New technologies face legal headaches

The lawyers said companies are increasingly wielding patent and copyright laws such as the Digital Millennium Copyright Act (DMCA) to thwart competitors and maintain their market share. As a result, the lawyers said, we're heading toward a world where companies increasingly need to consider the legal ramifications of their products.

Electronic Frontier Foundation attorney Fred von Lohmann said, for example, that companies in the entertainment industry are increasingly looking for nuances in copyright law that will allow them to shut down those they see as a threat, as they did with Napster and Scour.

He said companies that provide services, end-user licenses, and increasingly, automatic updates, could become targets of intellectual property holders who argue that such companies could do more to stop copyright infringement because they've established an ongoing relationship with their customers.

For instance, von Lohmann said, companies that provide automatic updates may come under fire because intellectual property owners could argue that such companies could send out a kill patch if they suspect or learn about a copyright infringement. He said companies such as Microsoft and other software makers that automatically update are starting to worry about such scenarios. "These issues come up in back rooms all the time," he said.

Von Lohmann also predicted that more and more companies will build authentication measures into their products so that they can wield the DMCA to quash competitors. The law makes the act of breaking authentication measures illegal. "They will invoke the DMCA to prevent anyone from interoperating with their systems," he said.

For example, he said, companies in the instant messaging market, long a battlefield in the interoperability wars, could build some authentication code into their products and then sue anyone who cracks the digital handshakes. The move would discourage competitors from developing products that interoperate because they would have to break the authentication code to do so, an act that could violate the DMCA.

Already, the DMCA has seeped into the market for printer cartridges and garage door openers. Printer maker Lexmark International and automatic garage door maker Skylink successfully have wielded the DMCA to ward off competitors who wanted to develop toners and garage door openers that would interoperate with their products. In both cases, the companies claimed that the competitors broke their protection measures.

Emerging companies also need to be wary of patent claims, according to Fenwick & West attorney Rajiv Patel.

Patel said the biggest trend for companies in the down economy is increasingly leveraging their patents to make money through licensing fees. "It's an opportunity to generate revenue," Patel said. He said many companies also are using patents to quash competitors, hoping they'll be discouraged by the costs of fighting patent claims. He said companies can burn through as much as $50,000 to $500,000 per month defending themselves against such claims.

He urged small companies to develop a patents strategy and portfolio that will work as a strong defense against future claims.

Right now, he said, there's a patent landgrab in the wireless communications, security, nanotechnology and biotechnology markets. He said wireless companies are patenting ways to transfer data at higher bit rates. They more efficiently deal with graphics, while biotechnology companies are patenting ways to deliver drugs or create them. "People are positioning themselves to protect their technology," he said.