I Was Wrong. SCOTUS Denies Cert In Google v. Oracle.

 Although certainly less high profile than Obergefell v. Hodges and King  v. Burwell (gay marriage and Obamacare, ICYMI while vacationing on Mars), Google, Inc. v. Oracle America, Inc. has some weighty implications in the open source and programming communities.  We had mentioned it several times in this little blog (see here and here and here) and had gone out on a limb and predicted that SCOTUS would grant certiorari.  Boy, did I miss that one.  The Supremes up and decided not to hear such case.  There's a good chance I will go none for fifteen in my Nostradamus imitation.

What effect does the denial of cert for Google have?  It leaves the lower court's ruling in place that such interfaces are subject to copyright.  Google still have a fair use argument and that could be taken up by the lower court again.  In the interim, programming of interfaces is fraught with the possibility of infringement, which is in contrast to the prevailing former view (at least in the programming community) that such APIs were not subject to such protection.

As always, this is not completely over.  Stay tuned

TechCrunch Disrupt NY: Our Good Friends Bitfusion.io Compete On Tuesday.

 TechCrunch Disrupt NY starts today.  Part of their program is providing emerging technologies an  opportunity to preach the gospel of their ideas (and perhaps win some money).  Our friends at Bitfusion.io get the podium on Tuesday afternoon to demonstrate how they will bring "super computing to the masses".  Good luck, Subbu, Mazhar and Maciej!

Brush Off That Trademark Application For C**cksucker. You Might Get That After All.

 In one of our more erudite musings, we examined the plight of a young entrepreneur who sought to market rooster shaped chocolate candies on a stick with the trade name of "cock suckers".  The USPTO denied the registration pursuant to their authority under the portion of the trademark act that prohibits marks that are "...immoral...or scandalous".

Now, such entrepreneur may get another lick at the lollipop because the U.S. Court of Appeals for the Federal Circuit has decided to determine whether the above-cited provision violates the First Amendment to the Constitution.  This arose from a case in which the Court had affirmed denial of an application for a trademark for a musical band "The Slants".  The Court reasoned that the term has too much traction as an ethnic slur and therefore could be refused on that basis.  The case was considered by a panel and one of the panel members penned a strong opinion saying the whole issue should be reconsidered based on the free speech argument.  Then the Court took an unusual action.  Because of the additional opinion written by that panel member, they vacated their order affirming the denial of the mark and scheduled a new hearing by the whole court on the matter sua sponte (a good Latin legal word meaning "on their own motion or spontaneously", i.e. not pursuant to the request of a litigant).  Now new briefs will be filed on this issue and the entire Court will hear it en banc (another good Latin legal term meaning "the whole court").  

While the present case did not involve a term considered "immoral", the Court is expected to consider that issue as well when it convenes on this again as that would also fall within the ambit of the First Amendment.  One of the problems with having Courts be morality police on these things is the way that society changes in regard to views on matters.  The word "sucks" was, at one time, considered somewhat racy.  At least it was in my oldest son's grade school where he was disciplined and missed a field day because of his use of the word.  Now you can get it as a top level domain name.

So, trademark lawyers everwhere are gearing up to race to the USPTO to register their favorite ethnic and racist words and all the fashionable Urban Dictionary terms.  Stay tuned to see whether you may have to cover your kid's eyes in the candy aisle in the future.


Now The Bitcoin Technology Is Going To Revolutionize The Securities Trading Industry, Just Like It Didn't Revolutionize The Currency Industry.

 Every body's second favorite "Big O", Overstock.com (the owner of the world's shortest domain name: O.co) has ventured into the hitherto untraveled wilderness of "cryptosecurities".  Last week, Overstock, led by its visionary chairman, Patrick Byrne, filed an application for a shelf registration with the SEC for an as yet undescribed offering of securities (like common stock), that would completely bypass any formal exchange (NYSE, NASDAQ, AMEX) in the sale, transfer and documentation of such equities.

Mr. Bryne proposes to use the technology behind the "cryptocurrencies" (e.g. Bitcoin) to accomplish this.  As everyone knows, such technology is referred to as "blockchain", a distributed, peer to peer exchange platform.  When a transaction is initiated, such as a message that "X sells Y shares of Overstock crytosecurities to Z", the transaction is distributed to a network of communicating computers running blockchain software.  All such computers maintain their own copy of the ownership ledger and when they receive such a message, it is evaluated to determine whether the seller owns such securities.  If it is validated, the transaction is added to their copy of the ledger and transmitted to the other computers in the network, which updates their ledgers.  In the Bitcoin world, a new block of transactions is sent out about every 10 minutes and when validated, provides a "chain" back to the previous blocks. Hence, "blockchain".  Each block has a difficulty target and a "nonce" (a number only used once).   Proving that the transaction is valid requires a great amount of work and in the crytohash algorithm used to encrypt the information, there is only one way to find the nonce.  So, the extremely remote possibility that this could be hacked or accidentally duplicated.  But you all knew this already.

 Finding the nonce is called "mining" in the Bitcoin world and the discovery of that is rewarded by a fee (i.e. the releasing of more Bitcoins) to the finder's account.  As can be imagined, this requires a great deal of compute power and there is some discussion of whether the cost of the electricity exceeds the fees earned in using the compute power.

Obvious problems with crytosecurities (acknowledged by Mr. Bryne), include the opposition of the established exchanges to their business model, resistance to change by the SEC, the fear of the unknown in the securities world (like the present scheme worked so well for Mr. Madoff's clients) and how the members of the network would be paid.  Processing transactions only every 10 minutes or so may be too slow for the present environment and may not work for that reason.

Therefore, in this imagined brave new world of libertarian stock trading, the billions of dollars in fees now paid to the exchanges, stock brokers, the on-line trading sites and the people working the pits in the NYSE and the commodity exchanges could be threatened.  How much howling do you think will come from them about the possibility of fraud and the potential for abuse that this brings?  It's a good thing they can point to the absence of these things in the present environment.

However, when you consider the potential for completely anonymous, on-line trading in credit default swap derivatives in a marijuana growing consortium using Bitcoins for payment, what could possibly go wrong?


Dotsucks Sucks. Is The New gTLD Fair Criticism Or Extortion? Steps You Should Take Now.

 We have babbled on about generic top level domain names ("gTLD") in this little blog (See here and here).  We told you what you needed to do to prevent your company name becoming a XXX site.  We talked about how ICANN was going to auction off the rights to any new domain name that you could think of and plunk down $185,000 to obtain the rights to act as a registrar.

In a prior defensive move, you already have bought up all the regular domain names (e.g. .com, .net, .org) that have your company name combined with disparaging terms (e.g. "Walmartsucks.com").  Just when you thought it was OK to relax, along comes a new set of problems for you to deal with in regard to your domain names.

Vox Populi applied for and obtained the rights to be registrar for the new gTLD .sucks.  So, instead of you having to worry about the combination of your name with "sucks" in the original set of domain names, now the problem arises with having your name appended to a website with the .sucks domain (e.g. "Walmart.sucks").  Should you care?  I don't know.  Maybe.  If our limited experience with the internet has taught us anything, it is that vocal, dissatisfied clients or customers are going to find a way to spout their venom, justified or otherwise, somewhere on the interwebs.  Yelp, Pissedconsumer.com or a number of others provide them that forum.  So maybe this is just another minor inconvenience and might actually be a badge of honor for some companies.  However, it does present the chance for one place to be a major clearing house for criticism for larger companies.

The method of marketing the .sucks domain has elicited some criticism in and of itself.  According to the .sucks website, during the "Sunrise Period", which began March 30, 2015 and continues until May 29, 2015, if you have a registered trademark, you can get dibs on the .sucks domain for your own use (or non-use) for $2499 initially and $2499 annually thereafter.  Chump change for most large corporations but significant for others.  If you are a risk taker, you can wait it out and after June 1, other options are available and the prices drop significantly.  However, you are threatened with the possibility that Vox Populi will grant the .sucks domain name to certain consumer advocacy groups and the price will be subsidized (i.e. free).  So, do you feel lucky, punk?  Do you?

14 Technology Law Things About 2014 That I Should Have Written About Over 14 Days Ago.

It’s been over a fortnight (I love saying fortnight) since 2014 expired and every other blogger has penned a recap of something(s) that occurred during 2014. So, it seems appropriate that this little procrastinating blog would get around to that now. So, without further ado (I’m not sure there was any prior ado), here are fourteen law/technology stories about 2014 that I could find without doing too much research. Some of these are important, some are slightly amusing and some are just to get the number up to fourteen. You can make your own assessment.

1. The first Twitter libel ("Twibel") suit went to trial. A former attorney for Courtney Love sued Ms. Love for tweeting that the attorney was “bought off”. The court decided that was not defamatory. You may remember from your law school days about libel “per se”, i.e. if you wrote that someone had committed a crime or immoral acts, was unable to perform their profession, had a “loathsome” disease or was dishonest in business you could recover without proving actual malice or specific injury. It seems to me that about 75% of all tweets fit this definition.

2. The Supreme Court ruled that police must obtain a warrant before searching a cell phone of someone they arrested. Prior to this, police has maintained that a cellphone was like anything else in the possession of an arrestee (e.g. wallet, address book, pocket litter) and consequently no warrant was needed.

3. A coding error was found in OpenSSL, encryption software that was supposed to keep transactions secure. This error, named “Heartbleed”, caused millions of people, companies and sites to have to change their passwords.

4. Bitcoin and other cryptocurrencies continued to have a rocky ride. Executives of Bitcoin companies were arrested for activities through Silk Road (see number 6 below). One of the companies had received funding from the Winklevoss twins. Dedicated readers of this blog will remember our fondness for the Winklevi.

5. Mt. Gox, the largest Bitcoin exchange, filed for bankruptcy. Mt. Gox had somehow lost 774,000 bitcoins (about 6% of all bitcoins in existence) due to theft, technical problems or perhaps merely leaving them out in the rain. Incidentally, Mt. Gox got its name because its original business was operating an exchange for “Magic The Gathering” cards, hence Magic The Gathering Exchange. I mean, what did you expect?

6. The alleged proprietor of Silk Road, Ross Ulbricht, was scheduled for trial. This former resident of Westlake Hills, Austin, Texas had his communication capabilities curtailed while in jail for fear that witnesses would be rubbed out before they could witness. That’s some Corleone stuff, for sure. Now, Mr. Ulbricht is claiming that he was not the masterdude behind the nefarious doings of the Dread Pirate Roberts, but that it was the CEO of Mt. Gox (see 5 above). If you wrote a script like this, no one would use it because it’s too farfetched. As a sterling example of the advantages of capitalism, several creative business people, including the marketing geniuses at Silk Road 2.0, rushed to fill the void left after the arrest of the Dread Pirate Roberts and to address the need for illicit drugs and murder for hire through the dark web.

7 through 12. The Year In Hacking: (i) The cyber division of the Chinese People’s Liberation Army was charged with hacking into the networks of Westinghouse and U.S. Steel, among others; (ii) Chinese hackers also breached the network of the U.S. Gov’s Office of Personnel Management and targeted information from employees applying for top security clearances; (iii) Sony Pictures was hacked by North Korea (maybe) hackers, which resulted in a movie called “The Interview” getting a lot more publicity that it deserved and Charlize Theron getting paid an amount equal to her male contemporaries, so it wasn’t all bad. How could you not pay one of the most desirable people (have you seen that perfume commercial?!) on the planet anything she asked? (iv) A glitch in Apple’s picture storing service along with weak passwords and not so secure security questions allowed most of us (don’t say you didn’t look, too) to see a lot of celebrity nude selfies; and (v) eBay was hacked and lost the personal records of 233 million users.

13. While technically falling within the realm of hacking, a disturbing tactic became more prominent during 2014. This technique, called cyber-ransom or ransomware, manifests itself by having a hacker obtain control over your network and threatening either to release the information, not allow the owner to use its own network or to destroy all the information in the network unless a ransom is paid. Domino’s pizza in Europe was asked for $40,000 to avoid having information in their network released. The release never happened and it is unclear as to whether Domino’s paid the ransom within 30 minutes. A company named Code Spaces was put out of business when it refused to pay a ransom and a vindictive hacker destroyed so much of its information that it had to close.

14. The Supreme Court of the United States was asked in 2014 to grant certiorari to hear the Google v. Oracle suit involving the ability to copyright interfaces. Recently, SCOTUS has asked the Solicitor General of the U.S. to file a brief regarding the advisability of granting cert. No decision of whether the court will hear this case has occurred yet.

2014 was rife with collisions occurring at the intersection of the law and technology. 2015 is likely to be just as debris strewn.

Hey! We Have A NDA. They Can't Do That, Can They?

 Consider this very common tableau: Two companies want to discuss doing business together, as in manufacturing something or joint development of software.  They sign a preliminary non-disclosure agreement that says that anything they give to each other in furtherance of the discussion must be kept confidential.  Information is exchanged, manufacturing is commenced and several months later the manufacturing party stops manufacturing the product for the other party and starts selling their own competing product.  Party 1 (the designing and  disclosing party) has the other party dead to rights under the NDA, right?  After all, Party 2 (the receiving and manufacturing party) is selling a product using information they received from Party 1.  A federal court in Illinois says: "Not so fast, my friend".  How can this happen?

nClosures designed a metal case for iPads.  Block and nClosures entered into a non-disclosure agreement that had the following language: 

"The Parties … agree that the Confidential Information received from the other Party shall be used solely for the purposes of engaging in the Discussions and evaluating the Objective (the “Permitted Purposes”). Except for such Permitted Purposes, such information shall not be used, either directly or indirectly, by the Receiving Party for any other purpose… ."

Block began production of the iPad cases as designed by nClosures.  Several months later Block terminated its relationship with nClosure and began manufacturing iPad cases of its own design.  Lawsuits ensued.

One of the counts raised by nClosure was for breach of the contract to keep its stuff confidential.  A lower court granted a summary judgment for Block and the summary judgment was affirmed upon appeal.

The courts reasoned that even though Block had agreed to keep certain information confidential, the parties had never entered into a subsequent contract for the manufacture (even though several drafts were exchanged and an oral agreement as to price had been reached), nClosure had never required anyone else (Block employees, consultants, third party designers, previous manufacturers, etc.) to sign a confidentiality agreement, had not kept its design on secured computers or under lock and key and had therefore not taken reasonable steps to protect the information.  Therefore, nClosure could not enforce the confidentiality agreement.

This case may be cited for the proposition that even though you have an original confidentiality agreement in place, at least in Illinois you had better take subsequent and further steps much like those required to protect trade secrets (see here, here and here) or the other party will not be required to keep stuff confidential even though they agreed to do so.

Alarming? A little bit.  It seems to mean that confidentiality agreements in Illinois can only be used to protect information that qualifies as a trade secret.  While that is a prime reason for the use of such agreements, I'm pretty sure most people thought that non-disclosure agreements had broader application than that.

Lessons learned?  Follow up the initial (i.e. "dating") confidentiality agreement with a more comprehensive (i.e. "marriage" agreement ) and get similar non-disclosure and non-use agreements from everybody else that will see your crown jewels.  Also, physically protect the information with locks, key cards, walls, safes, etc. and have a documented program in place that has all the elements for trade secret protection.

Remember this the next time somebody bitches about the over-lawyering surrounding confidentiality.  Your business could be at stake.


Google Wants SCOTUS To Call "No Copyright" On APIs. 77 Computer Mavens Agree.

 This is another update on a previous post.  We have written several times about the seesaw battle between Google and Oracle relating to the single issue of whether interfaces ("APIs") can be protected by copyright.  Oracle won the last round, which held that "Yes, Indeedy.  Copyrights are just peachy for interfaces.  However, we don't know whether the use is 'fair use'."  Yeah, I'm paraphrasing a bit but that's the gist.

Google has applied to the Supreme Court of the U.S. for a writ of certiorari.  If the Court grants such a writ, it merely means they will hear the case, not how they will rule.  The Electronic Frontier Foundation has filed an amicus curiae brief supporting the application for the writ and indicating how it is their position that it would be disastrous if the present ruling were to remain in effect.  Seventy-seven computer scientists, engineers and pioneers signed on to the amici brief.   Pay no attention to the fact that over 20% of the 77 are presently a Google "employee, consultant and/or director".  That may not have affected their position at all.

In any event, perhaps the Supremes will get around to this after they have decided whether a typo can cause several million people to go without health insurance or whether you can marry someone configured just like you.  Stay tuned.

Update On The Dark Net Rising.

 Yesterday, we chronicled the plight of Silk Road 2, a dark web site whose proprietor was arrested recently.  Today, we find out that this was a part of a much larger bust, labeled "Operation Onymous" by the Feds, Interpol and other cooperating agencies.  The marketing geniuses at the FBI used "onymous" because it was coined as a word in 1775 to mean the opposite of "anonymous".

In any event, apparently 17 people have been arrested and 451 domains of the .onion variety (so called because they are accessed through The Onion Router 'TOR' browser [see paragraph below before clicking on this link]) have been seized including the aforementioned Silk Road 2 and others named Cloud 9, Hydra, Pandora, Blue Sky, Topix, Flugsvamp, Cannabis Road and Black Market.  Some of those that they didn't get are Agora, Evolution and Andromeda.

There have been rumblings that the authorities have found a flaw in TOR that allows them to circumvent its supposed anonymity and that anybody that had downloaded TOR was suspect.  So, now you can decide whether to click on the link above.

Interfaces ("APIs") Are Subject To Copyright. No, They're Not! Are Too! Courts Continue To Muddy Up The Water.

There are a mere 37 pieces of computer code that are the subject of this face off between the tech titans, Oracle and Google.  We have followed this case since its inception and you can review the history here, here and here.

In the latest installment, Oracle appealed a lower court ruling that held that application programming interfaces ("APIs") were not subject to copyright.  We thought that the issue might be settled.  Not so fast, my friend.  A three judge panel in the United Court of Appeals for the Federal Circuit has reversed and held that such APIs are indeed subject to copyright protection and the only question is whether Google's use is allowed under the "fair use" exception.  The panel remanded the case to the lower court for a determination of the possibility of such fair use.

After reading the very detailed opinion, the main facts to be gleaned are there was 7,000 lines of code involved, there were 37 different interfaces and the opinion is 69 pages in length.  There is much good discussion regarding the application of copyright law to interfaces and the fair use doctrine.  You should read it.  The law the court cites is extensive but some quibble with the application of such law.  Given past performance, the odds are even that the result will change on appeal.

Bitcoin, Everybody's Favorite Crytocurrency, Comes To A Bar Near You (Actually Near Us).

 We have flogged the Bitcoin phenomenon in this blog time and again (see here, here and here).  So when we learned that a bar (HandleBar) in the neighborhood of our office was installing the first ATM in the United States that handled Bitcoins, we were compelled to take a field trip to observe.  The ATM was turned on yesterday (Feb. 20 at 2 pm) so at 2:30 we took advantage of an 80 degree Austin afternoon to walk the short distance to HandleBar to see this miracle for ourselves.

When we arrived we found camera crews, on-lookers like ourselves, Bitcoin disciples and a queue of people seeking to use the technological wonder provided by Robocoin.  One of the Bitcoin disciples said that if I would open an account he would give me a part of a Bitcoin.  I downloaded the Android app Coinbase and he transferred 0.001 Bitcoin to me (apx. $0.64 based on yesterday's market).  I'm counting on a big upswing on this for my retirement.

While this all was interesting, we found we could not use Bitcoins directly to buy beer at Handle Bar.  We would have to have used the ATM to convert to dollars and then bought libations.  However, we could transfer money to Beirut almost instantly without fee or restrictions.  This failed to impress the smoking hot lady drinking and working in her Daytimer at the upstairs bar or maybe it was just me.

The ATM was located in the back of the bar in a dimly lit alcove.  The shape of the ATM and the activity of the people surrounding it was eerily reminiscent of the first monolith and ape scene (see above) in the movie 2001.  Maybe this is our guidepost to the next evolutionary step in money.  They are going to have to fix that beer purchase thing though.

Our Little Blog on LexBlog Gets Cited On LexBlog. How Meta Is That?

Following The "Silk Road". Where Exactly Was That Supposed To Go?

Originally, the Silk Road was a series of routes over which commerce traveled in Asia beginning over 2,000 years ago.  Silk, gold, technology, religion and diseases (e.g. bubonic plague) were carried and exchanged over the Silk Road.

Fast forward to the present day and the Silk Road was, until recently, a website accessible only in the deep web and only by TOR (The Onion Router), a network and browser designed to preserve your anonymity on the web.  Silk Road was the brainchild of fellow Austinite and former neighbor Ross Ulbricht.  Ross was a 2002 graduate of West Lake High, a school that I pass every day coming to work.  His Facebook page is still up and he seems like a pretty cool guy.  We even have a mutual Facebook friend.

However, when I visited Silk Road before the feds closed it in September and arrested Ross on Oct. 2nd of this year, I found that you could purchase most any kind of drug I had ever heard of and many that I hadn't.  Since I have a background in Pharmacy, that's a wide range of stuff.  Cocaine, Ecstasy, black tar heroin and 'shrooms were in abundance.  Apparently, you could also arrange for murder by hire and Ross is accused of that in regard to one of his clients on Silk Road supposedly threatening to expose everybody unless certain conditions were met.

The medium of exchange on Silk Road was Bitcoin, our favorite virtual currency.  When Ross was arrested, the FBI seized over $3,000,000 in Bitcoins belonging to Silk Road customers.  They were also trying to get an estimated 600,000 Bitcoins from Ross' personal Bitcoin wallet.  That's about five percent of all the Bitcoins presently in existence.

All in all, a very sordid story, including the allegation that Ross went by the pseudonym of the "Dread Pirate Roberts", which comes from my favorite movie "The Princess Bride".

So how does a 20s something, suburban, white bread guy go from wake boarding on Lake Austin to being one of the biggest drug dealers (or at least the facilitator) in the world ?

Apparently Ross is brilliant (degree in physics at the Univ. of Texas, graduate work at Penn State), a libertarian fan of Ron Paul and idealistic and naive.  On his Facebook page he wrote an essay on "Thoughts On Freedom".  On his LinkedIn page, he described an idealized version of Silk Road, when he wrote:   "Now, my goals have shifted. I want to use economic theory as a means to abolish the use of coercion and agression amongst mankind. Just as slavery has been abolished most everywhere, I believe violence, coercion and all forms of force by one person over another can come to an end. The most widespread and systemic use of force is amongst institutions and governments, so this is my current point of effort. The best way to change a government is to change the minds of the governed, however. To that end, I am creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force."

He apparently viewed Silk Road as beneficial because it was a place where people could obtain illegal drugs without the concomitant hazard of having to deal directly with a drug dealer.  Regardless of your view on drugs and their use, it would seem to be preferable if people didn't have to risk their life to obtain them.

In the end, despite his brilliance and perhaps because of his naivete, he got sloppy and used his real name and address in obtaining fake passports and made other mistakes that enabled his arrest.  This could have been a family member of any of us (assuming any of us has anybody that smart in our gene pool) and we would have been simultaneously amazed at  his drive, ambition and success and aghast at what he has wrought.

The Blog Gods Give Us The Winklevoss Twins Again.

We have devoted an inordinate amount of time and blog space to the exploits of the Winklevoss twins.  I won't take the time to do internal links to our posts but just type in Winklevoss in the search function on the side if you are interested.  However, when our creative (cue air quotes) juices run a little viscous, we can always do a Winklevoss post and for that, we thank the blog gods.

As you will recall, they are the guys that were unsuccessful in taking over Facebook, unsuccessful in suing their own lawyers when they failed and unsuccessful in overturning their unfavorable ruling in the Facebook lawsuits, even after several attempts.

Now they have been scooped again, in that someone else has beat them to the market with a Bitcoin investment vehicle.  They had made a filing to sell interests in a trust but because of the nature of their proposed investors, it has been slower going.  Hence, late to market.  However, in light of the Silk Road debacle (more to come on that soon) and its effect on Bitcoins, maybe that's not a bad thing for them.

So, in spite of the fact that they are excessively attractive, smart, educated, athletic, white, privileged and pampered, they have not reached their full potential.  Here's hoping they keep trying for the sake of the blog gods and us.

