Finland: IP And Technology News, July 2008

In this issue:

• Copyright-Related Working Group Reports Published

• Court of Appeals' Decision on Circumvention of an Effective Technological Measure

• Authorized Sale of Patented Products May Trigger Exhaustion of Method Claims

• Finreactor P2P Network Ruled Illegal by Court of Appeals

• District Court of Åland Interrupted Internet Connection on Grounds of Copyright Infringement

• Pricing and Reimbursement of Pharmaceuticals: Government Bill to Introduce a Reference Price System in Finland in 2009

• Deputy Parliamentary Ombudsman Issued Two Reprimands to the National Board of Patents and Registration of Finland

• Increased Protection for Business Secrets Proposed in Sweden

• New Swedish Marketing Practices Act Entered into Force

• Study Reveals Omissions in Protection of Company Brands

INTELLECTUAL PROPERTY

Copyright-Related Working Group Reports Published

Two working groups set up by the Ministry of Education to examine copyright issues have recently published their reports, together with proposed amendments. The reports on multi-channel distribution and on the need to introduce a statutory presumption on transfer of copyrights in employment relationships in the Copyright Act are currently being circulated for comments.

On 9 June 2008, the final report of the working group focusing on copyright issues relating to multi-channel distribution was sent to circulation for comments. Following development of new distribution channels, simultaneous airing of a television or radio broadcast on the same geographical area by using different distribution channels (multi-channel distribution) has created new challenges for the right holders and users in view of agreeing on copyrights. The goal of the working group in which both right holders and users were represented, was to identify how the current Copyright Act should be amended in order to enable the parties to more effortlessly agree on multi-channel distribution while ensuring the copyrights in the process.

In the final report, the right holders and users present their solutions for solving the problems related to multi-channel distribution. In view of future amendment of the Copyright Act, the working group emphasizes that the amendments should be technology neutral in order to promote innovation and creativity. Amendments should also ensure consumers' freedom of choice between different available distribution channels. In addition to the final report, the Ministry of Education also distributed the compromise proposal of the chairman of the working group for comments.

The final report will be in circulation for comments until 5 September 2008, after which the law-drafting will continue based on the received comments.

On 11 June 2008, the proposal on the need to introduce in the Copyright Act a statutory presumption on the transfer to the employer of exploitation rights over employees' copyrighted works was sent to circulation for comments. The proposal is based on the view that employers bearing the financial burden and risk regarding the creation of employees' work should initially receive the necessary exploitation rights over such work. The statutory presumption would, however, not be applied to performing artists. The goal of the proposal is to clarify the legal state between employers and employees, both as regards employment relationships in the private and the public sector.

Court of Appeals' Decision on Circumvention of an Effective Technological Measure

The Court of Appeals of Helsinki has rendered a judgment in a matter concerning circumvention of technological measures designed to protect copyrighted works. The Court of Appeals reversed the District Court's decision and found that CSS protection qualifies as an effective technological measure under the Copyright Act.

The case concerned a computer program intended for circumventing CSS (Content Scrambling System) protection on a DVD. The circumvention program had been developed by one of the defendants in the case and distributed on the internet by the other. According to the Finnish Copyright Act (404/1961, as amended) and the Directive 2001/29/EC, it is prohibited to circumvent any effective technological measure used to prevent unauthorized use of copyright-protected works. It is also prohibited to distribute means to circumvent such effective technological measures.

The District Court had dismissed charges against the defendants on the grounds that CSS protection did not meet the standard of an effective technological measure due to circumvention programs being widely available on the internet. The District Prosecutor appealed the judgment to the Court of Appeals and claimed that CSS protection was intended for preventing and restricting the copying of DVDs and distributing such copies online. The Prosecutor further stated that circumvention of CSS protection is not common activity among consumers.

To support its case, the District Prosecutor obtained an opinion of the Finnish Copyright Counsel and presented the opinion as new evidence before the Court of Appeals. In the opinion (2007:9), the Copyright Council evaluated the notion of an effective technological measure on the basis of the Copyright Act and the EC Directive.

