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

Once Again Arriving At The Intersection of Law, Technology and the Expectation Of Privacy. Court Rules That Vast Collection of Metadata Is Not Allowed By Patriot Act.

 Were you surprised a couple of years ago when Edward Snowden released documents that showed that the NSA had a program whereby they collected all metadata on all phone calls within the U.S. and stored them in a database for possible future use?  I must confess I probably ho-hummed that one a little bit and continued to expect that pretty much anything I did by phone or on-line could one day be reviewed by someone for some purpose or no purpose at all.  I'm not saying I liked that but like many I have lost faith in any real privacy.

Now, a federal court has said that the unlimited, unrestrained collection of such metadata is beyond the congressional intent expressed in the Patriot Act.  ACLU v. Clapper [the "Clapper Case"]   Setting aside for a moment the notion that "congressional intent" may be an oxymoron, the language of Section 215 of the Patriot Act as it was feed steroids after the attacks of September 11 allowed for: "...an order requiring the production of any tangible things (including books, records, papers, documents, and other items) for an investigation to obtain foreign intelligence information not concerning a United States person or to protect against international terrorism or clandestine intelligence activities."

The first such order to come to light was directed to Verizon and required Verizon to turn over  "on an ongoing daily basis . . . all call detail records or `telephony metadata' created by Verizon for communications (i) between the United States and abroad; or (ii) wholly within the United States, including local telephone calls."  Note the "wholly within the United States" language.  The Government, in the Clapper Case, declined to either affirm or deny that other major carriers were subject to the same language.  More than likely this means that if you have a cell phone with a major carrier, your call metadata is residing somewhere on a government controlled server.  The Government counters that this is not the content of the conversation nor has it been reviewed.  The Court in Clapper found that even without the content, metadata could reveal that a caller was "...a victim of domestic violence or rape; a veteran; suffering from an addiction of one type or another; contemplating suicide; or reporting a crime. Metadata can reveal civil, political, or religious affiliations; they can also reveal an individual's social status, or whether and when he or she is involved in intimate relationships."

The Patriot Act allows the collection of things that would otherwise be obtained through a grand jury subpoena.  The Court reasoned that the issuance of a grand jury subpoena, while given very broad latitude, had to have some relevance to the matter at hand and since there was no present intention to review the metadata nor any issue to which it was specifically relevant, this exceeded the authority granted.

It should be emphasized that this was merely a statutory interpretation and the Court expressly stated that it was not ruling on the constitutionality of the statute.  A concurring opinion stated that because it was a statutory interpretation, Congress could fix it (albeit with still the Fourth Amendment issue).  So Congress, with all its alacrity, is trying to deal with the issue.  These provisions of the Patriot Act sunset on June 1 and we all know how effectively this Congress deals with deadlines.  In the meantime, keep using that cell phone.


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?

Fifteen Things That Could Maybe Happen In 2015 In Law and Technology.

In keeping with the BuzzFeed nature of blogging and the proud tradition of procrastination irretrievably associated with this blog, we will fearlessly predict fifteen things that might, could, should occur during calendar 2015, even though well over one-sixth of the year has already passed us by. So after consulting my Magic Eight Ball®, Ouija® board and Googling® “things that might occur during 2015”, here goes:

1. If I hadn’t procrastinated, I would have predicted that Ross Ulbricht, a/k/a Dread Pirate Roberts, d/b/a Silk Road would be convicted and I would have had at least one prediction be accurate. However, since that occurred before I got off my keyboard and wrote this, I will just predict that he will appeal and some of his convictions will be reversed and/or he will strike a plea bargain to reduce the amount of jail time that he faces. He’s such a young guy that he will still have plenty of time to get into other trouble when he gets out.

2. Sixty percent (60%) of all websites and addresses will experience a hack or attempted hack.  This is not a stretch, as this has been the average over the past few years.  The cost of responding to a breach will exceed $200 per record in the U.S.  On average, each person in the U.S. will receive two notifications of breaches and 33% will take no action after receipt.  The three states that don't have breach notification laws (Alabama, New Mexico and South Dakota) will pass some version.  President Obama will suggest a national breach notification standard.  Republicans will threaten to shut down the Department of Defense if he does anything by executive action.  Congress will take no action.  President Obama will make a statement favoring oxygen.  Eight Republicans will suffocate.

