Aba section of Intellectual Property Law

• 
  John T. Lynch, Deputy Chief Computer Crime and IP Section, U.S. Department of Justice, Washington, DC
  
• 
  Jon L. Praed, Founding Attorney, Internet Law Group PLLC, Arlington, VA
  
• 
  Prof. Susan Brenner, University of Dayton School of Law, Dayton, OH
  

Subject:

I) General background of the Computer Fraud and Abuse Act.

II) Actions under the CFAA

III) Potential liability of employers if their employees improperly use company computer hardware to attack other computers.

IV) How victims of these attacks may be able to use this act to defend themselves against hackers and spammers.

Jeffrey C. Neu, Chair

1. 
   Mark V Campagna
   
2. 
   Aaron Charfoos
   
3. 
   David Alan Bateman
   
4. 
   Mark R Brown
   
5. 
   Peter Corcoran
   
6. 
   Nirav N Desai
   
7. 
   Kenneth Kyle Dort
   
8. 
   Eric Neil Everett
   
9. 
   Jason E Goldberg
   
10. 
    Yi Hou
    
11. 
    Sean Liam Kelleher
    
12. 
    Edward T LaBarr
    
13. 
    Theodore V Lapus
    
14. 
    Mark Lyon
    
15. 
    Allen Mass
    
16. 
    Amanda M Morris
    
17. 
    Jeffrey C. Neu
    
18. 
    Geoffrey D Pinski
    
19. 
    Jay L Raftery Jr
    
20. 
    Robert W Rutkowski
    
21. 
    Michael Storck
    
22. 
    Robert Dalton Summers Jr
    
23. 
    Oscar Tobar
    
24. 
    Mark H Wittow
    

Committee members disapproving report:

1. 
   Mary Ann C Ball
   
2. 
   Stephen Chow
   
3. 
   Terrance Joseph Frolich
   
4. 
   Leonard T Guzman
   
5. 
   Douglas M Isenberg
   
6. 
   Robert J Talbot Jr
   

Ex-Officio Committee members:

1. 
   Pamela Banner Krupka
   
2. 
   Gordon Arnold
   
3. 
   Don W Martens
   

Law Student Member and Associate Member Participants:

1. 
   Farnaz Alemi
   
2. 
   Keith Bae
   
3. 
   Jon Bartelson
   
4. 
   Jennifer A Bernstein
   
5. 
   Charles Blazer
   
6. 
   Alfred Young Chu
   
7. 
   Yi-Hung Chung
   
8. 
   Dmitriy Lampert
   
9. 
   Donald M Lumpkins
   
10. 
    Jason Luros
    
11. 
    Mariano Municoy
    
12. 
    Lynne Myhre
    
13. 
    Christopher Neahring
    
14. 
    Sheetal Patel
    
15. 
    Dirceu P Santa Rosa
    
16. 
    Trevor Smedley
    
17. 
    Amy Yun Song
    
18. 
    Ajay Verma
    
19. 
    Dondi West
    
20. 
    Gordon Wright
    
21. 
    Jennifer Ying
    

1. 
   The Raw Materials
   
   1. 
      Define all raw materials being used in the production process, and attach the specifications to the contract.
      
   2. 
      What are the delivery arrangements for the materials?
      
      1. 
         What if the manufacturer has too much or too little?
         
      2. 
         Can the manufacturer use excess for other production, outside of the companies?
         
      3. 
         Sometimes it is easier, and there is less liability from the companies side, to have the manufacturer purchase the raw materials, either from company or another, and then sell the finished product to the company.
         
   3. 
      Who is responsible for the risk of loss or damage? And when does that risk transfer from company to manufacture?
      
2. 
   Packaging and Delivery
   
   1. 
      Similar to the manufacturing process, the packaging must be specified for shipment and delivery. Depending on who designs and determines packaging will almost always inevitably impact the risk of loss and damage in the shipping process.
      
   2. 
      Be specific as to:
      
      1. 
         the delivery requirements
         
      2. 
         time, manner, place
         
      3. 
         when title passes from one company to the other.
         
   3. 
      There are similar issues to the raw materials with packaging in regards to warehousing, the amount of packaging and related supplied, and what to do if there is an excess or shortage.
      
