Technology: The New Frontier in Intellectual Property

• Author: Michael K. Lindsey
• Pages: 279-353

279

Chapter 7

Technology:

The New Frontier

in Intellectual Property

Michael K. Lindsey1

I. INTRODUCTION: CHANGE IS CONSTANT

The adoption of and increasing reliance upon technology by the franchis-

ing industry and other businesses generally, whether through the use of

standardized cash registers or other point of sale equipment, Internet or

intranet sites, “document engines,” integrated telecommunication and elec-

tronic mail services, networked reservation and ordering systems, and

other new devices and processes, continues at a rapid pace and integrates

and depends on one or more types of intellectual property at virtually

every turn. As with businesses around the world, technologies once con-

sidered exotic increasingly appear commonplace in facilitating franchised

and other businesses. Few would have envisioned 10 years ago what tech-

nology franchisors and franchisees today take for granted; undoubtedly,

this will be the case 10 years hence.

Technology, and in particular the Internet, represents another frontier

for business expansion, intellectual property exploitation and protection,

unfair business practices, and more. For franchise systems in particular, as

well as non-franchised product and service businesses, it presents a vehi-

cle for expansion, market share maintenance, new distribution channels for

products and services, enhancement of old product and service distribu-

tion channels, new areas for budget line items, and more.

This chapter offers a high-level view of selected types of technology

and their application to franchisors, franchisees, and other businesses with

particular emphasis on the challenges and legal issues that they present.

To some extent, it complements Chapter 3, which addresses domain names

1. The author wishes to express his sincere thanks and appreciation to James R. Sims III

of Morgan Lewis & Bockius LLP and to John R. Sabatini of Sony Pictures Entertainment, Inc.,

for their substantial contributions to a prior version of this chapter, and to Mark S. Melodia

of Reed Smith LLP, with whom the author collaborated on a 2013 ABA Forum on Franchising

program addressing several of the significant issues covered by this chapter.

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280 • The Intellectual Property Handbook

and trademarks on the Internet, and to a lesser extent Chapters 1, 2, 4, and

6 on trademarks, copyrights, and trade secrets. In addition, this chapter

covers substantial new ground as it explores the interface between intel-

lectual property and technology, with a particular emphasis on franchising,

and related important issues of privacy and data security.

The chapter begins by addressing the intersection of technology and

contract law, with specific attention on the use of digital signatures as a

high-tech means of manifesting assent, the enforceability of the “click wrap”

agreements so prevalent on the Internet, and important issues concerning

website terms of use. The chapter also touches on franchise disclosures

and sales through the use of various forms of technology. It then focuses on

the risks and advantages of implementing intranet sites to facilitate commu-

nication within franchise systems in a manner equally applicable to many

other business-to-business scenarios, and the use of Internet sites to com-

municate with customers, prospective customers, and the public.

The chapter next turns to two of the current white-hot issues concern-

ing law and technology: data privacy and data security. More specifically,

it addresses the emerging body of law limiting the use and disclosure of

individuals’ private information by businesses, and requiring businesses

to keep their data systems secure from outsiders. Those sections offer

extensive practical advice in developing and implementing effective data

security procedures. Finally, the chapter delves into the burgeoning world

of social media and the potential impact of such media on the intellectual

property and other legal assets used by franchise companies.

II. CONTRACTING THROUGH TECHNOLOGY

As franchise systems increasingly move into the electronic world, contract-

ing parties, including franchisors—franchisees—and vendors, increasingly

desire to conclude transactions online and electronically in an enforceable

manner. For this reason, significant technical and legal attention has been

devoted to the issue of electronic signatures, which may consist of sounds,

symbols, or processes attached to or associated with a contract that a

party intends to serve as its signature.

Although regulatory agencies may have the authority to require certain

forms of electronic signature, signature statutes do not generally prescribe

any particular form. Thus, “click-wrap agreements” or even simple e-mail

exchanges may result in legally enforceable contracts, provided the parties

so intend. Other complicated systems involve peripheral devices that scan

smart cards, voices, fingerprints, or retinas. The goal in each case is not

merely the submission of a signature but also its authentication.

A. DIGITAL SIGNATURES

Digital signatures are a special subset of electronic signatures that use

cryptography and public key infrastructure (PKI) technology to attach a

unique code to messages or documents. The signer uses a “private key”

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II. Contracting through Technology • 281

available only to the signer to add an encrypted signature, which can then

be read and verified by third parties using the “public key.” Third-party

certification authorities can verify the signer’s identity. There are many

providers of digital signature technology. Key issues to consider include

whether the system allows for signing documents other than e-mail mes-

sages, interoperability, customer support, the representations and warran-

ties and other terms of the applicable license, the substance and timeliness

of continuing vendor support, and—perhaps most importantly—whether

the solution is compliant with relevant laws.

In recent years, electronic signatures have increasingly become the

subject of legislation. Today the federal government and all 50 states have

at least some form of legislation addressing electronic contracting, and

dozens of other countries do as well. The principal statutes in the United

States are the Electronic Signatures in Global and National Commerce Act

(E-SIGN), 15 U.S.C. §§7001–7031, and state corollaries pursuant to the Uni-

form Electronic Transaction Act (UETA). These laws, however, did not cre-

ate the option of contracting electronically. Absent legislation, electronic

contracts would still be possible under traditional contract principles.

E-SIGN, UETA, and other signature laws simply confirm that electronic

contracts are possible and identify certain minimum requirements.

E-SIGN introduced some requirements applicable to contracts that

affect interstate or foreign commerce. For instance, a consumer must “opt

in” to contracting electronically and must give some reasonable indication

that he or she can access the relevant format. 15 U.S.C. §7001(c)(1). Fran-

chisors or franchisees should also provide the consumer with a conspic-

uous notice that the consumer may, upon request, transact business in

writing. Franchisors or franchisees may, however, make such an election

subject to increased charges or terminate the relationship altogether if a

consumer requests to withdraw from the electronic signature framework.

The law also requires that subject agreements be in a format permitting

consumers to retain copies for their records. 15 U.S.C. §7001(e). This may

be done by allowing the customer to print a copy of the contract or elec-

tronically save a copy (e.g., in PDF format), by including the contract terms

as a menu option in the software itself or otherwise providing the customer

with a copy.

B. CLICK-WRAP, BROWSE-WRAP,

AND SIGN-IN-WRAP AGREEMENTS

As noted, whether franchisor, franchisee, manufacturer, supplier, distribu-

tor, licensee, or other business, contracting parties may manifest assent in

many ways, even without complex digital signatures. For example, shrink-

wrap licenses typically come with mass-marketed software and are deemed

(by the software manufacturer at least) as “accepted” and binding when

the box or software package is opened by the consumer. On the Internet,

“click-wrap” or online licenses are commonly used to allow the consumer

to read the license agreement before installing software. If the consumer

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