3. The Supreme Court of the United States, after failing to rip insurance from 8 million people because of a typo, will grant certiorari to the Google/Oracle kerfuffle over APIs and we will be left with the spectacle of having some people who were born before telephones were prevalent (although younger than the Rolling Stones) try to determine whether interfaces will be subject to copyright.

4. The internet of things (“IoT”) will be the most hyped buzzword and will be attached to everything that has a wireless internet connection or that is hardwired into the internet and will include your refrigerator, air conditioner, automobile, FitBit, phone and clothing. The most intimate details of your life will reside on the cloud (the most hyped buzzword of a few years ago) and will be hacked and someone in Kazakhstan will know whether you need to buy more mayonnaise.

5. Big Data will be another over hyped concept and will be applied to any amalgamation of large data bases. Algorithms to sort this data and apply it will be developed so that advertisements for mayonnaise will come up on your browser after the hack described in 4 above.

6. Another result of big data amalgamation and parsing will result in the ability to do much more genome sequencing. More and more data will be available about genetic traits and inherited characteristics. Methods of manipulating those traits will begin to be developed. Designer babies will become a possibility. The use of steroids, amphetamines and other performance enhancing drugs will become obsolete in the future as children that have been “optimized” for athletic success will reach the age of competition and X-Men-like debates will dominate sports talk radio. The furor over Barry Bonds will seem quaint.

7. New methods of security for personal devices and premises will be developed and more widely used. One of these will be finger vein authentication, which will be safer, easier and more portable than fingerprints, retina scans or other methods. The NRA will object because identifying someone’s trigger finger will definitely be the next step in Obama’s nullification of the Second Amendment.

8. There will be a rise in personal biometric services.  Devices such as socks, shirts and wristbands and implants will constantly measure a person's physical characteristics and transmit the data to a smart phone and then to a medical provider.  There will be an automated response telling the patient to eat less mayonnaise.  The hacker in Kazakhstan will already know that.

9. An actor or actress will license their digital likeness rights to a movie studio where the studio will be able to use the likeness in a computer generated image without the actor participating in the filming at all. Just think of a young Mel Gibson and Danny Glover doing Lethal Weapons Number ad infinitum. I can only imagine the conditions of the licensing agreement regarding the personal conduct of the actor post license signing. Morals clauses, prohibition against drunken anti-Semitism and racism and good behavior clauses will be rampant.

10. There will be an accident involving two self-driving, autonomous cars involving personal injury. Personal injury plaintiff’s lawyers will sue all the programmers in sight. Programmers will have to begin carrying collision and liability insurance if they want to produce such cars.

11. New cryptocurrencies will emerge to compete with Bitcoin, even the several million that can’t be found after Mt. Gox lost them. None of them will catch on much because you still need a central government and an army to enforce the value of an arbitrary currency (which all are).

12. Artificial intelligence will blur the line between humans, robots and computers. More and more machines will pass the Turing Test. This blurring will bring the concept of the movie “Her” closer to reality.

13. TOR will take a hit because of NSA infiltration and detection. Something will emerge to take its place and the battle will begin again.

14.  Cyber-ransom, a subset of hacking, will become a bigger problem.  

15.  Several cases involving the warrantless searching of cell phones of arrested people will begin to wind their way through the appeals courts.  Since the holding that a warrant was needed, police will try to find ways to chip away at that requirement.  The issue will be resolved in the 2016 term of SCOTUS.

None of these predictions are particularly Kreskin-worthy and will not fill us with awe and wonder even if they come true.  However, think how amazing these would be if we had made them just 10 years ago. We truly live in interesting times.

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.

Homeland Security Gets Kansas City Panties In A Knot.

You might know that it would take an article on unmentionables to get me back on the blog horse. Well, thanks DHS, for just such a push. It is reported that Homeland Security raided a Kansas City store and confiscated several dozen pairs of panties with the Kansas City Royals trademark on them.

OK, several questions: (i) Panties?; (ii) Homeland Security?; and (iii) Why Kansas City and not my Cardinals in the World Series? Oh, and what does this have to do with law and technology? More on that later.

