has the right to stop Mr.
B or anyone from copying the letter and posting it on the Internet.2

Intellectual property began to be recognized as a form of property only in the late
nineteenth century.3 One can define the rights in a tangible property by following a set of
fixed rules and procedures.




Illustration:
Mr. A buys a property from Mr. B. In this case the law lays down that to transfer the title of
the property, Mr. A needs to follow some set rules and regulations to properly and validly
transfer the title to Mr. B, such as executing a valid agreement to sell and registering the
sale agreement, etc.,

1 Article 2, para. VIII, WIPO Convention (1967) “Intellectual Property” is “the rights relating to –
literary, artistic and scientific works – performances and performing artists, photographs and
broadcasts – inventions in all fields of human endeavour – scientific discoveries – industrial designs –
trade marks, service marks, and commercial names and designations – protection against unfair
competition and all other rights resulting from intellectual, scientific, literary or artistic fields.”
2 Bently, Lionel and Sherman, Brad, Intellectual Property Law, (Oxford University Press, 2009), p. 2
3 Ibid.

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In the same way, each intellectual property has to define its own set of rules and regulations
to set the parameters of the intangible property. These parameters include how the
deposits and registration techniques of representation be made, such as trademark
applications and accompanying visual representation of the trade mark, statutory rules and
legal concepts, and the originality requirement in some Intellectual property.4

1.1.1 GLOBAL INFLUENCES

Intellectual property rights are national or territorial in nature, that is to say, they usually do
not operate outside the legal regime of the national territory under which they are granted.5
Internationally, intellectual property law has been largely governed by two conventions.
First, the Paris Convention of 1883 which was intended to protect “industrial property,”
such as patents, industrial design, trade marks, service marks and indications of source of
origin.6 The Berne Convention of 1886 protects “every production in the literary, scientific
and artistic domain, whatever may be the mode or form of its expression.”7 Both the
treaties have as their central criteria for protection the principle of ‘national treatment’,
which means one country will provide to citizens of another nation the same protection the
first, affords to its own citizens.8 This doctrine allows for international protection without
harmonization. However, the principle of national protection only offers a partial solution,
that is, if country A requires registration as a pre-requisite for protection of the right
holder’s right, then the right holder who is a citizen of country B will have to wait and
endure the cost of registration to protect his rights in country A.9 In the areas of
trademark,10 patents11 and copyright,12 this has been addressed.

The most important treaty that forms the benchmark of all intellectual property standards is
the Trade Related Aspects of International Law Agreement (TRIPS), which covers all the
main areas of intellectual property.13 The TRIPS agreement requires the WTO members to
recognize the existing standard of protection provided for by the Berne and Paris
Conventions.14 WIPO, in its role to develop, supervise and propagate new intellectual

4 Ibid.
5 Ibid.
6 Paris Convention for protection of industrial property, March 20, 1883, last revised at Stockholm,
July 14, 1967, 21 U.S.T. 1583
7 Berne Convention for the Protection of Literary and Artistic Works, September 9, 1886. An additional
protocol was agreed at Paris in 1896, and revised version agreed in 1928 (Rome), 1948 (Brussels)
and 1967 (Stockholm). A further minor amendment was made in the Paris text is 1979.
8 TRIPS: Historical Overview and Basic Principles, May L. Harris, 12 J. Contemp. Legal Issues (2001-
2002), p. 454.
9 Supra 3, p. 5.
10 Madrid Agreement concerning the International registration of Marks 1891.
11 The Patent Co-operation Treaty 1970.
12 Berne Convention requires its members to give copyright protection regardless of the need for
formalities, such as the need for registration.
13 P. Drahos, “Global property rights in information: The story of TRIPS at the GATT” (1995)
Prometheus 6.
14 TRIPS Art. 2 (1), Art. 9; see also, J. Reichman, “Universal Minimum Standards of Intellectual
Property Protection under the TRIPS Component of the WTO Agreement” (1995) 29. The
International Lawyer 345.

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property initiatives at an international level, formulated two new treaties, namely, the WIPO
Copyright Treaty 1996 and WIPO Performances and Phonograms Treaty 1996.

Some people argue that all the treaties and protection granted to intellectual property law
is no more than incorporation into the sphere of public international law the wish list of
developed nations.15 However, it is pertinent to note that this may not be the case as
showed through the Convention on Biological Diversity (CBD). The CBD treaty recognizes the
right of indigenous peoples who preserve biological resources to share in the benefits
arising from the commercial exploitation thereof.16

In recent times, intellectual property law has witnessed a gradual shift from multilateral
treaties to bilateral treaties in which the aims of the standardization and harmonization of
intellectual property are pursued.

1.1.2 INDIAN PERSPECTIVE

A major portion of intellectual property laws in India are derived from the statutes of
England. However, most of the statutes were reformed by the Indian Legislators to suit the
national needs. The Indian patent law is an example. The East India Company on the
recommendation of the Lord Macaulay Law Commission introduced the Patents Act of
1856.17 At the time of Independence, the Indian Government appointed two committees,
the Tek Chand Committee (1948-1950), and the Ayangar Committee (1957-1959).18 The Tek
Chand Committee, after seeing that the existing patent laws enabled multi-national
companies to gain patent rights beyond the scope of their inventions, recommended the
incorporation of license provisions to reduce the potential for abuse of monopolies.19 The
changes were incorporated and the Patents and Design Act of 1911 was modified in 1952
and in 1953, the Controller of Patents became authorized to grant licenses, not patents, on
foods, medicines, etc.20 However, the new patent amendments in the Act have been
incorporated to make the Indian patent regime comply with the provisions of the TRIPS
Agreement.

In yet another instance, the Supreme Court made the following comment on the existing
copyright in D. B. Modak:21 “The development of copyright law in India is closely associated
with the British copyright law. Statute of Anne, the first Copyright Act in England, was
passed in 17th century which provided that the author of any book already printed will have
the sole right of printing such book for a term mentioned therein. Thereafter came the Act
of 1814, and then the Act of 1842, which repealed the two earlier Acts of 1709 and 1814.
The Copyright Act of 1911 in England had codified and consolidated the various earlier

15 P. Gerhart, “Why Lawmaking for Global intellectual Property Is Unbalanced” (2000) EIPR 309.
16 S.Kadidal, “Subject Matter Imperialism? Biodiversity, Foreign Art and the Neem Patent
Controversy” (1996) 37 IDEA 371.
17 Coming into compliance with TRIPS: A discussion of India’s new patent laws, 25 Cardozo Arts &
Ent. L.J. 877 (2007-2008), p. 877.
18 Ibid, p 879.
19 Srividhya Ragavan, Of the Inequals of the Uruguay Round, 10 MARQ. INTELL. PROP. L. REV.
273, 278 (2006)
20 Supra n. 17 at p 879.
21 EBC v D.B.Modak 2008 (1) SCC 1.

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copyright acts on different works. Then came the Copyright Act of 1956. In India, the first
Copyright Act was passed in 1914. This was nothing but a copy of the Copyright Act of 1911
of the United Kingdom with suitable modifications to make it applicable to the then British
India. The Copyright Act of 1957, which is the current statute, has followed and adopted the
principles and provisions contained in the U.K. Act of 1956 along with introduction of many
new provisions. It was followed by the Copyright (Amendment) Act 1983, which made a
number of amendments to the Act of 1957 and the Copyright (Amendment) Act 1984 which
was mainly introduced with the object to discourage and prevent the widespread piracy
prevailing in video films and records. Thereafter, the Copyright (Amendment) Act 1994 has
brought about many major amendments in the Copyright Act of 1957.” The copyright act
has been amended five times in 1983, 1984, 1992, 1994 and 1999 and the 1994 amendment
has been the most substantial amendment by far.

The above excerpts show that India is still in the phase of making the intellectual property
regime comply with the TRIPS Agreement.

Another important concept that has immense bearing on intellectual property is the
principle of exhaustion of rights.


