Viacom filed a somewhat scathing appeal what I see as a sound decision in its ongoing case against Google's YouTube for copyright infringement. If you would like to see the point of few of people who do not think the case should have gone in Google's favor, you can find Viacom's YouTube Litigation Homepage here. Part I of this article recounts the history of the case, and Part II contains my analysis of Viacom's appeal.

Viacom filed a $1 billion copyright infringement lawsuit against Google and YouTube in 2007, claiming that, "If left unchecked, rampant infringement will gravely undermine Plaintiffs and other companies that generate creative works, and will threaten the livelihoods of those who work in and depend upon these companies." Complaint at 5, Viacom Int'l, Inc. v. YouTube, No. 07 Civ. 2103 (LLS) (S.D.N.Y. 2010). Viacom seemed to be particularly miffed that YouTube refused to install a tool that Viacom had asked it to, that would automatically detect and remove infringing content from the site, unless Viacom gave YouTube a license to use its copyrights. See id. at ¶ 7.

Google filed for summary judgment, and on June 23, 2010 the District Court granted it, holding that YouTube is protected by the Online Copyright Infringement Liability Limitation Act (often called the DMCA's "safe harbor"), codified in 17 U.S.C. § 512 ("512"). 512 offers various exceptions for copyright infringement liability, including exemptions for web service providers that have (a) no actual knowledge of the infringing material or activity and (b) does not receive financial benefit directly from use of the infringing content that is within its control, as long as the service provider promptly removes infringing materials once it gains actual knowledge, or once the copyright owner sends it written notification meeting certain, statutory requirements (often called a "takedown notice," or a "DMVA takedown notice"). See 17 U.S.C. § 512(c). The statute also defines "service provider" as an entity transmitting, routing, or otherwise facilitating the transmitting or routing of infringing copyright material, and long as that material was provided by a user and is unaltered by the service provider.

In its analysis, the District Court focused on whether YouTube had "actual knowledge," as was intended by the statute, of the infringing materials or activities, and whether it "was aware of the facts or circumstances from which the infringing activity is apparent." 17 U.S.C. § 512(c)(1)(A); see Viacom, No. 07 Civ. 2103 (LLS). The Court, after quoting extensive amounts of legislative history and prior cases, held that YouTube was exempted by 512 because it had no actual knowledge of infringement, as well as no awareness of the facts and circumstances, which legislative history described as an awareness of a "'red flag' from which infringing activity is apparent." Id. at 10 (quoting S. Rep. No. 105-190 (1998) at 44-45). What is a "red flag"? According to legislative history it is infringing activity that would have been apparent to to a reasonable person operating under the same or similar circumstances. Id. According to the Court that means something more specific than just generally knowledge that users of the site put up a lot of infringing material.

Google Forced to Pay $1 in Damages in Boring Case

This case is a good example of the wide variety of legal issues that can be implicated under the umbrella of "Technology Law." In Boring v. Google, Inc., No. 08-694 (W.D. Pa. 2009), Aaron and Christine Boring brought a suit against Google after discovering that a picture of their house that had been taken from one of Google's vehicles from the Borings' private driveway was posted on Google's Street View web application. The Borings sued under a variety of state laws, including "intrusion upon seclusion," "publicity given to private life," and trespass, and also for negligence and unjust enrichment. Google filed a 12(b)(6) motion to dismiss and the District Court granted it. The Borings appealed and, in its decision, the Circuit court upheld the District Court's dismissals for all but the trespass claim which, the Circuit Court noted, is a strict liability offense. Boring v. Google, No. 09-2350 (3d Cir. 2010). Back at the district level, Google and the Borings stipulated to a consent judgment for $1 in damages, which was approved by the Magistrate Judge last Thursday.

Homeland Security Seizing Website Domains

The United States Immigration and Customs Enforcement ("ICE") recently released a list of 82 web domain names that it has seized for alleged violations of copyright law. While these seizures technically make sense under controlling statutes, I believe, and I think many other attorneys also believe, that seizures of this type are very likely a violation of the domain owners' constitutional rights. This article will give a brief overview of the statutes and discuss some of the constitutional issues.

Civil Seizures
18 U.S.C. § 2323(a) states that the United States government may seize any property which, in and of itself, violates a copyright or represents a counterfeit mark, as well as any property that "constitut[es] or [is] derived from any proceeds obtained directly or indirectly as a result" of the violation. Id. Sandwiched in between these two categories of property that can be seized is a third, broader category, consisting of any property "used, or intended to be used...to commit or facilitate the commission" of the violation. Id. A simple example of this third category: if someone uses a truck to carry counterfeit goods to their destination, that person risks forfeiture of the truck because it is being used in some manner to commit or to facilitate the commission of one of the covered offenses.

The government does not have to give any notice to the owners before seizing property it thinks is being used in commission of the infringement, in this case the domain names, and after it seizes the property the government can, in lieu of notifying the owner, simply file an in rem action against the domain itself. This is a problem because in rem actions were created for cases in which a court must determine the disposition of property but the owner of that property is not known. In this case, the government will know the owner of a seized domain, but if it files an in rem suit it only has to "publish" the fact that an action has been filed against the property; this action of publication normally entails placing an ad that no one will ever read into a local newspaper.

Constitutional Issues
This practice has a few problems. The first and most troubling aspect is that these domains are being seized without notification, based only on alleged infringement that has not been proven in a court of law. The government must make a showing that each seizure is proper, but the owner is deprived of his property until the matter is finally settled. This practice, if it is carried out in this manner, could amount to a violation of the owner's right to due process through either the taking of his property or the censoring of his speech.

The second problem is that the statute as it is being used here is overbroad, meaning that imposes penalties not just for illegal actions, but also for actions that are protected by the U.S. Constitution. For instance, a website may have 1 article for sale that is violating a copyright or is a counterfeit item, but the 60 other articles for sale and all of the rest of the contents of that website are protected by the owner's right to freedom of speech. The government would have to convince a court that stemming these infringements is a goal that is vital to the people, and that seizing the domains is the only way to achieve that goal.

This practice may be unconstitutional for being underbroad as well. Again, you have the government seizing 82 websites for allegedly infringing content and thus limiting the owners' freedom of speech. However, there are far, far more than 82 websites that definitely carry infringing material. Laws that impede a a protected liberty and are underbroad almost never hold up to constitutional scrutiny.

Conclusion
While the protection of intellectual property is an important goal, to say that these seizures are disturbing would be putting it mildly. When we are removing, without notice or process, websites that contain content that we think might be infringing on someone else's personal rights, are we any different than countries that block their citizens from accessing websites of which the government does not approve?