First, Panties? A Kansas City shop had hand drawn the KC logo and a crown and printed them on ladies panties. Apparently, it was too similar to the actual Kansas City logo and this brought down the wrath of Major League Baseball, which manifested itself in a raid by a division of Homeland Security set up to police intellectual property right infringements. In the past this has sometimes been handled on a local basis by interdictions on the part of local or state police on tee shirt sales at concerts or illegal use of music in bars. However, apparently this is now a national security matter.

You may ask if counterfeit drawers are of such importance that it justifies a diversion of resources such as this. I might ask the same thing. DHS has a division set up to police this type of thing, primarily at the behest of the movie industry. It would have made more sense if the panties were Ebola laden or carried the ISIL logo. Anyway, a word to the wise. If panties can be confiscated, it is apparent that software or hardware and bio-medical equipment or compounds, whether carrying a trademark or not, could become subject to this treatment. That's when technology and law intersect and you don't want to be in that collision.

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.

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.

Court Holds That Non-Present Texter Could Be Liable Along with Textee In An Automobile Accident.

In another case that involves a collision (in this instance a most unfortunate pun) between technology and law, a New Jersey court has held that a person sending a text to a driver, with sufficient knowledge that the driver would observe the text while driving, might be held liable for the driver's negligence when the driver does observe the text and because of the distraction, has a collision.

Oh my!  Consider this possibility.  You are ensconced in your office in San Francisco.  You are engaged in negotiations with a business rival in New Jersey.  Your New Jersey rival is in transit between Newark and Atlantic City and you know this because you had a telephone call with her earlier and she indicated that she would be driving but would appreciate a text if you had any further information or a change in your offer.  You update your offer and text it to her when you know she is in transit.  She has an automobile accident and either because of your crappy offer or her injuries, the deal does not go further.  A month or so later, you receive a demand letter or a complaint and summons from the lawyer of the other participants in the wreck, alleging that your sending of the text makes you liable for his client's injuries.  You say  WTF?

Far fetched, you say.  Yes.  Impossible? No, consider the decision recently in Kubert v. Best.  There, the court held: "The sender of a text message from a remote location can be liable under the common law if an accident is caused because the driver was distracted by the texting, but only if the sender knew or had special reason to know that the recipient would view the text while driving and thus be distracted."

In this case, Mr. Best was texting with Shannon and had been doing so off and on for most of the day.  During his texting, he crossed the center line and hit Mr. and Mrs. Kubert on their motorcycle and caused each of them to lose their left leg.  Very dreadful!  The Kuberts included Shannon in their complaint.  The court found that in this case Shannon was not liable because the plaintiffs had not proven that Shannon knew that Kyle (Mr. Best) would view the text while driving and consequently be distracted.  So, not liable in this case but the court held that if such knowledge and distraction had been proven, the court could have held Shannon liable for the Kuberts' injuries.

This raises several questions that are not answered in the opinion, e.g. (1) Does there have to be a special relationship between the texters?  Would liability be more likely if they were romantically involved or does the business relationship described above suffice?; (2)  Would the fact that the text came from a state that did not prohibit texting while driving have any impact?  Would it even matter if the state in which the accident occurred did not prohibit testing while driving?; (3) Would the automobile liability insurance of the non-present texter cover her negligence as if she had been present?; (4) What if the non-present texter is not an adult?; (5)  In states where parents are responsible for a minor's negligence if they sign to allow them to get a driver's license, would the parents be responsible for the texter's remote negligence?; (6) Could this be applied to other distractions like cell phone calls, the waving of signs on the side of the road for advertisement or in protest or the flashing of parts of the body.  Should cheer leader car washs worry? and (7) Have I given way too much thought to this?

Plaintiff's attorneys will now begin to check the defendant's cell phone and sue anybody that texted or messaged in close proximity to the time of the accident.  Maybe there should be an app for that.


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.

Insurance Company Gets Sloppy and Unlucky and a $1.2 Million HIPAA Penalty.

As is often the case, health care regulations and tech law overlap. 

Consider the unfortunate case of Affinity Health Plan, Inc., a not for profit managed care plan company in New York.  Affinity leased some copiers.  When the lease ran out on the copiers, Affinity let the copiers go back to the lessor.  The lessor stored the copiers in a warehouse in New Jersey.  As you may or may not know, digital copiers have a hard drive, much like the one in your laptop.  The copier makes a copy (hence the name) on its hard drive of each document run through the copier.  These copies on the hard drive remain until overwritten by other copies or until erased.  Most copiers don't have a readily available function that wipes the drive.