Principle of exhaustion applies to all kind of intellectual property.22
Consent by the intellectual property right owner includes the consent of person or
persons legally or economically dependent on the proprietor.23
Consent by the intellectual property owner does not include the consent of a person
who is an independent assignee of the right or who happens to be the holder of a
right that once has a ‘common origin’.24 Illustration: If for example a movie is
released in countries A and B, and the owner may assign the copyright to the work in
country B. But if the new owner of the copyright has a market in country A, then the
principle of exhaustion will not bar him from exercising the rights in country A as he
has not exhausted his rights there.
National intellectual property rights may be used to prevent the further circulation
of pirated, counterfeited and other illicitly manufactured goods which, by definition,
have not been placed on the market with the right holder’s consent.25
Prevention of import of goods that have not been placed in a particular market with
the consent of the right holder.26

If the imported goods are legitimately placed in a market of a country where the
right holder has no intellectual property rights, the right owner can be said to have
implicitly given his consent for the marketing of such goods and thereby exhausted
his rights.27
If intellectual property rights subsist in country A, but are subject to a compulsory
license, the rights are not exhausted when goods are manufactured under such a

22 Deustche Grammophon GmbH v metro GmbH, Case C-78/70 (1971) ECR 487.
23 Warmer Bros. v, Christiansen, Case C-158/86 (1988) ECR 2605.
24 Supra n. 22.
25 Supra n. 2, p. 14.
26 EMI Electrola GmbH v. Patricia Im-und Export, Case C – 341/87 (1989) ECR 79.
27 Merck & Co. v. Stephar BV &Exler, case C -187/80 (1981) ECR 2063.

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license. Here, the intellectual property right owner is entitled to use national laws to
prevent import into country B.28

1.2 THE ONLINE LANDSCAPE

The Internet has emerged as an industrial revolution of sorts, on both the technology and
policy-making front at the same time. Paradoxically, the Internet was created as a
communication tool for government and industry, in response to policy, but has emerged as
a global medium which now drives global economic development and policy-making. On
one hand, the Internet has spawned new and emerging industries related to conducting
business on an international scale, having extended the reach and depth of technology and
business data acquisition. Yet, at the same time, it has created opportunities and counter-
balancing liabilities related to the disciplines of intellectual property development,
enforcement and commercialization.

Business method patents relating to the Internet have become a new business frontier, and
they have caused reactionary policymaking around the world. Yet it is the Internet itself
that has been the genesis of so many business method patents. So too has the Internet
introduced new trademark and branding opportunities for conducting business globally, yet
it simultaneously created a new front of trademark and domain name infringement and
enforcement that routinely traverses territorial boundaries. Companies that only intended
to conduct business on a regional basis are thrown unsuspectingly into an international
intellectual property game the minute they launch their small company website.

Not since the late 1700s when Eli Whitney’s milling machine became the tool that
propagated countless inventions and a new industrial economy has an invention such as the
Internet so inspired invention, business development and policy. Yet in 1804 Whitney, after
receiving his patent29 only to wind up embroiled in ten years of legal battles, never filed
another patent, stating that “An invention can be so valuable as to be worthless to the
inventor.” The Internet is a powerful tool that has already demonstrated its ability to create
new jobs, advance technology, shorten product life cycles, circumvent international
communications barriers, and transcend political and social chasms.

Yet at the same time, it has become a tool that has caused the devaluation of some
intellectual property almost as much as it has created new value for others. It has caused
confusion amongst leading policy-makers, and while it has created new business
opportunities, it has itself threatening to become an impediment to future economic
expansion. Without proper management, the Internet will become ‘worthless to the
intellectual property community’.

Understanding the historical impacts of the Internet upon intellectual property as a whole,
and being able to anticipate technology, IT, work flow and the future impacts the Internet
may have upon policy, technology, work flow management and intellectual property value
creation is critical if informed, sensible standardization, information technology
management, operations budgets and intellectual asset development and

28 Pharmon v Hoechst, Case C -19/84 (1985) ECR 2281.
29 Eli Whitney, United States Patent Number: 72X, Cotton Gin, March 14, 1794.

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commercialization are to reach its potential. Without properly managing operations to
anticipate and meet the new metrics brought about by the Internet, one’s seat at the table
of intellectual property prosperity may be lost for generations.

1.3 LAW AND THE ARCHITECTURE OF CYBERSPACE

1.3.1 JURISDICTION IN CYBERSPACE

The Internet impacts in major ways upon questions of jurisdiction. Jurisdiction to prescribe
laws and adjudicate disputes historically has been based on territorial principles: if a
country found a person within its territory, it exercised jurisdiction over that person. The
Internet greatly diminishes the significance of physical location of the parties, because
transactions in cyberspace are not geographically based. Moreover, the Internet alters the
power balance between distributor and consumer, because consumers now have instant
access to enormous amounts of information and highly sophisticated analytical tools. This
affects the basis on which courts have analyzed the ability of consumers to make
enforceable choices of law and forum.

The difficulties faced by courts in dealing with this new medium are acutely exemplified by
the November 20, 2000, decision of a French trial court. Climaxing a series of earlier rulings
by the same court, it ordered Yahoo! Inc. to put filtering systems in its U.S. website so as to
prevent access by French residents to portions of the Yahoo! Inc. auction site on which
persons offer to sell World War II memorabilia containing Nazi symbols.30 In its initial ruling
(May 22, 2000) the court had held that the U.S. website for Yahoo! Inc. was subject to
French jurisdiction simply because it could be accessed from France.31

A similarly unfortunate decision had been issued in 1996 in the U.S. by a federal district
court in Connecticut,32 which has since been ignored or rejected by most other courts in the
U.S. on the strength of the principle that accessibility of a website, standing alone, does not
form a sound basis for jurisdiction over a non-resident. Indeed, under doctrines which have
become prevalent in most judicial interpretations in the U.S. and elsewhere, France could
not have jurisdiction over Yahoo! Inc.’s auction website: the site is not located in France, is
not targeted at France and, indeed, offers only a venue in which persons other than
Yahoo! Inc. offer goods for sale. To cap the matter, Yahoo! Inc. has a subsidiary resident in
France which complies with the French law forbidding sale of Nazi-related goods on its
French website, namely Yahoo.fr.

Recent recommendations made by the American Bar Association’s Jurisdiction in
Cyberspace Project (“Jurisdiction Project”), discussed later, are in keeping with the new

30Ordonne du 20 Novembre 2000, VEJF and LICRA v. Yahoo! Inc. and Yahoo France (Tribunal de
Grand Instance de Paris). The French judge ruled that Yahoo! must put a three-part system in place
that includes filtering by IP address, the blocking of 20 keywords and self-identification of geographic
location. The system follows the recommendations of an expert panel appointed by the court to
investigate such technologies, which revealed its findings earlier this month. Yahoo! was given three
months to put the system in place, after which time the company would be subject to a fine of $13,000
a day if the system has not been implemented.
31Ordonne du 22 Mai 2000, same case.
32See accompanying text for discussion of Inset case.

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realities of the Internet. In a nutshell, the Jurisdiction Project recommendations would
universalize the principle, recognized in most reported decisions, that a website merely by
itself cannot support a claim of jurisdiction.

The aberrational French decision, unless reversed on appeal or uniformly rejected by other
French courts could undermine the harmony and predictability of jurisdictional questions in
cyberspace. Such harmony and predictability is crucial to the flowering of E-Commerce. As
stated in the E.U. Commission’s October 2000 proposal, “[d] differences between national
rules governing jurisdiction and recognition of judgments hamper the sound operation of
the internal [E.U.] market.33

1.3.2 BACKGROUND

1.3.2.1 FUNDAMENTAL JURISDICTIONAL PRINCIPLES UNDER INTERNATIONAL LAW

International law limits a country’s authority to exercise jurisdiction in cases that involve
interests or activities of non-residents.34 First, there must exist “jurisdiction to prescribe.” If
jurisdiction to prescribe exists, “jurisdiction to adjudicate” and, “jurisdiction to enforce” will
be examined. The foregoing three types of jurisdiction are often interdependent and based
on similar considerations.35

“Jurisdiction to prescribe” means that the substantive laws of the forum country are
applicable to the particular persons and circumstances.36 Simply stated, a country has
jurisdiction to prescribe law with respect to: (1) conduct that, wholly or in substantial part,
takes place within its territory; (2) the status of persons, or interests in things, present
within its territory; (3) conduct outside its territory that has or is intended to have
substantial effect within its territory; (4) the activities, interests, status, or relations of its
nationals outside as well as within its territory; and (5) certain conduct outside its territory
by persons who are not its nationals that is directed against the security of the country or
against a limited class of other national interests.37




1.3.2.2 FUNDAMENTAL PERSONAL JURISDICTIONAL PRINCIPLES IN EUROPE

Although basis jurisdictional law is statutory in the E.U., in contrast to case law-based in the
U.S., the results under both systems have much in common. It was not until the
extraordinary orders issued by Judge Jean-Jacques Gomez of the Paris Tribunal de Grande

33Commission of the European Communities, Amended Proposal for a Council Regulation on
Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
(Oct. 26, 2000) [“EU Proposal”].
34RESTATEMENT (3RD) OF THE FOREIGN RELATIONS LAW OF THE U.S. §401, comment a
(1987).
35Id. 230-31.
36Id. 236-37.
37Id. §402.

