Austin Technology Law Blog : Texas Technology Lawyers & Attorneys for Copyright, Trademarks & Software Licensing in Houston, Dallas & Austin TX

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.

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

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

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

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

The Court then went on to say:

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

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

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

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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.

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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.

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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.

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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.
 

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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.

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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.

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

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

As we said before, stay tuned.

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

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

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

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

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

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

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

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

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

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

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

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