In its decision, the Court of Appeals found that the copyright holder had through CSS protection intended to prevent unauthorized copying of DVDs and distribution of such copies. The Court further noted that circumvention of CSS protection requires programming skills or the use of a separate program for the circumvention. Therefore, the Court concluded that CSS protection does constitute an effective technological measure under the Copyright Act. Consequently, the provision of services enabling circumvention of such a measure was prohibited. However, due to wide availability of corresponding software, the defendants having proactively reported themselves to the police and the minor effects of the defendants' actions, the Court of Appeals did not order any sanctions on the defendants.

Authorized Sale of Patented Products May Trigger Exhaustion of Method Claims

The Supreme Court of United States issued on 9 June 2008 a ruling concerning the patent exhaustion doctrine in Quanta Computer, Inc. v. LG Electronics, Inc. According to said doctrine, the first authorized sale of a patented product exhausts the patent holder's right to subsequently control the sold product. The ruling is of specific relevance as the Supreme Court had not handled patent exhaustion disputes for almost seven decades.

By way of background, LG Electronics, Inc. ("LGE") had licensed its computer technology patents to Intel Corporation ("Intel"). Under said patent license, Intel was authorized to manufacture and sell microprocessors and chipsets covered by the LGE patents. Further, under a separate agreement, Intel was required to notify its customers that said license did not extend to combination of Intel's products with other third-party products. However, Intel sold microprocessors and chipsets to Quanta Computer, Inc. ("Quanta") which, in turn, manufactured computers using said components in combination with other products, memory and buses not supplied by Intel. LGE sued Quanta for patent infringement asserting that this combination infringed its patents because the patent license granted by LGE only covered Intel and not its customers.

The court of first instance was of the opinion that there was no patent exhaustion, as the patents in question comprised method claims. The Court of Appeals for the Federal Circuit agreed that the patent rights were not exhausted, but based its decision on the fact that LGE did not grant Intel the right to sell its products for use in combination with third-party products. Consequently, the main question brought before the Supreme Court was to decide whether the doctrine of patent exhaustion applies to method patents. LGE reasoned that because method patents are linked to a process instead of a tangible device, said patents could never be exhausted through sale. The Supreme Court did not accept this view and held that no distinction should be made between patented methods and products. Though a patented method cannot be sold in the same way as a product, methods may be embodied in a product, the sale of which exhausts the patent rights. Should method patents not be exhausted by the sale of products covered by said method patents, patent holders would be encouraged to formulate their inventions as method claims which, in turn, would seriously undermine the patent exhaustion doctrine.

The other relevant question considered by the Supreme Court concerned the extent to which a product shall embody a patent in order for its sale to trigger exhaustion. According to the Court, the sale of an incomplete product does not necessarily exhaust the patent in that product unless the product substantially embodies said patent. In the matter at hand, there was no other reasonable use for Intel's microprocessors and chipsets than incorporating them into computer systems. Further, said components constituted a material part of the patented invention as the only step necessary to practice the patents was to incorporate the components into the computer system and specifically, buses and memory, which did not require inventive step.

As a conclusion, the Supreme Court held that the authorized sale of a product that substantially embodies a patent exhausts the patent holder's right to control the subsequent sale of the product. LGE had granted Intel the right to practice the relevant patents and to sell products under the patents. Intel's products embodied the LGE patents because there were no other reasonable non-infringing uses for said products and the products included all the inventive aspects of the patented methods. The license agreement did not limit Intel's right to directly sell the products in combination with third-party products or otherwise. Due to this, Intel's authorized sales to Quanta were outside the scope of the patent monopoly. On these grounds, the Supreme Court ruled that LGE could not assert its patent rights against Quanta.

The Supreme Court's ruling contains a clear message with regard to the scope of patent monopoly in favor of resellers and implies that the license granted to the manufacturer may preclude the right to collect further royalties from the subsequent sale of the patented products. However, the Supreme Court did not address in more detail what kind of labels or licenses, if any, would be sufficient to exclude patent exhaustion. Due to the absence of any unambiguous answers to this question, more patent exhaustion-related precedents are bound to appear in the future.

Finreactor P2P Network Ruled Illegal by Court of Appeals

The Turku Court of Appeals has rendered its judgment concerning the Finreactor P2P network operated during 2004. The Court of Appeals did not significantly alter the earlier judgment given by the District Court of Turku in 2006, which had been appealed by 14 of the defendants, the prosecutor and all of the plaintiffs.