Now, Affinity either didn't know (probably) or didn't care about the copies on the hard drive and didn't take any action to delete them before turning them back to the lessor.  So, Affinity was either sloppy, negligent or uniformed, doesn't really matter.  What they were also, was really unlucky. 

Consider this further, there is a company called Digital Copier Security that is owned by a Mr. Juntunen.  Digital Copier Security markets a product to erase information from copier hard drives.  Mr. Juntunen of Sacramento and CBS News of New York somehow got together and decided to do a story on information left on copiers.  You can make your own assumptions as to how they got together and who profits from the arrangement.  Mr. Juntunen and CBS News went to a warehouse in New Jersey and purchased four copiers picked out by Mr. Juntunen.  Affinity's copier was one of the copiers selected.  When Mr. Juntunen removed the hard drive from the Affinity copier and printed out the images left there, several hundred pages of medical records were revealed.  CBS News notified Affinity about this and returned the hard drives to Affinity. 

If this copier hadn't been chosen, it is unlikely that anyone would ever have known about this and probably no records would have been revealed to anyone.  However, saddled with this unfortunate and unwelcome information, Affinity was required, under HIPAA/HITECH regulations, to file a breach report.  Affinity's breach report estimated that almost 350,000 people may have been affected by this breach.  A couple of weeks ago, Affinity settled with Health and Human Services.  The settlement required Affinity to pay a fine of $1,215,780, use best efforts to recover the hard drives from all other copiers they had similarly leased and discarded and to take certain other measures to safeguard all electronic protected health information.

To be fair, the other three copiers purchased by CBS all had sensitive information on them.  One was from the Buffalo, N.Y. Police Sex Crimes Division and it had detailed information on domestic violence complaints and a list of wanted sex offenders.  Another machine from the Buffalo Police Department had a list of targets in a major drug raid.  The other machine was from a construction company and had a number of pay records along with social security numbers.

However, Affinity was the only one that was regulated by HIPAA.  Most unfortunate.

Thus, lessons learned: Things that have digital storage devices, e.g. computers, copiers, fax machines, cameras, smart phones, etc. should be covered in a comprehensive policy that requires their storage to be scrubbed before disposal.  You do not want to be unlucky too.

Sh*t Just Got Real! Bitcoin Collides With The Non-Virtual World, Because Regulation and the Winklevoss Twins!

We have discussed the virtual currency Bitcoin on these pages before.  Also, we have mentioned the blog content gift of the Winklevoss twins (of Facebook fame) several times before.  Now, these favorite things combine to provide more blog content.

While existing completely in the virtual realm, Bitcoin is being treated very much like good old U.S. pesos, in that it is subject to regulatory bodies and to prohibitions against using it to scam folks.  The New York State Department of Financial Services has subpoenaed everybody in sight (22 companies, including the Winklevosses) to get an idea of what's going on in Bitcoin land.  A GAO report has suggested that virtual currencies are subject to the income tax laws, just in case you thought you escape Uncle Sam in the virtual world.  The SEC has filed suit against a Bitcoin dealer and a Bitcoin "Savings and Trust" company alleging that Bitcoins are real money and the defendants are using them to finance a Ponzi scheme.  And Thailand has declared Bitcoins to be unusable in Thailand until the Thai officials can figure out what to do with them.

Then, last but not least, the Winklevosses that we have talked about here, here and here have filed an application with securities regulators to allow them to market an exchange traded fund that invests exclusively in Bitcoins.  What could possibly go wrong?  Some people have taken a dim view of this, while others say, wait before judging.

In any event, Bitcoins are attracting a lot of attention both from regulators and from people seeking to use them in many creative ways, some of those nefarious.  Don't dispose of your Confederate money yet.  You may be able to use it to purchase bitcoins.

Massachusetts Imposes Sales and Use Tax On Computer and Software Services. Check Your Agreements With Your Massachusetts Customers.

Recently, Massachusetts amended its sales and use tax laws to include a tax on services relating to computer and software services.  In an act entitled "An Act Relative to Transportation Finance" (you might understand why it could be missed if all you were looking at was the title), effective July 31, 2013, a 6.25% sales and use tax is imposed on "computer system design services and the modification, integration, enhancement, installation or configuration of standardized software".