3. 
   Definition between Manufacture Defect and Design Defect
   
   1. 
      Ensure that the differences between manufacturing defect and design defect are clearly labeled and articulated in the contract. This shall include the acceptable variation of materials used, as well as a procedure for substitution of materials in the event that certain materials are no longer available.
      
4. 
   Define the relationship between the parties. Who is in control of what processes and the amount of control established?
   
5. 
   Protect the Intellectual Property
   
   1. 
      Ensure that the provisions are very clear as to:
      
      1. 
         What constitutes intellectual property
         
      2. 
         What either party is allowed to or not allowed to do with the Intellectual Property
         
      3. 
         What licenses if any have been transmitted to either party
         
      4. 
         The license and intellectual property rights of design or other work supplied by the manufacturer, especially in regards to “feedback” or other comments by the manufacturer.
         
      5. 
         Who owns the specifications of the finished product? Especially since the specifications may fall into the public domain, can the manufacturer use the same specifications to produce another product yet call it a different name?
         
      6. 
         Is the manufacturer allowed to work on products which may be similar for itself or for other companies? How similar is similar? It is becoming more popular that manufacturers, who were traditionally OEM manufacturers, are starting to produce their own equipment and compete in the marketplace.
         
      7. 
         Although the specifications may be in the public domain, who owns the manufacturing process?
         
6. 
   Orders
   
   1. 
      It is important to establish a procedure for how orders for production shall be initiated. Items to include are:
      
      1. 
         Who may authorize Work Orders by both parties, including acceptance.
         
      2. 
         How is acceptance demonstrated, and under what time frame?
         
      3. 
         Delivery date of the ordered units
         
      4. 
         What information is necessary for a Work Order to be complete
         
      5. 
         Minimum or maximum volume allowed in any particular Work Order
         
      6. 
         After the details of a specific work order have been established, it is important to establish who is responsible for the next steps in the manufacturing process including:
         
      7. 
         Material Procurement - who is responsible to purchase the materials, when do they have to be purchased and where?
         
         1. 
            Is the manufacturer required to do a regular physical stock take (physical inventory)?
            
            1. 
               How often?
               
      8. 
         Amount of inventory the manufacturer is expected to keep on hand, especially in regards to certain products that require longer “lead times” (meaning the amount of time required to procure a specific product or element).
         
         1. 
            With the manufacture of computer hardware, there is often a conglomeration of several different parts from several different manufacturers, including processing chip manufacturers, capacitors, circuit board printers, etc.
            
         2. 
            Because of the different lead times, it will be important to establish a predicted manufacture forecast under the contract. This will have several ramifications in the contracting process that the drafter must be aware of, including
            
         3. 
            The minimum amount of manufactured products to be allowed under the contract in a specified amount of time.
            
         4. 
            If the minimum is not met for various reasons, including poor sales or poor design, what damages if any are applicable?
            
   2. 
      Battle of the Forms
      
      1. 
         Ensure there is a clear path as to which forms are final, accepted and in what order of priority.
         
   3. 
      Forecast and Production Plan
      
      1. 
         Manufacturers require an anticipated forecast for a certain amount of time in relation to production. This can be annual, quarterly, monthly or other stipulated time periods, but is dependent upon the particular project and relationships of the parties.
         
      2. 
         Sometimes, there can be several different forecasts and production plans submitted or proposed, not in conflict, but in varying granularity. For instance, although the annual forecast may ask for 10,000 widgets to be manufactured in the coming year, a quarterly forecast may ask for 5000 in January, and 5000 in October for a specific launch period.
         
      3. 
         It is important to stipulate several items about the Forecasts and Production Plan
         
         1. 
            When is it required to be given?
            
         2. 
            Must both parties agree on the forecast?
            
         3. 
            Under what conditions is the manufacturer required to accept the forecast as a production/work order?
            
         4. 
            It is also important to specify which forecast and its granularity have no ability to be cancelled or altered.
            
7. 
   Product Changes and Modifications
   
   1. 
      Can the company do so unilaterally or would it need the manufacturer’s consent?
      
   2. 
      Must the manufacturer accept the changes?
      
   3. 
      How much notice must the company give?
      
   4. 
      What other issues should the parties consider, and the contract cover, concerning changes to the Products and their Specifications?
      