Lenz v. Universal and How to Sabotage Your Case: A Play in Three Acts

This case is an excellent follow-up to yesterday's article, as it is both a very important case for technology and media and an excellent example of another kind of danger social networking sites and electronic communications can represent to a party who will not keep his or her mouth shut. If you are an attorney, you know that attorney-client privilege is sacrosanct in the halls of justice. If you are not an attorney, just know that attorney-client privilege, which means that anything you discuss with your attorney stays between you and your attorney, is one of the most fundamental and important concepts in our legal system, and that courts are loath to interfere with it. However, every so often we witness a case where a party to litigation, through its own actions, unwittingly destroys the very protection that is most valuable to it. This is one of those cases. (History and importance of the case in Acts I-II, privilege-specific information in Act III, Epilogue.)

Act I: Prelude
In Februrary 2007, proud mother Stephanie Lenz posted a 29 second YouTube video of her son, bouncing up and down, with Prince's "Let's Go Crazy" playing in the background (not surprising, because everyone knows that you cannot listen to that song without bouncing up and down). After the video was posted, Universal Music Corporation ("Universal") sent a Digital Millennium Copyright Act of 1998 ("DMCA") "takedown notice," alleging that Lenz's video was infringing on its copyright and demanding that YouTube remove the content. Shortly thereafter YouTube removed Lenz's video and notified her of Universal's claim.

The DMCA takedown requirements are codified in 17 U.S.C. § 512, and one of the requirements is that the party issuing the notice must provide "A statement that [it] has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law. 17 U.S.C. § 512(c)(3)(A)(v) (emphasis added). The law, of course, provides that use of a work protected by copyright that would normally be infringing is not infringing if it falls within the bounds of fair use. 17 U.S.C. § 107. Lenz, represented by the Electronic Frontier Foundation (the "EFF"), sued Universal for misrepresentation pursuant to 17 U.S.C. § 512(f) and for tortious interference with Lenz's contract with YouTube, and also asked for a judicial declaration that Lenz did not infringe on Universal's copyrights.

Act II: The Rise
Universal filed a motion to dismiss the case for failure to state a claim on which relief could be granted. The Court, in its decision, focused primarily on whether 17 U.S.C. § 512(c)(3)(A)(v) requires a copyright owner to consider the fair use doctrine in formulating its good faith belief. Lenz v. Universal Music Corp., No. 5:07-cv-03783-JF (N.D. Ca.) (Doc. 45, Order Denying Motion to Dismiss). The Court stated that, "in order for a copyright owner to proceed under the DMCA with 'a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law,' the owner must evaluate whether the material makes fair use of the copyright...[and] [a]n allegation that a copyright owner acted...without proper consideration of the fair use doctrine thus is sufficient to state a misrepresentation claim." Id. at 6. This decision was a huge win for Lenz, the EFF, and for many who feel that companies are abusing the DMCA takedown provisions.

Act III: The Fall
Universal, during the discovery phase of the trial, filed a motion to compel Lenz to provide documents and communications that normally would have been protected by attorney-client privilege. In asserting that Lenz's attorney-client privilege had been destroyed, Universal noted that Lenz had made multiple disclosures in emails, electronic chats, and in her personal blog about her motives for pursuing the action, about the legal strategies of her counsels, and about the substance of her factual allegations in the trial. Some of Lenz's 3rd party communications spoke about the publicity that the EFF would garner from the case and noted that the EFF was "salivating over getting [its] teeth into UMG yet again." Lenz, No. 5:07-cv-03783-JF at 4-5 (Doc. 34, Order Granting in Part and Denying in Part Defendants' Motion to Compel Production of Privileged Documents and Testimony). These communications seemed to suggest an alternative motive for the lawsuit (Lenz has always asserted that she is protecting her 1st Amendment rights). In another communication, Lenz disclosed her attorneys' legal strategy in multiple Gmail Chats, in one instance stating that her attorneys, in the re-pleading of the complaint were "dropping the state charge...this way their threat of [h]itting me with a SLAPP suit ('pay our lawyers') is dust...b/c the SLAPP statute is a state thing, not a federal...I told [EFF counsel] Corynne [McSherry] that since pursuing the federal portion of the case achieves the ends I have in mind, that's fine to drop the state portion." Id. at 5-6. Finally, many of Lenz's communications discussed the factual aspects such as, "[my lawyer] is really going after UMPG & now Prince is the villain as well. Our lawsuit was filed before we knew he had a hand in it...[my lawyer thinks] they're doing this b/c Prince bullied them into it...It's delicious." Id. at 6. In reply to a comment on her blog Lenz wrote, "You're right...Mine's not a 'fair use' case at all. Nor is it a parody." Id. at 7.

In each case the Court determined that, in sharing her privileged communications with others, Lenz had voluntarily waived her attorney client privilege regarding the three types of communications and ordered her to produce responsive documents and to submit to depositions regarding the subject matters.

Epilogue
The Judge's decision regarding Ms. Lenz's privileged communications will not destroy Lenz's case; however, she did not do her attorneys any favors in freely discussing what were supposed to be confidential conversations between her and her attorneys. These communications are likely to be a distraction from the real purpose of the case, which is to determine whether Universal acted in bad faith, and a complete time-waster for Lenz's attorneys (it's a good thing for Lenz that, according to some of the communications that lost her this decision, the EFF is being paid on contingency of money damages and not by the hour). The take-home from this one is simply that parties should never discuss specifics of their cases with anyone unless they are talking to their own attorneys, or at least until the information has been vetted by an attorney and deemed okay to disseminate. Attorney-client privilege is a very strong and protected document that protects a person's information even after death, but the point is to keep such communications private, and if a client starts making some communications public, she is liable to subject all similar communications to public scrutiny as well.

Facebook and Litigation

There have been quite a few cases of late in which judges have had to weigh-in on whether information contained in a party's Facebook or other social media account is discoverable and thus available to be used by an opposing party. This article will explore some of these disputes but, if you're the type of person who likes to skip to the end of the book to find out who the killer is, the short answer is that the information is usually discoverable unless a party is engaging in a blatant fishing expedition, and it can be very damaging. One of the first things I tell a client that is involved in litigation is to be particularly careful not to post anything about the case in any online forum.

McMillan v. Hummingbird Speedway, Inc., No. 113-2010 CD (PA C.P. 2010)
This case was brought by a plaintiff who filed suit to recover damages for substantial and permanent injuries he allegedly sustained when he was rear-ended during a cool down lap in a stock car race. Defendant asked in its interrogatories whether Plaintiff belonged to any social networking sites and, if so, that he provide his user names and passwords. Defendant belonged to Facebook and MySpace but stated that he would not provide the requested information and asserted that his user names and passwords were confidential. Plaintiff, of course, contended that Defendant was not entitled to claim any confidentiality or privilege over the requested information under the Pennsylvania Rules of Evidence.