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Instance in the Yahoo! Inc. case that residents of the U.S. and other countries began to see
dramatic differences potentially arising.
Under the Brussels convention,38 specified acts by a domiciliary of a contracting country
subject the actor to jurisdiction in that country. As will be seen from the later discussion of
U.S. jurisdictional principles, these actions are similar to those upon which a U.S. court
would rely to find specific personal jurisdiction.39 (Outside of the Brussels Convention,
France will assert jurisdiction whenever the plaintiff in a civil action is a French national.40)
However, the Brussels Convention does not require “minimum contacts” between the
forum and the defendant, as would be required in the U.S.41 It permits assertion of
jurisdiction over a defendant if conduct wholly outside the forum resulted in a tortious
injury to the plaintiff within it.42

The first alternative is to simply permit the merchant to designate any law that has a
substantial connection to the transaction. The problem is that the consumer may not know
or be able reasonably to determine the consumer’s rights under such law. This creates
apprehension on the part of the consumer and may retard the growth of E-Commerce. The
second alternative is to adopt the mandatory rules concept. The contract can specify the
law that will apply to the transaction but would not trump mandatory consumer protection
rules. This creates confusion and increases the cost of compliance because the merchant is
required to be familiar with the mandatory rules of each jurisdiction. The third alternative
which the authors examined (and favour) is to harmonize national consumer protection
laws. This would create a lower cost mechanism, similar to the model rules enjoyed by
other areas of uniform law. Merchants would not have to learn the law of each jurisdiction
and consumers would know their rights irrespectively of choice of law. Although
harmonization is a monumental task, this is the only present low cost solution.

In the E.U. context, the E.U. Commission has recommended that jurisdiction should
generally be based on the defendant’s domicile, but that alternative jurisdictional grounds
should be available if there is a “close link” between the court and the action or if the
“sound administration of justice” would be facilitated.43 The jurisdiction of the domiciliary
country would continue.44 The place of performance shall have jurisdiction over contract
actions.45 In tort actions, jurisdiction lies in the place “where the harmful event occurred or
there is a risk of it occurring.46

1.3.2.3 FUNDAMENTAL PERSONAL JURISDICTIONAL PRINCIPLES IN THE UNITED STATES


38Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters
(Sep. 30, 1968), 1978 O.J. (L 304) 36 [“Brussels Convention”].
39The Brussels Convention would find that performance of a contractual obligation in the country or
occurrence of a tortious event there would be a basis for jurisdiction in the country. Brussels
Convention, Title II, §2, art. 5.
40Code Civil, Article 14 (Fr.).
41See notes 23-24, infra, and accompanying text regarding the U.S.
42Brussels Convention, Title II, §2, art. 5.
43E.U. Proposal, Preamble, point (11).
44Id. at Ch. II, §1, art. 2
45Id. at Ch. II, §1, art. 5(1)
46Id. at Ch. II, §1, art. 2(3)

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Traditionally, there are two types of personal jurisdiction which state courts may exert in
the U.S.: “general” and “specific.” Also relevant to cyberspace law is “in rem” jurisdiction.
Another area that is technically not pure jurisdiction, but is closely related, involves the
requirement to qualify as a foreign corporation to do business in a given state.

1.3.3 THE EFFECTS OF THE INTERNET ON TRADITIONAL PRINCIPLES OF JURISDICTION

Basic principles have been essentially geographically based and have therefore been difficult
to apply in the context of the Internet. A website can be viewed from any place in the world
where there is access to the Internet. As a result, geographical location has less significance
than previously in the context of jurisdiction. Information over the Internet passes through
a network of networks some linked to other computers or networks, some not. Not only
can messages between and among computers travel along much different routes, but
“packet switching” communication protocols allow individual messages to be subdivided
into smaller “packets” which are then sent independently to a destination where they are
automatically reassembled by the receiving computer.47

The actual location of computers among which information is routed along the Internet is of
no consequence to either the providers or recipients of information, hence there is no
necessary connection between an Internet address and a physical jurisdiction.48 Moreover,
websites can be interconnected, regardless of location, by the use of hyperlinks.
Information that arrives on a website within a given jurisdiction may flow from a linked site
entirely outside that jurisdiction.49 For example, one packet of an e-mail message sent from
California may travel via telephone line through several different states and countries on its
way to Italy. Part of the “trip” may even go through a satellite in space. Meanwhile,
another packet of the same message may travel by fibre-optic cable, arriving in Italy before
the first packet, with both transmissions are completed in nanoseconds. Finally,
notwithstanding the Internet’s complex structure, the Internet is predominately a passive
system; Internet communication only occurs when initiated by a user.

1.3.4 INCREASED CONFLICTS ARISING OUT OF FUTURE DEVELOPMENT OF THE INTERNET

As earlier discussed, the rules of jurisdiction over activities on the Internet are evolving out
of principles that predated the personal computer age. Repeatedly, courts and regulators
have analogized the Internet to telephone or print media in analyzing jurisdictional issues.
Whether this approach should continue in the future is a serious issue, because the Internet
of today is but a glimmer of what lies ahead in digital communications.


47See stipulated facts regarding the Internet in American Civil Liberties Union v. Reno, 929 F. Supp.
824, 830-32 (E.D. Pa. 1996).
48D. Johnson and D. Post, Law and Borders—The Rise of Law in Cyberspace, 48 STAN. L. REV.
1367, 1371 (1996).
49The Internet also uses “caching,” i.e., the process of copying information to servers in order to
shorten the time of future trips to a website. The Internet server may be located in a different
jurisdiction from the site that originates the information, and may store partial or complete duplicates
of materials from the originating site. The user of the World Wide Web will never see any difference
between the cached materials and the original. American Civil Liberties Union v. Reno, supra,
note 17, 929 F. Supp. at 848-49.

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1.3.5 EVOLUTION OF NEW TECHNOLOGIES WILL FURTHER DIMINISH TERRITORIALITY

Not only is the new global marketplace incredibly complex, but the growth and pace of
change in the communications industry are unlike anything since its inception. Each minute,
millions of e-mail messages are being sent around the world. For decades, Silicon Valley
was guided by Moore’s Law, which states that the capacities of semiconductors will double
every 18 to 24 months. But in 1999 the numbers started to change: by 2001, the
semiconductor industry is expected to add as much capacity as has been created in the
entire history of the chip. It is moving from producing chips to producing whole systems on
a chip.50

Two other technologies which are pushing the expansion of information-carrying capacity
are photonics and wireless. Photonics, which employs light to move communications, is
doubling the capacity of optical fibre every 12 months. This is dramatically changing the
way networks are deployed. Bandwidth (the amount of space available to carry the data
and voice traffic that all these networks around us are building up) is also expanding
exponentially. Instead of a resource in short supply, bandwidth may soon be an unlimited
one.

The many existing jurisdictional rules applicable to commercial transactions reflect
presumed power imbalances between buyers and sellers. Traditionally, sellers are thought
to seek out buyers, manifesting their desire to benefit from a connection with the buyers
forum, and to set the terms of the purchase contract.

However, power in the context of a commercial relationship depends upon knowledge and
choice. Electronic commerce in the worldwide marketplace represented by the Internet
inherently expands consumer choice, because it opens up every market to every buyer
regardless of where the seller is located.51 In the same vein, electronic commerce
strengthens buyers’ vis-à-vis sellers because buyers gain more possibilities. Thus, the
implied concern that buyers will be taken advantage of by sellers to whom they are tied by
geographic or other limitations is less appropriate in the E-Commerce arena.