8. 
   Quality Control. It is first important to identify the quality controls and accreditations with the manufacturer, including but not limited to ISO9001, and the length of time the manufacturer has been accredited. The International Organization for Standardization, located at the url www.iso.org, publishes standards and benchmarks applicable to the majority of quality control systems. ISO 9001 is intended to present minimum standards for acceptable quality control systems and demonstrate an ability of the manufacture to “consistently provide product that meets customer and applicable regulatory requirements,…”¹
   
   1. 
      Manufacturing contracts should establish the minimum standards requirements, and ensure that the manufacturer continues to qualify for and meet the quality specifications entered into at the time of signing or entering the contract.
      
   2. 
      It should also specify who performs any quality control procedures that are unique to this particular manufacturing arrangement.
      
   3. 
      Is there any testing, and at what point?
      
      1. 
         Who shall perform the testing?
         
      2. 
         What tests, and what specifications must be met?
         
      3. 
         How often must the product be tested? Every unit is more than likely not going to be tested, every 20, every 50, every 1000?
         
   4. 
      Is the manufacturer restricted to certain facilities, or can it use any facilities, including future facilities, in the production of the product.
      
   5. 
      Traceability of the products should be established for post production defects and liabilities as to specific products and their manufacture.
      
9. 
   Yields and Wastage Rate
   
   1. 
      Set acceptable rates of tolerance in the manufacturing process. It is important to remember in a contracting process, that there will be defects. Therefore, it is necessary in the beginning to establish who is responsible for the cost of any and all defects, returns, and who shall pay and be liable for shipping of returns, etc. from defective products. Although it is not uncommon for a company to provide an end service to end-customers, it is also not uncommon for manufacturers to be responsible for reimbursement in regards to manufacture defect.
      
   2. 
      Particularly in technology and computer hardware manufacturing, raw materials are sometimes very difficult to come by, or as stipulated earlier, have very long lead times, and waste of a particular material could delay production by a significant amount of time.
      
   3. 
      The contract should specify the yield and wastage rates from the raw materials. That is to say, X tons of raw materials must product Y tons of finished product.
      
   4. 
      Stipulations should be put in place for the ramifications if the yield is below the specified rates. Who will produce the increased amount of raw materials necessary to produce the entire product.
      
   5. 
      Sometimes there is incentive to give the manufacturer a bonus if they have yield rates higher than what was specified.
      
10. 
    Passage of Title
    
    1. 
       With any manufacturing contract, it is important to stipulate when and how passage of title, with respect to the finished product, passes from the manufacturer to the company.
       
    2. 
       Is it based on Shipment or delivery terms?
       
    3. 
       Is there reasonable inspection requirements or testing?
       
    4. 
       If there is testing, how long does the company have before it can accept or reject the goods?
       
    5. 
       What must the company do to accept or reject the goods?
       
    6. 
       What happens to rejected goods?
       
    7. 
       What about goods which have been manufactured, are “out of spec”, yet are still saleable?
       
    8. 
       Who is responsible for any import and export approvals, certifications, etc.
       
11. 
    Conflicts of Interest
    
    1. 
       It is important when dealing with the various aspects of production and manufacture, and the disclosure of this amount of confidential information, to recognize the potential conflicts of interest which are created, and how each company should conduct itself.
       
    2. 
       Manufacturers in the computer and technology industry often produce similar products, with different specifications, for multiple companies. Adding to that the growing trend for OEM manufacturers to enter the marketplace with their own products, and the conflicts and concerns multiply. Contracts should clearly state what can and cannot be done, including after the contract term.
       
12. 
    Demurrage
    
    1. 
       What happens when the company is slow in delivering necessary information required for production to the manufacturer?
       
    2. 
       Is there a penalty to the company?
       
    3. 
       Does the company incur storage fees for raw materials already stored at the manufacturer?
       
13. 
    Warranties
    
    1. 
       At a minimum, the manufacturer should warrant that the products conform to the specifications detailed in the contract.
       
14. 
    Insurance
    
    1. 
       Is the manufacturer required to carry certain types of insurance?
       
    2. 
       Who is responsible for certain of the raw materials?
       
    3. 
       Are there employment conditions or requirements that must be met?
       
    4. 
       Is there a need for “disaster recovery” plans and protocols?
       
15. 
    Liability
    
    1. 
       It is always important to specify the types of liability involved in any contract
       
16. 
    Dispute Resolution
    
    1. 
       Decide how disputes shall be resolved. The more concrete steps are prior to litigation, the more likely it will never get to litigation.
       