Hey, Bro! Can You Spare A Bitcoin? Digital Currency For The Homeless And Unemployed.

We have discussed bitcoins several times before, see here and here, for example.  We exulted in the fact that the Winklevoss twins of Facebook fame are starting a bitcoin investment vehicle.  We also talked about how the regulators were taking a bigger interest in how bitcoins were use or abused.

Now a Wired article shows how the unemployed and homeless are using sites such as Bitcoin Get, Bitcoin Tapper and Coinbase to get paid bitcoins for watching videos and tapping an icon, each a technique for driving traffic on the internet.  The Wired article then quotes some of the homeless as preferring bitcoins because it is much harder to steal (at least from them) and they can convert it to money or prepaid cards using their computers or smart phones.  Now, I can hear conservative heads exploding all over at the thought of homeless, unemployed people with computers and smart phones particularly if they are getting food stamps or other assistance.  Be that as it may, engaging in this activity provides them some small bit of assistance to help feed them.  That can't be all that evil.

Some day, you may be approached (or approach somebody) on the street and asked for a handout.  They then offer the internet address for their bitcoin wallet and you send them some from your smartphone.  Panhandling in the digital age.

A Copyright Claim Is Only As Good As Its Weakest (Hyper)Link.

It has long been assumed by the legal literati that the mere sending of a link in an e-mail or the embedding of a link in a blog post, which link directed the user to a copyrighted work of someone other than the linker, did not constitute direct infringement of the copyrighted work.  However, there was very little actual case law on the subject.  Last month, the federal district court for the Southern District of New York stated unequivocally that: "As a matter of law, sending an email containing a hyperlink to a site facilitating the sale of a copyrighted work does not itself constitute copyright infringement."

In Pearson Education, Inc. et al v. Ishayev and Leykina, the plaintiffs were publishing companies that sold educational material and manuals for which the plaintiffs owned the copyright.  Apparently, one the defendants uploaded such material to a cloud server controlled by the defendants.  Both defendants would then advertise the sale of the material.  When someone bought the material, the defendants would either e-mail the purchaser a zip file with the material in it or would e-mail the purchaser a hyperlink to the file on the server, which would allow the purchaser to download the file.

The defendants filed a motion for summary judgment on several of the counts, including the allegation that the act of sending a link to a copyrighted work that allowed the receiver to illegally access the material constituted infringement.

Although most of the other stuff that the defendants did obviously was an infringement (e.g. sending the works in a zip file), the court held that merely sending a hyperlink did not amount to infringement. 

The court likened a hyperlink to the "...digital equivalent of giving the recipient driving directions to another website on the Internet. A hyperlink does not itself contain any substantive content; in that important sense, a hyperlink differs from a zip file. Because hyperlinks do not themselves contain the copyrighted or protected derivative works, forwarding them does not infringe on any of a copyright owner's five exclusive rights..."

However, the court said that the result could be different if, in addition to sending the hyperlink, the defendant had actually uploaded the copyrighted material to the cloud server himself.  Since the court found that there was no evidence that would allow a jury to find that one of the defendants had uploaded the material, the court granted summary judgment to that defendant on that limited issue.

Whew!  So, everyone of my blog posts is safe to that extent.  We won't discuss issues relating to some of the pictures.

If You Use Bitcoin To Buy the "War Games" Home Computer, You Will Be Cool and From the Future.

Bear with me a little here.  All of this will supposedly come together.

First, when War Games came out in the 80s, a lot of us nerds coveted the home computer set up that Matthew Broderick used to almost start thermonuclear war but which was really only good for playing tic tac toe.  Much like the computers we now use at work for solitaire and FaceBook.  If you wanted to, you can now purchase the actual computer used in that movie.  The guy that helped design it for the movie still owns it and is considering auctioning it. The asking price is expected to be somewhere north of $25,000.   If you purchase it, that will make you the coolest dork on the block.

However, if want to really be cool and cutting edge, you could purchase the War Games stuff with Bitcoin, which has been called the currency of the future or a hacker's wet dream.  What is bitcoin, you ask?  That's a very good question.

Bitcoins are the world's most current currency.  This currency sprang from an open source cryptography released in 2008 by an anonymous source.  The source is presumed by some to be a developer named Satoshi Nakamoto but this could be a pseudonym.  Bitcoins are digital currency and has the backing of no government nor assets.  Because of the algorithm that created bitcoin, there can never be more than 21 million bitcoins issued (unless someone changes the code, but when has that ever happened?).

Bitcoins can be used to buy services if the provider will accept them.  You can also purchase bitcoins with standard money.  The value of a bitcoin can fluctuate fairly dramatically and no entity regulates its trading.  The value of a bitcoin as this is being typed is $93.88 USD according to Mt. Gox, a website that trades bitcoins.  The only other way to get bitcoins is to "mine" them.  This method is beyond the scope of this post (and frankly, beyond the capacity of the author to understand) but is principally carried on by people with high end computers that devote a great deal of their time and effort to the mining and essentially make it impossible for mere humans to actively participate in this.

You can buy a lot of stuff with bitcoins on the internet but you can't use it to buy a beer at most of your local bars.  There is a lot of suspicion that bitcoins are being used to purchase illegal items at sites like Atlantis and Silk Road (not that I know anything about that).  There is also a fair amount of money laundering that goes on with bitcoins.  The DEA just seized bitcoins for the first time and the State of California is investigating whether the Bitcoin Foundation is a financial institution within the definition of California laws.  Apparently, bitcoins are getting prominent enough to start attracting the attention of regulators and law enforcement.

So, if you wanted to purchase the War Games computer set up and your winning bid at the auction was $30,000, you would need approximately 320 bitcoins to complete the transaction.  Actually, I would really like to see that happen.  If one of you can pull this off, please let me know.

Updates and Breaking News on Gene Patents, PHI in the Cloud, Class Actions on ClickWraps and SEC Disclosures On Cybersecurity.

Some recent developments in the great, wide world of technology include:

(i)  The Supremes, in a unanimous decision (what?) ruled that naturally occurring genes could not be the subject of patent protection.  However, if you can create a gene artificially, you might still qualify.  Therefore, the creative force described in the Hebrew bible, missed his or her chance when on the sixth day, he or she created all those man genes.  Further, the one year bar and the first to file things have cluttered up the claim.  Also, since man was supposedly created in the image of the creator, there's that pesky prior art issue.  See Assn. for Molecular Pathology v. Myriad Genetics, Inc

(ii)  The recently released rules under HIPAA provide that entities that store protected health information ("PHI") for a covered entity are business associates even if the storage provider does not routinely access the information.  [See 45 CFR Parts 160 and 164 IV(3)]On the other hand, a data transmission organization (such as the U.S. Postal Service or internet service providers) that serve as a mere conduit are not business associates even if they do access the information occasionally in order to provide the service.  So, cloud providers of storage of PHI must sign a business associate agreement.  It is not clear how long one must hold on to a piece of information to be a storer as opposed to a transferor or if encrypting the information in storage without the key would serve to exclude the storage provider from the definition of a business associate.

(iii)  In a recent decision by the Seventh Circuit in Harris v. comScore, Inc., the court allowed the certification of a class to stand.  The class was composed of entities that had downloaded comScore's software that gathered information on the user's activities and sent the information back to comScore's servers.  One of the basic allegations of the plaintiff class was that comScore's clickwrap license was ineffective.  We have discussed this before in this post.  The court did not make factual finding as to any issues and this is only a class certification hearing and comScore may have legitimate individual defenses to many of the allegations.  However, comScore will have to deal with this in the context of a class action.

(iv)  The Securities and Exchange Commission has regulations in place regarding a publicly traded company's obligation to disclose its controls for cybersecurity and is now considering increasing the stringency of those rules.  A recent study by Willis Fortune 500 finds that a substantial percentage of  reporting companies fails (in Willis' opinion) to adequately disclose such company's exposure to cybersecurity issues and the impact on the company if an event occurs.  Look for this to increase in importance as the supposed cybersecurity wars increase in intensity.

What Are Patent Trolls and Why Is President Obama Saying All Those Terrible Things About Them?

Patent: an intellectual property right granted by the Government of the United States of America to an inventor “to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States” for a limited time in exchange for public disclosure of the invention when the patent is granted.  USPTO Website

Troll: a dwarf or giant in Scandinavian folklore inhabiting caves or hills.  Merriam-Webster Dictionary

Patent Troll: (Patent Assertion Entities, also known as PAEs) or "companies that don’t actually produce anything themselves and essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them".  President Obama

Patent trolls accounted for more than half of the patent suits filed this year.  The President issued executive orders today that, inter alia, asks Congress to pass laws to: (i) require disclosure of the real party in interest (not just the Patent Assertion Entity that merely holds patents, but doesn't practice any of them); (ii) remove consumers that are using the affected products in the manner intended from the effects of the lawsuits; and (iii) provide for the awarding of attorneys fees and costs to defendants in "abusive" lawsuits.

Now, given the speed in which Congress acts (Hey, the House has already repealed Obamacare 37 times), it is likely that this will not have any near term effect.  Some large patent holders, that are not PAEs, have expressed concern that laws such as those suggested by the President could have unintended consequences and make it harder for non-trolls to protect their patents.

Given that it is possible that facts will surface that indicate that the IRS has engaged in the targeting of trolls, that trolls could have prevented the tragedy at Benghazi or that trolls were the AP sources that the Justice Department was looking for, this could get folded into the other "scandals" and fail to get any legislative traction.  Or, it could just not get any legislative traction, like almost everything else.  It's now up to Congress.

UPDATE: Circuit Court of Appeals Reverses Decision That Use of Rutgers Quarterback's Likeness Was "Transformative". Mr. Hart Is Back "In The Game".

We noted back in October of 2011 that a District Court in New Jersey had granted EA Sport's motion for summary judgment in a suit brought by Ryan Hart, a former quarterback at Rutgers.  EA Sports had used as a basis for its motion that even though the video game used Mr. Hart's likeness, including his height, weight, home town and commonly worn visor and arm bands that the mechanism of the video game allowed users to change these and as such was "transformative".  If a use is found to be transformative, usually the courts will find that the user's First Amendment rights prevail over the subject's privacy rights.  The District Court so found in this case and granted defendant's motion.  An appeal ensued.

The Circuit Court of Appeals reversed.  In a 2 to 1 decision, the Circuit Court rejected the idea that the ability to change the player's characteristics by the user rose to the level of transformative use. In fact, the appellant court held that the presence of interactivity, the ability to change the characteristics of the subject (the court noted that the player's unaltered image was the default image) and the presence of other creative elements did not tip the "balance" in favor of the First Amendment.

Thus, the granting of the motion for summary judgment was reversed and remanded for further hearings.  Mr. Hart is back "In The Game".

It's also nice to finally see someone from Rutgers win something.

Texas Uniform Trade Secrets Act ("TUTSA") Becomes Effective September 1, 2013.

Texas has become the 48th state to adopt a uniform trade secrets act.  This legislation was signed by Governor Perry and will become effective September 1, 2013.  A text of the act as passed may be found here.

Notable provisions of TUTSA include the following:

  • The Act permits "reverse engineering" unless "prohibited", which prohibition presumably can be accomplished by contractual prohibitions.
  • "Reasonable" efforts must be made to keep the information secret in order that it may be treated as a trade secret.  See our immediately preceding post.  Yeah, the one with the monkey and the assault rifle.
  • An injunction may be ordered in the event of actual or threatened misappropriation.  In addition, "affirmative acts" may be ordered to protect a trade secret.  This codifies a court's authority to compel both the prohibition of an act or the commission of an act to protect a trade secret.
  • In addition to injunctive or affirmative relief, damages can be awarded, which can be based on actual loss, unjust enrichment or a reasonable royalty.
  • If "wilful and malicious" actions are proven by "clear and convincing" evidence, punitive damages may be awarded up to two time direct damages.
  • Attorney's fees may be awarded to the prevailing party if a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith or wilful and malicious misappropriation exists.
  • Lists of actual or potential customers or suppliers are explicitly mentioned as possible trade secrets. 

This Act codifies what was covered under case law before and should help in the preservation of the trade secrets of Texas businesses.


Failure To Do The "Trade Secret Dance" Causes Company To Lose Control Of Its Processes.

As we all know, most intellectual property is protected by patent, copyright or trade secret or some combination of the three.  Because of the expense and long lead time for patents, a lot of companies (tech and otherwise) rely on trade secret protection for the "crown jewels" of their business.

Also, as we all know, in order to have a court treat your crown jewels as trade secrets, you have to show that you treated them as such.  In court speak, you have to make "reasonable efforts" to preserve the secrecy of the information.  If you haven't taken such efforts, then you can't get a court to treat them as secrets.  The processes that are used to document "reasonable efforts" are referred to by some as the "trade secret dance".  In other words, you have to take steps to behave in a way that demonstrates your "reasonable efforts" to maintain secrecy.  We have discussed this before (see here and here).

A court in Connecticut reaffirmed this requirement recently in the aerospace industry when it found that a company had not taken such reasonable efforts to protect its rubber injection molds, the injection apparatus and the company's prices and hence, could not get an injunction against a competitor to prohibit such competitor from using similar information.

The court cited the company's practice of conducting tours of the facility for the public and even competitors in which the participants in the tours were afforded unrestricted views of the molds and the machines from as close as six feet.  The process was explained and at no time were the participants in the tours notified that anything they saw was confidential nor were they obligated to sign any confidentiality agreements. It was apparently also common practice for the company to quote prices for their products to anybody that asked without any indication that the prices were confidential.

For this and other reasons, the court found that the company had not taken reasonable efforts and declined to grant an injunction in their favor.  This was most unfortunate for the company as it was in bankruptcy, which it claimed was due in large part to its loss of the trade secrets.

This is not a groundbreaking or shocking opinion and is in line with established trade secret law but it does reaffirm for all of us that are counting on trade secret law to protect our stuff, we better make sure that we keep our stuff secret.  This starts with doing an intellectual property inventory and continues through the establishment of a intellectual property protection program that must include as a very important component, a trace secret protection process (i.e. the dance).


Court Becomes "Particular" About First Sale Doctrine and Therefore You Can Never Resell Your Digital Music.

I'm an old guy.  One of the first musical purchases I ever made was a 45 rpm (that's revolutions per minute for those of you that have never seen a phonograph) recording of Bobby Vee's "The Night Has A Thousand Eyes".  If I still had that physical record, I could sell it to you without fear of violating anyone's copyright because of a little something called the "first sale" doctrine.  We have mentioned that several times in this blog (see here, here and here).  The first sale doctrine says that after the first sale of a copyrighted work, the copyright holder loses its right to restrict further sales.  This is the reason that stores that sell used books, records, CDs, DVDs, etc. can exist.

Now, if I could find that particular song on ITunes, I could buy it, download it to my computer or MP3 player and listen to it all I want.  If I tired of that, I could use the services of a company called ReDigi.  In doing that, I would download an application called Media Manager  and then use that to upload the digital file of the recording to ReDigi's remote server in Arizona, which they call the "Cloud Locker".  Media Manager then prowls the hard drive of my computer and connected devices to determine if I have retained a copy.  If it detects one, it prompts me to delete it.  When that happens, only one copy of this particular recording exists and it exists only on the Cloud Locker.  I then can either continue to listen to it from the Cloud Locker or I can opt to sell it.  If I opt to sell it, ReDigi makes it impossible for me to continue to listen to it.  So, now I can use ReDigi to sell that particular recording to you.  The exchange is made for credits that you can get by uploading other music.  When it is transferred to you (automatically, without human intervention by ReDigi), you can store it, stream it, sell it or download it to one of your devices to listen to it.

In both instances, the result is the same.  I bought a copy of "The Night Has A Thousand Eyes" legally.  I have transferred it to you.  I no longer have a copy.  I can't sell it again.

Cool, right?  Everybody's happy.  I can buy more music with my credits.  You are in possession of a great piece of nostalgia and I have no more copies to sell to undercut the copyright holder's income stream.  The Southern District of New York says: "Not so fast, my friend".

In a case styled Capitol Records, LLC v. ReDigi Inc., the court held that the first sale doctrine can not apply to non-physical (i.e. digital) recordings.

The First Sale Doctrine is codified in Section 109(a) of the Copyright Act and states in pertinent part: "...the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord."

The Court held that ReDigi had several problems under this provision.  First, it said that ReDigi had violated Capitol's reproduction rights (another right under the Copyright Act), therefore it was not "lawfully made under this title".  The Court also said that the Act only protects distribution by the owner of a particular copy or phonorecord...of that copy or phonorecord". (Emphasis added by Court).  So, the transfer of the files requires copying on ReDigi's server, which violates the reproduction rights and because the sale is not a sale of that particular copy, the first sale doctrine does not provide a defense.  The Court specifically said that the first sale defense is limited to "physical" items.  To comply with this, you would have to sell and transfer your computer or MP3 player with the file on it.

This ruling was part of an opinion resulting from Capitol's Motion For Summary Judgment and other matters still remain to be decided, but the Court left little doubt about where it stood on this issue.

The War Over "App Store" Continues. Amazon Wins One of the Battles.

We have previously written about the contentious nature of the battle among Apple, Amazon, Microsoft and others in regard to the use of the term "App Store".  See here and here.

One of the salvos launched by Apple in its suit against Amazon involved a claim for false advertising.  Amazon moved for summary judgment on this claim and on the first business day of the new year, the United States District Court for the Northern District of California granted Amazon partial summary judgment.

The Court found "..Apple has failed to establish that Amazon made any false statement (express or implied) of fact that actually deceived or had the tendency to deceive a substantial segment of its audience. The mere use of “Appstore” by Amazon to designate a site for viewing and downloading/purchasing apps cannot be construed as a representation that the nature, characteristics, or quality of the Amazon Appstore is the same as that of the Apple APP STORE."

The Court held that "...if an advertisement is not false on its face (i.e., if there is no express or explicit false statement), the plaintiff must produce evidence, usually in the form of market research or consumer surveys,showing exactly what message was conveyed that was sufficient to constitute false advertising."  Apple failed to do so in this case.  Round one to Amazon.

FTC Concludes Investigation Into Google's Search Practices, Finds Nothing Much Wrong There. Hey, Google It If You Don't Believe It!

The Federal Trade Commission has been investigating Google's practices in regard to patent licensing, search results and other matters for about two years.  The FTC sought to determine if Google's practices in these regards were anti-competitive.  The FTC ended their investigation the first week of this year and entered into an agreement with Google in exchange for the FTC agreeing not to pursue the matter further.

Part of the analysis by the FTC was a investigation into whether Google manipulated its search algorithms such that websites that competed with Google's "vertical" results (i.e. sponsored Google sites) were moved down in the search results with concomitant  damages to the click through rate to such competing sites.  The FTC found that even though "...some of Google’s rivals may have lost sales due to an improvement (sic) in Google’s product...(t)he totality of the evidence indicates that, in the main, Google adopted the design changes that the Commission investigated to improve the quality of its search results, and that any negative impact on actual or potential competitors was incidental to that purpose."  The Commission went on to say "...these changes to Google’s search algorithm could reasonably be viewed as improving the overall quality of Google’s search results because the first search page now presented the user with a greater diversity of websites."

Needless to say, not all were enamored with the FTC's actions.  Microsoft, having been kicked around by the FTC for years, bemoaned the actions as "weak"Others found it to be totally justified.

Whatever your view, this is a win for Google and clears up their docket to proceed with their pursuit of world domination.  Not that there's anything wrong with that.

Are Confidentiality Provisions and I.P. Assignment Clauses In Employee Agreements To Be Treated Like Non-Compete Provisions? South Carolina Supreme Court Says No.

Almost every technology company of any variety has a couple of standard provisions in the documents that their employees sign as part of the employment on-boarding process.  Those are, of course, provisions that require the employee not to divulge certain information that they learn as a result of their employment and that provide that any intellectual property developed by the employee during the employment (and often for a period thereafter) and based on information provided by the employer, belongs to the employer.  Some agreements also contain non-compete provisions, which purport to prohibit the employee from engaging in certain kinds of employment activity after the present gig ends.

Mr. Morin went to work for Milliken & Company in South Carolina as a research physicist and worked for Milliken for nine years developing fibers.  Apparently, Mr. Morin began to make plans for his own company prior to leaving the employee of Milliken and filed for a patent on a new fiber within a few months after resigning from Milliken.  Milliken thought such behavior was untoward and filed a suit against Mr. Morin for breach of the confidentiality provisions and the breach of invention assignment provisions in his employee contract, among other things.

The appeal of this case recently found its way to the Supreme Court of South Carolina.  One of Mr. Morin's principal arguments was that the confidentiality provisions and the assignment of inventions provision were restraints of trade and as such, should be reviewed under the same standard as a non-compete provision, i.e. not favored by the courts and construed against the employer unless certain very stringent requirement were met.

The South Carolina Supreme Court disagreed with Mr. Morin and found that such provisions (confidentiality and invention assignment) were not restraints of trade and as such, were to be reviewed under the reasonableness standard, i.e. to be enforced as an ordinary contract provision unless the provisions exceeded what was necessary to protect the legitimate interests of the employer.  The court held: "We therefore hold confidentiality and invention assignment clauses are not in restraint of trade and should not be strictly construed in favor of the employee."

This confirms what most of us in this industry believed to be the law and should make it easier for well crafted provisions of this nature to be enforced in the future.

USPTO Comes Down Squarely Somewhere On the Sliding Scale of Scandoulousity. Why Is C**ksucker More "Scandalous" Than Big P*cker?

Section 15 U.S.C. § 1052(a) prohibits the registration of a trademark that is "...immoral, deceptive, or scandalous". 

In September of 2001, Ms. Marsha Fox, an enterprising marketeer, applied for a trade mark for "Cock Sucker" accompanied with a picture of a male chicken.  This mark was to be applied to a chocolate candy sucker shaped like a rooster.  The target market was likely followers of college teams with Game Cocks as a mascot, such as the University of South Carolina, who have displayed a consistent fetish with double entendres relating to the work "cock" even though the original reference was to a Revolutionary War hero, Thomas Sumter, for his small size and fierce attitude.

The USPTO rejected the application by finding that it was scandalous or vulgar.  The USPTO recognized that there was a non-vulgar meaning to the phrase but that the vulgar meaning was so egregious that it overrode the right of the applicant to register the mark.  This was true even though the USPTO has allowed such marks as "Big Pecker", "Tits", "Big Cock Ranch" and "Cock Rub".  The Court neglected to consider that an alternate meaning to Cock Sucker might be to refer to the people who shell out good money to purchase such a confection, although I am sure they are preferred party favors at fraternity parties all over Columbia.

Right before the holidays, the Court of Appeals for the Federal Circuit upheld the USPTO's rejection, including rejecting a First Amendment argument because the court reasoned that the applicant could still use the mark, she just couldn't register and protect it. 

So, where does this leave the aspiring applicant of a killer mark that has both a scandalous and non-scandalous meaning?  Good question.  If you can make a distinction on any of these, it would seem that if it is listed in the Urban Dictionary as a sex act, it is in peril.  If it is only a reference to a body part, maybe a little safer.  The USPTO will let you know when they see it.

UPDATE: Ownership of Company's Twitter Account: Company vs. Employee

Almost a year ago, we mentioned the unusual case of PhoneDog v. Kravitz, where a former employee was sued by his former employer for $340,000, which amounted to $2.50 per Twitter follower that the employee took when he left the company.

We indicated that this was a gray area and developing.  So, how did PhoneDog v. Kravitz enlighten us on the rules for this situation?  Exactly none.  Mashable reports that the parties have settled after months of mediation.  Settlement terms are confidential but apparently Mr. Kravitz retained the Twitter followers and there was no indication of money changing hands.

Where does this leave us?  Back at square one but with some lessons learned.  For example, if ownership and control of Twitter accounts is important to your business, state in the employment contract or the employee manual that such accounts belong to the company.  Eliminate any drama by addressing the issue head on.  #commonsense

Having An Open WiFi Does Not Ipso Facto Make You Liable For Negligent Infringement.