Computer system design services is defined as "the planning, consulting or designing of computer systems that integrate computer hardware, software or communication technologies and are provided by a vendor or a third party" and is imposed on any company "sourcing" such services in Massachusetts.  There are a hierarchical set of rules for determining where the sourcing occurs for tax purposes so some opportunity exists for reducing the tax by planning where the actual services take place.  There remains several undefined areas such as where the services would take place in a hosting environment, cloud computing or whether it applies to such services as staff augmentation.

However, it is plain that the tax applies to taxable services supplied under contracts that are in existence before the act became effective as long as the services are performed and billed for after  July 31, 2013. 

Therefore, if you have such contracts for the delivery of such services to an entity with a connection to Massachusetts, you should review your agreements and see if you need to begin collecting and remitting this tax.  Also, you should have your agreements reviewed to see if the tax impact can be reduced by thoughtful construction.

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.


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.

Bill Introduced In Texas Legislature To Prohibit Employer From Asking You About Your Social Media Password.

Having solved all the other problems in Texas, including the problem of gun violence (prayer) and the problem of uninsured citizens (cutting Medicaid) the Texas legislature has turned to the burning issue of employers requiring employees to provide access information to employee's private social media accounts.

House Bill 318 has been introduced to make it an "unfair employment practice" if an employer "...requires or requests that an employee or applicant for employment disclose a user name, password, or other means for accessing a personal account of the employee or applicant, including a personal e-mail account or a social networking website account or profile, through an electronic communication device."

This bill still allows "monitoring" employee usage of employer provided media and also allows employer policies prohibiting use of company provided resources for personal use.  It doesn't provide for a specific remedy or a damages cap and it will likely be amended substantially before it passes, if it passes at all.  This would make Texas one of a handful of states that has jumped on this burning issue.  Crisis averted.

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.

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.

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.

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.

Ouch. That's Gonna Sting And Leave A Mark. A LLC Gets Its Veil Pierced.

A New York Federal Court recently found reason to "pierce the veil" of a Delaware Limited Liability Company.  As we all know from Business Law 101, corporations and limited liability companies are formed to shield the assets of their owners from the liabilities of the entity.  When a court finds adequate reason, it can remove the liability protection of such entities and such an action is called "piercing the veil".

In this case, Soroof Trading Development Company signed a distribution agreement with GE Fuel Cells LLC.  This agreement gave Soroff exclusive rights to distribute fuel cells in Saudi Arabia.  The members of the LLC were GE Microgen, Inc. and Plug Power, Inc.  As luck would have it, the LLC failed to deliver the fuel cells for Soroff to distribute.  Soroff was peeved.  Lawsuits ensued.

The LLC was dissolved in 2006 and a certificate of cancellation was filed with the Delaware Secretary of State.  The LLC also (look, this is my shocked face) had no assets at the time it was dissolved.  The individual members were not parties to the distribution agreement so one way to get to them (and their assets) was to attempt to pierce the veil.

Factors that courts consider when deciding to allow such piercing include whether the entity (either corporation or LLC) acted as an alter ego for the shareholder(s) or members.  If it is virtually impossible to distinguish between the operation of the entity and the business of the members, a court will find liability under the alter ego theory.

In this case, the LLC had no assets at the time of dissolution, it had no employees and the individuals working at G E Fuel Cells were employees of the members or GE, it had no office space because it used the space leased by Plug Power and it did not have any signage reflecting its presence.  The Court found this sufficient to grant a partial summary judgment piercing the veil.

Now, this opinion has some hair on it (as we say on the farm) because the court failed to cite any unfairness or inequity, which is generally required to grant a piercing.  It also failed to annul the cancellation of the LLC, which leaves the LLC non-existent and under Delaware law, not susceptible to suit.  If the LLC is not susceptible to suit, there is no liability to flow through to the members.

Maybe this will sorted out on the next appeal.

However, lessons to be learned here are to heed the advice we give to each LLC that we form as to the steps to be taken to minimize the likelihood that this might happen to you.

Update: Website Operator Still Has "Complete Immunity" Even When They Are "Appalling"

In another of a series of victories for website operators, a Florida appellate court has found that a website operator enjoys (that truly is the right word) "complete immunity" for anything posted on their website. 