The Pennsylvania court noted that there does not exist in that state (nor any other state that I am aware of) a "social networking privilege," and that Pennsylvania courts (as well as all courts I have had experience with) do not like to extend privilege or confidentiality beyond the scope of what they have historically been recognized to protect. In Pennsylvania the court uses a four-pronged test to determine whether a new privilege ought to be recognized; the party claiming privilege must establish (1) that his communications originated in the confidence that they would not be disclosed; (2) that the element of confidentiality is essential to fully and satisfactorily maintain the relationship between the affected parties; (3) that the community agrees that the relationship must be sedulously (diligently) fostered; and (4) that the potential for injury to the relationship outweighs the benefit the communications would provide in disposing of the litigation. McMillan, No. 113-2010 CD at 3. In analyzing whether Plaintiff could meet these four requirements the court noted that Facebook and MySpace both reserve the right to unfettered access to users' information, as well as the right (in the case of Facebook) to release the information if lawfully asked to do so in a subpoena or court request. This alone, the court reasoned, defeats any expectation that any information or communications retained in a user's account would remain confidential.

I think that the Court's analysis in this case is spot-on, though I still think a case could be made that a user's passwords, which are probably not accessible by social network employees except in encrypted form, are still confidential. This however would merely force the party seeking the information to demand the relevant, non-confidential information from the opposing party, without being able to dig around in the opposing party's accounts to look for the information itself. It is worth noting that the Court in this case also found that the benefits in all cases of discovery of this type would be substantial, and provided as support for this opinion the fact that even the public portions of Defendant's pages revealed that he had gone on a fishing trip and also taken a trip to attend the Daytona 500 race in Florida while he was supposedly severely injured. Id. at 1-2, 6.

McCann v. Harleysville Ins. Co. of New York, No. 1179 CA 19099612 (N.Y. App. Div. 2010)
This case was brought by a plaintiff seeking damages for injuries she sustained in an automobile accident. Defendant sought to compel Plaintiff's user name and password for Facebook and was denied. Defendant appealed the order. The Court upheld the lower court's decision, and in doing so noted that Defendant had not provided any "factual predicate" with respect to the relevancy of the information it was seeking. McCann, 1179 CA 19099612 at 1.

This case can be distinguished from the Pennsylvania case above in that, in the Pennsylvania case, the information in the public parts of Defendant's profiles supported the notion that his communications would be relevant, whereas in this case Plaintiff specified what type of information it was seeking but offered no evidence that such information would actually exist in Defendant's profile. However, I see two interesting aspects of this distinction. The first is that, in its decision, the Court in Pennsylvania seemed to postulate that such information should always be available in discovery because of its potential benefit and its lack of confidentiality, whereas the Court in New York believes that a requesting party must first show that there could be relative information in the profile before it will be allowed to root around in an opposing party's accounts. I am more with Pennsylvania on this one, but it will be interesting to see what direction some of the higher courts take this once they get their hands on some appeals. If I was representing a client in New York, I would get around this by simply requesting that the other party supply all relevant information and communications within the account instead of asking for the password, but of course it is always better and more reliable to be able to look around yourself.

The second point of interest is that the New York Court remarked on relevancy without addressing the public or private nature of the content, which would seem to be the bigger issue here. I have not read any of the history in the lower court, so it's possible this issue was addressed then, but it would be surprising if it was and the Appellate Division did not mention it.

Barnes v. CUS Nashville, LLC, No. 3:09-cv-00764 (M.D. Tenn. 2010)
In this ongoing case the Plaintiff is suing for injuries allegedly sustained when she fell off the bar while dancing in a Nashville-based Coyote Ugly. The main dispute here actually involved discovery of Defendant's public information, and the Court came up with an interesting plan: "In order to expedite further discovery regarding [Defendant's and Witness'] photographs, their captions, and comments, the Magistrate Judge is willing to create a Facebook account. If [Defendant and Witness] will accept the Magistrate Judge as a 'friend' on Facebook...he will promptly review and disseminate any relevant information to the parties. Barnes, No. 3:09-cv-00764 Doc. 52 at 2 (order granting in part and denying in part Defendant's motion to compel compel ESI and for a continuance of trial). The order also noted that the Magistrate Judge had reviewed private Facebook communications that were submitted under seal, had found one relevant message, and had disclosed the contents of that message to the parties.

This is, perhaps, the best way to get around the issue. The problem is that, though the communications in a Facebook or other social networking account may be public since they are automatically disclosed to employees of the network, it is my opinion that the password itself would be confidential. There is also the issue, discussed in the New York case, that a party may be requesting access to the account for no more than a fishing expedition in an attempt to find information to use against the other party. On the other hand, no attorney would be fully convinced that the other party was not hiding information if the only option available to him was, as I mentioned in my analysis of McCann, to request relevant communications and then rely on the honesty of an individual that has a lot riding on the outcome of the case. Allowing the judge to look over the information and communications after they have been submitted under seal seems like the most rational solution to these issues.

Conclusion
Again, I cannot stress enough that, if you are embroiled in litigation or if you have a client that is, you need to make sure that you or your client(s) do NOT make matters worse by putting information material to the case online, either in public or private pages; the danger is just too great. Additionally, if you are representing a client, save yourself a lot of headache by insisting that your client fully disclose to you the nature of any information he has created online that may come back to haunt you. I think that, as this issue develops, you will see more and more courts granting a Party's request to delve into another party's social networking and media accounts.

Ohio's Anti-Piracy Statute Preempted by Federal Copyright Law

Ohio's First District Court of Appeals ruled last week that the state's "Record Piracy" statute, 13 Ohio Rev. Code, § 133.52, is preempted by federal law, and thus invalid. This article will discuss federal preemption in general and then go on to describe the Court's analysis in this case. For those of you who are really interested in copyright law, the article will conclude by revisiting U.S. v. Martignon, 346 F. Supp. 2d 413 (S.D.N.Y. 2004), where a federal court used a similar analysis to validate the constitutionality of a federal anti-bootlegging statute.

Article VI, Section 1, Clause 2 of the United States Constitution (the so-called “Supremacy Clause”) states, “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the judcges in every State shall be bound thereby ,any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” This Clause mandates that federal law overrides any state regulation where there is an “actual” conflict between the two. Copyright law utilizes a mechanism called “express preemption,” meaning that the law itself expressly states that it will override state and common laws that implicate “legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by [federal copyright law].” 17 U.S.C. § 301(a).

[Feel free to skip this paragraph if you are not interested in other forms of federal preemption.]
Absent express preemption, a Court will usually inquire into (1) the pervasiveness of the federal regulatory enactments in the regulatory field at issue (e.g., whether the laws enacted by Congress are so broad-reaching that it can be inferred that Congress was attempting to “occupy” the field and did not mean to leave room for the States to add to the regulatory scheme; this is also called “implied preemption”); (2) the need for national uniformity in the field at issue; in this case the Court looks at the field of law rather than the intent of Congress, and tries to determine whether there is a dominant federal interest in keeping laws in the field completely uniform across the States; and (3) the likelihood that administrators of the federal program will run afoul of a state's laws in that field. These factors have been boiled down to a judicial determination of whether the state regulatory scheme facilitates or is detrimental to the purpose and objectives of the federal statute; a highly fact-specific analysis.