Here's the scenario:  You have an open WiFi (i.e. no password required), someone (maybe you, maybe not), uses that IP address to download a copyright work, someone (probably a copyright troll) sends a subpoena to your internet service provider and finds that this happened, you receive a letter from a copyright troll attorney that says in basic terms:  "You are a horrible person.  A copyright protected work was illegally downloaded using your IP address.  It was entitled something that included "hot", "wet" and a bodily orifice in the title.  You should be ashamed and if you pay me $3,000 now, it will all go away and your wife/girlfriend/scout troop/sunday school class will never know.  Otherwise, we can sue you for negligence because your WiFi was not protected and we don't even have to prove you did the download."

Maybe this comes as a huge surprise to you, maybe it doesn't.  However, will the negligence claim fly and allow the trolls to tag you with liability even if they can't prove you actually did it?  A couple of courts have said no.  Last week the U.S. District Court for Northern California in a case styled AF Holdings LLC v. John Doe and Josh Hatfield held that the mere inaction of not protecting your WiFi was not negligence because the defendant did not owe a duty to the plaintiff to take an affirmative action to protect the plaintiff's intellectual property.  In addition, the court held that this was still a copyright case and state law of negligence was preempted by the federal copyright statute.  And to further make a point, the court found immunity for the defendant under Section 230 of the Communications Decency Act.

So, it seems to be the trending opinion that you aren't strictly liable for contributory infringement for just leaving your WiFi open.  Seems right to me.

Lewis Vuitton Loses One, Louis Vuitton Wins One.

We all know that Louis Vuitton is very aggressive in protecting their intellectual property.  We noted that they were successful in obtaining a large judgment from the operators of a San Antonio flea market for contributory infringement.

They have continued their protective efforts unabated and two recent decisions provided them with mixed (although perhaps justified) results.

First the victory.  Louis Vuitton had filed a case against in Federal District Court in Nevada against 182 websites and 1,000 "John Does" for infringement of Vuitton's rights by manufacture, advertising and sale of Vuitton knock offs.  The Court granted Vuitton a temporary restraining order against a number of the defendants, finding a strong likelihood of success at trial by Vuitton and that immediate and irreparable harm would accrue to Vuitton without the TRO.  Louis Vuitton Malletier, S.A. v. 1854louisvuitton.com, et al., 2012 WL 2576216, (D.Nev., July 3, 2012)

Now the loss.  In Louis Vuitton Malletier S.A. v. Warner Brothers Entertainment Inc., 2012 WL 2248593 (S.D.N.Y. 2012) a New York court ruled that Vuitton's reach had exceeded its grasp when it sued Warner Bros. for referring to a knock off in The Hangover II, even though Zack Galifianakis referred to it as a "Lewis" Vuitton and it was on the screen for less than 30 seconds.  The Court found that the use in this case was protected by the first amendment and was unlikely to cause any confusion.

By the way, "malletier" is french for luggage maker.  I had no idea.

New Top Level Domain Names. Coming Soon To A Browser Near You.

We have discussed before the new ICANN Top Level Domain scheme, whereby the initial regimen of .com, .net, .edu, etc. could be supplemented by any word to which an approved registrar gets the rights.  We joked that we were going to apply for the .law domain.  We came up a little short on our aluminum can drive to get the $185,000 necessary for the application but obviously someone is reading our blog because ICANN released a list of the applications today and six entities have applied for the .law domain name.  If that wasn't enough, there were two applications for .lawyer, two for .legal, one for .esq, one for .attorney and one for .abogado.

A review of the proposed strings probably provides a commentary on contemporary society, but you can make that evaluation.  The following are some of the applications and the number of applicants for such strings:

  1. 13 applications for .app
  2. 1 application for .bible, but none for .koran, although there is 1 for .catholic and 1 for .islam
  3. The applications are as divided as the country with 1 application for .democrat and 1 for .republican
  4. In the organized entity arena, there were 10 applications for .inc, 9 for .llc, 4 for .llp, 4 for .gmhd and 7 for .ltd
  5. There were 6 applications for .tech, 7 for .web and 7 for .cloud
  6. On the family front there were 3 applications for .mom and only 1 for .dad.  That sounds about right.
  7. For all the adults, there was 1 application for .porn (there already is a .xxx domain), 2 for .sex and 1 for .sexy
  8. There was 1 application for .gay and no applications for .straight
  9. There were numerous applications by corporations for the corporate extension, like .canon, .dell, .firestone and .csc
  10. And in the "I've got $185,000, I don't need right now" category, there was 1 application for .wtf and 1 for .unicorn.

There now follows a 60 day comment period and a 7 month window for filing an objection to any application.  Anyone want to oppose .cialis?  You can only do that after 4 hours.

"Best Efforts" Clauses In Contracts. What the Hell Do They Mean?

I have been negotiating contracts for a living for over 38 years.  During all of that time, when my client was asked to use "best efforts", I used my best effort to get that changed to some other standard.  I had always assumed, either because of urban legal legend or stupidity, that "best efforts" was a very high standards, even requiring in some states (New York was featured prominently) that you spend yourself into bankruptcy to achieve the result.

It is amazing what you can find when you actually look something up yourself.  I feel a little like Vizzini in "The Princess Bride" when Inigo tells him, "You keep using that word.  I do not think it means what you think it means."

A recent California case,  California Pines Property Owners Ass’n v. Pedotti, Cal. Ct. Appeal Case No. C066315 (May 24, 2012), found that a rancher's obligation to use "best efforts" to keep a reservoir full did not create a fiduciary duty but only required that the rancher “must use the diligence of a reasonable person under comparable circumstances”.

The court went on to say that (i) best efforts are viewed in the context of the particular case; (ii) the best efforts clause must be reconciled with other clauses to the extent possible; (iii) best efforts do not require every conceivable effort, nor does it require the promisor to ignore his own interests, spend himself into bankruptcy or incur substantial losses to perform; and (iv) best efforts does require diligence but within the bounds of reasonableness.  The court noted that these were the standards in California only if the term "best efforts" was not defined.

So, why have I been so pedantic on this subject all my life?  It seems that it only means to use reasonable efforts with some more diligence.  And I say, not so fast, my friend.  A review of several states reveals some disparity in the interpretation.  What amounts to best efforts generally is very subjective and can vary from court to court.  Therefore, to merely rely on the general term "best efforts" (or "reasonable efforts", "practicable efforts", "industry standard efforts" or the like) is to invite the court to rewrite your standards for you and probably not to your liking.  The answer is, when possible, put objective standards in place for the the efforts.  The rancher in the California Pines case above could have been required to keep the reservoir above a certain level or in line with some other standard other than best efforts.

Technology contracts often incorporate the "best efforts" standard, as in, installing the latest version of software, providing bug fixes for severe problems,etc.  In all of these, if you are the one being asked for best efforts, you would be advised to include objective standards that you can meet, rather than risk being held to some other standard.



Oracle v. Google. Google Wins.

Remember a week or so ago when we reported that Google had violated Oracle's copyrights but the jury couldn't decide on fair use so that was left to the judge.  They then proceeded to the patent phase of the suit and lo and behold, the jury has found no patent infringement by Google.  The judge has told the jury to go home.  No billions for Oracle.

Oracle is now left with having the judge decide the copyright issue on such protection for application program interfaces (APIs).

Oracle may wear the collar in this game.



Lessons Learned From The Trade Secret Trenches. Our Article Makes It To "Coatings World".

We teamed with our good friend to write an article relating to the requirements of maintaining trade secret status on your company jewels. 

Then, Coatings World, "The Resource For the Global Coatings Industry" was kind enough to print it. 

You can see it in their most recent edition here. 

Check it out to see what kind of dance steps you need to employ to avail yourself of such protection.

Oracle v. Google. Did Anybody Win?

Avid followers of this blog will clearly remember our discussion of the initial filing of the lawsuit involving the clash of the Larrys (i.e. Ellison [Oracle] and Page [Google]).  For a quick refresher, Oracle claimed that Google infringed on Oracle's Java related intellectual property (which Oracle obtained by buying Sun) by, among other things, violating some patents and copying application program interfaces ("API") in the development of the Android operating system.  There has been some question as to whether APIs are subject to protection by copyright but Oracle claims that the ones in Java are sufficiently complex  that they should be protected.  A recent case in Europe has held the other way.

The jury in this case held that Google did violate Oracle's copyrights but could not reach a decision as to whether the use was "fair use", a defense under the copyright act.  Therefore, this is not very conclusive.  The case is divided into three phases and this was the end of the first phase.  The case went directly into the patent phase of the case and the subsequent phase will be the damages phase.  So, a lot of work to do until this is finally decided but it is evident that this will have far reaching effects however it comes out.

Update: You Can Now Look At Facebook At Work Without Committing A Crime.

About a year ago, we posted on a case that held that misappropriation of computerized informationin violation of a company's computer use policy could be a crime.  The defendant had received stolen confidential information from former coworkers.  The court held that this exceeded the employer's written use policy as as such violated the Computer Fraud and Abuse Act, which criminalizes "exceed(ing) authorized access" and using this to further fraud.

On April 10, 2012, the Ninth Circuit, sitting en banc, reversed, holding that because the pilfering co-workers did have authority to access the information they stole, this did not violate the CFAA.  The Court reasoned that the intention of the legislation was to prohibit hacking and not the kind of day to day activities that most slacker employees engage in (i.e. exceeding their company's policy) by surfing the web.

This doesn't get Mr. Nosal and his friends out of the woods, however, as the government is still able to pursue counts of mail fraud and theft of trade secrets.

Flea Market Landlord Found Liable For Contributory Infringement of Louis Vuitton Trademark.

Eisenhauer Road Flea Market is a large indoor flea market in San Antonio, Texas.  Some of the tenants of booths there sold fake Louis Vuitton products. 

Louis Vuitton notified the owner/landlords of the flea market and asked them to stop renting to people who sold such knock offs.  The landlords said that it was not their responsibility to do Louis Vuitton's work of policing the use of their brands. 

Louis Vuitton sued the landlords alleging that the landlords engaged in contributory infringement.  A jury agreed after the judge gave a jury instruction that a landlord/tenant relationship could lead to contributory infringement. 

The jury returned a verdict for $3.6 million dollars and the court issued a far reaching injunction.  The injunction provided that the defendants were prohibited from (i) engaging in further acts of contributory infringement; (ii) leasing to tenants who the landlords knew, had reason to know or have been presented with credible evidence about their dealing in counterfeit Louis Vuitton items; (iii) manufacturing or dealing in counterfeit Louis Vuitton products; or (iv) engaging in conduct that contributes, directly or indirectly to counterfeiting by a tenant.

In addition, the defendants are required to : (i) periodically inspect the booths for evidence of counterfeiting; (ii) promptly terminate the lease of anyone they find engaging in counterfeiting or if they are presented with credible evidence of such counterfeiting; (iii) include a provision in their leases prohibiting such counterfeiting; (iv) put warning signs at all entrances indicating that counterfeit material can not be sold on the premises; and (v) allow representatives of the plaintiffs to make periodic inspections for counterfeit material.

We have not yet had the opportunity to review the transcript of the case, but this seems to indicate either a case of run away jury or of egregious behavior by the defendants that does not appear in the order. This is a case of first impression in Texas and should give all landlords reason to reassess their situations. 

It is also not a large step to find internet service providers, web designers and operators or others involved, directly or indirectly, in the on-line sale of counterfeit merchandise to be in the same situation.  We had reported on one before but if this decision stands, it is likely that we will see more cases of this sort, at least in the Western District of Texas.

Better To Be Pissed Off Than ... Well, You Know.

PissedConsumer.com is a website that encourages consumers to complain about companies and products.  When a complaint is lodged, PissedConsumer creates subdomains and metatags using the name of the product or company complained about in the name, e.g. productname.com/titleofpostedcomplaint.html.  PissedConsumer then uses a third party to post advertisements on the complaint pages for competitors of the product or company complained about.  Opinion Corp. is the company that owns and manages PissedConsumer.com.  As an additional service, Opinion Corp. offers to help remedy the negative impact of the complaints in a number of ways and for a substantial amount of money.

Ascentive, LLC (software company) and Classic Brands, LLC (mattress manufacturers) were the victims of negative comments on PissedConsumer.com and separately brought suit against Opinion Corp. and some of its officers individually.  Their suits were consolidated for the purpose of this action.

The plaintiffs (Ascentive and Classic Brands) alleged a number of causes of action, including a request for a preliminary injunction to disable the offending pages, counts under the Lanham Act and counts under the Racketeer Influenced and Corrupt Organizations Act ("RICO"). 

The counts under the Lanham Act centered around the plaintiffs' claims that the use of their trademarks in the subdomains and in metatags constituted trademark infringement, unfair competition and false designation of origin.

For the RICO allegations, they allege that the defendant's "Reputation Management Services", which allow companies (for a large fee) to respond to the reviews and alter the format in which the reviews appear were tantamount to bribery and extortion prohibited by the RICO Act.

The Court applied the preliminary injunction standard, which requires that such an injunction issue only if the plaintiffs have demonstrated a likelihood of success on the merits.

Applying this standard to the facts, this Court found that there was no likelihood of confusion as any reasonable user would understand that this was a gripe site and not a competing site and that the use of plaintiffs' marks as described did not result in such confusion.  In addition, the defendant plead that they were insulated from liability under Section 230 of the Communications Decency Act because they were an "interactive computer service" and therefore not liable for the defamatory comments of their users.  The Court agreed.

Consequently, the Court found that the plaintiffs had not demonstrated a likelihood of success and denied the motion for preliminary injunction even though the Court expressed some uneasiness about the defendant's business practices and ethics, e.g. eliciting (some say creating) complaints, advertising such complaints, engaging in search engine optimization to cause the complaints to appear higher in the search rankings and then charging fees to cure the situation they had created.  "Ethical obligations that exist but cannot be enforced are ghosts that are seen in the law but that are elusive to the grasp."  Lyrical, but little consolation to the plaintiffs.

Anonymity On The Internet. What a Concept!

You will recall that we have discussed a few cases regarding anonymity on the internet.  In one, which involved a potential securities scam, the court removed the anonymity from some people that were involved in the alleged scheme. 

In another, the court allowed the anonymity of some detractors of The Art of Living Foundation to continue for a while.  After publishing the post, we received a call from the attorney for The Art of Living Foundation, who indicated that he thought our post was more even handed than some regarding this subject, but he would like to send us a letter from the president of The Art of Living Foundation explaining their position.  We were amenable to that and a copy of that letter follows.  We reproduce it without comment nor endorsement.  When we asked about the progress of the case, the attorney indicated that he felt the judge would rule in a manner that would allow them to obtain the identity of their detractors in the near future.  Any updates from any of the participants would be appreciated.


The "Safe Harbor" Provisions of the DMCA Become Safer and More Harbory.

Two recent decisions have provided context for the DMCA's "safe harbor" provisions and have given an expansive reading to such provisions.

In the Ninth Circuit Court of Appeals, the decision in a case called UMG v. Veoh (even though there are dozens of parties) has affirmed a district court's decision that a video sharing site (Veoh) qualified for the safe harbor provisions and therefore was not liable for copyright infringement.  This case was decided on December 20, 2011.

In the Southern District of New York, summary judgment was entered for Photobucket.com and the Kodak Imaging Network against Sheila Wolk, an artist that claimed that Photobucket was liable because several of her works had appeared on Photobucket.  For example, see here for examples on the day this post was written.  The case is styled Wolk v. Photobucket and was decided on December 21, 2011.

 In UMG v. Veoh, Veoh allows people to share video content over the internet.  The service is free and Veoh makes its money through related advertising. 

The Digital Millennium Copyright Act ("DMCA") allows "service providers" "safe harbor protection" if the service provider: (i) does not have actual knowledge that the material on the system is infringing; (ii) is not aware of facts or circumstances from which infringing activities are apparent; (iii) upon obtaining actual knowledge acts expeditiously to remove or disable access to such infringing material; or (iv) does not receive a financial benefit in cases where the service provider has the right and ability to control such activity.

Veoh employed the standard methods of having its customers agree not to upload any infringing material and the customers give Veoh a license to use and display such material.  When a video is uploaded, the software resident at Veoh's site automatically (i.e. without human intervention), breaks the video into 256 kilobytes chunks that facilitates streaming and converts the video into Flash 7 format.  If the customer is a "Pro" user, the software further converts the files to Flash 8 and MPEG-4 formats.  The software also extracts metadata to aid in the search function for the videos.  No Veoh employees review videos before they are posted.

However, Veoh uses “hash filtering” software. When Veoh is aware of an infringing video and disables access to it, the hash filtering software automatically disables access to any identical video and prohibits any subsequently submitted duplicates. Veoh also used another filtering system that compares audio on a video to a database of copyright content and if it finds a match, the video never becomes available for viewing. After obtaining this software, Veoh applied it to their catalog of previously uploaded videos and as a result, removed more than 60,000 videos, including some that supposedly infringed on UMG’s copyrights. Despite the precautions, UMG and Veoh agree that some UMG copyrighted material is on Veoh’s site. The parties also agree that UMG never gave Veoh notice of any infringing material before UMG filed this suit.
Veoh asserted as an affirmative defense that it was entitled to protection under the safe harbor provisions of the DMCA. UMG alleged that Veoh was not entitled to such safe harbor because its activities were not “infringement of copyright by reason of the storage [of material] at the direction of a user”, that Veoh had actual knowledge of infringing acts or was “aware of facts or circumstances from which infringing activity [wa]s apparent and that Veoh “receive[d] a financial benefit directly attributable to …infringing activity” that it had the right and ability to control.
The court disagreed with UMG on all three issues.
UMG had asserted that the language required that the infringing conduct be limited to storage and that Veoh’s facilitation of access to the material went beyond “storage”. The court said the statute language was “by reason of storage” and that the language was clearly designed to cover more than “mere electronic storage lockers”. The court reasoned that if Congress had intended the safe harbor to extend only to web hosts, it would not have included the language “by reason of storage”.
The court followed a line of other cases that said that just because a defendant had been notified of some infringing activities that this put it on notice for other infringing activities. It was undisputed that Veoh removed all material for which it was put on notice and that it could identify from such notices, even though UMG had not provided any such notices.
The court further stated that the “right and ability to control” requires control over specific infringing activity that the provider knows about. “A service provider’s general right and ability to remove materials from its services is, alone, insufficient. Of course, a service provider cannot willfully bury its head in the sand to avoid obtaining such specific knowledge.” The court found that Veoh had not acted in such manner.
In the Wolk v. Photobucket case, Ms. Wolk is an artist that depends on her paintings and sculptures as her sole source of income. She alleges that Photobucket facilitates the infringing of her copyrights and is not entitled to the protections of the safe harbor.
In its analysis, the court found that Photobucket met the definition of a service provider because the court believed that the definition of service provider includes a “broad set of Internet activities”. Photobucket also had a policy that allowed copyright holders to submit a takedown notice, had made that policy available on its website and had acted to remove infringing material when given notice. It also found that Photobucket met the other requirements for safe harbor and dismissed Ms. Wolk’s pro se complaint.
Both of these cases allowed immunity from activities that go substantially beyond the mere storage of materials. Decisions of this type, which most likely accurately apply the legislative intent of the DMCA, would probably come down differently under the recently proposed SOPA legislation.
This will not be the last we’ve heard of these issues.


Who Owns Your Social Media Account? You Or Your Employer?

Here's the situation:  You establish a Twitter, Facebook, LinkedIn, etc. account while you are employed and use the account to tweet, post, blog, etc. about your employer.  Then your employer falls out of love with you and you are no longer employed.  Who owns your followers on Twitter or your Facebook or LinkedIn account?  That's a really good question and one that the courts are dealing with right now.

Rich Sanchez was an anchor on CNN and has a Twitter account with the handle: "richsanchezcnn".  Rich was rendered unemployed because of some ill advised statements he made.  So, does CNN own the account or was Rich popular with the Twitter followers because of his good looks and sex appeal or because he was on CNN?  Should he have to change his handle?  This was settled out of sight, so we don't know what happened there.

On another front, a company called PhoneDog LLC filed a suit against former employee Noah Kravitz.  Noah tweeted while an employee of PhoneDog under the name "PhoneDog_Noah" but then changed it to "noahkravitz" after the break up.  PhoneDog alleges that Noah's 17,000 followers are worth $2.50 per month for 8 months and are asking for a $340,000 judgment against our friend Noah.  PhoneDog has, for the moment, survived a motion for summary judgment with the judge finding enough question of fact about "trade secrets" in the account to let the case go on for a little longer.

Then there's the strange case of Dr. Linda Eagle, who was one of the original founders of Sawabeh Information Services.  As is the case sometimes, all the founders were fired and Sawabeh alleges that it owns Dr. Eagle's LinkedIn account and that she has somehow "misappropriated" her own  account.  As you know, most LinkedIn accounts (as was Dr. Eagle's) are in the employee's name alone and refers to the company in the employment history and in the connections established.

We have explored the issues of who owns clients of an LLC and whether a toxic ex-spouse might have some rights in a patent in a community property state, but this is an area of the law that is developing.

In most instances, this is probably not a huge issue but employers who want to have control over these accounts (and the wisdom of this should be evaluated thoroughly), should provide guidelines in the social media section of their employment rules.  If stated clearly, there seems to be no reason why the employer would not be entitled to control and ownership of such accounts if they fall into the parameters set out in such policy.  Otherwise, it's pretty gray.

Weekend Smorgasbord: Faceporn and Copyright Porn.

Here is a couple of technology law related things that happened this week and they are only marginally connected.

1.  Facebook sued a site called Faceporn in a federal court in California.  They are aggressive about this.  See here and here.  Faceporn is in Norway but uses a .com website.  They also have 250 users in California and 1000 users in the U.S.  Faceporm failed to file an answer and Facebook moved for default judgment.  The Court denied the motion, finding that it did not have personal jurisdiction over Faceporn in that personal jurisdiction requires more than "simply registering someone else's trademark as a domain name and posting a web site on the internet".  Hence, no default judgment.

2.  In a recent  case in Massachusetts involving the claim of copyright infringement for an adult film, the judge wondered aloud in a Footnote 2 whether there was actually any copyright protection available for a pornographic product.  A couple of cases had refused to provide such protection (beginning in the early days of Broadway, see Martinetti v. Maquire, 1867) but basically on the grounds that scant dialog and nude women were not a dramatic composition and therefore not entitled to copyright protection.  A 1979 case allowed for such protection because found that the concept of decency and pornography is constantly changing and "denying copyright protection to works adjudged obscene by the standards of one era would frequently result in lack of copyright protection (and thus lack of financial incentive to create) for works that later generations might consider to be not only non-obscene but even of great literary merit".  It seems incongruous that porn is not entitled to any copyright protection but cases as late as 1998 found that hard core porn that was "bereft of any plot and with very little dialog" was not entitled to injunctive relief against copyright infringement.

So, lack of personal jurisdiction just because you have a .com domain and a question raised about copyright protection for pornography.  How do these affect technology and law?  Well, the internet issue for personal jurisdiction will continue to develop over the years, copyright issues for any medium is a hot item in technology protection and any mention of porn lights up the search engines and gets us more readers.  Reasons enough?

StartUp America Launches In Austin

StartUp America is an initiative started in the White House in early 2011 to provide for the creation of resources around the country to facilitate in the creation and fostering of small companies.  The Austin version of that launched yesterday as the seventh one of this variety in the U.S.  Its website is here and it promises to provide much good information and valuable resources.

Give it a look.

OK, Maybe You Can Be Anonymous And Your Scream Can Be Heard In Cyberspace.

Hard on the heels of the Doe v. SEC case discussed in the immediately preceding post, another case where anonymity is sought comes through the Northern District of California.  In Art of Living Foundation v. Does 1 - 10, the plaintiff seeks the identity of one of the defendants in an action for copyright infringement, among other things.

The plaintiff is an international foundation that teaches the philosophy of Ravi Shankar, the spiritual leader, not to be confused with famed sitarist, Beatles confidant and Norah Jones' father of the same name.