The defendants claimed as one of their main arguments that Finreactor was actually not a P2P network, but a database comprising of hyperlinks directing the users to the copyrighted material. According to the defendants, the file sharing took thus place outside of Finreactor. The Court of Appeals rejected the argument and pointed out that as the administrators of Finreactor, the defendants had been aware of the fact that the users of Finreactor used the network to manufacture unauthorized copies of copyrighted works. Therefore, the administrators had together with the users participated in either copyright violations or aiding and abetting thereto.

The Turku Court of Appeals upheld the District Court's judgment for 12 of the defendants and acquitted two of the defendants due to their participation having been minor. The judgment is not yet final and leave to appeal may be requested from the Supreme Court of Finland by 18 August 2008.

District Court of Åland Interrupted Internet Connection on Grounds of Copyright Infringement

The District Court of Åland has issued a decision ordering an internet service provider to terminate an internet connection due to copyright infringement under the Finnish Copyright Act (404/1961, as amended). This is the first time that an internet connection has been terminated based on copyright legislation in Finland and as far as is known, also within the EU.

The Finnish Copyright Information and Anti-Piracy Center ("TTVK") had filed an application at the District Court of Åland for an order to terminate the internet connection of Ålands Provincial Government. The aim of the application was to end the distribution of copyright-protected material – a significant amount of music files – through the Provincial Government's internet connection by one of the Provincial Government's employees.

The decision of the District Court of Åland was based on Section 60 c of the Copyright Act, according to which a court may, on the request of the copyright holder or its representative, order a service provider acting as intermediary, to terminate the distribution of allegedly infringing material, unless such termination is considered unreasonable. When assessing the reasonability of the termination, the rights of the distributor of the allegedly infringing material, the intermediary as well as the copyright holder shall be considered.

The decision of the District Court of Åland has been criticized in the media by the Electronic Frontier of Finland ry ("Effi"). Effi has referred to the report published by the European Parliament (A6-0063/2008), according to which "criminalizing consumers who are not seeking to make a profit is not the right solution to combat digital piracy." Therefore, Effi has concluded that non-commercial distribution of files should not be sufficient grounds for termination of internet connections. In contrast, the TTVK has noted that in addition to infringing the exclusive right of copyright holders, distribution through P2P networks poses a significant data security risk. The TTVK reminds that there have been situations where sensitive information has been leaked out on the internet due to employees' use of P2P software on their employers' computers

Pricing and Reimbursement of Pharmaceuticals: Government Bill to Introduce a Reference Price System in Finland in 2009

As reported in the June edition of this newsletter, the Ministry of Social Affairs and Health has prepared a draft Government Bill (the "Bill") proposing the introduction of a reference price system in Finland by spring 2009. Despite strong criticism from various stakeholders, the Finnish Government has now decided to pass the Bill as proposed by the Ministry.

The proposal is a significant departure from the current system, in which reimbursement for a pharmaceutical product is based on the wholesales price confirmed by the Pharmaceuticals Pricing Board for each product. In the new system, pharmaceutical products subject to reimbursement would be divided into generic reference groups, which would be defined based on the list of interchangeable drugs. In the proposed system, the reference price for all the products in a group would be calculated on the basis of the price of the cheapest product in the group, and the reference price would be the highest price subject to reimbursement. The patient would as a rule have to pay in full the amount exceeding the reference price.

As reported in June, the Government Bill also proposes a controversial change to extend generic substitution to pharmaceuticals that are still protected by analogous process patents (or Supplementary Protection Certificates based thereupon) in Finland. The Bill proposes that the rules introduced to govern the relationship between analogous process patents and mandatory generic substitution as late as in 2006 be abolished. This would essentially result in analogous process patent proprietors no longer being able to prevent the inclusion of generic products on the list of interchangeable drugs based on such patent rights.

The Bill has raised strong critique among the innovative pharmaceutical companies. Also the Chancellor of Justice has publicly criticized the drafting of the law, as critical views were not sufficiently considered before passing the Bill. The Chancellor of Justice has stated that the proposal lacked a review of pharmaceutical legislation in other jurisdictions, alternative solutions, an assessment of the effects that the change would have on the pharmaceutical industry, as well as the critical statements provided to the Ministry by, e.g., the Pharma Industry Finland, the Ministry of Employment and Economy, the Ministry of Foreign Affairs and the Finnish Competition Authority, which, inter alia, had considered that the proposed change would impair Finnish innovation activities and violate the rights of patent holders.