13 Ohio Rev. Code, § 133.52 makes it a violation to transcribe or record any any recorded sounds without the consent of the author, and also to manufacture, sell or distribute for profit any recordings without “clearly and conspicuously” disclosing the name and street address of the manufacturer of the recording, and the name of the performer or group whose performance is recorded.

The Copyright Clause of the United States Constitution gives Congress the authority to grant authors and inventors the exclusive right to their “Writings and Discoveries.” U.S. Const. Art. I, § 8, cl. 8. Congress, in legislating copyright law, translated “Writings” to mean “original works of authorship fixed in any tangible medium of expression.” 17 U.S.C. § 102(a). Therefore, in the case of audio works, copyright only protects those that have been recorded to a piece of media (there are some exceptions, as well as other laws to fill in gaps I will discuss some of this in the paragraph on bootlegging, below).

The recently decided Ohio case was State v. Boyd, 2010-Ohio-4313 (Ohio App. 2010). The original case was brought against Mr. Boyd after a policeman discovered him selling DVD copies of pornographic movies that he had downloaded from the Internet. Boyd was convicted and sentenced in his original trial, and then appealed the decision with the contention that the statute he was convicted under is preempted by federal law.

After describing the Copyright Act's express preemption of state-law actions, the Court laid out a two-part test to determine whether Ohio's law could be said to be in direct conflict with federal law. The two inquiries were: (1) whether the works covered by the state law are fixed in a tangible medium of expression (the subject matter of copyright law); and (2) whether the rights addressed by the state law are equivalent to the rights addressed by copyright. Boyd 2010-Ohio-4313 at 4. The court quickly dispatched with the first prong by determining that the DVDs in question were covered by copyright law, and noting that neither party was claiming otherwise. Id.

As to the second inquiry, the court stated that a right controlled in the Ohio statute would be “equivalent to one of the rights comprised by copyright if it 'is infringed by the mere act of reproduction, performance, distribution, or display.'” Id. (citing State v. Perry, 83 Ohio St.3d 41, 42 (1998)). To make the determination that a state law does not impose liability for the mere act of reproduction, performance, distribution or display, the law must require an “extra element,” and that element “must not only distinguish the claim from a claim in copyright but must also change the state law claim so that it is 'qualitatively different from a copyright infringement claim.” Boyd, 010-Ohio-4313 at 4-5 (quoting Perry, 83 Ohio St.3d at 43) (emphasis in original). The court offered one example of valid extra in citing State v. Moning, 2002-Ohio-5097 (Ohio App. 2002), where Moning, a Cincinnati police officer, ran a background and conviction check for personal reasons on a person that he did not like, despite having signed an agreement to use the database only for legitimate law enforcement purposes. Id. at 2-3. Moning was prosecuted and convicted under an Ohio statute that read, “No person shall knowingly gain access to, attempt to gain access to, or cause access to be gained to any computer,...system,...network, telecommunications device, telecommunications service, or information service without [or beyond] the [express or implied] consent of...the owner...or information service or other person authorized to give consent by the owner.” 2913 Ohio Rev. Code § 2913.04. The Court in this case held that the element of the crime making it legal to access a computer “beyond” the consent given by the owner was sufficient to satisfy the “extra element” test. Moning, 2002-Ohio-5097 at 5.

The Boyd Court, after running its analysis in this case, stated, “The entire gist of the offense is using the recording without the owner's consent, and the record shows that Boyd engaged in conduct that was covered by the federal copyright laws. And the Copyright Act has a mechanism for criminal enforcement.” Boyd, 010-Ohio-4313 at 6. I believe this is indeed the logical conclusion in this case, as it's plain to see that, under the Ohio statute, one would be liable merely for copying or distributing a work, with no extra element needed. Since these actions are covered in copyright, the statute is clearly preempted.

The reason this Ohio case reminded me of U.S. v. Martignon, 346 F. Supp. 2d 413 (S.D.N.Y. 2004) is because that the Court in Martignon used (wrongly, in my opinion) a similar approach in determining whether the “anti-bootleg statute,” 18 U.S.C. § 2319A, was unconstitutional in that it violated the “limited times” provision of the Copyright Clause; mainly, the Court in Martignon compared the rights conferred by the statute with the rights conferred by copyright, similar to the second prong of the test used in Boyd.

The federal statute in question imposes criminal penalties on an individual who records, transmits or distributes audio from a live musical performance for financial or commercial gain and without the consent of the performers. 18 U.S.C. § 2319A(a). Note the main difference between this case and Boyd: live performances, unlike DVDs, are not “fixed in any tangible medium of expression,” and are therefore not covered by the laws of copyright. Before the enactment of this legislation, various states had created a patchwork of anti-bootlegging regulations, but no protection had yet been afforded to live performances under federal law.

The defendant (Martignon) ran a business in which he sold recordings of live performances. After he was indicted under the statute, Martignon argued that the statute was rooted in copyright law (afterall, its objective was to provide protection for the works of artists) and, because it banned the behavior in perpetuity, it exceeded the authority given to Congress by the Constitution of the United States. Martignon also argued that the law violated the “writing” requirement because it extended protection to works that were not fixed in any medium. The lower court looked at the subject matter the statute was enacted to protect (artistic expression) and agreed with Martignon that it should thus be forced to adhere to the limitations iterated in the Copyright Clause. The Second Circuit Court of Appeals, instead of looking at the subject matter of the law, compared the rights conferred by the statute in question to the rights conferred by the Copyright Act. The Court determined that the statute was not a use of the power conferred onto Congress under the Copyright Clause because it imposed criminal liability whereas copyright law confers property rights to an author. The Court then went on to ask whether the law was constitutional under any other enumerated power, and determined that the statute was indeed a valid use of Congress' authority under the Commerce Clause (conferring the power to regulate commerce among the states).

It is my opinion that the Court in Martignon got it wrong for a few reasons. First, the analysis the Martignon Court used would not work for 2319A's sister statute, 17 U.S.C. § 1101,which imposes civil penalties for the exact same behavior, stemming from property rights granted to the performer (just like the Copyright Act).ⁱ Another problem is that the Court wrongly asserts that the Copyright Act does not impose criminal penalties; however, as the Court pointed out in Boyd, the Copyright Act actually does contain a mechanism for criminal enforcement. See Boyd, 010-Ohio-4313 at 6; see also 17U.S.C. 2506, 18 U.S.C. 2319 (the statute just preceding the statute at issue in this case). The last and largest issue with this decision is that the Court used the Copyright Act to determine whether a law was validly authorized under the Copyright Clause. It does not make sense to use one law to to validate the constitutionality of the other; after all, that is why the Constitution exists. The Court should have compared the purpose of the statute with the enumerated powers granted to Congress. The Copyright Clause says that Congress may enact laws to promote the progress of science and useful arts, subject to specific limitations; if the purpose of § 2319A is to promote science and/or useful arts – and I can think of no other reason why Congress would care if someone distributed recordings of live performances – then it should be subject to the constitutional restrictions on the use of that particular power.