One of the defendants goes by the online pseudonym of Skywalker and has been critical of the teachings of the Art of Living Foundation.  In addition, Skywalker put one of the manuals used by the Foundation online.  The Foundation sued Skywalker and others for defamation, copyright infringement, trade libel and misappropriation of trade secrets.  The Foundation moved for a subpoena to Skywalker's blog host seeking Skywalker's identity.  Skywalker, anonymously, through an attorney, moved to quash.  The magistrate allowed the subpoena and Skywalker brings this appeal.

The magistrate applied the standard of Sony Music Entertainment Inc. v. Does 1 - 40, 326 F. Supp. 2d 556 (S.D.N.Y., 2004) and found that Plaintiff had alleged a prima facie case of copyright infringement due to the online publishing of the manual, the subpoenas were targeted to obtain information to identify the defendant, Plaintiff had no other means to identify Skywalker, without such identity, it would be prohibitively expensive to conduct discovery and even if Skywalker had engaged in protected speech, he had no expectation of privacy because "the First Amendment does not shield copyright infringement".

On appeal, Skywalker alleged that because his speech concerned a matter of public interest, the Court should apply the more rigorous standard used by Highfields Capital Management L.P. v. Doe, 385 F. Supp. 2d 969, 975-76 (N.D. Cal. 2005).

The Court of Appeals stated that the more rigorous standard in the Highfields case required (in addition to the factors considered by the magistrate) that the court balance "the magnitude of the harms that would be caused to the competing interests" by their ruling.  The Court held that because of the nature of Skywalker's speech (i.e. more political, religious or literary rather than commercial), the Highfields approach balances the parties' interests better than the Sony approach.  The Court also found that evidence of copyright infringement does not automatically remove the speech at issue from the scope of the First Amendment.

The Court found that, to the extent that Skywalker's anonymity facilitates free speech, the mere disclosure of his identity is itself an irreparable harm and that the plaintiff can continue its case, in view of the fact that Skywalker has been participating in the case through his attorney.  The Court quashed the subpoena.

It is possible that the Court would have reached a different result if Skywalker had not removed the manual from his blog because of a DMCA take down notice or if Skywalker had not been actively involved in the lawsuit.  In any event, Skywalker remains anonymous for a while.

In Cyberspace, No One Can Hear You Scream, But They Can Get Your Identity.

The Securities and Exchange Commission thought that a particular individual was engaged in a
"pump and dump" scheme, which is where bloggers, commentators, anonymous "experts" or others tout a small cap stock on line in forums, chat rooms, etc. and often with false or deceptive material and then when the price gets a bump as a result, the persons doing the touting sell the stock for a profit.

The SEC wanted the identity of the person behind jeffreyhooke@gmail.com and subpoenaed Google to get the information.  Google notified the person and the person (using the clever pseudonym "John Doe") moved to quash the subpoena.  The lower court denied the motion to quash and Mr. Doe appealed. 

The Court found that Mr. Doe had made a prima facie showing that his First Amendment right of free speech was implicated and therefore, the burden shifts to the government to show: (i) the information sought was rationally related to a compelling governmental interest and (ii) the disclosure requirements are the least restrictive means of obtaining the desired information.  The Court found that the government's interest in disclosure (being ancillary to a fraud investigation) trumped Mr. Doe's private interest in anonymity and that the information requested was the least restrictive means available.

Mr. Doe argued that the standard in Anonymous Online Speakers should be applied here instead of the Brock standard.  The Court held that in Anonymous Online Speakers, there was no government interest at issue (i.e. it was between private parties) as there was in Brock and therefore the Brock standard should be applied, i.e. the government did not have to present evidence sufficient to overcome a summary judgment.

The Court overruled the motion to quash and John Doe is anonymous no more.


Move Over Stuxnet, Here Comes DuQu - Son of Stuxnet, Stuxnet 2.0 or Demon Spawn?

The latest addition to the family of badass malware is DuQu.  DuQu was born sometime in the near recent past but only became obvious to the world on September 1, 2011 when the Laboratory of Cryptography and System Security (CrySyS) notified the world of its birth. 

If the proud parents were to issue a birth announcement it would read something like:

"The Stuxnet family is proud to announce its latest variant, DuQu, named after its propensity to create files with DQ as a prefix.  Born: Sometime lately.  Weight: Heavy.  Breadth: Remains to be seen.  The bouncing baby malware shares a good portion of its mother's (Stuxnet) source code.  Its father is undetermined but likely is a good looking roving nation state with sabotage or corporate espionage on its mind, like Mossad or the CIA, who are also related to Stuxnet, so birth anomalies are possible.  DuQu shares its likely father's fondness for stealth and trickery."

Most experts like Symantec would agree with the announcement's statement on DuQu's lineage but Dell's SecureWorks doesn't necessarily buy it.

Stuxnet has been used to infect the Iranian nuclear program by causing the centrifuges used to purify uranium to exceed their design for spinning speed and destroy themselves.  DuQu seems to extract information and send it to an unknown site.  Although not proven, this blog along with others have surmised that the sophistication of Stuxnet, the targets and the amount of programming resources required point to the involvement of a group of people more technically advanced and well funded than the average virus creator.  We also chronicled Stuxnet's move from being merely menacing to becoming a military weapon.

Anti virus groups are moving to address the issues, Microsoft says it will address the zero day defect that DuQu exploits when it gets around to it but proposes an emergency fix and the "whitelisting" folks like CoreTrace say that they've been ahead of this all along.

As this new arrival grows and spreads, the real purpose and the damage it may do can be assessed but if malware continues to be more sophisticated than some of the applications we regularly use, problems will abound.

UPDATE: Supreme Court Allows Autodesk "License" Decision To Stand.

You will recall that we reported on a case styled Vernor v. Autodesk, which held that because of some "magic words", the distribution of used software was subject to a license and was not a sale and consequently, could be prevented by Autodesk.

Mr. Vernor (actually one or more of the multitude of entities that filed amicus briefs in the lower court, see here) sought an appeal to the U.S. Supreme Court but the Supremes denied cert on Oct. 3.  This means that the ruling stands in the Ninth Circuit (Washington, Oregon, California, Arizona, Nevada, Idaho and Montana) and if the proper words are used, the "first sale" doctrine doesn't apply.

Because this makes the operation of e-Bay and others more difficult, look for further developments.

Winklevoss Twins Not Particularly Enamored With Legal System, Lawyers nor Results.

We have chronicled the saga of the Winklevoss twins in these pages before (see here, here, here and here) and frankly, we're a little embarrassed we have spent so much time on this.  As you will remember, the twins succeeded beyond most mere mortals wildest expectations when they settled their claim against mighty Mark for a portion of Facebook now estimated to be worth more than 9 figures.  That definitely made them a member of the one percent.  They then decided that they had been scammed and tried a number of times to set the settlement aside.  As indicated in the posts described above, they have been singularly unsuccessful in that endeavor.

They engaged the firm of Quinn Emanuel to pursue the initial law suit against Facebook.  The arrangement with Quinn Emanuel provided for a contingency fee based on the amount ultimately recovered through suit or settlement.  They signed an engagement letter that they had reviewed by independent counsel.  After the settlement with Facebook, the twins decided not to pay Quinn Emanuel the $13 million in legal fees that Quinn Emanuel claimed under the engagement letter.  Quinn Emanuel instituted arbitration in accordance with the engagement letter.  The twins sought a court order enjoining the arbitration proceeding.  That was denied.  An arbitration panel awarded Quinn Emanuel the $13 million dollars.  The twins appealed again to the New York Supreme Court seeking to set aside the award because of the law firm's alleged malpractice.  Denied again.

The Winklevoss twins entered into a settlement that made them even wealthier than they already were.  They then decided that they didn't like what they had agreed to and have set out to avoid anything relating to that settlement.  They are zero for career in that category.  I wonder if the law firm representing them in the matter against Quinn Emanuel asked for up front payment.  They would be guilty of malpractice on their own behalf if they didn't.

EA Sports - Your Likeness is "In The Game"!

EA Sports is a video game maker that annually produces a game entitled NCAA Football.  Ryan Hart was a college football player that played for Rutgers.  EA Sports incorporated Mr. Hart's likeness into several versions of its video games, including matching his height, weight, home town, commonly worn arm band and helmet visor and other matters that pretty much matched Mr. Hart and his playing style at Rutgers.  Mr. Hart filed a complaint seeking class action status for himself and other college football players similarly situated.

EA Sports filed a motion for summary judgment, alleging that EA's first amendment rights trumped any of the claims that Mr. Hart had, including New Jersey's recognition of a common law right to prevent unauthorized, commercial appropriation of names and likenesses.

The Federal District Court of New Jersey granted EA's motion and dismissed the complaint.  In a long and detailed decision, the Court discussed several likeness cases including those involving Paris Hilton on a Hallmark card, Edgar Winters and his brother portrayed as giant worms in a comic book and the band No Doubt.

The Court relied on principles of copyright law and found that the defendant's use of the image was "transformative" and as such, was entitled to First Amendment protection that trumped any damages that the plaintiff had experienced.  The Court conceded that EA licensed likenesses of pro football players and licensed colors and logos of college teams from colleges and paid for those, but refused to pay for likenesses of college players.  They further conceded that this might seem "unfair" (You think?) but that the unfairness of the situation did not give rise to a different decision.

The Court found that a player of the video game could alter the player's likeness and playing attributes but that was not what was transformative.  The transformative feature was EA's creation of the mechanism by which the virtual player could be altered.

So, EA Sports incorporates Mr. Hart's unaltered image in the game but provides a mechanism to alter it, so First Amendment rights triumph.  "It's In The Game"

This Week In Intellectual Property Lessons: Butters' "What What", Iron Mike's Tattoo and Ali's Catch Phrase.

What do South Park's Butters parody of "What What (In The Butt)", Mike Tyson's facial tattoo and Muhammad Ali's catch phrase have in common?  They all serve to illustrate some aspect of intellectual property law.

As you know, South Park is a cartoon featuring a group of foul mouthed kids and in which, no subject is taboo or sacred.  A rapper named Samwell did a video that went viral called "What What (In The Butt)". (Warning: Not exactly safe for work) The central group of foul mouthed kids in South Park convinced  Butters to do a version of that video to see if it would also go viral.  It did.  Samwell sued, alleging copyright infringement.  The court in Brownmark Films, LLC, v. Comedy Partners, 2011 U.S. Dist. LEXIS 72684 (E.D. Wis. July 6, 2011)  using a method deemed "irregular" (court's own words), considered an affirmative defense as a basis for a motion to dismiss for failure to state a cause of action.  Usually, affirmative defenses are considered only after the plaintiff have proved they have a viable case.  The court then found that "The South Park “take” on the WWITB video is truly transformative, in that it takes the original work and uses parts of the video to not only poke fun at the original, but also to comment on a bizarre social trend, solidifying the work as a classic parody."  The court also found that that "...South Park’s parody of the WWITB video falls squarely within the fair use protections afforded by the Copyright Act."  Therefore, fair use and a dismissal with prejudice.

We've all seen the offensive and extremely funny movies, Hangover and Hangover II.  Mike Tyson, former heavy weight champion of the world and famous pigeon lover was in both.  The tattoo on his face was featured prominently and in Hangover II, one of the actors ends up with an almost identical tattoo and this is shone on some of the advertisements for the movies.  The tattoo design was originated by a tattoo artist in Missouri and the artist retained all rights in the design.  He brought suit for damages for copyright infringement and for an injunction to stop the release of the film.  In a preliminary hearing, the judge found that the artist had a likelihood of success in the trial and stated that a copyright could exist in the medium of expression here (Mike Tyson's face).  The judge declined to issue an injunction against the release of the film by finding that damages would be sufficient remedy.  This ruling induced the parties to settle and while the settlement is confidential it is likely that as part of the settlement,  the movie company will alter the advertisements to obscure the similarities in the tattoos.

Muhammad Ali famously coined the phrase "Float like a butterfly, sting like a bee."  The smart people advising him got a trademark on the phrase.  Kobo, Inc. has been using the phrase as a part of its advertising for its electronic reader and using it prominently in several print advertisements.  Ali's licensing company has filed suit, alleging that this improperly suggests that Ali endorses the product and since he apparently has not been paid to do so, it is apparent that he doesn't endorse it.  This suit has been recently filed and its progress will be interesting.  Maybe not as interesting as the "Thrilla in Manila" or the "Rumble In the Jungle" but nonetheless interesting to us IP nerds.


New Patent Legislation Signed by President Obama - All Patent Problems Immediately Cured.

Snarky titles aside, President Obama today signed into law the America Invents Act.  This bill passed the Senate by a vote of 95 to 5, so given the political climate in Washington today, you almost have to assume that it doesn't do much, but that might be unfair.  Some of its features include:

  • Changes the definitive date from the first to invent to the first to file.  This is designed to eliminate controversy and the necessity of a court to review a lot of evidence to determine who has prior rights.  It also puts the U.S. into conformance with most of the rest of the world on this issue.  It also creates a race to the USPTO and may favor large companies with money and staff over inventors with less resources.
  • Allowing the USPTO to set its fees and keep most of the fees itself in contrast to having them siphoned off to fund other agencies as in the past.  This supposedly will help clear up a backlog of approximately 1 million applications.
  • Giving rights to third parties to challenge a patent within 9 months after its issuance.  It also limits patent rights for tax systems and financial products or systems.

Large companies like IBM touted the legislation but others weren't so impressed.

A full text of the bill can be found here.  Problems solved.

Update: The Acquisition That Keeps On Giving. SAP Agrees To Pay Criminal Fine of $20 million For TomorrowNow's Transgressions.

 In 2005, SAP acquired TomorrowNow, a company designed to provide third party maintenance for Oracle software.  Unfortunately, TomorrowNow chose to reduce its operating costs by pirating a bunch of Oracle software and then using it in its business.  

Oracle found that to be somewhat offensive and sued TomorrowNow and SAP and originally obtained a judgment against them for $1.3 billion dollars.  We recently noted that a judge had reduced this amount to a mere $272 million.

During the civil trial, federal prosecutors listened and then filed criminal charges against TomorrowNow.  TomorrowNow is basically defunct and has fewer than ten employees and no individuals were named in the indictment.  This was done as part of a plea bargain and SAP worked out a deal where they would pay a $20 million dollar fine for TomorrowNow, even though SAP was not named in the indictment either.  One would have to assume that some individual actually performed the criminal act of stealing the software, although in this case, it appears that Mitt Romney is correct in that: "Corporations are people, my friend."  At least for plea bargains.

Court Reduces Oracle's Judgment Against SAP From $1.3 Billion (With a B) to $272 Million (With a M).

Once upon a time, SAP purchased a company called TomorrowNow.  TomorrowNow apparently downloaded Oracle software thousands of time in an effort to get the software cheaply (free) and obtain some of Oracle's customers.  Oracle sued and SAP did not contest the fact of the downloads but alleged that the damages to Oracle should be equal to the profits that Oracle would have realized from the pirated software.  The Court allowed the jury to find damages based on a "hypothetical license" that would have existed between Oracle and SAP if Oracle allowed SAP to use the software in question.  This allowed the jury to find damages in the amount of $1.3 billion, the largest copyright infringement verdict in history.  However, today, in the U.S. District Court for the Northern District of California, the judge found that there was no evidence that Oracle would have ever granted such a license and that damages must be based on evidence and not speculation or guesswork.  The judge then said that the judgment could be reduced to $272 million and if the parties could agree on that, then it would be settled.  If they do not agree, then a new trial will be ordered.

It's an interesting world when a $272 million dollar verdict is considered a victory for the defense.

Austin Start Up Week - Sept. 6-10. Good Times and Learning Together: What A Concept!

The first Austin Start Up Week will be held September 6 through 10.  The website and more information may be found here.  The organizers have as their stated goals: "...learn, mix and mingle with your peers, meet some new people and make awesome things happen". 

Included in the agenda are kayak rides, pub crawls, Office Space quote-a-longs ("So I was sitting in my cubicle today, and I realized, ever since I started working, every single day of my life has been worse than the day before it. So that means that every single day that you see me, that's on the worst day of my life") and some educational stuff also.

This sounds like a whole lot more fun than working (even if you have a job), so you should check it out.  We hope to see you there.

Ninth Circuit Withdraws Opinion On Betty Boop. Logo Licensors Breath Easier For A While.

We have previously discussed an opinion issued by the Ninth Circuit, which found that the "Betty Boop" character was a "functional aesthetic component" of a product upon which it was printed and therefore, like embossed designs on toilet paper and red soled shoes, was not subject to trademark protection.  We found the ruling and the method of getting to the ruling to be unusual and proposed that the Court could have reached the same result by addressing other issues actually before the Court and not caused heart attacks in the offices of companies that license logos.

We were not the only ones that found the ruling to be troubling and last week the three judge panel in the Ninth Circuit took the unusual approach of withdrawing the original opinion and superseding it with a new opinion.  The new opinion makes no mention of whether the panel thought they erred in the original opinion nor of any of the firestorm of criticism that the opinion evoked.  They merely took our suggestion (I'm pretty sure this blog was the driving force in causing this to happen) and found chain of ownership issues and other issues sufficient to allow them to remand for further hearings.

So, for the present, it is as though the original opinion never existed.  The Betty Boop trademark issue is not solved for the litigants but logo licensors are temporarily happier.

Update: Louboutin's Red Sole Ruled "Functional" So Use As A Trademark Is Suspect.

Recently we reported that the shoe of choice for fashionistas, Louboutin, had filed an infringement action against a competitor because the competitor was selling shoes with red soles. Louboutin had obtained a trademark for such red soles.  In an opinion denying Louboutin's request for a  preliminary injunction, the Court held that no injunction would issue because it was unlikely that Louboutin would be successful in the trial on its merits because the red soles were "functional".  The Court found this in part because Christian Louboutin, himself, testified (perhaps unwisely) that the red soles provided "energy", and were "engaging" and "sexy".  This, the Court found, was not designed to identify the shoes but provided "function" and therefore was not subject to trademark.  So, red soles, along with designs on toilet paper and Betty Boop are functional.

The Court also based its decision upon the thought that chaos would result if a single color was granted as a trademark in the fashion industry.  Since Louboutin's registered trademark is for a "red' sole, the Court wondered just how red would red have to be to be infringing and would other designers race to trademark all the other colors.

Louboutin's trademark is therefore likely to be cancelled, depending on Louboutin's next legal move.  I think you might be seeing some red soled Low Bootawns in Walmart soon.

Zediva's Cord Is Too Long. Court Considerably Shortens It.

You know our friends at Zediva, the entrepreneurs that used DVD players in a data center and DVDs they had bought to rent the DVDs and the players to individuals and stream movies over the internet to subscribers.  We chronicled their launch and subsequent encounter with the legal system here and here.  Zediva had thought their arrangement would be legally equivalent to renting a DVD and player to an individual in their home, a situation that is legally acceptable.  They reasoned that the only difference was a little longer cord, i.e. the distance through the cloud from Santa Ana, California to the respective user.

The Federal District Court, Central Division, of California recently disagreed.  In a decision that has been roundly criticized by some and lauded by others (no surprise there), the Court granted a preliminary injunction, which effectively shut down the Zediva enterprise.  Their website now shows the following:

The Court reasoned that the Zediva service constituted a public performance and that the method of providing the movies constituted a transmission, both violations of the exclusive rights of a copyright holder.  Consequently, the Court found that the plaintiff had shown a likelihood of success on the merits, a requisite of the granting of an injunction.  Another requisite is the showing of irreparable injury.  The Court solved this by reasoning that the provision of the movies by the unlicensed provider deprived plaintiff of its ability to control the use and transmission of their copyrighted works and deprived the plaintiff of revenue (the crux of the matter).  The Court also decided in a rather conclusory manner that the balance of hardships weighs sharply in favor of the plaintiffs and the public interest is best served by the issuance of the injunction.

The Court seemed to think that some kind of physical act on the part of the user, such as recording on a DVR or physically inserting the DVD in a player owned by the user on the user's premises, was required to remove the transaction from the "public performance" and transmission arenas.  Zediva maintained that this was a distinction without a difference.

This area of the law continues to evolve, although more slowly than the technology driving it.  Although it looks like it probably will not happen, it would be helpful if Zediva were to proceed to trial on this so that we could get a more complete consideration of all the issues and some judicial instruction in this cloudy area (pun intended).

Design On Toilet Paper Found To Be Functional and Trademark Gets Wiped Out and More Bad Puns.

In the technical arena, we routinely deal with trademarks and their validity.  A basic tenet of trademark law is that if the thing that is being trademarked is "functional", i.e. useful for the product to function, it can not be the subject of a trademark.  We recently wrote about a case with which we disagreed that found that the image of Betty Boop on a purse was functional and therefore could be used on the purse without infringing.

Another case involving functionality in a trademark setting was recently decided by the Seventh Circuit and this case involved toilet paper.  The initial line in Georgia-Pacific Consumer Products LP v. Kimberly-Clark Corporation et al (Seventh Circuit Court of Appeals, No. 10-3519, Decided July 28, 2011) states: "Toilet paper. This case is about toilet paper. Are there many other things most people use every day but think very little about? We doubt it."

The case is a decision on a summary judgment motion filed by Kimberly-Clark that, inter alia, alleged that the "Quilted Diamond Design" on Georgia-Pacific's Quilted Northern was functional and therefore, Georgia-Pacific couldn't enforce an infringement action against Kimberly-Clark using a similar design on their Cottonelle product, even though the quilted design was the subject of a registered trademark.

The decision rested in large part on the fact that Georgia-Pacific had several utility patents on the design and the Court found that this was "strong evidence" that the design was functional, particularly if the "central advance" claimed in the utility patent matches the "essential feature" of the trademark.

The Court also engaged in what passes for ribald humor in an opinion.  In addition to their explosive first line described above, the puns flowed freely in the opinion: e.g. "Georgia-Pacific unrolled this suit against Kimberly-Clark", "...despite the fact that the judge dutifully plied her opinion, we now wipe the slate clean...", "[this] claim...does not hold water" and the "...judge was spot-on".  Riotous humor for a judicial opinion.

In the end [see what I did with that?] the Court held that "...if a design is functional the owner cannot trademark the design and block innovation. Georgia-Pacific, whether intentionally or not, patented their Quilted Diamond Design and claimed it to be functional. They must now live with that choice and can benefit only under the protection of a patent, not that of a trademark."

So the Court got to the bottom of the matter, flushed Georgia-Pacific's trademark claim and dispensed a double roll of justice.  

Please, may I be excused for this?

Winklevosses Lose Again. Massachusetts Court Dismisses New Lawsuit Against Facebook.

We have covered the Winklevoss twins versus Zuckerberg/Facebook legal struggle on way too many occasions (see here, here, here and here).  We rejoiced when we found out that the Winklevosses would not go away as we felt it would make for easy blog posting.  Well, this is one.  About a month after the Winklevosses decided not to take their appeal to the U.S. Supreme Court and instead pursued a suit in District Court in Massachusetts, that court has dismissed their claim on the grounds that other courts had already considered and rejected their substantive claims (res judicata).  The twins' attorney will file a motion for post judgment relief and we can only hope that this continues until we need another easy post.


New Top Level Domain Name Scheme Approved By ICANN

You will recall that we mentioned in February that the Internet Corporation for Assigned Names and Numbers (ICANN) was proposing opening up the top level domain game to everybody.  ICANN has now approved that move by a vote in Singapore on June 20.  Applications for positions as new top level domain registrars will be accepted for a three month period beginning on January 12, 2012.

So, anyone with $185,000 and an infrastructure for doing registration acceptable to ICANN can get their own top level domain registration business.  As we mentioned before, this will greatly expand the present .com, .edu, .net scheme to anything you could imagine and that ICANN will approve.  This could include names relating to common interests (.badminton, .skiing or .coins), society segments (.democrats, .gay or .baptist), individual company or brand names (.ford, .ibm or .dell), professions (.doc, .law or .cpa) or any else that can be envisioned and approved.

Get your applications ready.

Hallelujah! We Spoke Too Soon. Winklevosses Strike Back. More Easy Blog Posts Ahead.