While the Internet empowers the consumer, it also can reduce the seller’s power to define
its market. In traditional commerce, a seller defines its market, almost always far narrower
than global, by its advertising strategy and budget, its investment in distribution channels,
the physical locations of its goods or service-delivery points, and by its processes for taking
orders. In E-Commerce, absent substantial restrictive measures by the seller, every website
is worldwide. As a result, a buyer is just as likely to search out a relatively passive
distributor as an active distributor is to search out a passive consumer.
1.3.6 JURISDICTIONAL PRECEDENTS ARISING FROM PRINT, TELEPHONE AND RADIO
CASES.

50See Carleton Fiorina, The Communications Revolution, Speech to Commonwealth Club of
California, in COMMONWEALTH CLUB OF CALIFORNIA MONTHLY NEWSLETTER, July 19, 1999
[hereafter “Fiorina”]. One of the results will be to shrink the size and cost of an incredibly expanding
range of communications devices. Bell Labs, for example, has a camera on a chip and a microphone
on a chip. Id.
51Note that legal regulation may block some sellers from some markets.

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From the onset, courts assessing Internet jurisdiction had precedents involving print,
telephone and radio media to use in determining whether jurisdiction over specific activities
offends constitutional due process. These precedents relate primarily to the intent with
which the Internet is used. Thus, if an Internet-based news service were to send a number
of messages specifically addressed to residents of a forum, there would be “purposeful
direction” into the forum. Purposeful direction can exist on the ‘Net even though, in
contrast to shipment of some physical goods into a state as occurred in the National
Enquirer Case (from which the shipper was deemed to foresee an effect in that state),
nothing is shipped physically over the Internet.52 E-mail over the Internet can be logically
compared to traditional postal mail and to phone calls.

However, bulletin boards and websites are not directed to a place or even to a point in
virtual space, in contrast to e-mail. The person who posts a bulletin board message knows
that the message can be resent by others elsewhere in the world, but the posting person
cannot control such redistribution. A website is even more of a passive medium, because it
sends nothing specifically directed to the forum state. The site merely posts general
information so viewers can log on to the site. As the cases have increasingly recognized,
websites are similar to advertisements beamed to the world over television. Perhaps an
analogy to the size of the National Enquirer’s forum state circulation could be drawn from
the number of hits on the website that emanate from viewers in a forum state. A site
operator can identify the source of “hits” on his site; an operator of a website would
therefore know whether a large proportion of the hits came from California. If information
about a California resident were posted on the site, it could then be argued under the
National Enquirer Case rationale that the operator purposefully directed the information to
California residents. However, this would be similar to basing jurisdiction over a telecast on
the number of viewers in a given jurisdiction.

1.3.7 SPECIFIC JURISDICTION ON THE INTERNET

1.3.7.1 EARLY EVOLUTION OF INTERNET CASELAW IN THE U.S.

The early cases involving jurisdiction over cyberspace in the U.S. were marked by
inconsistencies and lack of proper analysis of the new medium. A graphic example was
Inset Systems, Inc. v. Instruction Set, Inc.53 Inset Systems sued Instruction Set (“ISI”) in
Connecticut (Inset’s home) for trademark infringement. Even though ISI had no assets in
Connecticut and was not physically transacting business there, the district court nonetheless
determined that it had specific personal jurisdiction over ISI in Connecticut. It based its
determination on ISI’s use of a toll-free telephone number and the fact that there were at
the time 10,000 Internet users in Connecticut, all of whom had the ability to access ISI’s
website. It found the advertising to be “solicitation of a sufficiently repetitive nature to
satisfy” the requirements of Connecticut’s long-arm statute, which confers jurisdiction over
foreign corporations on a claim arising out of any business in Connecticut.

1.3.7.2 THE ZIPPO AND CYBERSELL CASES: THE SLIDING SCALE OF ONLINE INTERACTIVITY

52See discussion of Calder v. Jones at note 28, supra.
53937 F. Supp. 161 (D. Conn. 1996) (herein “Inset”).

12

In 1996, a federal court in Pennsylvania delivered the first decision in the United States
setting out an overall analytical framework for specific personal jurisdiction based on
Internet activity. The case is Zippo Manufacturing Co. v. Zippo Dot Com. Inc. (“Zippo”).54
Under Zippo, there is a “continuum” or sliding scale for measuring websites, which fall into
one of three general categories: (1) passive, (2) interactive, or (3) integral to the
defendant’s business. The “passive” website is analogous to an advertisement in Time
magazine; it posts information generally available to any viewers, who have no on-site
means to respond to the site. Courts ordinarily would not be expected to exercise personal
jurisdiction based solely on a passive Internet website, because to do so would not be
consistent with traditional personal jurisdiction law.55 An “integral” website is at the other
end of the three categories. An integral site is used actively by a defendant to conduct
transactions with persons in the forum state, receiving on-line orders and pushing messages
directly to specific customers. In such cases, traditional analysis could support personal
jurisdiction. The middle category, or “interactive” site, falls between passive and integral. It
allows a forum-state viewer to communicate information back to the site. Under Zippo,
exercise of jurisdiction in the “interactive” context is determined by examining the level of
interactivity and the commercial nature of the site. Here a non-resident California
defendant operated an integral website that had contracts with 3,000 Pennsylvania
residents and Internet service providers, hence the court had no difficulty finding
jurisdiction.

The first decision by a federal court of appeal involving specific jurisdiction in cyberspace
was Cybersell, Inc. v. Cybersell, Inc. (“Cybersell”).56 Here, the Ninth Circuit, in contrast to
the Connecticut federal court in the Inset case and the French trial court in the Yahoo! Inc.
case, rejected the notion that a home page “purposely avails” itself of the privilege of
conducting activities within a jurisdiction merely because it can be accessed there.57 In
Cybersell, the plaintiff was an Arizona corporation that advertised its commercial services
over the Internet. The defendant was a Florida corporation offering web page construction
services over the Internet. The Arizona plaintiff alleged that the allege Florida trademark
infringer should be subject to personal jurisdiction of the Federal court in Arizona because a
website which advertises a product or service is necessarily intended for use on a worldwide
basis.

In finding an absence of jurisdiction, the Ninth Circuit used a Zippo-type of analysis without
specifically adopting Zippo. First, the court articulated a three-part test for determining
whether a district court may exercise specific jurisdiction over a non-resident defendant:
“(1) The non-resident defendant must do some act or consummate some transactions with

54952 F. Supp. 1119, 1124 (W.D. Pa. 1996).
55Only three reported cases to date have based personal jurisdiction essentially on website
accessibility alone: (1) Inset, discussed earlier at notes 52-53 and accompanying text, and (2) Telco
Communications Group, Inc. v. An Apple A Day, Inc., 977 F. Supp. 404 (E.D. Va 1997). (Relying on
Inset to hold that personal jurisdiction existed over defendant for defamation claim solely on basis of
website which “could be accessed by a Virginia resident 24 hours a day”); Bunn-O-Matic Corp. v.
Bunn Coffee Service, Inc., 1998 U.S. Dist. LEXIS 7819 (C.D. Ill. Mar. 31, 1998) (although court said
defendant was aware of impact of infringing mark on Illinois).
56130 F.3d 414 (9th Cir. 1997).
57Id. at 420.

13

the forum or perform some act by which he purposefully avails himself of the privilege of
conducting activities in he forum, thereby invoking the benefits and protections [;] (2) the
claim must be one which arises out of or results from the defendant’s forum-related
activities [; and] (3) exercise of jurisdiction must be reasonable.”

1.3.7.3 APPLYING THE “EFFECTS” TEST

If the website operator intends to cause an effect in a given forum and actually does, he
arguably avails himself of the privilege of doing business there in the same manner as
occurred in the National Enquirer case. For example, a non-resident of California allegedly
operated a scheme consisting of registering exclusive Internet domain names for his own
use that contained registered trademarks.58 The defendant allegedly demanded fees from
Panavision, a well-known California resident, and other businesses that asked him to
discontinue his unauthorized use of their trademarks. The Ninth Circuit affirmed a finding of
specific personal jurisdiction in California federal court over the defendant by the
defendant’s having committed a tort “expressly aimed” at California.59 It reasoned that the
defendant could foresee the harm done in California and therefore satisfied the minimum
contact requirement.