CDA 230 and the Craiglist Lawsuit in South Carolina

I know this article is a bit late, but I felt it was important enough to get out there anyway. Early last month the District Court of South Carolina dismissed claims that were brought by Craigslist, Inc. against the State of South Carolina and its Attorney General, Henry McMaster. Craigslist filed the suit after McMaster, who at the time was running for the republican nomination for state governor, repeatedly claimed in the press that Craigslist and its owner, Jim Buckmaster, were guilty of promoting and facilitating prostitution under a criminal statute in S.C. McMaster threatened numerous times that he would levy criminal charges against Craigslist and Buckmaster, and so Buckmaster initiated his own suit first. Buckmaster alleged that McMaster's actions were impermissible under the Communications Decency Act (“CDA”), 47 U.S.C. § 230(c), and that they violated the First and Fourteenth Amendments of the United States Constitution, as well as the Commerce Clause in Article I.

Section 230 of the Communications Decency Act, codified as 47 U.S.C. § 230, gives “providers” of “interactive computer services” immunity from liability stemming from content posted on their sites by users or other third parties (in detail, the CDA says that the provider may not be treated as the publisher or speaker of such material), as well as immunity from claims arising from a provider's efforts to block access to such content. Since Craigslist is a “provider of interactive computer services,” and because the allegedly infringing ads in Craigslist's “adult services” section were posted by other users, it should be a no-brainer that Craigslist cannot be held liable under South Carolina state law (or any other law) for this content. See Dart v. Craigslist, No. 1:09 CV-01385 (Il. N.D. 2009). The Court did not address this question because, in its analysis, it determined that Craigslist did not have an “existing case or controversy” because it had not yet been sued by the Attorney General under the law. The Court found that McMaster's actions did not amount to a “credible threat of prosecution” because, according to the Court, McMaster had since backed down and indicated that he would only charge Craigslist and Buckmaster under a statute that applies only if someone knowingly aids and abets prostitution. Craigslist, Inc. v. McMaster, et al., No. 2:09-1308-CWH Order, Doc. 43 (Dis. S.C. 2010).

Buckmaster's constitutional arguments were even more interesting. Buckmaster argued that McMaster's actions infringed on his First Amendment right to free speech, as incorporated against the states through the Fourteenth Amendment. Buckmaster contended that McMaster's statements constituted a prior restraint on free speech, that his prosecution would not be the least restrictive means of accomplishing any compelling government purpose (the standard the government must meet if it wishes to curtail a fundamental right such as that of free speech), and because the Attorney General sought to impose criminal liability on an information provider without any proof that the provider knew of the unlawful content. Id. at 10. Finally, Buckmaster alleged state interference with the Commerce Clause in Article I, contending that South Carolina was attempting to regulate commercial transactions entirely outside of its own state.

Unfortunately, the Court also dismissed the constitutional claims for the same reason, that it was unlikely that the Attorney General would bring charges after he backed to his second position, and so the constitutional issues did not represent a present case or controversy.

Craigslist has vowed to appeal the ruling, and I hope that the Circuit Court takes a closer look at the constitutional issues presented by Buckmaster. When you have, as you had here, a state representative loudly and repeatedly declaring to the press that an individual or a company will be held liable any kind of speech, it has a chilling effect on that individual or company, as well as on all others, and makes them less likely to exercise their rights of free speech. Even though the Court dismissed Buckmaster's complaints as either moot or not ripe (the Court's language seems to implicate both), I think that the constitutional portion of the case should get at least some analysis based on the fact that it is a wrong capable of repetition; meaning, once the case is dismissed, McMaster can go back to his old stance and start holding press conferences again, only to once again back off if Buckmaster brings it back into court (this is an exception under which a Court can agree to hear a case that would otherwise be moot). I will post more here as the appeal develops.

Higher Standard for Website Terms of Use and Other �Web Wrap� Agreements?

Anyone who owns a website, whether for personal or commercial purposes, ought to have at least two agreements that are usually (read: always) written to automatically bind the site owner and any visitor: a Terms of Use agreement and a Privacy Policy. These two �web wrap� contracts serve (among other things) to protect the site and the intellectual property contained on the site, to protect the website owner from liability, and to outline what can and cannot be done with user-submitted information, both in respect to the site's actions and to the actions of other users. These contracts can vary greatly from site-to-site depending on the nature of each site and its reason for existing, but they usually (always) have one thing in common: they are contracts of adhesion, meaning that they expressly state that any user has already accepted and agreed to the terms within the contracts simply by using (or viewing) the site or its contents. Cvent, Inc. v. Eventbrite, Inc., No. 1:10-cv-00481 (E.D. Va. 2010) oddly circumvents the body of contract law that would normally dictate the validity of such a contract and invalidates this one based on laws of pleading, on the basis that the plaintiff did not allege sufficient facts to prove the contract, even though � I venture to opine � under contract law it most certainly would have been found to be valid and enforceable.

Cvent, Inc. owns www.cvent.com, a website that it uses to offer tools and amassed data to event planners, including information about venues all over the world that has been amassed by Cvent. Eventbrite owns a website that also offers online event planning, sales and registration services to clients. Cvent alleged that, when Eventbrite created its own �venue directory� in October 2008, it merely scraped Cvent's website for the data, instead of taking the time to aggregate the data itself. Cvent sued for copyright infringement, violation of the Computer Fraud and Abuse Act (18 U.S.C. � 1030), violation of the Virginia Computer Crimes Act (Va. Code Ann. � 18.20-152.3), trademark infringement (�reverse� passing off), unjust enrichment, violation of Virginia Business Conspiracy laws (Va. Code Ann. � 18.2-499), breach of contract and common law conspiracy. The opinion at discussion involves Eventbrite's motion to dismiss most of Cvent's lawsuit for failure to state a claim.

The claim we care most about here is the breach of contract claim. The Court, in analyzing whether this claim should be allowed forward, dismissed out of hand Eventbrite's arguments that (1) any contract claim is preempted by federal law, and (2) Eventbrite was not a party to the contract. This was to be expected, since courts have long upheld that contracts of adhesion, including contracts packaged in with software and on websites, are perfectly valid, and also because the Copyright Act provides that it preempts state law only if the work being protected by the state law would also be protected by the Copyright Act, and the state law provides rights �equivalent� to the rights provided by the Copyright Act. Common law also allows that a state law may be preempted if the federal law �stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.� I cannot imagine (not to say that it cannot exist, only that I cannot imagine) a Terms of Use contract written in such a way that it would be preempted by the current Copyright Act using either of these tests.

