Federal judges in New York and Washington, D.C., will soon decide just how far intellectual property owners' rights stretch. A judicial misstep could threaten innovation both in Chicago's emerging tech sector and at its flagging media businesses.
This month, New York Federal District Judge Robert Patterson has schedulewd for tiral a shaky case filed by author J. K. Rowling seeking to halt the publication of a lexicon to guide fans through the magical world of her iconic character, Harry Potter. Ms. Rowling claims that RDR Books, the defendant, has "hijacked" her name and works and infringed upon her copyrights.
Separately, the U.S. Supreme Court will rule this spring on a closely watched appeal brought by Quanta Computer Inc., the world's largest maker of notebook computers, against LG Electronics Inc., a South Korean rival it accuses of using its patents to "shake down the entire computer industry for several billion dollars in duplicative license fees." At issue is whether a patent holder can extract royalties from companies throughout the global supply chain as patented products work their way through the manufacturing process.
Ms. Rowling, who says she wants to publish her own encyclopedia one day, presumptuously claims a Harry Potter monopoly that prevents anyone else from publishing a companion book without her permission. She's absolutely right that nobody can expropriate and adapt the works she owns. But a fan guide is no more protected property than is a book review or literary criticism someone else might write. If Judge Patterson sides with Ms. Rowling, the author will have usurped unhealthy control over Harry and his friends, control that's bound to stifle the creative energy that powers the free expression of ideas.
The Supreme Court's opinion in the Quanta case also will decide where an intellectual property owner's rights end and competition begins. LG entered into a patent licensing agreement with Intel Corp., which went on to sell chips with LG's technology to Quanta. LG contends that its license didn't extend to Quanta and LG is due an additional royalty. For its part, Quanta argues that when a product is sold, patent rights are exhausted, unenforceable against downstream purchasers.
The Quanta case divides the patent bar. Some fear that awarding patent owners royalties at every stage in the manufacturing process would unwisely curb competition, an argument the Supreme Court appears predisposed to favor. More persuasively, other patent lawyers insist that the full value of an invention isn't always apparent until it's integrated into other products; to deny patent owners royalties from all the companies that use their inventions is to sell them short.
Both Ms. Rowling's and Quanta's claims should be denied to strike a just and productive balance between the rights of the owners and the users of intellectual property, and to help build shareholder equity in Chicago's knowledge-based businesses.
This month's Lane Report is adapted from a guest editorial published in Crain's Chicago Business on March 17, 2008.
Marc J. Lane is the President of The Law Offices of Marc J. Lane, a Professional Corporation, and of its financial-services affiliates. He is a business and tax attorney, a Master Registered Financial Planner, and an Adjunct Professor of Law at Northwestern University School of Law.
The Lane Report is a publication of The Law Offices of Marc J. Lane, a Professional Corporation. We attempt to highlight and discuss areas of general interest that may result in planning opportunities. Nothing contained in The Lane Report should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein. Copyright © 2008 by The Law Offices of Marc J. Lane, A Professional Corporation. Reproduction, in whole or in part, is forbidden without prior written permission.