1.3.8 GENERAL JURISDICTION ON THE INTERNET

Given its strict requirements, it is not surprising that to date there has been no finding of
general jurisdiction based solely on advertising on the Internet.60 While general jurisdiction
has not been based on any reported decision solely upon the operation of a website, some
courts have used only little additional activity as a crutch to support a general jurisdiction
finding. One Texas case found general jurisdiction over the manufacturer of a bunk bed in a
wrongful death action involving a three year old child where the manufacturer’s website
allowed customers to shop online, check status of purchases and contact sales
representatives, and where the manufacturer had 3.2% of its sales in Texas.61 This volume
might have been insufficient for general jurisdiction in some other courts. For example, the
Eastern District of Virginia has rejected general jurisdiction, even though sales in the state

58Panavision Int’l, L.P. v. Toeppen, 144 F.3d 1316 (9th Cir. 1998).
59141 F.3d 1316 at 1321-22.
60See, e.g., Grutowski v. Steamboat Lake Guides & Outfitters, Inc. 1998 WL 9602 (E.D. Pa.), ___ F.
Supp. 2d _____; McDonough v. Fallon McElligott, Inc., 40 U.S.P.Q.2d 1826 (S.D. Cal. 1996); IDS Life
Insurance Co. v. Sun America, Inc., 1997 W.L. 7286 (N.D. Ill. 1997). These cases reject general
jurisdiction over a defendant based on advertising on the Web, where the matters complained of had
nothing to do with the Web presence or the advertising. In California Software, Inc. v. Reliability
Research, Inc., 631 F. Supp. 1356 (C.D. Cal. 1986), defendants wrote messages to several California
companies via a bulletin board and communicated with three California residents via telephone and
letters, allegedly denigrating plaintiffs’ right to market software. The Court held that general
jurisdiction could not be based on the “mere act of transmitting information through the use of
interstate communication facilities,” where defendant had no offices in California and did not
otherwise conduct business there except to communicate with California users of the national bulletin
board; 631 F. Supp. at 1360 (The court did find specific jurisdiction). In Panavision International, L.P.
v. Toeppen, 938 F. Supp. 616 (C.D. Cal. 1996), the federal court rejected general jurisdiction in
California over an Illinois defendant who used a California company’s trademark in a website address
in order to compel the plaintiff to buy out his domain rights.
61Mieczkowski v. Masco Corp., 997 F. Supp. 782 (E.D. Tex. 1998).

14

by defendants were close to $4 million in the prior three years, and defendant had a
website that was interactive.62

1.3.9 IN REM JURISDICTION OVER INTERNET “PROPERTY.”

As noted earlier, in rem jurisdiction requires that fundamental fairness be satisfied.63 In
Porsche Cars North America, Inc. v. Porsche.com (“Porsche”), a federal district court
declined to exercise in rem jurisdiction over 128 registered Internet domain names, citing
Supreme Court dicta for the proposition that “courts generally cannot exercise in rem
jurisdiction to adjudicate the status of property unless the due process clause would have
permitted in personam jurisdiction over those who have an interest in the res.”64
Thereafter, in passing the Anticybersquatting Consumers Protections Act (“ACPA”) in 1999,
Congress specifically made in rem proceedings available in cases involving cybersquatting, if
the owners of alleged infringing websites could not be found within the plaintiff’s
jurisdiction.65


Passage of the ACPA led the Fourth Circuit in June, 2000 to vacate the district court’s order
dismissing the case in Porsche, in order that the result could be revisited in the context of
ACPA.66 The same district court subsequently held that the in rem provisions of the ACPA
were constitutional, ruling that the U.S. Supreme Court’s analysis only required sufficient
minimum contacts in those in rem actions where the underlying cause of action is unrelated
to the property located in the forum.67 However, if in personam jurisdiction over a
defendant is available in the forum, an in rem action under ACPA will not be available.68

1.3.10 POSSIBLE APPROACHES TO JURISDICTIONAL CRITERIA

It is important to promote Internet use in E-Commerce to gain all the benefits of individual
empowerment, broader markets, speed price transparency and other efficiencies that it can
offer. In the future, we may find that our jurisdictional models are inadequate for the
dramatic changes in how business is and will be done. Traditional tests should therefore be
re-examined.

1.3.10.1 THE DIRECTION TEST

One trend in jurisdiction cases has been to focus on the place where information on
securities is directed. The question is whether this approach will fit the Internet down the
line, where highly sophisticated robots will be moving through a wholly non-geographic

62Chiaphua Components Limited v. West Bend Company, 95 F. Supp. 2d 505, 512 (E.D. Va., Norfolk
Div., 2000).
63Supra, note 31, and accompanying text.
6451 F. Supp. 2d 707, 712 (E.D. Va., Alex. Div. 1999).
6515 U.S.C. §1125.
66Porsche Cars North America Inc. v. allporsche.com, 215 F.3d 1320 (decision not published), 55
U.S.P.Q.2d 1158 (4th Cir. 2000).
67Caesars World, Inc. v. Caesars-palace.com, 200 U.S. Dist. LEXIS 2671 (E.D. Va., March 3, 2000).
68Lucent Technologies, Inc. v. Lucentsucks.com, 95 F. Supp. 528 (E.D. Va., Alex. Div. 2000); Alitalie-
Linee Aeree Italiane S.p.A. v. Casinoalitalia.com., (E.D. Va. Jan. 19, 2001) (interactive nature of
defendant’s online gambling website afforded personal jurisdiction).

15

virtual “space” to both communicate and transact business, frequently with other robots,
and without human intervention.

For a purchaser (or seller) an investor to engage in the use of robots and other non-
geographically grounded intermediaries is somewhat like sending a note in a bottle out to
sea: it becomes harder to argue that the note writer’s home jurisdiction should control in
preference to the residence of whoever picks up the note or the place where it is picked up.
By like token, a web participant who unleashes a robot into a digital environment awash
with other robots and virtual proxies has voluntarily “left” his or her geographical and
elected to travel and transact in a wholly different environment. It is harder to argue that
such a person can have a reasonable belief that the laws or the courts of the home
jurisdiction will apply.

Perhaps the “Zippo” horizontal continuum will need another dimension in the future.69 The
test might not be based solely on the “passive-interactive” gradations of Zippo, but might

also include a vertical component, based on how far the entire process is removed from
direct human involvement. For example, processes involving cyber-robots are more likely to
be removed from direct human involvement and arguably should be scrutinized differently.
Because of the sophistication of the environment in which the bots operate, jurisdiction
should be highly consensual, i.e., affected by any and all click-wrap terms or conditions
imposed or accepted by the bots. In the absence of click-wrap acceptance, an activity by a
bot representing someone in Forum A should not necessarily establish jurisdiction in
Forum A when the bot deals with another bot in Forum B. This would, in a way, be the
obverse of the stream of commerce theory: a person who sends a robot into the Internet
world can be deemed to foresee that, absent understandings to the contrary, it would be
engaging in transactions that subject the person to the laws and courts of foreign
jurisdictions.

1.3.10.2 ASPECTS OF “TARGETING”

Applying traditional principles of securities jurisdiction, jurisdiction is being extended to
persons who use the Internet to “target” residents of a given jurisdiction. Along with access
to information, other factors that may apply include:

1.3.10.3 SPECIFIC TRANSACTIONS DIRECTED TO THE JURISDICTION

Under current cases, when a person located outside a given jurisdiction uses a website to
conduct transactions with residents of that jurisdiction, the website operator has “availed”
itself of the jurisdiction and should reasonably expect to be subject to its courts in matters
relating to the transactions. However, the intercession of a robot dealing with other bots
and avatars in cyberspace is not necessarily “availing” itself of a jurisdiction.

1.3.10.4 PUSH TECHNOLOGY



69Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997)

16

The conscious “pushing” of information into a given jurisdiction, whether by a robot or any
other complex of agents, should probably still be viewed as targeting activity that warrants
specific jurisdiction in the location of the “pushee.”

1.3.10.5 LANGUAGE

The selection of language on which information is cast can also be relevant to the
“targeting” issue. At present, approximately 80% of Internet communication is conducted in
English (even though that may be expected to decrease over time).70 This, together with
the fact that English is the standard commercial language, makes its use on a website
insufficient ordinarily to establish jurisdiction of an English-speaking country. However, an
Internet offering in Tagalog language may arguably be considered to be targeted at
Philippines investors, just as securities offerings in Dutch on the Internet are considered by
Dutch securities regulators to be offered to residents of the Netherlands.