Yesterday we announced prematurely the cessation of combat operations in the Winklevoss v. Zuckerberg saga/soap opera/high grossing movie plot.  It seems that even though the twins had decided to forgo their appeal to the U.S. Supreme Court, they are pressing the attack in an existing suit in Boston.  Thank you, whatever deity is responsible for providing material for blog posts.  Our faith in you is renewed.


Our Long National Nightmare Is Over. Facebook/Winklevoss Lawsuit Comes To An End.

This blog has been in sort of a TMZish mode regarding the unfolding drama of the Winklevoss twins vs. Zuckerberg.  See here, here and here.  Apparently the era of easy blog posts is coming to an end as the twins have announced through a filing that they will not pursue an appeal to the U.S. Supreme Court.


Hear All That Screaming and Gnashing Of Teeth? It's World IPv6 Day!

OMG!  It's already World IPv6 Day and you forgot to buy gifts.  What are you doing to celebrate?  Who has the day off?

University of Texas Investment In Patent Company Questioned.

Our partner, Luke Stanfield, was quoted in the most recent issue of the Austin Business Journal In an article written by Christopher Calnan, the activities of The University of Texas Investment Management Co. ("UTIMCO") in investing in Intellectual Ventures Management LLC ("Intellectual Ventures") were called into question.

Intellectual Ventures is referred to as a patent troll or a hedge fund that defends valuable intellectual property, depending on the person doing the assessment.  The article cited above mentions that Intellectual Ventures has acquired rights to more than 30,000 patents and its principal business is licensing such patents and litigating the alleged infringement of such patents.

The article questions whether this is something in which the University of Texas should be investing.  Some say such firms do not foster innovation and in fact, divert the resources of the targeted companies.  This was Luke's focus when he was quoted in the article as saying: "If companies are forced to spend money on lawsuits instead of research and development, it can stifle innovation".  Sounds right to me.

The Rapture or World IPv6 Day, Which One Is Likely To Cause More People To Disappear?

Well, the Rapture came and went and apparently everyone I know is a dirty, rotten sinner.  Now, we get another chance to be elevated into something greater than ourselves.  You will recall that we warned you that the Internet ran out of numbers a month or so ago and it had about as much impact as last Saturday's event.

Now, the Internet Society is tempting fate by calling for a World IPv6 day on June 8, 2011.  We are less likely to see billboards and covered cars extolling this day than we did for the Rapture and we certainly will see less media coverage although this touches far more people than 144,000.

On June 8, several hundred websites and a few large companies will provide their content in IPv6 compatible mode to remind people of the coming apocalypse when all websites and devices with IPv4 numbers try to switch over.  Talk about your Armageddons!  Just wait until the internet and cell phones don't work.  At that point, not even one of the major deities could save us.

To determine your browser's ability to be screwed up by this change over, you can go here to check now.  To prepare for IPv6 day and the return of Y2K, please fasten your seat belt and return your browser to its full uptight and locked position.  Your pilot has been advised of some choppy air ahead.

(To be clear, this is this Blog's lame attempt at sarcasm.  We believe the IPv6 changeover is beneficial and necessary.  Really, we do.)

Cookies, COPPA and Contracts

Alliteration abounds.  Reports today concern the EU Directive on the use of cookies, a settlement with a Disney subsidiary for violation of COPPA (Children's Online Privacy Act of 1998) and why paying attention to the construction and organization in the drafting of a contract can be extremely important.

1.  The European Union has issued a directive that will go into effect on May 26 of this year that basically reverses the way cookies are handled.  In the past the regulations required that the user be advised of the way that cookies are used and be given the opportunity to opt out of receiving them.  The new regulations requires the same advising but requires "consent" before cookies can be placed.  This is the so-called "opt in" provision.  The regulations recognize that enforcement of this will be a phased in approach with the most intrusive cookies getting the most attention.  The Information Commissioner's Office has issued advice about how to deal with this.  If your website attracts significant traffic in the European Union, you would be well advised to read the ICO's advice and plan accordingly.

2. COPPA has requirements about what information can be collected from children online and what use can be made of such information.  The Federal Trade Commission accused Playdom, an online game provider, of violating COPPA by collecting information from children without parental consent and by violating its own stated privacy policy.  Playdom is a subsidiary of the Disney company.  The FTC filed a complaint against Playdom that resulted in a consent decree, which among other things, required a $3,000,000 civil penalty.   This is the largest penalty yet assessed for such a violation.

3.  The placement (or misplacement) of a single word recently made a $1,000,000 difference in a Maryland case.  In Weichert Co. of Maryland, Inc. v. Faust, an ex-employee of a real estate firm was sued for violation her obligation of  loyalty and the non-solicitation clause of her employment agreement.  The Court found that she violated the obligation of loyalty but not the non-solicitation clause.  Her contract had an attorneys' fee provision where the prevailing party is entitled to its fees.  The real estate firm prevailed on the breach of the duty of loyalty but the employee prevailed on the issue about non-solicitation.  The attorneys' fee provision was included in the non-solicitation clause and gave fees to the party that prevailed "hereunder".  Since the "hereunder' was in the particular clause, the Court reasoned that it applied only to that clause and not the contract or the relationship as a whole.  Hence, the employee was entitled to her attorneys' fee, which were approximately $1,000,000, even though she had "prevailed" on only half of the issues.  In the lessons learned department for us attorneys, if you intend to make a provision apply to the contract as a whole and not just a specific clause, move the provision into a section of its own or make it very clear that it is applicable to the whole contract.

Ninth Circuit Denies Winklevoss v. Facebook Motion For Rehearing. Winklevosses Change Status To: "It's Complicated".

You will remember that the Winklevoss twins had tried to get their settlement with Facebook overturned.  The Ninth Circuit had decided that the settlement should stand and that litigation should end at some point.  The Winklevosses did not take the hint and asked for a rehearing en banc (i.e. that all the judges of the Ninth Circuit hear it as a panel rather than the three judge panel that originally sat on the case).  That motion was denied without comment.  The only option left for the twins is to appeal to the U.S. Supreme Court.  In order to decide to grant certiorari (i.e. the decision to put the case on the Supreme Court docket), the Supremes will have to believe there is some constitutional issue to be decided.  That will not be easy in this case as the issues deal primarily with contract law and the allegations of fraud.

We had mentioned before that we hope the Ninth Circuit granted a rehearing for no other reason than it gave us fodder for further posts.  We now wish the same for the Supreme Court.

Whole Bunch of Folks Gang Up On Apple To Try To Make "App Store" Available To Everybody.

We had written a couple of times (here and here) about the on-going battle among Apple, Microsoft and Amazon about the use of the term "App Store" as a trademark. 

Now, Microsoft, Nokia, Sony, HTC and Amazon have all registered opposition to Apple's exclusive use of such term in Europe.  Most of these companies announced yesterday that they have filed or will file opposition to Apple with the Office of Harmonization in the Internal Market, the body responsible for trademarks in the European Union.

Apple has already obtained a mark for App Store with the OHIM but this new gang of opponents are seeking to have this reversed on the grounds that such term is generic and has been used by everybody for a long time.

If Apple is able to hold on to the right of exclusive use of this mark, it would be huge.  The price of poker just went up.

Updates And Comments: Posting On Facebook At Work Is Criminal?, Past Notice Doesn't Create Obligation To Police Site, Use of Competitor's Trademark As Keyword Is Infringement But No Damages, and Red Soles In The Sunset.

A few comments and updates:

1.  The Ninth Circuit recently held in U.S. v Nosal (9th Circuit No. 10-10038) that exceeding your employer's computer use restrictions could be criminal under the Computer Fraud and Abuse Act, 18 U.S.C. 1030 et seq.  Sec. 1030 (a) (4) states: "Whoever... knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value.." violates this statute.  The Defendant had authority to access the computer in question but exceeded his employer's written use policy and obtained some confidential information.  The Court reasoned that this satisfied the statutory requirement of "exceeds authorized access" and if coupled with furthering fraud and obtaining something of value that was sufficient to avoid dismissal.  Was the headline about accessing Facebook at work being criminal hyperbole?  Yeah, a little, but it caused you to look, didn't it?  A lesson to be learned from this is that a well crafted computer use policy will be another tool for employers to use to protect their trade secrets.  Employees' rights groups are not thrilled.

2.  We noted recently that continuing to provide certain services after actual knowledge of infringing activity could lead to liability for contributory infringement but that prior received notices were not necessarily actual knowledge. This principle was confirmed in Wolk v. Kodak Imaging Network Inc., Southern District of New York, March 17, 2011.  The Court in Wolk held that previous takedown notices from the same artist did not give rise to actual or apparent knowledge nor the obligation to police the site for infringement.

3.  Suits relating to use of competitor's trademarks as search terms continue to show up.  We had discussed a couple here and here.  In InternetShopsInc.com v. Six C Consulting, Inc. the defendants conceded liability but the Court failed to award any damages because they could not find a single sale that resulted from the infringement.  The Court did enjoin the defendant from using the trademark as a search term going forward.

4.  Louboutin is a luxury shoe retailer who started marketing shoes with red soles in 1992.  Yves Saint Laurent recently marketed shoes with the same color uppers and soles. One of these was red and therefore had a red sole.  Others were blue and green with correspondingly colored soles. Louboutin has filed an infringement action relating to the red soled variety in the Southern District of New York.  A pivotal issue in this case will be whether consumers will be confused.  Would you be confused if you were going to pay more than $1,000 for a pair of shoes?  I mean confused as to the identity, not the wisdom of paying that much for shoes.

Quick! Licensors Re-evaluate Your Non-Assignment Clauses.

"Neither this Agreement nor any of the rights, interest or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties..."

This provision or something very similar appears in approximately 100% of license agreements, whether patent, software or something else.  It is ubiquitous, well written, rarely discussed and settled, or so you thought.

The Chancery Court of Delaware (them again) recently gave reason to reconsider this provision.  In Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH, C.A. No. 5589-VCP, Decided April 8, 2011, the Court considered the application of this clause in the context of a reverse triangle merger.  For those of you scoring at home, a reverse triangle merger occurs when a wholly owned subsidiary of a parent merges with an unaffiliated entity, with the unaffiliated entity being the survivor.  The result is the unaffiliated entity becomes a wholly owned subsidiary of the parent without the necessity of the parent directly purchasing the stock of such unaffiliated entity.

In the instant case, Roche had licensed some technology from Meso and there had been prior controversies and law suits relating to the scope of use that Roche had under the license agreements.  Roche had lost some of these battles and had responded by repeatedly acquiring companies that had the technology.  One of the companies that had license rights was acquired by Roche by the above described reverse triangle merger method.  The result was that such licensee became the wholly owned subsidiary of Roche.  The licensors complained that this violated the language and intent of the non-assignment clause as set out above.  Roche countered that there was no assignment of any kind and that only the ownership of the licensee changed.  Roche filed a motion to dismiss for failure to state a cause of action based partially on their assertion that no assignment had taken place.

The Delaware court said that it wasn't as simple as that.  The Court reasoned that even though the non-assignment language did not expressly address a change of control or ownership of the licensee, that did not necessarily mean that it falls outside of the ambit of the non-assignment language.  The Court basically said that it felt strongly both ways and both parties had taken reasonable positions and had cited cases supporting their positions, although none were Delaware cases dealing with reverse triangle mergers.  The Court also stated that since Delaware had not directly ruled on this issue,therefore, at this early stage of the proceedings, it could not dismiss as a matter of law.

Again, it is important to note that this was in response to a motion to dismiss and the standards are different than in a final adjudication.  The Court has not ruled that a reverse triangle merger runs afoul of a non-assignment clause that prohibits assignments occurring "...by operation of law".

The Court's reasoning and some of its dicta indicates that it could ultimately find that a merger, however constituted, is tantamount to an assignment if certain elements are present.  How that shakes out remains to be seen.

However, if such an outcome bothers you (whether you are a licensor, licensee, assignor, assignee or something else), you should strongly consider the construction of the language.

A licensor seeking to prevent such an assignment would opt to include specific language about any kind of merger or change of control constituting an assignment that is prohibited.  Others (licensees, etc.), seeking more freedom in assignment, should be leery of such language. Companies considering acquisition and doing due diligence should consider whether their proposed transaction would bring any of these issues into play.  Let your lawyer know what your plans and purposes are so they can address those issues.

Five Things That Web Hosters and SEO Providers Should Avoid Like The Plague (Other Than Cliches).

Companies hosting web sites and providing search engine optimization (SEO) services generally enjoy safe harbor protection from copyright infringement under the Digital Millennium Copyright Act and protection from liability for information provided by third parties under Section 230 of the Communications Decency Act, but does that protection extend to protection from contributory trademark infringement liability?  Courts increasingly have answered that question in the negative.

Let's examine one such instance.  Christopher Prince operated several websites, one of which was called "copycatclubs.com".  Through these websites (all of which resolved to a single online store), Mr. Prince sold golf equipment, accessories and apparel.  The online store was described as a "wholesaler" that was a "...one stop shop for the best copied and original golf equipment on the internet".  A shopper working for Roger Cleveland Golf Company, Inc. (Cleveland) ordered several clubs described as "Cleveland" clubs from the online store.  The shopper received the order and the clubs were branded as "Cleveland" clubs.  Cleveland determined that the clubs were counterfeit and brought suit against Mr. Prince and some of his affiliates.  During discovery, it was determined that Mr. Prince employed Bright Builders, Inc., a web site designer and SEO consultant to create and support the web sites and the business model.  Cleveland amended its complaint to include Bright Builders as a defendant and allege that Bright Builders had contributorily infringed Cleveland's trademarks.

Bright Builders moved for summary judgment with a one and one-half page motion with no supporting citations or reference to the record as is required by court rules.  The gist of Bright Builders' defense was that it was merely a "web hosting entity" and was not "...aware that Mr. Prince was engaged in illegal activities...".  Cleveland strongly disputed this and cited evidence in the record that Bright Builders created the website, assured Prince that he would make at least $300 a month from the online store, took $10,000 to provide coaching and mentoring services, provided a Project Advisor and had discussions with Prince about developing copycatclubs.com.  In fact, the Court said that the name (copycatclubs) should have alerted Bright Builders to possible infringement (even though copying is not necessarily illegal).  Bright Builders did not bother to reply to Cleveland's response.

Perhaps due in no small part to the nonchalant manner in which Bright Builders approached the lawsuit and the pleadings, the Court found that there was a genuine issue of material fact as to whether Bright Builders participated in Prince's business to such an extent that Bright Builders could be held liable for trademark infringement and denied the motion for summary judgment.  This was in December of 2010 and the case proceeded to trial.  On March 10, 2011 the jury found infringement by both Prince and Bright Builders and returned a much larger verdict against Bright Builders (the secondary infringer) than it did against Prince (the actual infringer).

So, here we are again in the Lessons Learned Department.  What steps should website developers and SEO consultants take (or not take) to minimize their exposure to a verdict for secondary liability?

Consider these principles:

1.  If the developer exerts sufficient control over the website and knows or had reason to know of infringement, the developer must not fail to take appropriate actions.  The developer does not have to reasonably anticipate that infringement will occur and generalized knowledge is not sufficient to impute knowledge of any and all instances of infringing activity.

2.  Demand letters and other notices from potential plaintiffs are not sufficient to establish a duty to act but when the developer has knowledge of specific infringing activities, it must not fail to take action to eliminate the infringing activities or it must cease to provide services to the infringer.

3.  The website hoster should have programs designed to detect possibilities of infringement and not fail to take defined steps to eliminate it when specifically found.

4.  Do not be "willfully blind" to infringement.  This means refusing to investigate when you fear the results of the investigation.  White heart and empty head is no defense.  Principles 1 through 4 above are discussed in great length and detail in Tiffany et al v. EBAY, Inc. 576 F. Supp. 463 (2008).

5.  You must not fail to do a better job of documenting your activities and responding to court pleadings than Bright Builders did.  While this might not be the developer's responsibility, the developer should be sure that it engages legal counsel knowledgeable in the area and that takes the potential liability seriously.

Therefore, the next time you are engaged to develop a website to sell Gucci bags and Louboutin shoes, do your due diligence to see if they are the real thing or you may end up taking a bigger hit than the actual culprit.  That's not optimization of any kind.

Who Owns The Patent? Your Assignee or Your Assignee and Your Toxic Ex-Spouse?

We hold these truths to be self evident: (i) Patent rights originally vest in the inventor even if the patent was conceived in the course of employment; (ii) Most companies get assignments from their employees as to patent rights; (iii) All property obtained during marriage is presumptively community property in community property states (e.g. California and Texas); (iv) divorces can be nasty.

So, what happens if an inventor works for a company, creates a patentable invention while married, signs the standard assignment of intellectual property and the spouse does not sign the assignment.  Is that an effective assignment?

Or, what happens if an inventor develops a patentable invention, gets a divorce in which the ownership of such patent is not mentioned, then assigns the patent, the assignee then brings suit on the patent and the defendant moves to dismiss the complaint because the ex-spouse is a necessary party and was not named in the suit?

Who gives a damn?  Well, the U.S. Court of Appeals for the Federal Circuit has to decide this issue in Enovsys LLC v. Nextel et al.  In this case Nextel was sued for infringement of some GPS patents that Enovsys obtained from an inventor after his divorce.  The inventor and the spouse got a "quickie" divorce in California in which they marked a box on the divorce form that said they did not possess any community property.  The Court of Appeals thought that this was enough to vest all ownership in Enovsys and preserve their standing to sue.

Although the Court skirted the issue (no sexism implied) in this case, the issue remains as to the status of patents obtained during marriage and the proper way to assign them.  California and Texas are community property states and both states recognize that property obtained during a marriage is presumptively community property.  The Court of Appeals in Enovsys confirmed that federal patent law does not preempt state law in regard to property ownership.  The Texas Court of Appeals has said (in dicta) that "It is unquestionable that, had these patents been taken out during the marriage, the patents and the income they generated would be community property. In this, we would join other jurisdictions in which the courts treat the income from intellectual property created during marriage as marital or community property."  Alzenz v. Alsenz 101 S.W.3d 648 (2003)

Then, is it possible that a spouse or ex-spouse in a community property state has an interest in your patent portfolio?  Must you get the spouse to sign the assignment of intellectual property rights that resides in your standard forms that companies get all employees to sign?  Must you update that if an unmarried inventor gets married?  Seems like a lot of trouble, doesn't it?  Good practice may indicate that you do so, but the dearth of cases that revolve on this issue would seem to indicate that maybe the chances are so slim that it's not worth the trouble. 

What do you think?

Yes, Virginia, A Compilation of Publicly Known Processes Can Still Be A Trade Secret

Trade secret law is not nearly as topical and sexy as some of the social media controversies we have been talking about lately, unless you are the one depending on trade secret protection. 

First, a primer: If something has independent value, is not generally known or readily ascertainable by proper means and has been subject to reasonable efforts to maintain its secrecy, it can qualify as a trade secret under Virginia (and most other states) law.  Software, in particular, is generally protected by a combination of copyright, trade secret and sometimes, patent law.  That's the reason that software vendors have to have non-disclosure agreements before they can allow you to review their software and the reason that most software licenses restrict the people and entities to whom you (as licensee) can provide information regarding the software.  That's part of the reasonable efforts to maintain the secrecy element in trade secret law.

The Fourth Circuit recently took up another of the elements, i.e. whether a compilation of publicly known processes combined in a way that is not publicly known or readily ascertainable can qualify for trade secret protection.  In Decision Insights, Inc. v. Sentia Group, Inc., the Court said that matter was already decided in Servo Corporation of America v. General Electric Corp. 393 F.2d 551 (1968) where it was held a trade secret "might consist of several discrete elements, any one of which could have been discovered by study of material available to the public".  In the Decision Insights case, there was testimony that although the contested part of the software was comprised largely of publicly known algorithms, the compilation and some of the methods used to cause the compilation to interact were not publicly known.  The Fourth Circuit thought that this testimony was sufficient to overcome a motion for summary judgment and reversed and remanded for further consideration of this issue and the other issues applicable in a trade secret case.

It is important to note that the Court did not say that the compilation in question was a trade secret but merely that such a compilation could be held to be if all the elements are present. 

This should eliminate (at least in Virginia) contentions that all parts of a formula or process have to be completely secret and unknown in order to qualify as a trade secret.

Winklevosses Ignore Part of Ruling That Says: "...litigation must come to an end..." and Ask For En Banc Rehearing.

Last week we talked about the Ninth Circuit refusing to set aside the Winklevoss/Zuckerberg/Facebook/ConnectU settlement agreement.  Yesterday, the famous twins decided to ignore the part of the opinion that said that now is the time for the litigation to come to an end and filed a Petition For Rehearing En Banc.  This means that they are asking all the judges of the Ninth Circuit to rehear the case rather than the panel that originally heard it. 

From the language of the Petition, the twins seem to take umbrage at some of the snarkier language in the original opinion.  They find issue with: "bested by a competitor", "backing out", "quite favorable", "enough" and allege that "sophistication is no defense".

We can only hope that a rehearing will be granted, if for no other reason than it will give us fodder for several more posts.  Stay tuned.


Amazon.com Seeks To Form "App Store". Apple says: "Not So Fast!"

You will remember that Apple has applied to the USPTO for registration of the mark "APP STORE".  Dedicated readers of this blog were informed in January that Microsoft was opposing the issuance of such mark for Apple.

Amazon.com is now allegedly using the term "APP STORE" to solicit software developers for future software development and distribution.  Apple is having none of that and has filed suit in the Northern District of California alleging that such use by Amazon.com constitutes trademark infringement and several other heinous sins.  The suit asks for injunctive relief, damages, a constructive trust and attorneys' fees.

It is evident that "APP STORE" has become part of the popular lexicon and if one party is entitled to use it to the exclusion of others, it is a very valuable property.  The holy trinity (Apple, Microsoft and Amazon.com) will continue to duke it out over this issue and the birds will just get angrier.

The Social Network II - The Facebook Legal Saga Continues.

We've all seen the movie.  Mark Zuckerberg versus the Winklevoss twins.  Uber-nerd versus uber-jocks.  Outsider versus the privileged and connected.  In the balance rests the right to violate the privacy of virtually everybody in the "civilized" world.

The movie shows some of the discovery proceedings in the lawsuit filed by the Winklevosses in Massachusetts alleging that Zuckerberg stole the Facebook idea.  Zuckerberg filed a countersuit in California (typical Facebook ploy, see here) against the twins and ConnectU, alleging that ConnectU had hacked into Facebook and stolen information and attempted to steal Facebook users by spamming them.  The California dismissed the action against the Winkelvosses, finding that there was no personal jurisdiction over them. The Court then ordered the parties to mediate to attempt to find a settlement to all their issues.

Then things start to get stranger.  With billions of dollars at stake, the parties mediate for one day, reach a settlement and document it with a one and a third pages of hand written notes with the title: "Term Sheet and Settlement Agreement".  This Agreement envisions the transfer of ConnectU to Facebook in exchange for cash and an interest in Facebook.  Facebook lawyers then present 130 pages of documents to flesh out the Agreement (merely 100 times the volume of the Agreement).  The deal then comes off the tracks for a number of reasons including the Winklevosses asserting that the value of the Facebook stock is less that they were lead to believe.  Facebook files a motion to enforce the Agreement.  The twins alleged that the Agreement is not enforceable because it lacks material terms and was procured by fraud.  The Court finds the Agreement enforceable and the Winklevosses appeal.

Then Ninth Circuit, in a decision released yesterday, upheld the enforcement of the Settlement Agreement.  The Winklevosses had alleged that the Agreement violated Rule 10b-5 of the Securities Act and as such was void.  The Ninth Circuit rejected this argument and found: "The Winklevosses are sophisticated parties who were locked in a contentious struggle over ownership rights in one of the world's fastest-growing companies. They engaged in discovery, which gave them access to a good deal of information about their opponents. They brought half-a-dozen lawyers to the mediation. Howard Winklevoss—father of Cameron and Tyler, former accounting professor at Wharton School of Business and an expert in valuation—also participated."

