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:

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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.

Smiling Bob And Ecstasy - Courts Continue To Struggle With the Intersection of Technology and The Fourth Amendment

Two recent cases highlight the problems that courts have with the confluence of technology and the Fourth Amendment prohibition against unreasonable search and seizures.

The Sixth Circuit Court of Appeals held that compelling a defendant's internet service provider to turn over the defendant's e-mails without a warrant violated the Fourth Amendment.

The Supreme Court of California held that the search of a smart phone that was on a defendant's body when arrested could be searched without a warrant.

The Sixth Circuit Case involved the makers of Enzyte, a herbal supplement that employed a very annoying "Smiling Bob" and a plethora of thinly disguised puns and props to indicate that the supplement would increase the size, durability and apparently the appearance of your external genitalia.  Imagine our surprise when the makers and distributors were accused of deception, fraud and a number of other transgressions, including money laundering.  During the investigation, the government compelled an internet service provider to release e-mails more than 180 days old without getting a warrant.  The government relied on a provision in The Stored Communications Act 18 U.S.C. §§ 2701 et seq., which allowed for such shenanigans when the e-mails were of such an age.

The Sixth Circuit held that the defendants still had a reasonable expectation of privacy in such old e-mails and held that portion of the Stored Communications Act as unconstitutional.  The court likened the internet service provider to the post office or the phone company and noted that interception of a letter or a phone call could not be done without a probable cause warrant.  The court said an e-mail was entitled to the same stature.

The California case involved an accused seller of Ecstasy, the amphetamine fuel of choice for all night "raves" or for extended sexual encounters.  In this case, the defendant Diaz attempted to sell Ecstasy to a police informant.  A sale was made, an arrest ensued and Mr. Diaz's cell phone was taken from his person.  An hour and a half later, back at the station, an investigator looked at text messages on the phone and found the text: "6 4 80".  This apparently means that the defendant offered to sell six tablets for $80.  The defendant was shown the text and promptly confessed.

Upon appeal, the defendant claimed that the phone was searched without a warrant and therefore the text and the subsequent confession should be excluded.  Courts faced with similar issues in the past have held that the search of the person and the immediate area incident to a lawful arrest without a warrant is acceptable in order to check for weapons or check for evidence that might be lost.  The California court held that the cell phone “was an item [of personal property] on [defendant‟s] person at the time of his arrest and during the administrative processing at the police station" and was therefore “immediately associated with [defendant‟s] person and that the warrantless search of the cell phone therefore was valid".

In a dissenting opinion, justices stated that the nature of the cell phone i.e. that it basically amounts to a pocket held computer should warrant (pun intended) a distinction between such devices and weapons, paint chips and crumpled cigarette packages, items that had been approved for search in cases on which the majority relied.  The majority cited cases that stated explicitly that the validity of a warrantless search does not depend on the character of the searched item.

It is unlikely that the result would have been the same if a the defendant had been holding a laptop at the time of arrest and a subsequent warrantless search was made of the laptop.  This ruling probably deserves some further consideration and refinement.  Stay tuned.

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.