Again, bots alter the equation. A robot need not communicate in any human language, and
indeed could be programmed to communicate in every principal language. Thus, languages
other than English become less evidence of targeting.

1.3.10.6 CURRENCY

When the offering price of securities is quoted in a currency other than that of the issuer’s
place of incorporation, this is arguably some evidence of “targeting.” Currencies such as the
E.U. are intended to be generic and should not be evidence, taken alone, of targeting any
jurisdiction. Nor should widely-used currencies be seen, taken alone, as evidence of
targeting. For example, U.S. dollars are almost akin in their pervasiveness to the use of
English on the Internet. Pounds Sterling and Swiss Francs are likewise universal currencies.
If an offer is expressed in Spanish Pesetas and available in Spain, Spanish law should
arguably apply. On the other hand, an offering expressed in Spanish Pesetas and accessed
in Italy would probably not be deemed directed to Italian offerees.

However, as bots and agents can change the significance of this factor as well. They will be
able to translate one currency into another in a nanosecond, making currency identification
less of a significant factor.

1.3.10.7 TAX AND SPECIAL LAWS

If Internet securities information which goes into detail on the tax laws or other laws of a
particular nation could be deemed targeted to that particular audience. . . . by pointing out
that, regardless of the precautions adopted, if the content appeared to be targeted to the
U.S. (e.g., by a statement emphasizing the investor’s ability to avoid U.S. income tax on the
investments) then it would view the website as targeted at the U.S. Arguably, the
intervention of bots and agents would not affect this factor.

1.3.10.8 PICTORIAL SUGGESTIONS

70The Economist, London (Oct 24, 1997).

17

A French Franc denominated offering made on a background of the Eiffel Tower might be
said to be aimed at French investors. But can they be said to be aimed at a French investor’s
multilingual robot? The answer would depend on how nearly the robot’s information
system was programmed to include the principal’s patriotic sensibilities.

1.3.10.9 DISCLAIMERS

Disclaimers are already a regular part of international paper-based securities offerings.
While typically lengthy with respect to U.S. securities laws, disclaimers are often much
shorter and less specific for other jurisdictions and may amount to no more than a
statement that an offer is not made in any jurisdiction in which it would be illegal to make
an offer unless registered. The SEC Release comments: “The disclaimer would have to be
meaningful. For example, the disclaimer could state, “This offering is intended only to be
available to residents of countries within the European Union.” Because of the global reach
of the Internet, a disclaimer that simply states, “The offer is not being made in any
jurisdiction in which the offer would or could be illegal,” however, would not be meaningful.
In addition, if the disclaimer is not on the same screen as the offering material, or is not on a
screen that must be viewed before a person can view the offering materials, it would not be
“meaningful.”71

The proliferation of bots could actually make the use of disclaimers even more meaningful.
Common types of software protocols could efficiently screen out properly-programmed
bots before they even accessed a screen. Acting sort of like long-range radar, the
disclaimers would deter certain bots from even approaching certain areas of cyberspace.

1.3.11 THE “EFFECTS” TEST.

As discussed earlier, courts have applied the “effects” test in cyber jurisdictional cases when
the conduct can be found to have an intended impact in the forum (e.g., the Panavision
case). Perhaps in the future, as the use of bots and other agents increases, courts should
require clear and convincing evidence of an intended impact before making a foreign entity
subject to forum jurisdiction. Just because there is some effect does not necessarily mean
that effect was actually intended, when a piece of data can be circulated millions of times
over in a matter of seconds.

1.3.11.1 JURISDICTION AND YOU -- YAHOO!

Background


71Release No. 33-7516, note 21; see also Judge’s Decision (May 22, 2000)
,http://www.juriscom.net/txt/jurisfr/cti/yauctions20000522.htm; Judge’s Decision (November 20, 2000)
<http://www.gigalaw.com/library/france-yahoo-2000-11-20-lapres.html; Salis, Richard A look at how
U.S. Based Yahoo! was Condemned by French Law (November 10, 2000)
<http://www.juriscom.net/tx/jurisfr/cti/yauctions.htm>.

18

A recent landmark ruling by a French court has affected legally uncharted Internet territory.
French judge Jean-Jacques Gomez ordered the U.S.-based portal Yahoo! to block Web
surfers in France from an auction where Nazi memorabilia is sold. It is illegal in France to
display or sell racist material. Yahoo! was given three months to find a way to prevent users
based in France from accessing pages on auctions.yahoo.com that allegedly feature around
2,000 Nazi-related objects, such as swastika-emblazoned flags and daggers. Yahoo! will be
fined $13,000 for each day it does not comply. Please see the French court’s rulings.

1.3.12 AMERICAN JURISDICTION AND THE INTERNET

Much case law has arisen in the last few years concerning jurisdiction and the Internet.
Generally, there seem to be three ways to solving the jurisdictional problem: (1) the
defendant might be amenable to suit everywhere the Web page can be seen.72 This assures
the plaintiff a reasonable choice of forum but places an enormous burden on potential
defendants, and may reduce online speech to the "least common denominator" acceptable
to all jurisdictions worldwide; or (2) the defendant might be amenable to suit only in its
home forum. This relieves the burden on the defendant but imposes a corresponding
burden on remote plaintiffs. It may also encourage the development of "data havens" that
promise virtual immunity from trademark, copyright, or defamation laws to their residents;
or (3) courts may attempt a rough compromise by applying traditional jurisdictional
principles to determine on a case-by-case basis how fair the exercise of jurisdiction would
be. Some negative aspects of this approach are a lack of certainty and a possible increase in
litigation.

1.3.13 INTERNATIONAL JURISDICTION

The problem of Internet jurisdiction is not just confined to the United States, as the Yahoo!
case clearly demonstrates. In one trademark case, Playboy Enterprises v. Chuckleberry
Publishing73, the court held that an Italian web site allegedly infringing Playboy’s trademark
was subject to jurisdiction in New York. This case points out an eerily similar problem to the
Yahoo! case. The problem is that an Internet corporation could be haled into court
anywhere in the world or perhaps every web site would have the problem of conforming its
conduct to different substantive laws in different jurisdictions. Chuckleberry’s site was legal
under Italian trademark laws, because the Italian courts had ruled that its "Playmen" mark
did not infringe "Playboy." However, U.S. courts had held the opposite, and the court
concluded that Chuckleberry was bound by the prior U.S. rulings. Cases like Inset Systems,
seem to suggest that anyone who puts up a web page can be sued anywhere in the world.

1.3.14 FALLOUT FROM THE YAHOO! CASE74

72 See Inset Systems, Inc. v. Instruction Set, Inc., 937 F.Supp. 161 (D.Conn.1996)
<http://www.jmls.edu/cyber/cases/inset.html> or Maritz, Inc. v. Cybergold, Inc., 947 F.Supp. 1328
(E.D.Mo. 1996) <http://www.jmls.edu/cyber/cases/maritz.html>.
73 939 F.Supp. 1032 (S.D.N.Y. 1996) <www.bna.com/e-law/cases/playmen.html>
74 Resources on the web:
"Court to Yahoo: Use Nazi Filter" (November 20, 2000)
<http://www.wired.com/news/politics/0,1283,40285,00.html>.
Kieren McCarthy, "Yahoo! Nazi tech expert backtracks" (November 28, 2000)
<http://www.theregister.co.uk/content/6/15063.html>.

19

Yahoo! and free speech advocates claim that the case could set a dangerous precedent by
granting one country the right to reach across borders and impose its laws on web sites
based in other nations. Free speech advocates claim that the French approach would lead to
a lowest common denominator world where the most restrictive rules of any country would
govern all speech on the Internet. The French court’s ruling highlights the difficulty in
developing an international Internet legal code for cyberspace, given nations’ differing
policy imperatives. Currently, the European Union is undertaking the drafting of such a
code.

Yahoo! had fought the case primarily on the grounds that its English-language Yahoo.com
services are U.S.-governed and that auctions of Nazi material cannot be barred because of
U.S. constitutional rights to freedom of speech. Yahoo’s French-language portal Yahoo.fr
does not host such auctions, but French surfers, like all others, can switch over to
Yahoo.com with a click of the mouse. Yahoo! also argued that there was no fail-safe way to
identify French surfers and block access. However, three web security experts told the
French court that a filtering system could work by testing the Internet Service Provider
address of web surfers as well as the keywords they used. Such a system would work for up
to 90 percent of users.

