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Making deals with evolving technologies in mind

Modern developments in technology have provided people with many items such as iPods, portable satellite players, and cell phones with digital audio capabilities. Technology is evolving so quickly that items that may have been considered fantasy 10 years ago are now taken for granted.

In today's business environment, companies must consider and understand how technology may evolve when entering into business arrangements with other parties, especially in areas with rapidly developing technologies.

Apple vs. Apple

The interplay between drafting agreements and dealing with evolving technologies recently surfaced in the case between Apple Computer (now Apple, Inc.) and Apple Corps (the Beatles' company). The two Apple companies have been engaged in trademark disputes going back nearly 30 years. They entered into a 1991 settlement agreement to resolve issues identified at that time.

Last year, a new issue arose between the two companies that focused primarily on whether Apple Computer's use of the Apple trademark for music was within the permitted scope of the 1991 agreement. That issue was finally resolved in February 2007.
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The recent dispute arose after Apple Computer launched the iTunes Music Store, where customers could download digital music files to play on an iPod or personal computer. Apple Corps claimed that Apple Computer's use of the APPLE trademarks with the iTunes Music Store was a violation of the 1991 settlement agreement. Litigation resulted in the United Kingdom from ambiguous language regarding evolving technology that, as evident by convincing arguments from both companies, could be construed in various ways.

The 1991 agreement provided that Apple Computer had the exclusive right to use its Apple trademarks “on or in connection” with goods or services within the Apple Computer field of use, and Apple Corps had the exclusive right to use its Apple trademarks “on or in connection” with goods or services within the Apple Corps field of use. Apple Computer's field of use generally included electronic goods, including hardware and software, data processing services, broadcasting services and other ancillary services. Apple Corps field of use generally included its musical artists, its music catalog, and any current or future work whose principal content is music.

Did the parties foresee today's audio technologies?

One provision of the 1991 agreement specifically addressed the potential overlap of the two fields of use. Section 4.3 of the agreement provided that:

The parties acknowledge that certain goods and services within the Apple Computer field of use are capable of delivering content within the Apple Corps field of use. In such case, Apple Computer shall have the exclusive right to use [its Apple trademarks] on or in connection with goods or services within its field of use, such as software, hardware, or broadcasting services used to reproduce, run, play, or otherwise deliver such content - provided it shall not use its Apple trademarks on or in connection with physical media delivering pre-recorded content (such as a compact disc of the Rolling Stones music).

The London judge ultimately ruled that Apple Computer's use was permitted under this section. The judgment seems reasonable under the language of this section as interpreted today. However, when considering the language in light of the state of technology when it was drafted, one may wonder whether the parties properly accounted for the direction in which audio technology actually evolved.

Interpreting a 1991 agreement with a 21st century mind

The Apple settlement provision was drafted in 1991 when compact discs were the common medium to store and play musical content and portable digital audio players did not exist, at least not in the sense that “portable” is used today. Section 4.3 specifically permitted Apple Computer to use its trademarks on goods used to play musical content, such as compact disc players, but contained an exception that prohibited Apple Computer from using its trademarks on the physical media delivering the pre-recorded content, and provided compact discs as an example.

One interesting issue is determining whether modern-day digital audio files would be the equivalent to compact discs and therefore included within the exception to Apple Computer's permitted use under Section 4.3. The judge examined whether the compact disc exception should apply to digital audio files but decided it should not, and stated a SD (Secure Digital) card would be the modern day equivalent to compact discs.

However, a reasonable argument could be made that such audio files are today's equivalent to compact discs, which the parties intended to exclude from the permitted use under Section 4.3 when drafting the agreement.

Had the parties known how audio technology would evolve the parties could have specifically addressed the issue of digital audio files in the 1991 agreement. The problem is that the direction of evolving technologies is hard to predict, and therefore lawyers and their clients need to account for technologies that are not yet known when drafting agreements.

Choosing words wisely

One drafting rule to take away from this case would be to avoid using ambiguous phrases such as “on or in connection with.” This phrase created problems for the judge in the Apple case when trying to determine how broadly to interpret the language. A more difficult task is choosing language that will be relevant to technologies that are not yet developed.

For example, if a licensor intends to grant a broad license to distribute a copyrighted work, including the right to distribute the work through future forms of media, then choosing appropriate language is rather straightforward. The following language would probably be acceptable for most situations: “Licensor hereby grants to Licensee the exclusive right to distribute the Work in all media now known or hereinafter invented.”

The difficulty arises, as in the Apple case, when the parties intend to divide the permitted scope of usage such that each party's permitted scope includes technologies that are not yet invented. Boilerplate language will likely be unacceptable for the latter situation. These situations will often require more thought and perhaps some predictions, and then the language must be tailored appropriately.

Parties must also consider whether it would be advantageous to keep the language vague. Such a situation may award the party who is the first to invent the new technology. In the end, the language of the 1991 settlement agreement was favorable to Apple Computer. It is interesting to consider how the outcome would have differed if this had been a case of straightforward trademark infringement and the 1991 settlement agreement never existed.

Apple Corps may have had a stronger argument that Apple Computer's use of the Apple trademarks on iTunes was likely to cause confusion if Apple Computer did not have the benefit of the 1991 settlement agreement.

Conclusion

In the end, businesses must not only keep up with new technologies, but they must also strive to stay ahead and foresee what technologies lay around the corner, and tailor their agreements accordingly.

Previous articles by Deborah Wilcox

Deborah Wilcox: “Inline” intellectual property raises legal issues

Deborah Wilcox: The press vs. Google: Copyright cases to watch

Deborah Wilcox: Is your business domain at risk?

Deborah Wilcox: Are consumers confused by search engine ads?

Deborah Wilcox: Keyword advertisers win some, lose some

Deborah Wilcox: Renew your domain name!

Deborah A. Wilcox is a lawyer and co-chair of intellectual property litigation at Baker and Hostetler, LLP, in Cleveland. She is a graduate of the University of Wisconsin-Madison Law School and regularly handles copyright, trademark, and e-commerce litigation. She can be reached at dwilcox@bakerlaw.com.

The opinions expressed herein or statements made in the above column are solely those of the author and do not necessarily reflect the views of Wisconsin Technology Network, LLC.

WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed here.

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