The Court did, however, buy Eventbrite's third argument, which was that no contract existed in the first place. In holding, the Court stated that Cvent's complaint did not allege �sufficient facts to support a plausible allegation that a contract existed between Cvent and Eventbright.� Cvent, No. 1:10-cv-00481 at � 3.D. See also Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (establishing the standard above) (citing Bell Atl. Corp. v. Twombly, 584 U.S. 903 (2006).) The Court ruled that Cvent's �conclusory allegations� that Eventbrite had an opportunity to review the Terms of Use policy on its website were �contradicted by the screenshots,� that show that, �[t]he link that accesses the Terms is buried at the bottom of the first page, in extremely fine print, and [that] users must affirmatively scroll down to the bottom of the page to even see the link.� Cvent, No. 1:10-cv-00481 at �� 3.A, 3.D.

This opinion is interesting because it takes a rule of pleading (Iqbal) and appears to apply it in deciding whether or not there was a valid contract, which is normally an issue to be decided under contract law at trial. What if Eventbrite had actually seen and read the contract, and then had gone ahead and broken it anyway? Does Cvent now have to allege these facts in the pleading even if discovery has not yet commenced (in this case the parties had already undertaken an expedited discovery process)? The very definition of a contract of adhesion is that it is non-bargained for (offered on a take-it-or-leave-it basis), and that it normally is confusing, in small print, and very favorable for the drafter; courts normally assume the contract has been read unless the drafter has taken deliberate steps to conceal it (if the other party has actually not read it, it's tough luck for them, because they could have and should have read it, something we in the legal realm call �constructive notification�). Contract law itself includes instances when a contract of adhesion will not be valid, but the fact that a contract is on the bottom of a page, or even inaccessible (in the case of software �shrink wrap� agreements) until the package is opened has never (to my knowledge) been one of them, absent other circumstances (e.g., an intent to defraud).This opinion, if adopted in other jurisdictions, could have far-reaching consequences. As most users of the Internet know, almost every website puts its agreements at the very bottom of the page, where it will be out of the way of the real content.(yes, the bottom of this very page contains links to a Terms of Use agreement and a Privacy Policy, as does most every page on the Internet). This decision would seem to dictate that, if you want to be able to sustain a breach of contract claim through a motion to dismiss, you will have to make your agreements more prominent on the page and even more importantly, you will have to make sure your attorney brings this prominence to the Court's attention in the pleading. I wonder to myself if the present-day prevalence and pervasiveness of these �web wrap� agreements would be sufficient to support that a user should have known there would be one down there and could �plausibly� have had the chance to review it before misusing the services; especially in a case like this, where the defendant is also an Internet company and should know better (and yes, the defendant in this case has, buried amongst other text and links at the very bottom of its homepage and off your monitor, a link to its Terms of Service contract). These will be arguments for attorneys in future such cases to bring forward; until now, I'm sure that none of them ever thought they would need to preemptively argue the validity of a contract of adhesion, shown to actually exist, from a motion to dismiss (I know I hadn't).

I certainly do not think that cases involving �web wrap� contracts are the only ones that could be effected by Iqbal; in fact, I think you could use that standard in almost any situation to dismiss all kinds of claims (�sure, you offered the conclusory argument that the defendant punched you, but all you are showing me are doctor's bills, without telling me how it's plausible that you were beat up at all, or that the beating came from the defendant�). I will keep an eye out for other opinions using Iqbal to preempt what would be the normal analysis under the applicable body of law, and if I find anything interesting I will certainly post it here.

Librarian of Congress Issues New Exemptions to the DMCA

Tim Armstrong of Harvard Law School has done a wonderful job explaining why the Digital Millennium Copyright Act of 1998 (the "DMCA") is such a mess. Mr. Armstrong believes (rightly, in my opinion) that one major issue with the DMCA aside from its shoddy drafting is that it seeks to regulate access to works, a goal that is incompatible with the corpus of hundreds of years of prior-existing copyright law, which seeks to regulate the use of works.ⁱ Luckily, the Librarian of Congress has issued certain, new exemptions from the DMCA to allow for the circumvention of technological measures that control access to copyrighted works in a broader set of circumstances.

The DMCA was created in part to implement two World Intellectual Property Organization treaties and in part to address a variety of other copyright-related issues.ⁱⁱ The main impetus of the WIPO treaties and the DMCA, as codified in 17 U.S.C. § 1201, was to prohibit individuals from circumventing, or helping others to circumvent, technology designed to control access or copying of copyrighted works. The DMCA also provides that the Librarian of Congress may provide 3-year exemptions from DMCA for certain types of use, which is what the Librarian has done here.

Individuals may circumvent a DVD encryption system if the purpose is to incorporate short portions of the video into new works for criticism or comment, as long as the individual reasonably believes the circumvention is necessary for educational use, documentary film-making or the production of a noncommercial video.

Individuals may circumvent technology in smart phones that prevents them from installing third-party applications. For instance, Apple's iPhone contains code that prevents users from installing any applications onto the phone other than those that are purchased or downloaded through Apple's app store. This new exemption allows a person to legally circumvent that code so that he or she may install applications through other means.

Individuals may circumvent technology in cellphones that prevents them from using their own phone on a different carrier. For instance, AT&T and T-Mobile operate under the same cellular technology, and any phone bought from AT&T will also work on T-Mobile's networks. If a user buys a cellphone from AT&T that contains software or firmware preventing it from being used on T-Mobile's network, the user may circumvent this technology for the purpose of lawfully connecting to T-Mobile's network.

Users may circumvent technology controlling access to video games on their personal computers if the circumvention is made solely for investigating or testing for security flaws with the purpose of promoting the security of a computer operator.

Users may circumvent "dongle" technology controlling access to computer programs if the dongle is not working properly and if replacements for the dongle are no longer manufactured or not reasonably available. A "dongle" is a type of key required by some software before that software will run on a particular computer. It usually takes the form of a small piece of plastic with a connector that can plug into a computer port. The dongle will contain a code or program, and the main application will be designed so that it will not run on the computer if the dongle is not plugged in. This exemption allows users to bypass this security in some situations.

Users may circumvent technological protections on sound recordings, audiovisual works and other software programs that require the continued availability of authentication servers to run, if those servers no longer exist or if the user is doing so only to research how the authentication servers function. This exemption applies to some works which, though they were lawfully bought, cannot be accessed unless sitting on a computer that can access a server sitting somewhere else on the Internet to verify that the person or computer trying to access the file is authorized to do so. This exemption protects a user's purchase should his or her content provider go out of business or should the authentication server cease to exist, preventing access to the media or file.

One exemption that the Librarian considered but did not recommend was for protected media on subscription based services that can only be used on a limited number of platforms. This exemption would have made it legal for someone to break the copy protection on, for example, movies offered through Netflix's "Watch Instantly" service, which only works on Windows, certain Apple machines and certain entertainment machines like the Playstation 3 for the purpose of watching the lawfully obtained media on another platform, like a computer running Linux. Also lumped in with this class was an exemption for circumventing DVD encryption when a person wants to watch the DVD on a platform that does not include the DVD decryption algorithms. This DVD exception would allow users to decrypt DVDs for the purpose of playing their contents on platforms like smart phones and some Linux versions that do not contain DVD decryption algorithms, which are protected and must be licensed from the owners.