The Court also held: "The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace. And the courts might have obliged, had the Winklevosses not settled their dispute and signed a release of all claims against Facebook. With the help of a team of lawyers and a financial advisor, they made a deal that appears quite favorable in light of recent market activity. See Geoffrey A. Fowler & Liz Rappaport, Facebook Deal Raises $1 Billion, Wall St. J., Jan. 22, 2011, at B4 (reporting that investors valued Facebook at $50 billion —3.33 times the value the Winklevosses claim they thought Facebook's shares were worth at the mediation). For whatever reason, they now want to back out. Like the district court, we see no basis for allowing them to do so. At some point, litigation must come to an end. That point has now been reached." (Emphasis added)

So, the poor Winklevoss twins are stuck with a deal that is only worth millions and not billions.  In the lessons learned department, we are struck by the fact that you probably couldn't turn around in the mediation room without tripping on a lawyer or a financial advisor and yet, they ended up with slightly over a page long, hand written document.  That either means you don't need lawyers at all or you really need them to do their job. 

Maybe we'll find the answer in the next sequel, "Social Network III, The Legal Grievance Phase".


Update On the Epsilon E-Mail Hack.

Last week we discussed the very large, very disruptive loss by Epsilon of a number of e-mail addresses and the identities of the companies with whom the e-mail owners did business. 

InfoWorld Tech Watch reports that it appears that the hack relied on the gullibility of Epsilon employees.  So, there was no midnight rappelling from the ceiling through banks of laser beam alarms like you see in the movies, but merely a "social engineering" attack using e-mails targeting Epsilon employees that contained some personal information about the employee and made them think it was from a personal acquaintance. 

The messages included links (bad idea to click links in a message) that took them to a site that downloaded one malware program that disabled the antivirus software, one that logged keystrokes and one that gave hackers remote access to the infected machines.  It also turns out that Epsilon was warned about such attacks several months ago.

In the "lessons learned" department or more appropriately, the "lessons we should already have known" department, it would be prudent for a company with large amounts of customer data (everybody on line?) to train their employees not to respond to personal e-mails at work, recognize the tell tale signs of a social engineering attack and not to click on links in a message the origin of which you do not know.

This is not hard to teach but apparently compliance is difficult.  This lesson will get expensive for Epsilon.

Software Vendor's Worst Nightmare: Your Licensee Acquires Your Main Competitor.

You are a software licensor and you own a lot of valuable intellectual property tied up in the code and the trade secrets of your software.  You license that software to an entity and then that entity buys your main competitor.  You just know that all your valuable intellectual property is getting swapped around with your competitor.  Pop quiz, hotshot.  What do you do?  What do you do? (Yep.  Speed reference again.)

Well, if you are Edifecs, Inc. and your licensee Tibco Software, Inc. buys Foresight Corporation, you bring a suit and allege breach of contract and misappropriation of trade secrets.  Unfortunately, for Edifecs, a California court dismissed a substantial portion of their complaint and held that, under California law, allegations that failure to segregate employees and relevant documents after the Foresight acquisition did not state a claim for misappropriation of trade secrets, breach of contract or a breach of the implied covenant of good faith and fair dealing.  The Court also reiterated that California has rejected the inevitable disclosure doctrine.  That doctrine, adopted in a few states, allows a claim to proceed without evidence of actual disclosure if the circumstances are such that the court thinks that a disclosure is inevitable. Edifecs Inc. v. Tibco Software Inc., Case No. C10-330-RSM, United States District Court, Western District of Washington.  Order On Defendant's Motion to Dismiss Amended Complaint, March 23, 2011

Note that this is not a final ruling on the merits but it is does say that merely stating in California that wrongful disclosure is likely to occur will not substitute for pleading and proving that disclosure actually occurred.  Also note that a well drafted confidentiality provision would prohibit disclosure to the competitor, even if that competitor is a subsidiary of the licensee.

Other ways to prevent this result are to include a provision in your license agreement that the license terminates if the licensee acquires or is acquired by a competitor or to include a "paint your people purple" provision.  Alliteration aside, this is a provision that states that in addition to the normal confidentiality provisions, the license agreement prevents any person who worked on or had access to your confidential information from being assigned to any position that makes it likely that they would use absorbed information.  These are not usual provisions in a license agreement but could make sense in an environment where an acquisition of this nature is contemplated.

Well, That Didn't Take Long. Movie Studios Sue Zediva.

It seems like only last week (actually, it was) when we first talked about the Zediva launch, which allowed you to view streamed videos from the cloud via a DVD that you rent played on a DVD player that you rent.  Of course, you never see or possess either, given that they reside somewhere in a Zediva leased data center.

Wasting no time, several movie studios have sued Zediva.  The complaint can be found here.  The Motion Picture Association of America detailed their members' position in a press release.

As expected, the plaintiffs allege copyright infringement, specifically, the exclusive right of the copyright holder to publicly perform their movies.

Interesting times, these.

New .XXX Top Level Domain Approved. The Steps You Need To Take Now To Insure That You Don't See a [yourname].XXX Domain In The Future!

You may have read recently that ICANN (Internet Corporation For Assigned Names and Numbers) has approved the new top level domain (TLD) of .XXX.  Obviously, this is intended for the adult entertainment industry and TLDs with that extension will begin to be issued in the near future.  However, aside from any passing prurient interest you may have in mentioning this factoid in social chatter, does this affect you in any way?

It does if you would not want to Google your name, trademark or tradename in the future and find that name with a .XXX extension.  So, if  you are concerned that this might happen either because someone might want to take advantage of the popularity of your name or you have a really sick friend that might want to hold this over you as a pathetic practical joke, here is what you need to do now.

ICM Registry has obtained the rights to act as the registrar for the .XXX domain.  They have set up a procedure to address your concerns about having your name or tradename associated with a .XXX domain.  The procedure is referred to as Sunrise A, B and C and offers you two avenues to avoid the result we describe above.  Obviously, one avenue would be to apply for all the domain names you want to protect with the .XXX extension and then just not use them for anything.  However, you would still show up in a search on WHOIS as the owner.  This is the Sunrise A procedure.  The preferred route would be Sunrise B, which allows domain holders and trademark holders to apply to block use of those names with the offending extension.  This is the explanation from the ICM website:

"Sunrise B is for rights owners from outside the [adult entertainment industry]. Names secured through Sunrise B will not result in the registration of a conventional, resolving domain name at the .xxx registry. Instead, these names will be reserved and blocked from live use. The applied for string will resolve to a standard plain page indicating only that the string is reserved from use through ICM’s rights protection program."

Since time could be of the essence, head over to this site or have someone do it for you and open an account and apply to reserve the appropriate names.  At some point in the process (after the original submission), you may be asked to prove you have the rights to the names so be prepared to do that. 

Now, don't you feel better?

Zediva Tries To Beat Netflix To The DVDs By Invoking Same Doctrine That Will Make It More Expensive For Netflix.

The many avid readers of this blog will no doubt remember our in depth discussion of the "first sale" doctrine as it relates to the inability of Netflix to rely on such doctrine for the streaming of videos, since there is no "sale" involved.  We surmised that this would increase costs because Netflix would have to license the videos from the copyright holders rather than just buy the DVD and rent it out.

Now, another service is trying to side step the issue and offer streaming DVD videos in a time frame well in advance of when Netflix can offer the video.  Zediva went from beta to production last week and is offering streaming videos as soon as the DVD is available for purchase.  Zediva's legal reasoning on this (we believe) is that they are buying the DVDs and physically taking delivery of the DVDs and actually playing them on a DVD player somewhere in their data center.  The particular DVD and the player on which it is playing are leased to the subscriber for four hours, during which no other subscriber can access either that DVD or that player.  The technology employed by Zediva allows that DVD and player to stream the video over the internet to the subscriber's device.  So, according to Zediva, it is like renting the DVD and player and the player just has a really long cord (with the cord serving as a metaphor for the cloud).  Surely, says Zediva, that must be allowed under the "first sale" doctrine.   If DVD copyright holders take umbrage at this arrangement, they might say that the "first sale" doctrine requires physical transfer of the medium and "Don't call me Shirley".  (gratuitous Leslie Nielsen homage)

The roll out of this bears watching.  Zediva's website today says it is down while they get more capacity.  Recently, another company thought they fit into an exception of the Copyright Act. ivi TV was retransmitting television broadcasts and claimed they were a virtual "cable company" and therefore entitled to transact their business under Sec. 111 of the Copyright Act, although they didn't get retransmission consent nor qualify as a cable company under the Communications Act.  The US Court for the Southern District of New York granted a preliminary injunction that ceased their operation until further adjudication.

As new technology challenges the present state of the law, we close this post as we almost always do.  Stay tuned.

LinkedIn Reaches 100 Million Users. First Million Get Thanked Personally.

Sometimes referred to as the Facebook for the business set, LinkedIn provides a multitude of information and contacts to its members.  Last week, LinkedIn notched its 100 millionth user.  According to the metrics on my LinkedIn page, I'm connected to about 4 percent of them.  That's a lot.  I hope they don't all decide to come over to the house at once.

In a nice touch, the founder of LinkedIn sent a personal letter of thanks to the first 1 million adopters, specifically citing their order of signing up.  I didn't get a letter as I missed being in the first million by a mere 16,915,876.  If you are looking for your letter, you can determine if you are going to get one by looking at your full profile URL.  Your order in the LinkedIn hierarchy is listed after the "id=__" in the URL.

I'm probably not going to get a letter from Mark Zuckerberg either.

Syracuse Goes For the Orange and Google Scan Settlement Gets Stopped.

Syracuse University once were known as the "Orangemen".  This arose from a hoax in the student newspaper about the fictional remains of an Indian chief being found during the excavation of a university building.  Because of the racist stereotype, Orangemen was eventually changed to "Orange" and the mascot now is a rotund citrus fruit known as Otto.  Now, Syracuse has moved to trademark the "Orange" .  After all, the Fifth Circuit has held that a color scheme can be part of a identifying mark if likely to cause confusion.  Other universities that embrace orange as a team color and use the term orange as part of their identifying marks and slogans have objected, including Tennessee and Auburn but surprisingly not Texas.  Maybe burnt orange is sufficiently different so as to not cause confusion.  After all, school buses, road cones, citrus fruit and pumpkins are different colors, right?

In Google's quest to rule the world, it entered into agreements with several large libraries to scan books, include "snippets" of such books in a database and allow searches of such scans.  In 2005, Google predictably was sued for copyright infringement and just as predictably raised fair use as a principal defense.  The suit was in the nature of a class action and Google had entered into a settlement of this case, which would have allowed Google to continue the scanning with the payment of certain fees.  The settlement was subject to approval by the courts but the District Court Southern District of New York said "not so fast" and rejected the settlement.  The reasons stated by the Court include that the settlement "...would grant Google significant rights to exploit entire books, without permission of the copyright owners. Indeed, the [settlement agreement] would give Google a significant advantage over competitors, rewarding it for engaging in wholesale copying of copyrighted works without permission, while releasing claims well beyond those presented in the case."

Back to the drawing board.

Company Buys Competitor's Trademark as Google AdWord. Another Scuffle Ensues.

We recently reported on a case where competing law firms were involved in a tussle over the use by one of the law firms of the other law firm's name as a Google AdWord.  The California court in that case found trademark infringement.

Now, another case from the Ninth Circuit comes along where one software company bought the name of the other company's product as a Google AdWord.  Advanced System Concepts licensed a product under the registered trademark "ActiveBatch".  Network Automation (whose own product is called "AutoMate")  bought ActiveBatch as a Google AdWord (doesn't anyone own a space bar?).  Advanced System Concepts brought suit against Network Automation and was granted a preliminary injunction prohibiting the use of ActiveBatch in this way by Network Automation.  Network Automation appealed to the Ninth Circuit.

The District Court applied the Sleekcraft test first espoused in AMF Inc. v. Sleekcraft Boats,
599 F.2d 341 (9th Cir. 1979), which set out eight factors in determining infringement.  The District Court held that the three most important factors in the Sleekcraft test in cases relating to the internet were: (1) the similarity of the marks; (2) the relatedness of the goods; and (3) the marketing channel used.

The Ninth Circuit held: "Mindful that the sine qua non of trademark infringement is consumer confusion, and that the Sleekcraft factors are but a nonexhaustive list of factors relevant to determining the likelihood of consumer confusion, we conclude that Systems’ showing of a likelihood of confusion was insufficient to support injunctive relief."  (Emphasis added)

The Court then went on to say:

"Given the nature of the alleged infringement here, the most relevant factors to the analysis of the likelihood of confusion are: (1) the strength of the mark; (2) the evidence of actual confusion; (3) the  type of goods and degree of care likely to be exercised by the purchaser; and (4) the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.
The district court did not weigh the Sleekcraft factors flexibly to match the specific facts of this case. It relied on the Internet “troika,” which is highly illuminating in the context of domain names, but which fails to discern whether there is a likelihood of confusion in a keywords case. Because the linchpin of trademark infringement is consumer confusion, the district court abused its discretion in issuing the injunction."

It's important to note that the Court did not say that there was no infringement here, merely that the factors to be considered were not limited to those in the Sleekcraft case and they had to be applied in a flexible manner and therefore, the Ninth Circuit remanded for further consideration in line with these factors.

In my conversations with communications and advertising people, it is apparent that purchasing competitor's trademarks and names as SEO enhancers is a common and accepted practice.  Therefore, this emerging area of the law will be developing for several years.  So, as usual, stay tuned.

Ninth Circuit Says "Betty Boop" Is A "Functional Feature" Not A Trademark

Normal people who are not intellectual property lawyers (assumes that some normal people are intellectual property attorneys, a hypothesis not yet proven) would read the title of this post essentially as follows:  Blah, blah, blah, Betty Boop, blah, blah, blah, blah.

However, what it means in its simplest form is that the Ninth Circuit Court of Appeals in California held that a t-shirt, purse, or handbag containing the image of Betty Boop (a cartoon pinup with "a large round baby face with big eyes and a nose like a button, framed in a somewhat careful coiffure, with a very small body"), was utilized as a "functional product" as opposed to a trademark, and therefore would not be subject to a claim of trademark infringement.  

The Ninth Circuit's opinion has caused some head scratching and criticism.  The lower Court denied the Plaintiff's (the purported owner of the Betty Boop character) claims based on a determination that the Plaintiff had failed to show proper chain of title to the copyright ownership of the character and failed to meet its burden of proof of the existence of a federally registered trademark.

The Plaintiff appealed on these issues.  The Ninth Circuit could have disposed of this case by deciding any number of issues, e.g. whether cartoon characters are protectable as trademarks, whether Plaintiff owns a registered trademark in Betty Boop’s image and name, whether Plaintiff owns a common law trademark in “Betty Boop”, whether the fractured ownership of the Betty Boop copyright precludes Plaintiff from asserting a trademark claim or whether Defendants infringed Plaintiff's marks.  However, the Court opted to not take the common approach of deciding the issues before them and stated: "...all of these arguments are mooted by controlling precedent that neither party cited: International Order of Job’s Daughters v. Lindeburg & Co.633 F.2d 912 (9th Cir. 1980)." pg. 2778 (Emphasis added)

The Court held that none of the issues mentioned above is as important as the proposition in the Job's Daughters case and held: “The name and [Betty Boop image] were functional aesthetic
components of the product, not trademarks. There could be, therefore, no infringement”.

The fact that the Betty Boop character was readily visible, was not held out as officially licensed, and no evidence of actual confusion was provided led the Court to conclude that the character was what the buyer really wanted and therefore was a functional aesthetic component.

A strict application of this case could lead one to conclude that an outline of a Longhorn steer plainly visible (is there any other way?) on a tee shirt, that's not held out as officially licensed would not be infringing on a trademark.  This would threaten the collegiate and professional licensing schemes that abound and would cause the University of Texas (and many other institutions) a great deal of heartburn.

Stanfield Hiserodt To Present Discussion On Cloud Computing At RISE Tomorrow.

We will be leading a discussion on "Ten Things You Should Know About Cloud Computing Agreements" at Austin RISE Week 2011 tomorrow at 4:00 pm at the PeopleFund offices at 207 Chalmers Avenue in Austin.  If you need something to do during that awkward time between afternoon coffee break and happy hour, come on out and share it with us.

Your Government And Courts At Work.

A few things for your consideration:

1.  The White House's proposed budget includes the authority for the USPTO to charge a surcharge on patent applications.  The proposed budget would provide $2.7 billion for fiscal 2012 with one of the stated objectives to reduce the backlog of 720,000+ applications.

2.  By Executive Order 13565 of February 8, 2011, the White House established two I.P. committees.  One is the Senior Intellectual Property Enforcement Advisory Committee, which will facilitate the formation and implementation of each Joint Strategic Plan, which will be be developed by the other committee established, the Intellectual Property Enforcement Advisory Committee.  As is evidenced by their names (i.e. Senior and not Senior) the Senior Advisory Committee will be comprised of cabinet level members or their designees and the Enforcement Advisory Committee will be comprised of representatives from the USPTO, DOJ, Department of Commerce and others.

3.  Health and Human Services through its Office for Civil Rights has assessed its first ever civil penalty for violation of HIPAA.  The penalty was $4.3 million against Cignet Health of Prince George’s County, Md.  Cignet failed or refused to provide health records to at least 41 patients and then apparently stonewalled the patients and requests from the Office for Civil Rights to the extent that the Office for Civil Rights obtained a default judgment against them.  Cignet also apparently was uncooperative in the investigation into this affair.  The penalty was $1.3 million for failure to provide access to the records and $3.0 million for being uncooperative.

4.  Microsoft was successful in getting a patent infringement suit originally filed in the Eastern District of Texas transferred to the Western District of Washington on the grounds of forum non conveniens.  For some strange reason, there are a lot of patent infringement suits and class actions filed in the Eastern District of Texas.  The plaintiff here, Allvoice, was an U.K. company with an office in the Eastern District of Texas but with no employees there or anywhere in the U.S.  Calls there were transferred to their office in the U..K.  Allvoice was incorporated in Texas but had done so 16 days before the suit was filed.  Forum shop much?  The Circuit Court of Appeals issued a writ of mandamus compelling transfer to Microsoft's home court even though Microsoft had also petitioned to move the case the Southern District of Texas.


U.S. Wants Governments To Be Able To Veto Proposed Generic Top Level Domain Names. Other Countries Not So Much.

You may remember that we recently described the new procedure for obtaining generic top level domain names.  ICANN (The Internet Corporation for Assigned Names and Numbers) has proposed a new procedure to allow additional entities to act as domain registrars.  Included in this was the opportunity to propose an infinite variety of domain extensions and not be limited to the ones heretofore approved (and originally suggested) by ICANN. 

Now, the U.S. government has proposed that each member of the Governmental Advisory Committee (GAC) to ICANN have the right to object to any proposed extension and if a "consensus" of the GAC members is obtained, then ICANN will not approve the domain extension and will refund the fees paid by the applicant.  This supposedly is designed to limit the award of "objectionable" domain names such as .gay or .xxx or anything else that any GAC member's citizens feel runs counter to some aspect of their society or religion.  So, in addition to .gay, a really depressed nation might object to .cheery, .jolly or .festive.  And, in addition to .xxx, a nation might find .xoxox objectionable if they hate football coaches, tic-tac-toe players or post script huggers and kissers.

The U.S. proposal has not been warmly received by the other GAC members and in a response supported by a majority of the other GAC members, the GAC has recommended that the GAC's role be limited to advisory only and if ICANN goes against a GAC recommendation, ICANN's only requirement is to explain its position.

It is plain that this will not be the last we hear of this matter and much more discussion will be had when the actual applications come rolling in.

Updates: Stuxnet, Bilski, COICA, Arcade Fire (HTML5)

Updates on a few of our earlier posts:


Law Firm Buys Another Law Firm's Name as GoogleAd Word. Scuffle Ensues.

Binder & Binder is a national law firm devoted almost exclusively to the representation of persons seeking Social Security benefits.  Disability Group, Inc. is a competing law firm involved in the pursuit of the same clients.  In 2006, Disability Group purchased the words "Binder and Binder" as a Google AdWord.  As a result, some Google searches for the law firm Binder and Binder resulted in having Disability Group appear high in the sponsored search rankings.  Binder and Binder had registered trademarks for the use of their name.  Binder and Binder brought suit against Disability Group alleging: (i) infringement of a registered trademark; (ii) false advertising; and (iii) unfair competition.

On January 25, 2011, the U.S. District Court for the Central District of California (Case No. 07-2760-GHK), found that the actions of Disability Group did in fact constitute trademark infringement.

The Court found that: (i) there was no dispute that the defendants used plaintiff's mark in their GoogleAd campaign; (ii) that plaintiffs were, in fact, the owners of the mark despite some reorganization from partnership to LLP and several assignments of the mark; (iii) according to the Sleekcraft test, there was a strong likelihood of confusion and also found actual confusion;  and (iv) plaintiffs had not given consent to such use of their mark.

Using testimony about plaintiffs average profit on a case and the number of clicks on defendant's site and some other algorithms, the Court assessed damages for lost profits in the amount of $146,117.60. 

The plaintiffs also requested an award for corrective advertising.  The standard for this is to allow the plaintiff to recover the cost of advertising undertaken to restore the value that plaintiff's trademark has lost due to the infringement.  While the Court was of the opinion that defendant's actions would have given rise to this kind of damages, they declined to award any such damages because of the limited period of infringements (a few months) and the passage of substantial time since the infringement (2006).

The Court then found that the infringement was willful and under the treble damages provisions of the Lanham Act "enhanced" the damages to double the damages for lost profits.

The Court also found that attorney's fees and costs should be awarded to plaintiff because the infringement was "exceptional", i.e. willful, deliberate, knowing or malicious.  The Court declined to award punitive damages because punitives are not available under the Lanham Act and the Court found the double damages already awarded to be sufficient.

Defendants raised several defenses including one that said basically if the plaintiffs had just put the trademark notice (the R in the circle) on their name, Google would not have let the defendants do what they wanted to do and we wouldn't have had this problem.  Basically, "if you had told on me, mommy wouldn't have let me misbehave".  The Court didn't give this much weight.

So, when lawyers litigate with each other, the rest of the world just bemusedly views it as karmic justice but this case provides good instruction about the use of trademarks as search terms.  Other cases may not be this blatant, but look for other litigation on this emerging area of the law.


S.E.O = Sinister Enhancement Option?

SEO is, of course, the acronym for Search Engine Optimization.  It's the practice of creating web sites, links, references and other mysterious arcana to enhance the chances that a particular web site will appear on the first page of results whenever you do a search (e.g. Google, Yahoo, Bing).  It is a well respected practice and something most everybody does.  The largest search engine, Google, has a trade secret algorithm that determines how such searches are ordered.

Google has a vested interest in appearing to present the search results in a rational order.  If it appeared that the system was materially flawed or gamed, then less importance would be placed on a search by Google and they might lose market share.  For that reason, they have a set of rules by which SEO purveyors are supposed to abide.  To violate these rules is to risk having Google take steps to cause your web site to appear lower in the Google results.

This brings us to the interesting case of J.C. Penney.  The New York Times reported on Saturday that during the recent holiday season, the rankings for searches for a number of things that J.C. Penney carries (e.g. dresses, bedding, area rugs, furniture, skinny jeans) routinely returned a number one ranking.   This raised the question as to whether this would have occurred without significant manipulation of the Google algorithm.  Turns out, probably not. 

J.C. Penney apparently engaged SearchDex, a SEO firm based in Dallas.  SearchDex supposedly used suspect methods, including placing links on unrelated, obscure, underused or dormant websites that pointed back to the J.C. Penney site.  Effective, definitely.  Ethical, matter of opinion.

SearchDex lists its ethical standards on its website and also lists its response to the Google standards for SEO activities.  According the New York Times article cited above, Google believes that SearchDex and J.C. Penney have violated the Google standards.  However, none of this appears to violate any laws and J.C. Penney has filed the obligatory "We Didn't Do Nothing" response.

One of the methods is to use services like TNX, which purports to raise website traffic by placing paid links on other sites that redirect the search to the target site.  The redirecting sites agree to allow the links in exchange for payment based on the number of redirects.

So, with sponsored links, Google AdWords, Google Places, TNX and really creative SEO operators, who's to know whether the searches are credible.  And, I would like to sign up somewhere to get our name on the first page of the listings.  Oh, wait, we are (today)!  (Search "Austin Technology Attorneys")

New Generic Top Level Domain Names Soon To Be Available. Do You Want To Be In The Domain Registry Business?