17. 
    Confidentiality
    
    1. 
       Although normal confidentiality requirements still apply, additional aspects may be:
       
       1. 
          Can the manufacturer or the company disclose who is manufacturing the product?
          
       2. 
          Who can discuss the materials or elements in manufacturing the product?
          
    2. 
       Determine the steps that must be taken, or evaluate the procedures already in place by the manufacture for document and information control.
       
       1. 
          When dealing with manufacturing contracts, many times, there are elements which are protected by trade secret or other laws other than patent law, which upon disclosure would not protect the owner of the intellectual property. If it is impossible to evaluate the manufacturers processes, and observe them for conformity, it is important to establish minimum standards for access to documents. Disclosure of trade secret information can often times be fatal to a clients product.
          
    3. 
       Address requirements for security (physical, computer, network, etc.) to maintain the confidentiality (and integrity and availability, if applicable) of information relating to the contract (designs, processes, orders, forecasts, defects, etc.).
       
18. 
    Term
    
    1. 
       Term length is more a strategic position than anything else.
       
       1. 
          How long should the term be for?
          
       2. 
          Who is anticipated to have a better bargaining position at the end of the term of the contract?
          
       3. 
          What if the contract is a flop?
          
       4. 
          Is the contract exclusive?
          
19. 
    Audit and Inspection Rights
    
    1. 
       Is there ever a time when the company may have right to audit and inspect the manufacturer’s books, records, facilities, etc.
       
20. 
    Key Personnel
    
    1. 
       Perhaps either party has key personnel that are integral to the success of the contract.
       
21. 
    Particular to international manufacturing agreements, is the assessment of sovereign immunity rights. Clauses revoking those rights give an added strength to enforceability of the contract.
    
22. 
    Similarly, it may be of concern to address issues such as the Foreign Corrupt Practices Act depending on who are the contracting parties, and any individuals involved in the contracting process.
    
23. 
    What shall the default language be for all communications?
    
24. 
    Does the United Nations Convention on the International Sale of Goods apply?
    
25. 
    Payment
    
    1. 
       Payment terms should always, and invariably be negotiated at the onset of the relationship, and then reaffirmed with each work order. Issues to consider are:
       
       1. 
          Sales, Excise, Import and export taxes, who is responsible? Does the price negotiated include these taxes?
          
       2. 
          When and how often will the manufacturer invoice company?
          
       3. 
          Are there any agreed additional costs, such as overtime, penalties for late payment or company caused delays, NRE, ECO, expediting?
          
       4. 
          When is payment due? net 30 from shipment date?
          
       5. 
          What currency is payment required to be in?
          
       6. 
          Is there a deposit required?
          
    2. 
       Alterations in price and the cost of raw materials should be anticipated and a method established to provide for them.
       
    3. 
       It is often in the best interests to negotiate that if there is a cost reduction in the manufacturing process, to give the manufacturer a portion of the savings, so as to incentivize the relationship.
       
26. 
    Termination
    
    1. 
       This is one of the stickiest points for lawyers in the contract, because it can be the longest or the shortest depending on the lawyers and parties involved.
       
    2. 
       When may or may not a contract be terminated?
       
    3. 
       Who can terminate the contract?
       
    4. 
       What are the penalties for termination at the various stages?
       
    5. 
       Are there any clauses that survive despite termination?
       
    6. 
       Can the termination clauses cover the majority of any possible causes of action under breach or non-conformance?
       

Bruce Lathrop, Chair

Subcommittee B: CLE Program: OPEN SOURCE SOFTWARE issues (see endnoteⁱ for an explanation of “open source software”)

Terry J. Ilardi (IBM Corporation)

Jason Haislmaier (Holme Roberts & Owen LLP)

Jim Markwith (Microsoft Corporation)

Sue Ross (Fulbright & Jaworski LLP)
Moderator: Gloria Archuleta or Mark Wittow

Subcommittee C: CASE LAW UPDATE: SOFTWARE dEVELOPMENT & LICENSING issues