Five Ways Your Business is Probably Affected by Intellectual Property Law

Gone are the days when intellectual property was consigned only to the scientific inventors, artists, and advertising agencies of the world. Now, over thirty years have passed since the public was introduced to the world wide web, and the internet has permanently changed societal, cultural, commercial, and legal norms. Computer software and technology falls squarely under the vast umbrella of U.S. intellectual property (IP) law, but those laws affect far more than software developers and tech companies. Most businesses encounter numerous intellectual property concerns every day, and, yet many remain unaware of the benefits and pitfalls they face. Here are five ways your business might regularly interact with IP, how you can avoid traps, and how you might harness IP to your benefit.

1. Branding 101: The Dangers and Power of Trademark Law

Many startups and small businesses view trademark protection as an unnecessary expense, especially early in the company’s development. Costs are already high between legal fees to form the entity, marketing costs, product development, and human capital investments. But intellectual property concerns cannot afford to take a backseat, especially when an ounce of protection can be worth a pound of cure. Consider the following scenario:

The year is 2020. Mary is finally realizing her lifelong dream of starting a candle company, which she names SKYLARK AROMATICS. For the next four years, Mary finds success selling her scented candles online and in her single retail location in Virginia, and she spends nearly $100,000 promoting her SKYLARK AROMATICS brand.

In 2024, Mary receives a letter in the mail from an attorney representing SKYLARK CANDLE COMPANY, a Tennessee business selling scented candles online. This attorney demands that Mary stop selling candles under the Skylark name and attaches a federal trademark registration demonstrating that SKYLARK CANDLE COMPANY has nationwide rights to the use of “Skylark” in association with selling scented candles and that SKYLARK CANDLE COMPANY has been using the Skylark name for nearly twenty years. Mary now faces a choice: manage the extensive costs of rebranding or stare down the barrel of an expensive federal trademark infringement lawsuit that she will likely lose.

Unfortunately, many businesses have found and will find themselves in Mary’s situation, and these cases can incur tens, if not hundreds, of thousands of dollars in rebranding and litigation costs as a result of unknowing trademark infringement. But there are ways to avoid ending up in Mary’s predicament. If businesses, at their inception or early in their marketing development, connect with an IP attorney, that attorney will be able to confirm that a business’s chosen branding is unlikely to commit infringement, identify any possible conflicts, and even help that business obtain nationwide protection for itself under a federal registration of its own.

A foray into trademark law can be marred by rough seas, but learning how your business should navigate those waters can save your company from the financial and reputational costs associated with rebranding. Further, thinking about trademark protection early in your business’s development can bolster your brand’s protections if you develop a distinct trademark that will set your product or services apart in the market. Then you can pursue a federal trademark registration which, if granted, will preserve your nationwide, exclusive right to use the mark in that market and will serve as burden-shifting, prima facie evidence that your trademark is valid and protectable.

2. Two Ways Your Business Might Affected by Generative AI

The advent of generative AI models and machine learning has seen a boom of technological curiosity, and many businesses are interested in how generative AI can help grow their business, cut costs, and maximize operational efficiency. However, there are potential pitfalls that every business should be aware of as it begins to consider integrating generative models into day-to-day operations:

1. Copyright Infringement. Perhaps your business is interested in developing an AI model for internal or external use. Maybe your company sees the cost-effective branding opportunities that arise from using a generative image model subscription platform like Midjourney to create art and visuals for advertising. Either way, it is crucial to be aware of the intellectual property concerns inherent to these interactions.

a. Ingestion as Infringement. Significant litigation is ongoing regarding whether the use of materials posted on the internet by others to train an AI model constitutes an infringement of those authors’ respective copyrights.[1] With many cases ongoing and few decided, the judicial question concerning copyright infringement liability for AI developers related to model training is open-ended.

b. Outputs as Infringement. Copyright law can be more traditionally applied to images and texts created using AI. If you generate an image or text that is a precise copy of or substantially similar to an existing copyrighted work, traditional copyright infringement liability may arise. This goes for copyrighted designs, characters, and other protected fictional elements, as well. Generative AI cannot be used to subvert the longstanding protections afforded to authors of protected works. Perhaps your business has a rich portfolio of expressive materials (books, marketing packages, images, software, video, etc.). If any of these are publicly accessible or viewable on the web, there’s a more-than-zero chance data comprising those digital copies has been scraped and used to train a model, meaning the risk of infringing outputs, whether by the intentional request of a prompter or through a model malfunction (known in the vernacular as a “hallucination”), has risen.