Another exemption that was not recommended would have allowed forensic investigators to circumvent access or copy prevention technology for the purpose of gathering evidence to be used in a court proceeding. This exemption was not recommended because the person proposing the exemption did not include enough information for the Register to determine whether or not non-infringing uses of copyright works would be adversely affected if the exemption was not recommended.

The Register did not recommend a proposed exemption class that would have allowed viewers to circumvent technology embedded in free, digital television broadcasts that could keep viewers from recording the broadcasts for later viewing. The stated reason for not recommending this exemption was that broadcast groups currently do not use any technology to block the recording of digital broadcasts, and the mere ability to do so does not create a need for a new exemption class.

Another notable exemption would have allowed users to circumvent Blu-ray technology that produces a picture with less detail if it detects that the signal is going through analog equipment. Manufacturers implemented this technology to make it difficult for users to make unauthorized copies of Blu-ray and other high definition video. Audio/visual components used to operate off analog signals, but now any new equipment will usually have the ability to run analog or digital signals. If video is being transferred through digital signals, the Blu-ray player can encrypt the signal so that a user cannot run the signal through a recording device for the purpose of making an unauthorized copy while the video is playing. An analog signal, however, cannot be encrypted and is thus easily recorded. Blu-ray discs and players normally contain technology that will only deliver the highest picture quality if the connection between the player and the television is entirely digital, and will produce a picture of much lower quality if the signal runs through analog components in any part of the trip ("downconversion"). The proposed class was rejected because the person making the proposal did not show that the downconversion has or is likely to have a substantial adverse effect on non-infringing use.

Finally, the last exemption of note that was not recommended involved circumventing access controls on ebooks that prevent functionality that would allow a program to read the book out loud for the blind. The Register stated that, while it supported accessibility for the blind, the group making the proposal did not offer enough factual information to support the exemption.

Many of these exemptions represent a step in the right direction in getting the DMCA to function in harmony with copyright law but, as Mr. Armstrong states in the links I provided in the introduction, true harmonious function between the disparate bodies of law is unlikely. For instance, a major problem is that copyright law allows certain uses of an author's work, including fair use. The Register's exemptions attempt to allow for the fair use of copyrighted works without running afoul of the DMCA, but fair use is such a subjective concept that there is no way for the Register to create exemptions for every situation. This leads to a situation where one may make authorized use of an author's work and thus be fine under Copyright Law, but might still be on the wrong side of the DMCA because, in order to make that use, the individual had to circumvent technology put into place to prevent copying of or access to the work. This constitutes an erosion of the public's rights under Copyright Law; rights that are instrumental to freedom of speech and expression, as well as to the underlying tenet that Copyright Law and exemptions to Copyright Law exist to promote the arts.

The DMCA predicament also illustrates issues that can arise when U.S. law is written based on foreign law or international treaties. Different countries bestow different intellectual property rights on their citizens; for example, many countries provide authors with "moral rights" that are not recognized in the United States, rights that may allow the author of a work a great deal of control over how the work is used even after the author sells it to someone else. Therefore, while provisions agreed to in the WIPO treaties that gave rise to the DMCA may work perfectly fine for some countries, they are a bad fit for Copyright Law in the United States.

ii Title V of the Act, which seemingly has no connection to the "Digital Millennium" and is perhaps the likeliest candidate for the "One of These Things is not Like the Others" category, creates a new form of protection for the design of vessel hulls.

SPEECH Act of 2010 Signed Into Law, Affects Foreign Defamation Judgments

The "Securing the Protection of our Enduring and Established Constitutional Heritage Act of 2010" ("SPEECH Act of 2010") was passed by Congress to combat the practice of suing American authors or publishers in foreign jurisdictions that do not provide the full extent of free-speech protections provided for in the U.S. Constitution. Now signed into law (U.S.C. §§ 4101-4105), § 4102(a) of the act states that domestic courts shall not recognize or enforce a foreign judgment for defamation unless (a) the defamation laws of the foreign jurisdiction provide at least as much protection for freedom of speech and the press as the U.S. Constitution and the constitution of the State in which the domestic court is located; or (b) if the foreign defamation laws do not provide as much protection as the Defendant would have been provided in the U.S., the court determines that the Defendant would have been found liable by a domestic court applying the First Amendment and the constitution and law of the State in which the court is located. The puts the burden on the party seeking enforcement of the foreign judgment to show that one of the two situations apply.

The SPEECH Act states in § 4102(b) that a domestic court shall not recognize or enforce a foreign defamation judgment unless the court finds that the foreign court's exercise of personal jurisdiction over the Defendant comported with the Due Process requirements imposed on U.S. courts by the U.S. Constitution. The burden rests on the party seeking to enforce the judgment to show that the foreign court's exercise of personal jurisdiction did not violate the other party's Right to Due Process.

§ 4102(c) of the SPEECH act states that foreign defamation judgments against providers of interactive services will not be recognized or enforced by domestic courts unless the judgment complies with 47 U.S.C. § 230. 47 U.S.C. § 230 states that no provider or user of interactive computer services can be treated as a publisher or speaker of any information provided by another content provider, and that providers and users of interactive computer services cannot be held liable for any action taken in good faith to block material they find objectionable. This section of the SPEECH Act is interesting because it applies 47 U.S.C. § 230 only to "providers" of interactive services while 47 U.S.C. § 230 itself applies to both "providers" and "users" of interactive services. Again, the burden is on the party seeking to enforce the judgment to show that it does not run afoul of 47 U.S.C. § 230.

Last but not least, the SPEECH Act provides that, if the domestic court finds that the foreign judgment is unenforceable based on any of the grounds discussed above, the party opposing the action to recognize the foreign judgment will be entitled to reasonable legal fees to be paid by the other party, absent exceptional circumstances.

The SPEECH Act is sure to have an immediate and welcome chilling effect on foreign defamation lawsuits. The presence of the Internet and other electronic means of distribution makes it a near certainty that information published or spoken in the United States will be accessed across the globe, including in countries that do not afford citizens or litigants the same rights to freedom of speech and the press that are afforded by the United States Constitution (e.g., many defamation suits are brought in the United Kingdom, which does not afford the same freedoms of press as does the United States). Knowing this, Plaintiffs are able to erode the rights of publishers and others by bringing suit in these foreign jurisdictions; this threat has a chilling effect on the freedom of speech and vigorous dialogue guaranteed by the First Amendment.

This law, if applied correctly by the courts, should serve to give publishers a lot more breathing room when it comes to disseminating true and accurate information, regardless of the light such information may cast on the subject matter.