1.3.14.1 YAHOO! APPEALS

Yahoo! asked a federal judge to block the French court's order that it keep computer users
in France from accessing online auctions of Nazi paraphernalia. In papers filed in U.S. District
Court in San Jose on December 21, 2000, attorneys for Yahoo! said the French court violated
the company's free speech rights and does not have jurisdiction over content produced by
an American business. Yahoo! asked the U.S. court to reassure the Internet industry that
such orders are unenforceable.


1.4 BENEFICIAL IMPACTS OF THE INTERNET ON INTELLECTUAL PROPERTY


Mark Ward, "Experts question Yahoo auction ruling" (November 29, 2000)
<http://news.bbc.co.uk/hi/english/sci/tech/newsid_1046000/1046548.stm>.
"Yahoo hits back at Nazi ruling" (November 21, 2000)
<http://news.bbc.co.uk/hi/english/world/europe/newsid_1032000/1032605.stm>.
"Yahoo! loses ruling on Nazi sites" (November 20, 2000)
<http://www.zdnet.com/zdnn/stories/news/0,4586,2655972,00.html?chkpt=zdhpnews01>
Steve Kettman, "Germany’s Kampf Furor Renews" (December 1, 2000)
<http://www.wired.com/news/politics/0,1283,40430,00.html>.
"Yahoo! Ordered to Limit French Use" (November 20, 2000)
<http://news.findlaw.com/ap_stories/high_tech/1700/11-20-2000/2001120220617950.html>.
"Yahoo probed for sale of ‘Mein Kampf’ in Germany" (November 27, 2000)
<http://news.findlaw.com/legalnews/s/20001127/germanyyahoo.html>.
"Germany investigates online Hitler auction" (November 27, 2000)
<http://www.cnn.com/2000/WORLD/europe/germany/11/27/berlin.yahoo/index.html>.
"Yahoo! Asks Court to Block Ruling" (December 22, 2000)
<http://news.findlaw.com/ap_stories/high_tech/1700/12-22-2000/20001222183031410.html>.

20

The Internet has driven many changes in the intellectual property community. As a data
and resource access tool, the Internet has expanded the reach of every user from localized,
regional resources, to true global information access.

Correspondingly, the Internet has been the genesis of many new support industries.
Because of its low cost of access, it has allowed inventors, companies and governments not
otherwise able to compete with big-budget enterprises to leap-frog traditional growth
curves, thereby affording an opportunity to implement leading-edge information gathering,
IP analysis and Intellectual Asset Management (IAM) tools.

A short list of the benefits the Internet has substantially or single-handedly brought to the
intellectual property community is impressive:


increased Affordable Access to intellectual property resources, globally;
challenged the world to increase standards of ‘Patent Quality’. The ability to find
invalidating prior art via the Internet retroactively calls into focus the quality or
validity of previously issued patents (conversely, the respected Mr. Joseph N.
Hosteny of Niro, Scavone in an article “Fourth, Don’t File a Patent” has suggested
that property holders consider trade secrets as opposed to patents for intellectual
property protection as more patents are surfacing as invalid or unenforceable75);
increased business, political and society awareness of the growing importance of all
types of intellectual property;
shortened data access time: days or weeks have been shortened to minutes or
hours;
geometric increase in the amount of accessible data and collections relative to IP;
provided access to an expanding number of Web-based software and IP
management tools;
reducing reliance on third party data providers (reducing cost, increasing access
speed);
provided path for developing countries to catch up to world developments with
regard to IP data access, management and data access;
increased ability of government agencies to deliver resources to a larger number of
their citizens;
spawned new industries and technology segments (online IP management tools,
monitoring software, technology exchanges, new patent classifications and
increased business for legal sector, accelerated time to market for new products and
technologies).


1.5 DETRIMENTAL IMPACTS OF THE INTERNET ON INTELLECTUAL PROPERTY

Notwithstanding the positive impact the Internet has had on the intellectual property
community, it has simultaneously created an alarming list of shortcomings. Although we
can accept the benefits with complacency, we cannot allow the detrimental impacts to
continue un-checked. The first step to problem resolution is problem identification. This list
of Internet-related shortcomings or detrimental impacts does not follow any priority

75 Intellectual Property Today: Volume 8, No. 5, May 2001 [www.iptoday.com].

21

schedule; the priorities will differ based on country, objectives, operations, budget and
available resources:



increased demands to become Internet proficient/Internet literate, or lose
competitive positioning (to varying degrees, this ‘self-improvement’ dictum impacts
inventors, IP practitioners, corporate managers, and government agencies);

increased complexity of distilling relevant content from the billions of available web
pages. The amount of available data has outpaced our ability to efficiently extract
meaningful citations;
increased cost associated with obtaining highly relevant data of information.76 The
economic efficiencies of obtaining relevant data are declining since data volume is
increasing faster than search technology;

promotes a higher standard of practice with regard to prior art searching by
practitioners. Although seemingly a benefit, the impact is an increase in the cost of
client legal services attributable to the increased time practitioners must research
the expanding universe of prior art data;

exacerbated the “poor patent quality”; provides means to discover invalidating art.
This negatively impacts shareholder / stakeholder value, intellectual property value,
and overall economy;

increased demands on Patent Office Examiners to expand prior art search. Examiners
must search not only the “field in which the invention is classified, but also
analogous arts.”77 This impact (a) increases pendency, (b) decreases time available to
prosecute any particular patent, and (c) decreases overall citation quality and
intellectual property validity. These are global phenomenon that affect every patent
office;

has spawned new intellectual property problems, infringement possibilities and
enforcement challenges (Napster, Cybersquatting / cyber-slandering, trademark
infringement);

created an ancillary industry in data analysis tools that are still primitive; the tools
can deliver a false sense of confidence in their ability to search through, and parse
applicable or relevant data and prior art citations;

increased costs and accelerated implementation of next-generation patent database
and IT infrastructure. The unexpected increase in users, combined with the need to
automate Web-based systems have escalated costs and accelerated timetables.
Reactive solutions are proving to be short-lived, and will need to be scrapped when
appropriate systems are developed;

increase in the amount of lost prior art. Many fledgling companies have filed
software or business method patents, but many businesses have not, or will not
survive the pendency of their applications. Many thousands of otherwise valuable
prior art citations will go abandoned, ultimately being lost. This opens the door for
subsequent, less deserving ‘inventors’ to obtain patents on previously filed
inventions. Correspondingly, the validity of such issued patents can later be

76 Using the Internet for non-patent prior art searches Derwent IP Matters, July 2000.
www.ipmatters.net/features/000707_gibbs.html.
77 Manual of Patent Examining Procedure §904.01(c).

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challenged by the earlier inventors who present non-patent citations used in the
original, but abandoned patents;
increased demands on database and content providers to serve expanding market.
This forces expensive hardware / software infrastructure expansion.

What the Internet has NOT done with regard to intellectual property development:

has failed to live up to a expectations as a technology transfer marketplace;
has failed to bridge the chasm between industry and intellectual property creators:
has not significantly increased the adoption of IP by companies (has not streamlined
the process of IP commercialization)

1.6 STATE OF THE ART: THE INTERNET WITH RESPECT TO INTELLECTUAL PROPERTY

Recognizing the limitations and shortcomings of the Internet’s role with respect to
intellectual property, one can begin to craft an Internet-reliant IP management program
that maximizes the beneficial attributes while circumventing the now obvious limitations.

The number of patent applications continues to increase worldwide, with 12%/yr (USPTO),
and EPO running at a rate of increase of 24%/yr. Trademark applications increasing in like
manner. Correspondingly, use of the Internet is increasing, with users expecting access to
the growing amount of data available via the Internet.

300 million users hit 850,000 active, purposeful websites in 1999, with a total number of
sites hitting the 53 million mark.78 Contrast this with the total of 5.8 million users hitting
100,000 websites in 1995.79 Today there are more than 2.7 billion publicly available index
able pages and another 5 million added daily80, growing faster than the search and analysis
tools can respond.

The universe of useful and active intellectual property websites stands at about 35,000, with
about 1,000 being updated monthly or more frequently. A significantly higher number of
sites include references to various intellectual property, digital rights, law, policy or
technology, or data that is of interest to intellectual property practitioners.