For an in-depth discussion of copyright issues related to AI, see our article “Reviewing Copyright & Generative AI: The Good, The Bad, and the Unanswered.”

2. Confidentiality, Trade Secrets, and Privacy. Perhaps more pervasive across a variety of industries, generative AI also poses a threat to businesses’ trade secrets and confidential information. First, prompts entered into publicly available models like ChatGPT are not confidential, and those prompts are used to continuously train the model. So, if you work in an industry that deals with sensitive or confidential information, ensuring that you and your employees are not using generative AI tools to complete projects or answer questions that may require using sensitive information in the prompt is paramount to meeting the privacy needs of your business. Second, many businesses are seeking integrate AI into their everyday operations, whether by a Software as a Service (SaaS) agreement with an independent developer who will house the model and provide access, or by way of developing models that are wholly integrated into and controlled by your business. These scenarios raise different but equally vital questions about the ownership of the AI model and software, the outputs, and ingested IP. Further, businesses’ levels of control over the servers and storage housing the model and its relevant data will determine its privacy obligations and the privacy obligations it should seek to impose upon and be indemnified from by the AI developer. Shoring up each party’s obligations related to the treatment of IP or sensitive data post termination of an agreement is also vital. In any instance, addressing ownership of the model and its outputs, and addressing the various data privacy concerns implicated by its use, control, and development are crucial to maintaining security over your business’s– and your clients’– confidential information, IP, and data.

3. Publicly Available vs. The Public Domain: Avoiding Copyright Infringement Liability Online

Let’s return to Mary and her candle business, now tastefully rebranded as “FRESH SPARROW AROMATICS”. In the wake of her rebranding, Mary decides to revamp her website. She quickly realizes that a massive webpage of sprawling text reminiscent of blog forums from the early 2000’s just won’t be enticing to her potential consumers or affiliates. She needs images to populate headings, banners, subpages, and articles across her online platform. Her web content management system has some basic image copy available, but she wants to customize her site. So, she heads to Google Images and copies a few photos from the browser to fill a banners or article thumbnails. All is well, and Mary finally feels comfortable with her digital presence… until she receives a certain letter or email.

A law firm claiming to represent the original creator or owner of an image she copied from Google claims Mary has committed copyright infringement, and demands thousands of dollars, including attorney’s fees, to settle the claims. Often these demands read as form language, and she might be tempted to brush them off as phishing or scams. However, Mary would be in error to do so. Copyright law grants certain exclusive rights related to use, display, reproduction, and derivative creation of protected works to creators/owners of those expressions.[2] Simply because an image is publicly accessible does not mean that it is free to use or within the public domain. In short, Mary has likely committed copyright infringement because she failed to properly obtain a license to use the images she placed on her website.

However, Mary is not entirely out of luck. In many cases, the nature of the infringing act will be nominal and likely will have derived no profit for the infringer. Thus, the letter’s claim for thousands of dollars is likely an exaggerated demand intended to scare defendants into paying quickly to avoid a lawsuit. In reality, plaintiffs are entitled to damages in two ways: (1) actual damages, including lost profits and a reasonable licensing fee (determined based on fair market value, not the plaintiff’s proposed fee), or (2) statutory damages beginning at $750 for infringement of works that are registered with the U.S. Copyright Office.[3] In truth, most claims like these are never worth the exorbitant amounts demanded, and many of these aptly named “copyright trolls” settle for far less or back down once the defendant retains a lawyer. However, to avoid any liability exposure, Mary should make sure she has gone through proper channels to obtain a license to the images she uses for her digital content.

4. Trademark Scams and How to Spot Them

 Mary has put her trademark and copyright infringement woes behind her, and her FRESH SPARROW AROMATICS brand is thriving. Then she receives yet another email, this time from an attorney purporting to represent someone wanting to apply for a trademark identical to Mary’s. These emails will often impose a false sense of urgency by suggesting that the lawyer believes Mary has superior rights to the trademark and should hire the attorney first, so she is not beaten to the punch. These solicitations contain numerous misrepresentations of trademark law, and there is almost never another potential trademark applicant. Namely, trademark priority, in general, is based on the first to use the mark, not the first to register it. In fact, many of these solicitations are not from real attorneys. Instead, these emails are scams designed to prey on businesses by scaring them into believing they will lose valuable brand protection. Similarly, some emails will purport to be from the “World IP Office,” the ‘US Trademark Agency,” or other seemingly official sources, asking you to pay some fee related to your trademark. The only official federal trademark registry in the United States is the United States Patent and Trademark Office (USPTO), and the USPTO will rarely solicit payment over email. These fake agencies are also scams and should be ignored. In the digital age, trademark-related scams are on the rise, but, in our hypothetical, Mary contacts her counsel, who advises her that these emails are illegitimate. This time, Mary can avoid the trap and successfully protect her brand from these online predations.