You will remember that we reported on a similar case involving PissedOff.com,

The defendants in the instant  matter operated a similar enterprise called "The Ripoff Report", which similarly encouraged people to post disparaging remarks about people and businesses.  In this situation, a graduate of an addiction treatment facility alleged that the owner was a felon, the facility was dangerous and they disbursed illegal medications.  The proprietor of the site consistently refused to take down the offending post and even when the poster was the subject of an injunction which forbade her to leave the complaint on the site and the poster begged the site to take it down, the website operators refused.

In spite of all this, the court found that Section 420 (how appropriate for today, pot joke to follow) of the Communications Decency Act ..."creates a federal immunity to any cause of action that would make service providers liable for information originating with a third-party user of the service."

This is true even though the court  thoroughly disapproved of the website's business practices (they offered reputation cleanup services for a large fee, much akin to PissedOff.com).

So, you have to do more than just be "appalling" to remove yourself from the CDA's umbrella of protection.

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.

Congress Agrees On Acronyms for JOBS and CROWDFUND. Astonishment Is Rampant.

Given the present state of partisan hostilities in Washington these days, it is big news when the Senate and Congress can agree on anything.  However, that is exactly what they did on March 27, when Congress agreed with a Senate amendment to an act that established once and for all, the acronyms JOBS and CROWDFUND.  Oh yeah, they also passed an act to go along with the acronyms, which is the most astonishing of all and which is designed to stimulate the market for initial public offerings ("IPOs") and, inter alia, contains provisions allowing for "crowdsourcing" or "crowdfunding".  President Obama has expressed his support for this bill and is likely to sign it in the near future.

The "JumpStart Our Business Startups" Act or the JOBS Act changed in a very significant manner, the rules relating to funding for small business startups.  It even changed the definition of a small business to an "emerging growth company" that had less than $1,000,000,000 (yes, that's a billion) of revenue in the last 12 months.  According to some sources, this would have covered more than 91% of the IPOs in 2011.  The JOBS Act eased many of the rules for IPOs and instructed the Securities and Exchange Commission to revise and adopt other rules pertaining to these types of equities, including determining whether it makes sense to allow trading in one cent increments.

The most notable effort in acronyming, however, goes to the drafters in coming up with the "Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012".  Rolls off the tongue, right?  Or you can just call it the "CROWDFUND" Act.  This allows the collection of investments from large numbers of people in small amounts through brokers or registered websites.  It restricts the amount that can be raised to $1,000,000 annually and restricts the amount that can be raised from any one individual to the greater of $2,000 or 5 percent of their net worth or annual income if less than $100,000 or the lesser of 10% or $100,000 if annual income or net worth is greater than $100,000. 

The JOBS act also exempts most of the crowdfunding activities from state securities act registration requirements but still provides oversight by such state commissions for fraud and misrepresentation.

The Act provides for much registration and restrictions on advertising and generally has most securities lawyers in a state of moderate arousal.  A thorough summary of the act has been done by the firm of Andrews Kurth and can be found here.

Time will tell if this has the desired effect on increasing capital markets for "small" companies.  Some of the provisions may actually encourage the delay of IPOs but it is an ambitious effort if for nothing else than the advancement of acronym art.

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.

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.


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.

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.

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.

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.

The Seven Things The FTC Thinks You Need To Know About The CAN-SPAM Act.

If you use e-mail as advertising, you could be subject to the CAN-SPAM Act.  The FTC wants you to know how to comply.  Give it a look:


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.

Do You Use An iPad In Your Legal Practice? Maybe You Should And Give These 20 Apps Due Consideration.

Our friend, Judith Leeson, the proprietor of a blog called Law Degree, has gone to the trouble of searching, reviewing and recommending the top 10 free iPad apps and the top 10 paid iPad apps for attorneys.  If you use an iPad in your practice or are considering it, you should look this list over.  Thanks, Judith for bringing this to our attention.

Forget About Stomping On Public Unions, Wisconsin Is Now Stomping On Automatic Renewals In Contracts.

I'm pretty sure that activists didn't occupy the State Capitol building in response to this bill, but it could have some ramifications for companies that enlist language that purports to let contracts automatically renew, unless one of the parties takes some affirmative action.