Top level domain names are the extensions that occur after the dot in URLs, such as the generic variety, e.g. .com, .edu, .org or the country code variety e.g. .AQ (Antartica), .CO (Columbia) or .VA (Vatican City).  There are presently 21 generic top level domains and approximately 250 country code top level domains.

ICANN (The Internet Corporation for Assigned Names and Numbers) is proposing to begin taking applications for a whole new series of generic top level domain names.  The new generic top level domain names will generally be limited only by the creativeness of the applicants and is, in fact, an application to become a registrar for the domain string for which you apply.  This opens up the possibility that a large corporation may become a registrar for entities within its corporate structure and a domain name like .walmart could be used to marshal all the company's domains under one domain name umbrella. 

Cities, states, areas, religions, professions or other organizations could conceivably obtain such generic top level domains.  However, the application process will be rigorous and the fees are designed to keep out the riff-raff.  Each application will have a fee of $185,000 of which $5,000 must be made as a down payment and the remainder must accompany the application.  There are some refund provisions where the applicants can get back from 20 to 70 percent but the price of cybersquatting will go up substantially under this procedure.  In addition, the applicant will be screened for prior acts of cybersquatting and will undergo extensive evaluation as to its operational, technical and financial capabilities.  There is also an ongoing quarterly fee and a per registration fee.

Trademark holders should monitor this procedure to make sure that their marks are not compromised by any applications.  The ICANN procedure provides for a trade mark clearinghouse and expedited dispute resolution.

So, plans are afoot in our firm to apply for the generic top level domain name: .law    When we obtain this and become the official registrar for this name, all the law firms will come groveling to our door and our goal of global domination will be complete.  Now, if we can just come up with $5,000.

The Internet Runs Out of Numbers. No Big Deal.

A couple of days ago, the Internet ran out of numbers.  How is that possible, you say?  Aren't numbers infinite? 

The numbers referred to are the internet protocol addresses (IP addresses) that are assigned to every device connected to the internet.  Each device has its unique number and the number is what allows the devices attached to the internet to talk to each other.  We humans deal in domain names like www.austintechnologylawblog.com but the computers convert these names into numbers that look like this:  This numbering convention is called IPv4 and was developed in the early days of the internet and has been adequate until now.  IPv4 has a finite capacity of just over 4 billion addresses. 

IP addresses are administered by a non-profit entity known as ICANN (The Internet Corporation for Assigned Names and Numbers) and they allocate the numbers among 5 Regional Internet Registries (RIR).  What the exhaustion of numbers really means is that all available numbers have been allocated to the RIRs for further distribution and none remain in the ICANN central pool.  The RIRs will continue to distribute such numbers but even the end of that is in sight.

What happens now?  Complete shutdown, anarchy, the end of the Egyptian uprising and the demise of sexting?  Nope, luckily the folks looking after this have anticipated this (like Y2K) and have established IPv6, a new and improved IP address protocol.  IPv6 addresses are written in hexadecimal and have a 128-bit address space, which provides for 340 undecillion addresses.  Suffice it to say, that's a lot and should last into the foreseeable future.

IPv6 addresses will contain colons and will look something like this: 2001:0db8::53.  When you see two colons together it means that the segments between contain only zeros.  In the example above as given by ICANN, it really means: 2001:0db8:0000:0000:0000:0000:0000:0053

So, no need to panic just yet.  Supposedly, most existing devices we use today are compatible with IPv6.  Internet service providers will initiate roll out of the new numbers when needed and (supposedly) users will not have to take any real actions.  That remains to be seen but as of now, we've still got numbers.


Revenge of the Native Americans Continues. Sovereign Tribes Not Subject To Suit For Patent Infringement.

Specialty House of Creation ("SHC") is a company started in a chicken coop in 1971 by a 63 year old grandmother and a 26 year old entrepreneur (who both apparently loved dogs).  Their business grew over the years and one of their products is the "Slot-Card with Claw".  This device is designed to keep casino goers from losing their player cards by tethering the card to a belt loop, shirt pocket, body piercing or other stable foundation.  SHC has a patent on this device.

SHC provided a number of these Slot Cards to the Quapaw Tribe of Oklahoma for use in the tribe's casinos.  The Tribe allegedly obtained more of these tsotchkes from another company and referenced the SHC patent number in the request.

SHC sued the Quapaw Tribe in the Federal District Court for the Northern District of Oklahoma.  The Tribe moved for dismissal due to lack of subject matter jurisdiction.  The Court granted the motion and dismissed the suit.  The Court followed a line of cases that indicate that a tribe is a sovereign power and as such is immune from private law suits (including patent and copyright infringement) unless such sovereign immunity has been waived.  The Court did not find any such waiver and therefore dismissed the suit.

I think we can blame this too on George Bush.

Fifth Circuit Holds That Grant of Access to Licensee's Attorneys Breaches License Agreement

Licensors licensed database technology to Licensee to allow Licensee to prepare residential mortgage loan documents.  The license agreement explicitly allowed access to the technology by "Originating Lenders" and Licensee's general counsel, an outside law firm.  Licensee granted access to another law firm to prepare loan packages for Licensee.

Licensors claimed that the license agreement expressly prohibited any use of the licensed technology that was not specifically authorized and nothing in the license agreement gave explicit authority for access by the loan package preparing law firm.  The Licensee said that nothing in the license agreement prohibited such access when it was done exclusively for the benefit of and on behalf of the Licensee.

A lower court had relied on Geoscan, Inc. of Texas v. Geotrace Technologies, Inc., 226 F.3d 387 (5th Cir. 2000) and Hogan Systems, Inc. v. Cybresource International, Inc., 158 F.3d 319 (5th Cir. 1998) for the proposition that the use of a licensed property by a third party solely on behalf of and for the benefit of the licensee is not a transfer or sublicense of that property.

The Fifth Circuit reversed and said it disagreed with the district court that the Geoscan and Hogan decisions allowed a court to look past the actual language of a licensing agreement and absolve a licensee who grants third party access merely because that access is on behalf of, and inures to the benefit of the licensee.

The Fifth Circuit added that the agreement in the subject case did not contain a provision that generally permits the Licensee to grant third party access and in fact, expressly prohibited it except for the two express exceptions set out above.  "Because the licensing agreement in this case withholds rights not expressly given, Geoscan and Hogan Systems are of limited relevance, and we therefore decline to interpret the agreement to allow general third-party access on behalf of and for the benefit of (Licensee)."  Compliance Source, Inc., et al v. Greenpoint Mortgage, Docket No. 09-10726, Decided October 18, 2010  at page 13.

Licensors concerned about third party access (almost all of them) should review the language in this case and compare with their relevant documents. 

USPTO Has Really Busy Year - Record Number of Patents Issued

According to IFI, the United States Patent and Trademark Office granted 219,614 patents in 2010.  This is 31% more than was granted in 2009 and 29% more than granted in the next busiest year (2007).  Granted applications took a big jump around 1998 when software patents began to be granted with more regularity (thanks, State Street Bank case).

Not everybody is happy about this, as some see this as merely an effort by the USPTO to reduce their backlog (now standing at 720,000+) and not as an increase in efficiency and quality.

In any event, a lot of patents were issued and the pace seems to be increasing.  Happy days are here again.

Apple Seeks To Trademark "App Store". Microsoft says "Not So Fast".

Apple filed a trademark application for the term "App Store" in 2008.  Microsoft is opposing such application and has filed a motion for summary judgment with the USPTO alleging, among other things, that the term is generic.  As you know, if a term or word merely describes what it is, then it is generic and will usually not be granted trademark protection.  Examples of generic phrases that were turned down as marks are cited in Microsoft's brief in support of their summary judgment motion and include "The Computer Store", "Shoe Warehouse" and "Discount Auto Parts Warehouse".


Want to know what the odds are that the USPTO is apt to axe "App Store"?  There should be an app for that.

UMG v. Augusto - "First Sale" Doctrine In Relation To Promotional CDs

UMG sends unsolicited, promotional CDs to potential reviewers, music critics and radio programmers to try to promote the sale, play and mention of such CDs. UMG does not charge for the CDs but it does put notices on the CDs.
One such notice reads:
"This CD is the property of the record company and is licensed to the intended recipient for personal use only. Acceptance of this CD shall constitute an agreement to comply with the terms of the license. Resale or transfer of possession is not allowed and may be punishable under federal and state laws."
Another, more terse notice reads:
“Promotional Use Only—Not for Sale.”

Defendant, Augusto, bought some of these CDs from the recipients and attempted to sell them on eBay. UMG sought to stop this by claiming copyright infringement and claiming that the language above and the acceptance by the recipient constituted a license rather than a sale under the provisions of Vernor v. Autodesk, which we discussed in length here. Therefore, the recipients could not sell the CDs without violating the copyright holder’s right of exclusive distribution.

Mr. Augusto claimed that the unsolicited delivery of the CDs constituted a “sale” for the purposes of our old friend the “First Sale Doctrine”. See our earlier discussions of this doctrine here, here and here.

The Court agreed with Mr. Augusto and stated that the mere receipt of the CDs without some other kind of action did not constitute an assent to the terms of the “license” and therefore, it had to be a sale. In addition, the Court also relied on the “Unordered Merchandise Statute” 39 U.S.C. § 3009(a), (b) (2006), which states that unsolicited merchandise may be treated as a gift. Hence, First Sale Doctrine applies and subsequent sales can be made without claims by the copyright holder. The Court’s opinion can be found here.

Lessons to be learned here are that in order to come under the license standards set out in Vernor v. Autodesk, the right kind of language has to be present and some overt act of acceptance of such language has to be displayed.

You are now free to buy those promotional Lady Gaga CDs you’ve had your eye on.

Stuxnet - Military Malware?

We hate to say we told you so (actually, we revel in it), but we surmised early on (without any real information) that the Stuxnet virus was the result of a nation state's activity to impact the Iranian nuclear development.  Now it appears that we were probably correct.  Stuxnet set back the Iranian nuclear program by several years by causing the centrifuges to rotate in excess of their capacity.  It has been hailed as being as effective as a military strike but in spite of being more sophisticated than any previous malware, it was messy in that it didn't really cover its tracks like some other malware. 

Kinda like a military strike.

"First Sale" - Little Known Doctrine Plays A Big Role

"Pop quiz, hotshot!" (Gratuitous and completely unnecessary "Speed" reference).  What do Netflix, Omega watches and used software programs on CD-ROMs have in common?

Answer: They are all affected substantially by the "First Sale Doctrine".  Those of you that routinely devour the content of this blog will no doubt remember our earlier discussion of such doctrine as it related to the right to resell a disc containing a software program.  For a quick refresher, the First Sale Doctrine is used as an exception to copyright protection and it provides that when the first sale of a copyrighted item occurs, subsequent sales, gifts or loans are not restricted by the rights of the copyright owner.  This doctrine enables libraries, used book and music stores and art galleries to function.

So, how are Netflix, Omega watches and used CD-ROMs impacted by this rule?

Netflix's brilliance was the enabling of prompt delivery by mail of DVDs.  Netflix would buy a large number of DVDs of a particular title from the distributor, usually at at discounted price and mail them out to subscribers.  Netflix could do this free of any copyright claims because of the First Sale Doctrine.  Netflix also was quick to recognize the utility and convenience of providing such material in the form of streaming video through Roku, XBox and other platforms.  The problem arises in that streaming video is not subject to the First Sale Doctrine because there is no "sale".  Therefore, Netflix must license the streaming rights from the studios and this may turn out to be very expensive.  Reports are that some studios are asking as much as $16 million per title for a two year license.  There is no indication whether these are new titles only or how this will shake out in the market place in the long run as Netflix seeks to dominate the streaming market.  The only sure thing is that it is a markedly different business model for Netflix.  They can avoid the postage costs and some of the costs of maintaining mailing centers as users transition to streaming.  However, the costs of licensing may negate that.  This could prove to be interesting.

In the case of Omega watches, Costco bought a bunch of Omega watches outside the U.S. at a discount, imported them and began selling them at a price lower than Omega sells them domestically.  Omega sued Costco alleging copyright infringement.  Costco replied that they were not copyrightable and even if they were, the First Sale Doctrine applied.  Omega said, "Not so fast, Costco" (or words to that effect), "there is an image of a globe on the back of each watch that is half a centimeter in diameter and that gives us copyright rights".  Costco, in a haughty rejoinder, said "Well, so's your Mom and we can do this because of the First Sale Doctrine" (I made up the Mom part).  Omega then pointed out that the Copyright Law states in pertinent part that the First Sale Doctrine set out in the copyright act applies only to copies "lawfully made under this title" [Section 109(a)].  Omega said since the watches were made outside the U.S. they were not "made under this title" and hence no First Sale Doctrine.  The Ninth Circuit agreed and an appeal was taken to the U.S. Supreme Court.  Justice Kagan recused herself because she had filed an amicus brief in the lower court in her role as Solicitor General and the remaining Supremes split 4 to 4, which lets the lower court ruling stand, i.e. Omega wins for now.

As we pointed out in the earlier post referenced above, a court held that if a CD-ROM contained a software program that was licensed and not sold, then the First Sale Doctrine also does not apply and resale of the used discs can be prevented under the copyright provisions.  The case was Vernor vs. Autodesk and is discussed here.  The result: You can't sell a used disc if the contents are licensed and not sold.

So, you may not be able to get inexpensive streaming movies, buy a cheaper "gray market" watch or resell that disc you bought at the garage sale down the street.  All this because our friend, the First Sale Doctrine, is not available in these situations.

It is probable that these are not the last words in any of these situations, so as we usually do to wind up these posts, we just say: "Stay tuned."


Key Points In Negotiating a SaaS Agreement

From time to time, we like to post the thoughts of other clear thinkers in the IT industry.  Our friend, Derek Singleton, over at Software Advice, has written the following article and has graciously given us permission to repost it.  We have previously written a post on the same subject and cover similar issues.  You can see that article here.

9 Key Points to Negotiate in a SaaS Agreement

By: Derek Singleton

ERP Market Analyst at Software Advice


Derek recently graduated from Occidental College with a degree in political science. He writes about various topics related to ERP software and covers the manufacturing, distribution, and supply chain management software markets. In his spare time he enjoys training in boxing and martial arts.


So you’ve decided to go with Software-as-a-Service (SaaS). It’s easy to implement, easy to use and has a friendly subscription pricing model. You’re psyched.

Then comes the contract.

While SaaS has simplified enterprise software in many ways, you will still need to review, negotiate and execute a fairly complex contract when subscribing to an “enterprise-class” system. In this post, we will walk you through the nine most important things to consider when negotiating your SaaS agreement.

1. Pricing and Discounts
By pricing software as a utility service, SaaS vendors have simplified software licensing considerably. Most SaaS pricing is based on a subscription – monthly or annual payments for using the system during that period. The subscription pricing is typically based on one simple metric (e.g. users, records, projects) that roughly ties subscription fees to the value of the system. Finally, SaaS vendors tend to publish their pricing openly.

Even with this simplicity and transparency, there is still a need to be vigilant as a buyer. For one, don’t assume that straightforward published pricing means there isn’t room for some negotiation. Many SaaS vendors will discount up to 20% to win your business. The bigger the deal, the bigger the discount. Moreover, if the vendor’s pricing metric doesn’t fit with your business model, you might be able to negotiate custom pricing. Of course, you’ll have to make a cogent argument that the standard metric fails to balance price paid and value received.

2. Additional Costs
Another key component to pricing is ferreting out any extra costs early in the process. Published pricing may appear to be a good value, but extra fees can add up quickly. Common additional costs include extra users, customizations, integrations, third-party services, training and set-up fees. Work with your sales rep early in the process to understand what additional charges might apply to your account.

By far the best way to keep the additional costs down is to avoid customizations to functionality and integration with other systems. The inherent complexity in custom development and data integration makes these services expensive. We recommend that you start with the base system, make use of its core functionality and then assess how important the custom features or integrations are to your success. Start small, think big, grow quickly.

3. Term
If you are negotiating with a vendor over pricing discounts, subscription metrics and additional fees, expect to give something in return. Oftentimes, this means committing to an extended contract term. Vendors like longer terms because it provides more predictability in their revenue forecasting. Terms can be as short as 30 days or as long as five years. If the vendor wants a long-term subscription, we recommend that you start with the shortest – probably one or two years.

If you do agree to a longer term of three to five years, make sure you have an out clause. Typically this would provide a window of opportunity to break the contract during a specific time window. For example, it might allow you to walk after one month of using the system but before 90 days. Another example might be the ability to break the contract if certain levels of service are not provided consistently.

4. Service Level Agreements (SLAs)
Regardless of what you pay for the system, reliability is paramount. The SLA is the vendor’s commitment to keeping the system up and running. It is typically expressed as a percentage of “up time.” You will almost always see the SLA represented as 99.9% or thereabouts. However, there is wide variation in how that number is calculated. Many vendors will simply start with 100% and subtract time during which their internal systems reported an error. Most of these SLAs leave far too much wiggle room for vendors.

If this new SaaS system is mission critical, push the SLA issue to see who is really ready to stand behind their service. The SLA topic is far too detailed to delve into all the considerations here, so we’ll refer you to this great blog post on SLAs. However, we’ll suggest you focus most on the penalty for breaking the SLA when negotiating. Usually these penalties are paltry discounts paid out against future purchases. Just pushing for bigger penalties will provide great insight into the reliability of the system.

5. Renewals
Hopefully, you will want to renew your contract. However, given that the renewal process provides an important exit opportunity from a bad contract, as well as an opportunity to re-negotiate, make sure you are still in control when the renewal date comes around. Be on the lookout for something known as an “evergreen” renewal. An evergreen automatically renews your term, usually 30 days prior to expiration.

If you spot an evergreen renewal, ask to remove it. When a company refuses to remove the clause, this is a red flag. The vendor should have to continue to win your business. Not the other way around. Vendors who offer quality services can be confident that their customers will renew based on value, not because the customer forgot to cancel in time.

6. Scalable Pricing
As your business changes, you may want to expand your use of the system; or, unfortunately, you might need to scale back your use if business deteriorates. It seems likely that your vendor will be more than happy to grow your account, but what if you need to downgrade? In the current economy, this is all too common. Present this scenario to the salesperson and know your options.

In most cases, the vendor will not let you downgrade until the end of your term – another reason to keep the term relatively short. However, if you get in a pickle, you might be able to offer to extend the term of your contract in return for lowering the scale of your subscription.

7. Support
No matter how good the system is, you will need a little help somewhere along the way. Knowing what help is included in your support package is very important. A key point you will want to know is how you will receive support. Is it delivered via the web, by email, phone, or chat? Also ask about the hours of support availability. Is support available 24 / 7 or only during business hours?

Moreover, you should know the quality of support included in your package. A valuable metric for support quality is the response time guarantee. The best support organizations guarantee a thirty minute response time for emergencies and two hours in all other cases. Having a dedicated support staff (i.e. a “customer success manager”) is also very helpful. Flesh these points out in the contract. Just keep in mind that high levels of support might cost a little extra.

8. Backups and Recovery
You’ve trusted someone else with valuable business data; you don’t want them to lose it. Luckily, almost every SaaS vendor performs regular data backups. However, some providers backup more frequently than others. Most vendors will backup data either on a daily or weekly basis. If you input valuable data every day, then you will want to ensure the provider performs a backup each day. Others might back up throughout the day.

The way the backups are performed is also important. Some vendors maintain numerous backups, while others maintain only one and overwrite the previous backup. Creating separate entries allows you to rollback to a prior date if necessary. This takes up a lot of space so you will probably have to ask for it specifically. The final consideration with backups is whether the data is backed up in a separate data center. Keeping it at a separate center will add a buffer against data loss in the event of a data center disaster.

9. Data export
Finally, you will want to include a clause about data export. Two things are key here: you should always retain ownership of your data and you should know how to get it back. This will be most important in two scenarios: 1) if you want to migrate to a new system because you are unsatisfied; or, 2) the vendor goes out of business and you need access to your data even before you select a new system.

The method for getting your data back will vary, but common methods include a XML, CSV, and HTML. For the very technical, a SQL export may be better. That’s all well and good but what happens if the company fails? Most SaaS vendors have prepaid the data center hosting company to “keep the lights on” for a couple months in case they go out of business. This will keep the doors open long enough to get your data exported.

In the comments section below, please share your personal experiences with contract neogtiations. Also, feel free to add other considerations that you feel are important.


Not Content To Wait On COICA, HSA and ICE Seize Domain Names

This notice did not appear on our site (yet), thankfully, but about 70 sites were hit with this over the holiday weekend.

We recently posted on the pending legislation called COICA and noted that the forces that be were quickly drawing lines in the sand and standing rather firmly on their side of the line.  Interestingly, Homeland Security and Immigration and Immigration and Customs Enforcement supposedly obtained warrants and seized the domain names of these sites that they alleged are infringing, either by committing copyright infringement or selling counterfeit items.  As noted by this article in Techdirt, the seizure was only of the domain names and not of the equipment or other assets so some of the sites merely changed their high level domains (e.g. .com to .info), put out the word on Twitter and continued business.

Some people are worried by the apparent lack of due process in this matter and the potential for abuse.  Others are worried by the level of infringement and counterfeiting and the loss of revenue as a result.  This would call into question the need for COICA if HSA and ICE already possess these powers.  There should be a serious discussion of this whole process as the COICA legislation progresses.

Combating Infringement, Defeating Piracy, Stifling Free Speech or Violating Due Process? Depends On Whom You Ask.

Last week, the Senate Judiciary Committee, in an unusual show of bipartisanship (obviously caused by the evident and overwhelming support of the electorate in the midterm elections for more copyright legislation), voted unanimously to refer out of committee the "Combating Online Infringement and Counterfeits Act" ("COICA").










So, is this merely a tool to give prosecutors an expedited process to combat the evils of online infringement and piracy or is it seeking to censor the internet and create a blacklist of websites and consequently stifle the free expression of ideas?

Opting for the first view are the owners and protectors of copyrighted material, like the Motion Picture Association of America (MPAA), the Recording Industry Association of America (RIAA),
Major League Baseball, the NFL, Nintendo, Viacom and the U.S. Chamber of Commerce.

Coming down on the other side of the fence are most of the bloggers in this area of the blogosphere, the Electronic Frontier Foundation and a group of law professors who wrote this letter to the Judiciary Committee warning that the legislation was potentially unconstitutional.

What are the controversial provisions of  this alternatively praised and vilified legislation? (If your Ambien prescription has run out, you can read this and achieve the same result.).  For those of you who have Ambien, this is the "short" version:

  • If an internet site is otherwise subject to forfeiture under statutes prohibiting infringement, or
  • Is "dedicated to infringing activities" (primarily designed to, is marketed as or has no real use other than to offer infringing or counterfeit goods or services), and
  • the internet site engages in such infringing activities and when taken together, such activities are central to the activity of the site or the sites accessed through a specific domain name, then
  • the Attorney General can commence an "in rem" action against the site, get an injunction and require the domain name registrar to suspend operations of the domain name and the internet service provider to "take technically feasible and reasonable steps...to prevent a domain name from resolving to that domain name's Internet protocol address".
  • The in rem action can be brought in any judicial district where the domain name registry for at least one of the involved sites is located or in D.C. if the domain name is not registered domestically.
  • Notice of this action is sufficient if notice is sent to the postal and e-mail address that the registrar has for the web site and notice is published as directed by the court (no indication as to what this might be).  It is therefore possible that the web site owners would not have any notice of the action until it is well under way.
  • The Attorney General may then obtain an order, which can be served on the domain name registrar or the registry and the domain name registrar or registry can suspend operation of and may lock the domain name.
  • The injunction may also be issued against any internet service providers who can then suspend the operation of any transmission to or from the subject website.  The act provides them legal immunity for doing so.

The Act seems to be suspect in that it could amount to prior restraint of free speech and could be issued before a final court determination of actual wrong doing is obtained.  Or, it could be that the courts find that this is a necessary tool in the battle against internet anarchy and lawlessness.