5. Pause Before You Press “Play”: Music Streaming in Commercial Settings

Another common trap that plagues many businesses arises from improper music licensing. A common misconception is that one can use his personal music streaming account for any purpose. This is not the case. Most personal music streaming subscriptions limit licenses only to personal or non-commercial uses, charging higher rates for commercial situations. As such, the use of a personal streaming account to display music at a company-sponsored or commercial event likely constitutes a copyright violation of each song played. The same principle applies to unlicensed live performances of protected songs. Because a live band is publicly performing at a commercial venue, the venue owner has control over and profits from the band’s infringing performances, leaving the business exposed to secondary liability. This is not mere academic theory, either. In March 2024, the American Society of Composers, Authors, and Publishers (ASCAP) filed thirteen separate copyright infringement claims against bars and restaurants nationwide for the unlicensed use of songs belonging to artist who are ASCAP members.[4] To avoid potential liability, a business should always seek out a commercial license when planning the soundtrack for its next event.[5]

While the modern age sees businesses regularly interacting with IP in a myriad of situations, these five scenarios represent a few common ways companies are interacting with IP. Have questions on how your business might be affected by intellectual property law? Contact us today for assistance.

[1] See generally Doe 1 et al v. Github, et al., No. 4:22-cv-06823, 2023 WL 3449131 (N.D. Cal. Nov. 13, 2022); Andersen v. Stability AI Ltd., No. 3:23-cv-00201, 2023 WL 7132064 (N.D. Cal. Jan. 13, 2023) (dismissing many of the plaintiffs’ claims); Getty Images (US) Inc. v. Stability AI, Inc., No. 1:23-cv-00135 (D. Del. filed Feb. 3, 2023); Kadrey and Silverman, et al. v. Meta Platforms, Inc., No. 3:23-cv-03417 (N.D. Cal. filed July 7, 2023); Silverman v. OpenAI, Inc., No. 3:23-cv-03416 (N.D. Cal. filed July 7, 2023); Authors Guild, et al. v. OpenAI, Inc., et al., no. 1:23-cv-08292 (S.D.N.Y. filed Sept. 18 2023) (consolidated Feb. 6, 2024); The New York Times Co. v. Microsoft Corp., et al., 1:23-cv-11195-SHS (S.D.N.Y. filed Dec. 27, 2023); Daily News, LP, et al. v. Microsoft Corp., et al., 1:24-cv-03285-SHS (S.D.N.Y. filed April 30, 2024); Order Granting in Part and Denying In Part Motions to Dismiss First Amended Complaint, Andersen v. Stability AI Ltd. No. 3:23-cv-00201 (filed Aug. 12, 2024) (“Whether evidence can support each of the theories and whether plaintiffs will need to choose between theories (e.g., between direct infringement based on selling a product containing effective copies of copyrighted works or violating plaintiffs’ rights to restrict distribution of their works) will be addressed at summary judgment”).
[2] See 17 U.S.C. §§ 102, 106.
[3] See 17 U.S.C. § 504; Davis v. Gap, Inc., 246 F.3d 152, 166 (2d Cir. 2001) (explaining that, in determining actual damages for copyright infringement, a licensing fee is based not on what the copyright owner would have charged but on a fair market value of the work in context of the infringing use).
[4] Venues Refuse to Pay Songwriters While Profiting from their Music, ASCAP (March 5, 2024), https://www.ascap.com/press/2024/03/03-05-venues-refuse-pay-songwriters.
[5] For ease, Spotify’s business-oriented affiliate, Soundtrack, offers commercial streaming subscriptions. See Spotify for Business, Spotify (Oct. 4, 2024), https://www.soundtrackyourbrand.com/spotify-business?utm_source=bing&utm_medium=cpc&utm_campaign=bb-search-spotify-usa&utm_content=spotify%20commercial%20license&msclkid=21504d97640f1ae180e12a973b416a78&utm_term=spotify%20commercial%20license.