September 19, 2005
IPRs in Context
Posted by Mike Madison

I spent last Friday discussing the in's and out's of copyright law and the fair use doctrine in the context of documentary filmmaking and came away impressed, as usual, by the disconnect between formal discussions of the proper scope of intellectual property law and the promises and perils of the law in action.  In the rest of this post, I want to draw a connection between that experience and my read of a recent Ninth Circuit opinion on IP protection for semiconductors.

More below the fold . . . .

The problem facing current documentary filmmakers has several dimensions.  Documentary films frequently include copyrighted content.  That content takes a wide variety of forms; it includes material that might be incidental to the film but that appears in the background of footage shot for some other purpose, and material that is sometimes directly connected to the very point of the film.  In both cases, though, and even for the slightest image or sound, rights must be cleared, not only so that the filmmaker can sleep soundly, but also, and at least as important, so that a distributor will agree to distribute the film, and also so that an E&O carrier will agree to insure the film.  Sometimes rights can't be cleared, because rights holders refuse, or because rights holders demand extravagant amounts of money.  And sometimes rights shouldn't be cleared, because the content is in fact in the public domain, or because the use falls within what is or what should be considered "fair use."  "Shouldn't be cleared" is prescriptive, not descriptive, and even then there is disagreement about the scope of that prescription.  Documentarians worry about the state of their discipline, but they also worry about liability risks.  At the end of the day, copyright purity may well give way to reaching an audience.

The take-away point above is that what "is" or "is not" (or should be) fair use is only one part of a much larger problem facing filmmakers.  A much larger problem, frankly, is the role of insurance markets in deciding what does and does not get released, and in what form.  Documentary film offers yet another example, then, of why IP lawyers need to learn much more about business law in general and insurance law in particular, and also why business and insurance lawyers would be well advised to learn a bit of IP law.

What does this have to do with semiconductors?  The same need to have a deep sense of context is on display in the Ninth Circuit's opinion last week in Altera Corp. v. Clear Logic, Inc. [pdf] 

Altera and Clear Logic are competitors in the development of programmable logic devices (PLDs).  Altera is at the high end, producing software that allows customers to produce highly tailored programmable Altera chips.  Clear Logic makes cheaper ASICs (Application Specific Integrated Circuits).  Altera customers route the "bitstream" data output from the programmed Altera chips to Clear Logic, which uses that "bitstream" to produce ASICs equivalent to the Altera chips.  The results work fine and are cheaper and faster to produce than the Altera chips.

Altera sued Clear Logic using a variety of theories, the most interesting of which was a state law interference with contract claim.  Altera customers enter into licensing agreements with Altera, in which customers agree to use the Altera software only for programming Altera products.  The court found that the license agreement was valid and enforceable, that the agreement was neither preempted by the Copyright Act nor unenforceable as a form of copyright misuse, and that the district court was right to enter a permanent injunction against Clear Logic.  The court rejected Clear Logic's argument that there was no breach of the license agreement because the customers were using the Altera software only to create Altera bitstreams, which was, in fact, what the software was intended to do.  CL argued that once customers generated the bitstream data, they could do what they wanted with the bitstream data.  The court disagreed.

In one sense, the case seems troubling:  The Ninth Circuit has sanctioned the use of a software license agreement to create a limited-use thing -- a computer program that can be used only for a limited purpose.  (I've posted before about this use of contract law.  "Limited use" software may lead to limited-use books and limited-use objects of all sorts.)  But on reflection, it's clear that Clear Logic is free-riding on Altera's software development efforts in a way that not only clearly undermines Altera's incentives-to-produce but that is designed intentionally to do so.  The contract question and the interference claim were based on disputed readings of IP rights in pure data, but in context they are part of what is really a business-v-business unfair competition case.  Sometimes a limited-use thing isn't a threat to traditional IP regimes.  Some it's just a limited-use thing.

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