Despite these views, the Government proposes to the Parliament that the new system enter into force on 1 April 2009, subject to the Finnish Parliament accepting the reform. The reform of the Medicines Act would also enter into force on the same date, i.e. as of said date pharmaceutical products protected by analogous process patents in Finland would again be subject to mandatory generic substitution.

Deputy Parliamentary Ombudsman Issued Two Reprimands to the National Board of Patents and Registration of Finland

The Deputy Parliamentary Ombudsman Jukka Lindstedt has issued two reprimands to the National Board of Patents and Registration ("NBPR") for erroneous and unlawful procedure. In the first case it had taken approximately two and a half months for the NBPR's Register of Foundations to decide on a request for documents made by a journalist. Pursuant to the Act on the Openness of Government Activities (621/1999, as amended) (the "Act"), a decision should be given within one month in all cases. The Deputy Ombudsman states that in the oversight of legality, the shortage of resources has not been considered acceptable grounds for failing to comply with the requirements of the Act. The Deputy Ombudsman also criticizes the NBPR's decision for lack of reasoning.

In the other case, it had taken 5 to 8 years for the NBPR's Electrical Office to process four patent applications. The Deputy Ombudsman took the view that the NBPR's actions violate the Finnish Constitution which provides for handling of matters without delay. The prolonging of application processing is seen especially problematic since it causes adverse economic consequences for the applicant in the form of annual fees for pending applications.

Increased Protection for Business Secrets Proposed in Sweden

The Swedish Government has recently proposed reforms to strengthen the protection of business secrets in a Swedish Government Official Report (SOU 2008:63). The Government suggests the extension of the possibility of criminal liability to persons not captured by the provisions of the current statutes and making receiving of business secrets a criminal offence under certain circumstances. Furthermore, the Government's proposal includes possibilities to secure evidence similar to the existing provisions in the intellectual property laws and revisions of available sanctions providing more severe sanctions for the abuse or unauthorized disclosure of business secrets.

The report suggests that employees and certain other persons having access to business secrets could receive penal sanctions for the abuse or unauthorized disclosure of business secrets. According to the proposal, criminal liability would be limited to acts occurring within two years from the end of employment or other contract based on which the person has had access to the business secrets.

The report proposes rules on securing evidence broadly in line with the corresponding rules of the Enforcement Directive (2004/48/EC). This means that a search for evidence may be decided by a court, without hearing the opposing party in urgent cases, and executed by the Swedish Enforcement Authority. The search for evidence could be conducted at the premises of persons reasonably assumed to have abused business secrets or having obtained or disclosed them without authority. Search could only be made for objects and documents that may be deemed relevant to the investigation and subject to the general limitations on obtaining evidence.

New Swedish Marketing Practices Act Entered into Force

A new Swedish Marketing Practices Act ( 2008:486) has taken effect on 1 July 2008, thereby assuring the implementation of directive 2005/29/EC concerning unfair business-to-consumer commercial practices. The amended Act differs from the previous one mainly in that it contains more prohibitions. A general ban against aggressive commercial practices is included, as well as an appendix consisting of 31 points explicitly prohibiting certain misleading or aggressive practices. Amongst other things, bait advertising is prohibited, as well as any marketing that includes a direct appeal to children to buy products. Furthermore, the new Marketing Practices Act will apply to the conduct of a business even after an agreement has been entered into with a consumer.

Study Reveals Omissions in Protection of Company Brands

The Association of Finnish Advertisers recently conducted a study on how its member companies protected their trademarks against look-alikes and infringements. The study shows that only one half of the companies have compiled a strategy on how to protect their brands with trademark registrations, whereas two thirds have a strategy on protecting their domain names. In most cases it is the parent company, the marketing director or the company legal counsel who is responsible for protecting the company's brands. As many as 43 percent of companies reported registering their trademarks with the Trademark Office without the assistance of an intellectual property law firm. The study also shows that companies with a large advertising budged more often use intellectual property law firms whereas small companies tend to take care of the registrations by themselves.

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