There is a pretty common provision in a lot of contracts, including those that provide for technology consulting and services that goes something like this:

"This Agreement has a one year initial term, beginning on the Effective Date ("Initial Term"). The Agreement will automatically renew on each anniversary of the Effective Date for subsequent one year terms (each a "Renewal Term") unless either party gives written notice to the other at least thirty (30) days prior to the expiration of the Initial Term or the Renewal Term that the Agreement will terminate at the end of the present term."

Nothing sinister here.  It is designed to take some administrative work out of renewals and vendors like them because of the inertia that induces customers to not think about nor terminate an agreement.

The Wisconsin legislature, having solved all of the harder problems, turned its attention to agreements like this in the present session.

They have decreed that after May 1, 2011, agreements between businesses to lease equipment or provide business services (supposedly technology services would qualify) can not have an enforceable automatic renewal clause unless adequate notice was given and the customer's initials appeared in a certain place on the contract. 

There are several exceptions to this of course.  Lobbyists are good at their jobs.  However, anybody that does business in Wisconsin and leases equipment or provides services should look at this statute and determine if they would profit from adjusting their forms.  There is also a provision that provides for a right of private action for failure to comply.  The amount of recovery provided for in an individual contract is relatively minor and repair is simple but one could envision class actions under this statute that would be a real nuisance.

And just when you thought it was safe to go back into Wisconsin.

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.

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.

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.

Delaware Court Plows New Ground In The Field of Tortious Interference With A Contract Right.

Delaware courts have long been known for rendering cutting edge opinions, particularly in the area of corporate law.  The Superior Court of Delaware has now given approval for the expansion of the tort of tortious interference with a contract right.

In Allen Family Foods, Inc. v. Capital Carbonic Corporation, C.A. No. N10C-10-313 JRS CCLD, decided March 31, 2011, the Superior Court of Delaware, for the first time in Delaware, recognized an action arising under Section 766A of the Restatement (Second) of Torts.  Section 766A states in pertinent part: “One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person, by preventing the other from performing the contract or causing his performance to be more expensive or burdensome, is subject to liability to the other for the pecuniary loss resulting to him.”

Heretofore, only the other parts of Section 766 of the Restatement had been a basis for actions.  Those were the portions that stated that an intentional and improper interference with a third party, which caused such third party to breach an agreement, was a basis for an action. 

In the instant case, Allen Family Foods had a requirements contract with Capital Carbonic Corporation that stated that Capital Carbonic would supply Allen with all the dry ice Allen needed.  Supposedly, Allen thought the agreement with Capital Carbonic had expired and entered into a new agreement with Praxair for the same thing.  Capital Carbonic's attorneys sent a hotly worded letter to Praxair accusing Praxair of tortiously interfering with the contract between Capital Carbonic and Allen.  As a result of the letter, Allen ceased doing business with Praxair and re-upped its agreement with Capital Carbonic.  Allen then sued Capital Carbonic for tortious interference with its agreement with Praxair.  There was no indication in the opinion about how bad customer service got after the filing of the lawsuit.

Capital Carbonic responded that a cause of action did not exist when the alleged interference was just with the plaintiff and it merely caused the performance of an agreement with a third party to be more expensive or more burdensome.  Capital Carbonic pointed to a federal court case that stated that such court believed that an action under Section 766A would be rejected by a Delaware court because of its "...inherently speculative..." nature.

The Delaware court acknowledged that Delaware already recognized claims under "...Section 766 (tortious interference with a third party’s performance of a contract) and Section 766B (tortious interference with prospective contractual relations)".  The Court went on to say that not all 766A claims would be totally speculative and that courts dealt with speculative claims all the time anyway.  The Court reasoned that it made no sense to allow third parties to interfere in this manner without sanction, while recognizing that they could not interfere with other parts of the transaction. "The Court can think of no rational basis to encourage behavior which would be tantamount to targeted tortious interference."

Having found that a cause of action could rise under Section 766A, the Court then found that the plaintiff had not properly pled such an action and dismissed that portion of the claim.

So, look for this to be a new arrow in the quiver for plaintiffs to plead in contract interference cases.  To observe how courts across the nation deal with this and measure the damages that might accrue will be very interesting.  Stay tuned.

Who Owns The Clients Of A Professional LLC? Hint: It's Probably Not The LLC.

While not strictly technology related, this matter has some interest among professionals and could certainly have some impact on consulting firms in the technology arena.