There is much yelling and cursing and accusing yet to be done before this becomes law.  Stay tuned.



The Empire Strikes Back: Facebook Files Suit Against Lamebook In California Court

It didn't take long.  You will recall that we discussed Lamebook's filing against Facebook here in an Austin court last Friday.  Yesterday Facebook struck back with a suit in the Northern District of California. 

Facebook will hope to get Lamebook's declaratory judgment action dismissed here and then proceed with their suit in California.  There will be much maneuvering and it will rapidly get expensive, particularly for Lamebook. 

As we said before, stay tuned.

Dallas Cowboys Are Having A Bad Couple of Months

The Cowboys can't seem to do anything right.  They have started the season with one win and seven losses after being picked pre-season to be a Super Bowl contender.  Their starting quarterback is injured.  They've fired their coach and now, they forgot to renew their domain name registration.  Their website dallascowboys.com went off line for a few hours early in the week after the registration period expired on Sunday.  I'm not sure how this is even possible.  The registration entities are very aggressive about notifying you to renew and they start many months in advance.  You might even get some bogus notifications from China.  You would have to studiously ignore them in order to actually forget. 

May be time to punt.

Copyright: Don't Mess with Texas ... Unless They Steal Your Cowboy Silhouette

Recently, Zeke MacCormick reported that the Texas Department of Public Safety (TDPS) infringed on photographer David K. Langford right's to a photo titled "Days End 2". The photo in question, a silhouette of cowboy shouldering a saddle (as seen above), was used by the TDPS as a backdrop to Texas vehicle inspection stickers throughout several Texas counties. Mr. Langford is now suing for damages relating to the estimated 4.5 million reproductions of his photo. (Photo: Left: According to photographer D.K. Langford, this is the Texas vehicle inspection sticker designed from his photograph.Right: This photograph is exhibit A in Langford's suit vs. the Department of Public Safety and the Texas Department of Criminal Justice. Courtesy photos)

Mr. Langford, a very talented photographer, apparently shot this photo in 1984, and later published the photo in a Texas Parks and Wildlife magazine. Turns out, in Texas, the graphic design for vehicle inspection sticker is performed by prisoners of the state. One of the prisoners (with a pretty good eye for photos) scanned the photo into the system and was somehow later used in the sticker production. Although likely VERY boring in reality, I'd bet it would be great to hear not only how the graphic design department at the Texas Department of Criminal Justice got its scrappy start (would probably be the worst made-for-TV movie ever created), but how this picture ended up getting imprinted on the back of roughly 5 million stickers.

Continue Reading...

Lamebook Proves To Be Anything But Lame, As It Beats Facebook To The Courthouse

We have been chronicling the "cyber-bullying" of Facebook (see here and here) in its quest to dominate western civilization.  Facebook has sued Teachbook and Faceporn and asked for damages and ownership of the domain names. 

Facebook has been making noises about doing the same thing to a local parody site, LamebookAttorneys for Facebook and Lamebook have been discussing the issues for a while and when an apparent impasse was reached, Lamebook adopted the approach of another famous Texan and launced a preemptive strike.  It seemed evident to everyone that Facebook possessed weapons of mass distraction.  (Sorry. Should have, but couldn't resist.) 

Lamebook has filed for a declaratory judgment (a copy of the complaint and a good description in found here on TechCrunch) alleging that Lamebook is not a social site like Facebook and is a parody of Facebook and as such, is not infringing on Facebook's trademark.  For good measure, Lamebook throws in some First Amendment constitutional issues, claiming that it is engaging in protected free speech.  A declaratory judgment action just asks the court to rule (i.e. declare its position) on certain issues without necessarily providing any other remedies.

This seems like a pretty good move on the part of Lamebook.  It keeps the suit in a Texas court, at least for a while, it is great publicity for Lamebook and everybody loves a David vs. Goliath story.

If this works out well for Lamebook, look for Facebook to begin talking less and filing more suits.  Stay tuned.

Cyber Bullying: Facebook Picks On Everybody

You may recall that we recently discussed that Facebook had unleashed the dogs of war on a website called Teachbook, a social network for teachers.  Messing with teachers is one thing, but now Facebook has stepped up their game a notch and has filed a similar action against something called Faceporn.  Until recently, Faceporn unpretentiously called itself "the number one socializing porn and sex network".  Now, it just calls itself down due to "unforeseen circumstances".  Like the suit against Teachbook, Facebook is asking for all of Faceporn's revenue and ownership of its domain name.  Faceporn says it is redesigning its site and will come back with the "best porn site the world has ever seen".  It's nice to know that Faceporn retains its humility through trying times.

Look for more of these suits from Facebook and maybe from others.  YouTube is yet to take on YouPorn, but that may just be a matter of time.   

Copyrights in the Fashion Industry, Hot or Not?

New York Fashion Week Fall 2007: Doo Ri

As of late, the issue of Copyright in the fashion industry has been increasingly in the news. With the recent proposal of "new" copyright laws by New York Senator Charles Schumer, the decision of whether or not to provide broad copyright protection to fashion designers is being revisited. The issue was most famously approached, when in the 1930's the "Fashion Originators' Guild" started a cartel requiring all retailers to purchase from the Guild. If retailer sold a knock-off they would receive a "Red Card" restricting other Guild members from selling to that retailer. The Guild was broken up by the federal government, but that didn't keep certain members from attempting to change federal copyright law to put their oligopoly back in place. They failed.

Many attempts were made afterwards, and in 1998 a significant change was made - the Vessel Hull Design Protection Act was enacted. The what? Just bear with me. This act was passed by Congress to protect the designers of the hulls of boats. Hulls are expensive to make, involve safety issues, and were found to be worthy of copyright protection. However, when drafted the Act's language appears to be an attempt to protect "original designs of a useful article" but the definition of "useful article" was limited to the hulls of boats. The proposed bill by New York Sen. Schumer (NY seems to make more sense when you think of where all the designers reside), just includes "Fashion Design" as a definition to "useful article," incorporating a broader range of protection to designers. 

Intellectual property rights (copyrights, trademarks, and design patents) are, and have been afforded to the designers of fashion. However, designers are pushing for more protection over the goods they produce. Currently, a copyright protection applies "only if, and only to the extent that, such design incorporates pictoral, graphic, or sculptural features that can be identities separately from, and are capable of existing independently of, the utilitarian aspects of the article." 17 U.S.C Section 101 (under "Pictoral, Graphic or Sculptural Work"). A good example of this would be a famous painting printed on a shirt. The painting will be protected on it's own, whether or not the painting is used on its own, a shirt, a jacket, or as wallpaper. This restricts most general designs from receiving copyright protection. Trademarks provide a protection to the goods in such a way that will tell the customer from whom they originated. This either comes in the way of a brand name tag or logo attached to the article of clothing, or by a design that is so unique that the consumer knows it was developed by a certain creator (think Adidas and the three stripes along the sleeves of their apparel). Design Patents are used in certain areas of creation, but cause great difficulty for a designer. The technical requirements needed to obtain a design patent, which include non-obviousness and novelty, are difficult to meet, not to mention the cost and the time. If the user can afford the patent, the time spent often in the process ends up being several months to years causing the designer to miss out on the trend.

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Facebook Opens Fire on Teachbook

Once upon a time, most schools distributed annuals or pictures, names and some personal information about students so that other students could make connections. Then Mark Zuckerberg hacked into the Harvard computers and obtained private information of students and put that into a Hot or Not knockoff called “Facemash”.
Harvard threatened Zuckerberg with expulsion, charges for breach of security and copyright infringement. Harvard later backed off and the rest is history.
Fast forward to today and the behemoth that has now evolved from Facemash to Facebook is rigorously trying to keep anyone from using either “Face” or “Book” in their name if the entity is remotely associated with social media.
Facebook recently induced a site called Placebook to change its name to TripTrace and has now filed suit against a site called Teachbook, which is not even operable yet but purports to be an online information sharing vehicle for teachers (a large number of whom are prohibited from being on Facebook by school administrators).
Facebook is alleging in the suit against Teachbook that the term “Book” is highly distinctive and that most people associate it with social networking. Facebook throws in a claim of cybersquatting and wants the court to give it the domain name Teachbook. For good measure, they included counts of trademark infringement, unfair competition, and trademark dilution. Teachbook has only a couple of employees. Hello fly, meet cannon.
This indicates that Facebook will be aggressive against any online vehicle containing any variety of “Face” plus something or something plus “Book”.
No word yet on their stance on BookFace (actual trademark application made and abandoned several years before Facebook came around).

Oracle vs. Google, Godzilla vs. Mothra, Perseus vs. The Kraken and other Titanic struggles

Consider this abbreviated time line:

November 5, 2007 - Google, T-Mobile, HTC, Qualcomm and Motorola announce the release of Android and announce the creation of The Open Handset Alliance comprised of 34 companies that will free the mobile world of all restrictions (the last part is made up).  Nowhere in the announcement does Java get mentioned.

Same day (almost like they knew it was coming) - The Chairman and CEO of Sun (possessor of Java) heartily congratulates Google et al on the release of Android and hails the salutary effect it will have on the Java community.  The blog entry goes out of its way to call Android a "Java/Linux phone platform" and "a Java based platform".

April 20, 2009 - Oracle buys Sun.  In the press release announcing the sale, Oracle calls Java "the most important software Oracle has every acquired."

 August 12, 2010 - Oracle files suit against Google alleging "In developing Android, Google knowingly, directly and repeatedly infringed Oracle's Java-related intellectual property. This lawsuit seeks appropriate remedies for their infringement."

Now what happens?  Google will claim that they aren't using Java but built their own version of this platform called Dalvik using approved clean room methods and therefore haven't infringed on anything.  Google hasn't filed an answer yet and probably won't for some time.  Then the fun will start.  This has the potential to be a very visible and influential suit with ramifications for years to come.  Google is not likely to be the last company with Defendant after their name in this matter.  There are millions and millions of devices with Android running on them.  Plus it involves some heavyweights.

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More Sophisticated Spyware Hits Utility Systems - "Stuxnet" Gone Wild

Cyber security experts are scrambling to assess the past effects and the potential of a recently detected malware that has targeted utility systems primarily in the Middle East (beginning in Iran) and the United States. Microsoft has named the Trojan intruder “Stuxnet”.

On a very basic level, here is what Stuxnet does:
1. So far, it has targeted a Siemens system (SCADA) used primarily in the operation and control of electric power plants;
2. It has been carried on USB sticks that, when attached to a computer, automatically executes without any further action by a user, even if the AutoRun function is disabled;
3. The Trojan then seeks out and copies certain database information, including power plant designs;
4. Stuxnet exploits a flaw in the shortcut links files in Windows.

Microsoft has issued a work around that essentially turns off the shortcut function and changes the shortcut icons appearance on the screen.

So, if this only targets utility companies, unless you are a utility company or have one as a client, why should you care? Experts surmise that this was created to carry out industrial espionage but the same technique can be used for other targets. It could be used to target other trade secrets, personal financial information, medical records, etc.

We talked to a local security expert and there are reports that Stuxnet or variants are “in the wild” and could be delivered by a manner other than USB sticks via networks and remote web servers.

McAfee alleges that it has a defense against Stuxnet as does Symantec. As we noted in earlier posts (see here and here), these are examples of blacklisting. CoreTrace has demonstrated effectiveness against the intruder by using the whitelisting capabilities of its product Bouncer. See the YouTube video here:  http://bit.ly/bFCEdc.

This attack seems to be much more targeted and much more sophisticated that most of the prior threats and may herald a new age of malware menace.

So, it’s a dangerous cyber world out there. Use protection.

STARTUP WEEK: Intellectual Property and Your Company

So now you've chosen your entity, it's been incorporated, you have startup capital and are up and running, you've spent thousands of dollars in creating a logo, branding, and marketing.  Things are going great, and then one day you are hit with a cease and desist letter stating that you are infringing on another company's trademark because the name you are using is confusingly similar to the other company's name.  Now you are not only in danger of being sued, but you've just wasted thousands of dollars and many months of hard work on a name and brand you can't even use.  This is just one illustration of how important it is to assess as early as possible the intellectual property (IP) landscape of your company.  Three questions every new business owner should ask: "What IP does my company have?", "How do I protect that IP?" "Am I in danger of infringing the IP rights of another?"  This post will give a summary of the main types of intellectual property, how to protect IP, and how to avoid infringement.  This is just a summary and is no means comprehensive.  Every new business owner should consult with an attorney about their IP issues.

The four main types of IP: 1)Trademarks 2)Copyrights 3) Patents and 4)Trade Secrets. 


Trademarks allow a company to easily distinguish itself in the marketplace in the minds of consumers.  A well known trademark is often one of a company's biggest assets.  Trademark law gives a company the exclusive right to use a distinctive mark used to identify its goods or services.  It allows for a company to develop a brand in the marketplace without fear that another company will cause a "likelihood of confusion" by using a similar mark.  Trademarks do have "common law" protection under federal law and the law of most states; meaning that you do not have to register to have protection.  But registering your distinctive mark at the federal and state level provides a number of benefits.  Registering serves as constructive notice that your mark is in use, it makes it easier to prove your case in court, and it gives you protection in a far greater area.  Prior to registration, the mark should be followed by "TM" for trademarks and "SM" for service marks.

Not all names are available for trademark protection.  The mark must be sufficiently distinctive.  The level of distinctiveness depends on the context it is used.  Generic or common terms are not protectable if they are used in the area they describe.  For example, "Apple" is protectable when used with computers, but would not be protected if the company sold fruit.  Marks can't be overly descriptive either.  For example, "Eye-Care Center" would not be protectable for an optometrist's office.  Suggestive marks have a better chance of obtaining protection, but are not perfect because they could be seen as too generic/descriptive.  For example, "America Online" is suggestive of the services it provides.  The best choice for a protectable mark would be an arbitrary or fanciful term.  (Think "Yahoo!" and "Google")  It should be noted generic or descriptive marks can become protectable through their use. A mark can obtain "secondary meaning" through its extensive and continuous use in commerce to such an extent that it has achieved the required level of distinctiveness. 

Picking a distinctive mark is just half the battle.  You must also ensure that you are not using a mark that infringes another company's rights.  The basic test the courts use when determining if a mark is infringing is "likelihood of confusion" in the minds of consumers.  There are thirteen factors courts consider when determining likelihood of confusion.  (Known as the "DuPont Factors")  You should search extensively for similar marks on the USPTO website  and consult with an attorney before deciding on your mark.


Copyright law protects original works of authorship fixed in a tangible medium of expression.  Obviously, this includes many areas: literary works, musical works, dramatic works, photos, paintings, sculptures, architectural works to name a few.    Business that don't produce these types of works should still consider whether they have copyrightable material.  Marketing materials, training materials, or other works that the business creates during its operations could potentially be copyrightable.

Anytime a business contracts to create something new it should consider the copyright involved.  Just because someone creates something for a business doesn't necessarily mean the business own it.  This is a common issue in "works for hire" cases, and every company should address ownership of the copyright when contracting for works made for hire. 

Similar to trademarks, copyrights can be registered, but they do not have to be.  Copyright protection exists from the moment of creation.  But like trademarks, there are a number of benefits from registration.  It is much easier to prove infringement if the copyright is registered, there are substantial statutory damages as well attorney fees available to the registered copyright holder.  Copyrights are relatively easy to register compared to patents and trademarks, but registration can be deceptive in its simplicity.  Consulting with an attorney is recommended. 

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Trademark and Domain Name Scams from China

Recently, one of our clients received an email from Chinese domain registration company stating a foreign company was attempting to obtain their domain name. Our client, for purposes of privacy we’ll call them “CustomerName,” is a start-up in the process of obtaining a trademark registration for their company name. This email, although suspiciously spam-like, created some concern and confusion for CustomerName. Was this spam? What rights would they have if a foreign company was to use this domain name? What is my recourse?


First things first, it’s important to determine whether something like this is just a “Nigerian Prince” scam or something legitimate. A quick search turned up an article on the domain registration email our client received giving us serious pause. The article, by Happy Living with Hosea, provides a great analysis of the drafting of the email. Hosea pointed out things a Chinese company would have likely done differently if this was a legitimate operation. First, it was evident something peculiar was up based on the grammar and punctuation of the email. I’ll be the first to admit I send out letters with grammatical and punctuation errors on a daily basis. However, this one bereel badSo I feel “it is our duty to notice you” (a little example) of how this poor drafting is a good indicator of a scam. Additionally, had this been one carelessly drafted email that would be one thing, but after some research, it becomes clear this is not an isolated case (just read the comments to the Hosea article).

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Very Little "Glee" in Copyright

The season finale of Glee was last week and my girlfriend relives the episode on Hulu about every other night (I am just an innocent bystander “forced to watch”). If you haven’t seen it, Glee is a show about a ragtag group of kids who come together defying all odds (and social barriers) to compete in state glee club competitions. Although the principal of the school constantly threatens to close down the club because of budget cuts (and this is an issue in every episode), the term Copyright License never enters the equation. Rightly so, as copyright issues never seem to bring the same audience as issues about teen pregnancy and high school relationships. However, as an IP attorney I can’t help but think about what consequences this tiny Ohio school would face if the catalogue of songs used in the show were performed by an actual school.

A wonderful blog post on this issue was written by Christina Mulligan, in Copyright: The Elephant In The Middle of the Glee Club. She wrote,

 “In onerecent episode, the AV Club helps cheerleading coach Sue Sylvester film a near-exact copy of Madonna’s Vogue music video (the real-life fine for copying Madonna’s original? up to $150,000). Just a few episodes later, a video of Sue dancing to Olivia Newton-John’s 1981 hit Physical is posted online (damages for recording the entirety of Physical on Sue’s camcorder: up to $300,000). And let’s not forget the glee club’s many mash-ups — songs created by mixing together two other musical pieces. Each mash-up is a “preparation of a derivative work” of the original two songs’ compositions – an action for which there is no compulsory license available, meaning (in plain English) that if the Glee kids were a real group of teenagers, they could not feasibly ask for — or hope to get — the copyright permissions they would need to make their songs, and their actions, legal under copyright law. Punishment for making each mash-up? Up to another $150,000 — times two.”

These issues could sometimes be resolved by certain license agreement, such as a license acquired from TheAmerican Society of Composers, Authors and Publishers (ASCAP). ASCAP is a company servicing creators of copyrightable works (songs, lyrics, compositions, etc.) by licensing out the works of these artists to the rest of us. A publisher of work, such as a school glee club would approach ASCAP to obtain a license to perform or play music from the ASCAP library of collected works. ASCAP is one of the largest licensing houses in the country and licenses the rights to thousands of songs. However, there are several rights available one can license when trying to use/perform a song, such as Adaptation, Recording, Reproduction, and Public Performance rights. These rights can be licensed individually or all together. According to Peter Jansson of Janssongs in an interview by The G-Man in the “More Music for Your Money – The Cold Hard Facts about License,” rights for certain songs can range from “anywhere between $1.00 and $250,000 (U.S.) for each one."

So a word to the wise, if there are any other Will Schusters out there, you might want to check your playlist and school copyright license before doing any trying to replicate any Madonna songs. 

Federal Judge Says Maybe the Does Should Go.

The US Copyright Group is a group formed by a lawfirm in Leesburg, Virginia, which according to their website, is designed to "Save Cinema" from the evils of illegal downloading.  We have mentioned them before in relation to their attempts to involve the internet service providers.  They have filed many lawsuits, primarily in the DC Federal District Court, against multiple defendants, mostly described as "John Does" since they have not as yet definitively identified the defendants.  In a couple of the suits involving the movies The Steam Experiment and Far Cry, they have provided for 2,000 and 4,577 defendant Does, respectively.  They propose to obtain the identities of the alleged infringers through discovery in the suits by getting the "infringers' identities through ISP subpoenas", again according to their website.  They advertise that they do all of this on a contingent fee basis.

Although it has not been specifically determined yet, it is unlikely that all of the alleged defendants live in the DC area, so it would be very difficult for each defendant to appear and defend and conversely, it would be very difficult for each defendant to be sued individually in the area where they live.  You can see why the US Copyright Group has tried to join all defendants in a single case. 

The Rules of Civil Procedure for the DC Court states that defendants can be joined in a single suit if the actions giving rise to the suit arose from the "...same transaction, occurrence or series of transactions or occurrences..." and a question of law or fact common to all the defendants will arise in the case...".

The two cases mentioned above have found their way onto the docket of Judge Rosemary Collyer and she has decided to rule on the issue of joinder of all the defendants.  She has given the plaintiffs until June 21 to show cause why all but one defendant in each case should not be dismissed due to misjoinder.  This could result in the dismissal of 1,999 Does in one case and 4,576 Does in the other.  Hence the bad rhyme in the title of this post.

A couple of public interest groups, including the ACLU, have filed amici curiae briefs on the side of the defendants.  The ruling by the judge in this case will have major ramifications on the nature of these types of cases going forward. 

Incidentally, The Steam Experiment's plot line is "A deranged scientist locks 6 people in a steam room and threatens to turn up the heat if the local paper doesn't publish his story about global warming" and Far Cry is based on a video game.  This is not a commentary on the value of the thing allegedly stolen.

IsTime Warner Cable Complicit in Illegal Downloading?

Time Warner Cable has just been accused of promoting copyright infringement in a pleading filed in a lawsuit targeting illegal downloaders.  But first a bit of history about this case.  The US Copyright Group is a company owned by a collection of IP lawyers who are filing a number of lawsuits on behalf of movie producers to seek damages from illegal downloaders.  So far five lawsuits have been filed against tens of thousands of alleged infringers.  (Included in that group of producers is the infamous Uwe Boll.)  This campaign is a stalking horse of sorts in an effort to prove to the large studios that they should join in this strategy of suing thousands of alleged infringers instead of going after the torrent sites or a small group of infringers. 

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Microsoft sues SalesForce.com for Patent Infringement


Ina Fried, from CNET.com, reported this week that Microsoft filed a patent infringement case against SalesForce.com. SalesForce.com is, among other things, a customer relations management (CRM) software company that provides its product through the cloud. Microsoft is no stranger to patent lawsuits. In fact, they were just ordered to pay $200 Million to Virnet X in a patent infringement lawsuit regarding VPN technology. However, the peculiar thing about the lawsuit filed against SalesForce.com was that it was Microsoft doing the suing. Microsoft has only filed 4 suits against competitors. Most infringement issues involving Microsoft commonly end up in some type of license agreement with the alleged infringer. (See HTC) From this Microsoft receives damages and then licenses their technology to the competitor. However, there appears to be more uncertainty surrounding this case.


It is no secret Microsoft is one of the more established players in the IT world. However, Microsoft, along with everyone else has been losing ground to Google. Microsoft and Google are competitors in e-mail (Gmail/Hotmail), browsers (chrome/IE), search engines (Bing/Google), electronic documents (Office/Google docs), and soon in operating systems (Windows/Chrome OS). Microsoft is attempting to chase Google into the cloud computing realm, as evidenced by the direction Office 2010 and other products are trending. The lawsuit against Salesforce.com might be just another way to gain ground. One of the benefits of being in the game as long as Microsoft has is that they have ownership to some of the foundational technology we all use today. Take a look at the subject matter referenced in these patents:


Ø       7,251,653: Method and system for mapping between logical data and physical data

Ø       5,742,768: System and method for providing and displaying a web page having an embedded menu

Ø       5,644,737: Method and system for stacking toolbars in a computer display

Ø       6,263,352: Automated web site creation using template driven generation of active server page applications

Ø       6,542,164: Timing and velocity control for displaying graphical information

Ø       6,281,879: Timing and velocity control for displaying graphical information (the 164 patent above looks to just be a continuation of this patent)

Ø       5,845,077: Method and system for identifying and obtaining computer software from a remote computer

Ø       5,941,947: System and method for controlling access to data entities in a computer network


All of these patent subjects are associated with cloud computing factors. This is no surprise since Salesforce.com is run from the cloud, but it does question what Microsoft will do next? Will they pursue other companies that infringe on the broad patents? Are they trying to get enforcement out of their patents before the Supreme Court returns an opinion on In re Bilski? Are they just trying to get another license agreement?