Suffice to say, the growth of Internet resources and users is growing at an accelerating rate,
and there is no reason to assume that this trend will not continue, especially as emerging
countries become fully Internet enabled. Websites must respond with appropriate content
to serve these rising demands now, and into the future.

The challenge of Intellectual Property Information Management continues to drive the
development of search and analysis tools capable of distilling relevant information from the
expanding sea of information and data available on the Internet, although the current state
of the art of searching and analytical tools for the intellectual property community remains
quite primitive.

78 Dunn and Bradstreet, Domain Stats; [www.emarketer.com, 2000].
79 Reported by Business Wire, 1996.
80 Argus Insights, Durango, Colorado, USA [www.argus.com].

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Although there are currently only a handful of suppliers of Web-based IP search and analysis
tools81, software developers continue to make strides in the development of data
management tools however, hopefully at a rate that will allow convergence with the
growing data resources.

Increasing the level of quality of patents remains one of the highest goals of patent offices
from every country. Efforts towards Internet-based universal filing, search and prior art
citation access systems continue. But, even with harmonization of 75% of the World’s
patent offices, there will continue to be a substantial amount of relevant prior art data that
will remain unincorporated into any standardized system for quite some time. Therefore,
harmonization efforts will not obviate the requirement for sophisticated tools, policies and
rights of access needed to evaluate the millions of non-patent art citations remaining
outside of any standardized data management system.

Increased pendency will also remain a concern to the world intellectual property
community. Patent pendency at the USPTO since 1998 shows a negative trend from
19 months, expanding to 24 months. Given the current policy and budgeting, US “patent
pendency to issue/abandonment will climb to 38.6 months by FY 2006"82 Although Japan is
making strides to reduce its pendency (38 months in 1996, now approaching the 28 month
mark), it continues as one of the longest pendency periods of developed countries.

The Internet has so far failed to perform as a tool to facilitate intellectual property
commercialization although there are nearly 75 websites dedicated to promoting
technology transfer83. Of the more than 35,000 technologies estimated to be listed and
currently available for licensing or transfer, the number of completed transactions
attributable to the Internet marginally hit the low hundreds, even after nearly a decade of
online promotion. More than $250,000,000 in venture investment has gone into websites
dedicated to technology transfer and invention commercialization.

It is my assertion that within the next few years, the ‘Intellectual Property Internet’ will
evolve into an International Trade Network built upon a global intellectual property
backbone, with an increased emphasis put on trade rather than intellectual property,
following the time-proven axiom that intellectual property protection is only valuable if it is
responsive to market and commercialization opportunities. Intellectual property, and IP
protection means are themselves of little value without first claiming market opportunity or
commercial value. Typically, IP does not create new markets, but remains responsive to
them.


81 Patent Search, Analysis & Patent Analytics (including Web-based Software/ASP).
Aurigin: http://www.aurigin.com/corproot.htm
Copernic Aggregator: http://www.copernic.com/products/aggregator/index.html
PatentCafe Café Doors™: http://www.ipsearchengine.com/index.asp?from=&id=01
Wisdomain: http://www.wisdomain.com/index.htm
82 Fiscal Year 2002 Corporate Plan of the Department of Commerce for the United States Patent and
Trademark Office, published in April, 2001.
83 Argus Insights, Durango, Colorado, USA [www.argus.com].

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In response to the growth of Internet use related to intellectual property, costs84 to create
and maintain websites will continue to increase. Major commercial intellectual property
websites have been built at an average cost in the USD$1 million range. With the increasing
demands for depth of content, website high-speed performance, high traffic (bandwidth)
and multi-lingual support, new websites must budget significantly more for the construction
and maintenance of the next generation of intellectual property sites.

Government patent and trademark offices have an even more costly and time-consuming
task. That is, not only is there a growing requirement to construct meaningful information
resources for its citizens, it must begin to automate the application filing, prosecution and
publication of patents and trademarks by creating the e-commerce interface that will serve
the growing customer demands.

More importantly, we are already seeing the negative impact on increased Internet-related
traffic and sophistication and explosive growth of patent applications in various technology
sectors on internal patent and trademark operations. The growth rate of intellectual
property creation and applications filed, coupled with the piecemeal approach to e-
commerce and customer service automation systems has caused a significant overload on
Work Flow Processes within the world patent offices. Increased demands to use the
Internet to search for prior art have out-paced the ability to efficiently and confidently
search the world or prior art.

The unexpected commercial development of the Internet combined with the explosive
Internet user base and increasing emphasis on intellectual property protection by industry
has been responsible for the creation of the rough landscape of Internet-based resources.

A decade after the first wave, Internet is beginning to mature. We must now take stock of
the opportunities, costs, liabilities and economic benefits of global, Internet-based,
intellectual property and IT systems, and develop a plan to manage them profitably, and
wisely.

1.7 INTERNET RESOURCES RELATED TO INTELLECTUAL PROPERTY

Website categories for IP information, web-based tools and database access:


Databases:
Patent Databases (Government & Commercial)
Trademarks (Government & Commercial)
Non-Patent Art (Government, Educational & Commercial Research)
Scientific / Research
Chemical
Technology/Materials
Bio & Life Sciences
University Thesis & Research Studies

84 Website Creation; Facilitating Invention Development and Commercialization via the Internet,
HKPC Nov 2000 [www.CafeZine.com].

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Technology Disclosure Publications
Domain Registries: TLDs/ccTLDs (240 ccTLDs, com, net, gov, edu, org)

Information and Directory Resources (includes IP development, law, protection,
enforcement, commercialization references, information, services and products)
Patent Resources
Trademark Sites
Copyright Sites
Management Tools
Specialized Search Engines
Patent & Trademark Search Tools
Technology Transfer (University, Non-Profit, Exchanges, Auctions)

1.8 ANTICIPATING INTERNET TRENDS TO MANAGE INTELLECTUAL PROPERTY

The Internet is a new medium that demands planning, attention and integration.

(a) Business: The corporate community must embrace the Internet as a means to compete
in a global marketplace, and must develop an awareness of the potential benefits and
impacts on a global basis regardless of its regional strategy, operations and decisions. The
increased commercial and IP protection opportunities must be balanced with an inadvertent
increase in exposure to infringement claims, increased requirements and costs to assert IP
ownership globally, and the higher standard of practice in prior art citation, and prior art
clearance.

(b) It is incumbent upon every growing company to develop an economic and business
strategy associated with patents, trademarks and branding, copyrights, and defensive and
offensive intellectual property. Typically, this calls for the creation of an intellectual
property manager or specialist who’s job it is to become educated with regard to the fast-
moving landscape of IP on the Internet.

(c) Government & Policy Makers: Plan on a continually increasing rise in the number of
patent and trademark applications, and understand the financial and operational impact of
accelerating intellectual property activity.

(d) Without implementing the next generation information technology (IT) infrastructure, in
a few short years most patent offices will be faced with an almost impossible task of
managing an out-of-control traditional paper-based system. It’s imperative that a long
range plan be developed, and that a budget commitment be obtained to ensure the vitality
of their patent systems, and to maintain the requisite quality standards in light of the
burgeoning volumes of prior art data.

(e) Without implementing a 3-5 year budget plan to develop automated intellectual
property database, search, analysis and work flow management systems, patent offices will
be unable to catch up to the demands without an extraordinary allocation of personnel and
money.


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(f) It’s also important to provide for a staff position that is dedicated to the harmonization of
your patent systems with emerging standards, insofar as it is practical, possible, and within
long range budgets.

It is recommended that the majority of budget and effort be put on exclusive content. Since
there are many websites which continually monitor the Internet for IP related resources,
and keep their hypertext links current and active, it is a poor use of budget dollars to
develop one’s own directory of Internet resources. Without frequent updating, this section
will become dated, even out of date, and will likely contain broken links when linked
Websites change their Web address.

1.9 THE IMPACT OF ELECTRONIC COMMERCE ON INTELLECTUAL PROPERTY

In a fundamental respect, the international character of electronic commerce raises
questions for the nature of traditional legal systems in general, and intellectual property law
in particular. Both are based on notions of sovereignty and territoriality. The Internet, in
contrast, like the movement of weather within the global climate, largely ignores
distinctions based on territorial borders. Instead, infrastructure, code and language have
thus far had a greater bearing on the reach of its currents.

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