Doctors, lawyers, accountants and others form limited liability companies (LLCs) under various state laws to conduct their practices.  In New Jersey, the Superior Court was called upon to determine whether the clients of a LLC belong to the LLC or to the individual members.  Gaines v. Luongo,  Superior Court of New Jersey, Docket No. A-3600-09T3, Unpublished Opinion, March 25, 2011.   

An accounting firm was organized as an LLC and one member was given a 70% ownership but the two members equally shared income and losses.  Shortly after the formation of the LLC, the fun went out of the relationship and the minority member sued under the oppressed minority shareholder rules of the New Jersey corporate code.  Part of the complaint alleged that the value of the clients of the firm should be considered when determining the pay out under the dissolution.  The Court held that the the "...Partnership's clients were never carried on [the] books as an asset; no value was ever assigned to them on the Company's balance sheets; and they were free to stay in business with either partner or neither."  Therefore, the value of the goodwill ascribed to each client belonged to the individual members and would not be considered in the dissolution.

So, unless otherwise stated in the Operating Agreement or otherwise on the books of the LLC, a client's value is not the property of the LLC.

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.

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.

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.

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.


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.

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.

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.

Another Pop Quiz: Apple, Pimple Popper Lite and Reading Your Wife's E-Mail. What Do These Have In Common?

Pop quiz, hotshot! (Using the same Speed reference in two posts.  You would think it's the only DVD we have.)

What is the common element among Apple, an app called Pimple Popper and a guy in Michigan that read his wife's e-mail?  The answer is that they have all been accused of violating computer security laws. 

Of course, there's more to the story.

First, let's visit the Michigan defendant.  The guy in question was in the throes of a divorce.  He had suspicions regarding his wife's monogamous instincts.  She kept her passwords in a notebook (dead tree variety) next to a computer that was shared by the couple.  He "hacked" her account by opening the notebook, finding her password and using it to access her gmail account.  Supposedly he found that she was in fact, having an affair with her second ex-husband.  Our hero is hubbie number 3.  Hubbie number 2 (the one now getting the action) had been convicted of beating the wife in question in front of her child (the progeny of hubbie number 1).  Still with me?  Our hero (hubbie number 3) was concerned about the possibility of continued abuse and took the information he found to hubbie number 1.  The wife, of course, found out, contacted the prosecuting attorney and hubbie number 3 (our hero) is now charged with violating the following statute:

"A person shall not intentionally and without authorization...Access a computer, computer system or computer network to acquire...or otherwise use the service of a computer program, computer, computer system or computer network."  Michigan Statute 752.795

The prosecutor's justification is that the defendant is a computer technician and he used his "skills" like a hacker to access the e-mail.  Violation of this statute in Michigan is a felony with a potential jail term of five years.

What of Apple and the Pimple Poppers?

Continue Reading...

"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."


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.



L3C: The New Entity on the Block

The Low-Profit Limited Liability Company (L3C) is the newest entity to be recognized by at least eight states and will probably be available in several others in the near future.  The L3C is a hybrid entity combining the flexibility of LLCs with the social consciousness of charity organizations.  Often non-profit charitable entities are subject to strict organization and tax regulations that many feel can actually hamper charitable and social purposes.  Generally L3Cs must meet the following requirements:

  • The company must “significantly further the accomplishment of one or more charitable or educational purposes,” and would not have been formed but for its relationship to the accomplishment of such purpose(s);
  • No significant purpose of the company is the production of income or the appreciation of property (though the company is permitted to earn a profit); and
  • The company must not be organized “o accomplish any political or legislative purposes.

Groups like Americans for Community Development have high hopes that L3Cs will open the floodgates for potentially billions of dollars in new charitable funding because of the flexible funding structures and potentially prudent investment opportunities.  L3Cs haven't made their way to Texas yet, but if and when they do, they could be a great option for those interested in charitable pursuits. 

New Cybersecurity Bill on the Way?

The House Oversight and Government Reform committee is set to vote on a new cybersecurity overhaul by as early as next week.  If approved, it would go to the House floor by Memorial Day.  Some key points in the bill:

  • create a cybersecurity czar nominated by the President and approved by the Senate
  • require agencies to send IT security budgets to the czar for approval
  • require IT security provisions in government contracts
  • require live, automated reporting from the agencies to speed up response time

The Obama Administration has been pushing for cybersecurity reform since last year.