Baidu, Inc. v. Registrar.com, Inc. - Contracting Party's Actions May Render Limitation of Liability Provisions Ineffective

A few weeks ago the United State Court of Appeals for the Second Circuit issued an opinion ("Baidu Doc. 21") regarding Register.com, Inc.'s 12(b)(6) motion to dismiss claims brought against it by Baidu, Inc. in Baidu, Inc. v. Register.com, Inc., 10 Civ. 444 (S.D.N.Y. filed Jul. 22, 2010). In it, the Court denied Register.com's motion in part, holding that contractual provisions limiting Register.com's liability may be rendered ineffective in light of the company's actions.

Baidu, an Internet search engine in China, alleges in its complaint that its sites were hacked by "an unauthorized individual falsely claiming to be an agent of Baidu," Baidu Doc. 21 at 6, who contacted Register.com (Baidu's domain registrar) to change the email account on file for Baidu's Internet domains. Baidu alleges that, despite the fact that the hacker knew neither the proper answer to the security question nor the proper security code for Baidu's account when asked by Register.com's agent, the agent changed the email on Baidu's account at the request of the hacker and, in doing so, gave the hacker the ability to re-route Internet traffic to Baidu's sites so that users visiting the sites were instead sent to a "rogue" website stating that Baidu's site was hacked and displaying pro-Iranian and anti-Israel messages. See Baidu Doc. 21. Baidu brought claims against Register.com for negligence/recklessness, breach of contract and contributory trademark infringement, as well as tortious conversion, trespass and breach of duty of bailment. Register.com filed a motion to dismiss Baidu's case, in part based on language in the contract between Baidu and Register.com waiving Register.com's liability for, among other things: (a) termination, suspension or loss of Register.com's services; (b) the use or inability to use Register.com's services; (c) loss incurred in connection with Baidu's services; (d) unauthorized access to or alteration of Baidu's transmissions or data; and (e) any other matter relating to Baidu's use of Register.com's services. Id. at 4. The contract also states that Register.com "will not be liable for any indirect, incidental, or consequential damages of any kind," and caps Register.com's liability at $500 in any event. Id. Additionally, the contract provides that Baidu was responsible for maintaining the security of its own account.

A complaint must "contain sufficient factual matter...to 'state a claim of relief that is plausible on its face' [if accepted as true]." Baidu Doc. 21 at 8 (citing Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009)). In simplified terms, when a court is evaluating a 12(b)(6) motion to dismiss it must look at the Plaintiff's complaint, accept all of the facts alleged in the complaint as true, draws any "reasonable" inferences from the alleged facts as can be made in Plaintiff's favor, and determines whether these facts and inferences could plausibly support the Plaintiff's claim for relief under law.

Negligence/Recklessness, Breach of Contract Claims; Contractual Limitations of Liability

The Court denied Register.com's motion to dismiss Baidu's negligence and breach of contract claims despite the contractual provisions limiting Register.com's liability. The Court struck Register.com's limitation of liability defense, noting that in New York (as in many other states) such clauses, though normally valid, are rendered ineffective as a matter of public policy in cases where the protected party has committed willful or grossly negligent acts.ⁱ Id. at 10-11. The Court stated that Register.com's actions of (a) ignoring the intruder's incorrect response to Baidu's security question; (b) not bothering to check the intruder's incorrect security code against the true security code for Baidu's account; (c) failing to realize that the intruder's email, "antiwahabi2008@gmail.com" was suspicious and unlikely both because the username was not professional and because the domain (gmail.com) was that of a Baidu competitor; and (d) providing the intruder with Baidu's username despite the red flags, could lead a reasonable jury to find that Register.com acted with gross negligence or recklessness. Id. at 12-13. The Court also rejected Register.com's argument that it too was a victim of the intruder and that, at most, any circumstances leading to the incident were caused by an "inadvertent and isolated mistake" by a sole employee. Id. at 13-14. Instead, the Court noted that Register.com's failure to follow its own, simple security protocols and the representative's failure to even check the hacker's security code "smacked of" a reckless disregard for Baidu's rights and perhaps even intentional wrongdoing. Id.

The Court was also unconvinced by Register.com's argument that the contractual provision holding Baidu responsible for the security of its own account removed Register.com's liability for the security breach. The Court stated that, while such a clause may generally relieve Register.com of any duty to Baidu, the fact that Register.com did undertake to provide security for Baidu's accounts, including the establishment of protocols to provide said security, Register.com was on the hook for any failure to act with reasonable care to avoid foreseeable breaches of security. Id. at 14-15. The Court explained that, though the provision removed Register.com's liability for ordinary negligence, it would not be a bar for Baidu to recover damages if it could prove gross negligence or recklessness. Id. (citing Morgan Stanley & Co. v. JP Morgan Chase Bank, 645 F.Supp.2d 248, 256 (S.D.N.Y. 2009) (one who voluntarily assumes a duty may be held liable for negligence in its performance); Hilts v. Bd. of Educ. of Gloversville, 50 A.D.3d 1419, 1420 (N.Y. App. Div. 2008) (one who voluntarily assumes a duty must act with reasonable care or be subject to liability for negligence)).

Baidu included a contributory trademark infringement claim in its complaint, alleging that the hacker infringed on its trademark "Baidu.com" and that Register.com's actions facilitated the infringement. Register.com argued that it was exempted from trademark infringement liability under 15 U.S.C. § 1114(2)(D)(iii), which provides that "a domain registrar, a domain name registry, or other domain name registration authority shall not be liable for [trademark infringement] damages...for the registration or maintenance of a domain name for another absent a showing of bad faith intent." The Court rejected this argument, finding that Register.com was not engaged in registering or maintaining Baidu's domain names when it committed the actions giving rise Baidu's infringement claim. The Court did dismiss Baidu's trademark infringement claim, however, when it found that Register.com's actions did not induce the hacker to engage in trademark infringement, that Register.com did not monitor or control the hacker, and that Register.com did not know, nor did it have any reason to know, that the hacker would engage in trademark infringement. Baidu Doc. 21 at 15-19.

The Court also dismissed Baidu's tortious conversion, aiding and abetting tortious conversion, aiding and abetting trespass, and breach of duty of bailment claims; the Court explained that, since the limitation of liability clause in the contract would act as a bar to anything less than a showing of gross negligence or recklessness, there would be no way for Baidu to fail on its gross negligence and breach of contract claims but still win on one of its lesser claims. Id. at 19.

The Court's reasoning in refusing to strike Baidu's main claims is very solid for the most part. It is well settled that one who engages an undertaking has a duty to act non-negligently, even if he had no legal duty to engage in the undertaking in the first place. It is also well settled that limitation of liability clauses can be ruled ineffective as a matter of public policy where a party acts with gross negligence or in bad faith. What is noteworthy about this case is that Register.com's actions led the court to strike the contractual provisions despite their extremely broad and sweeping language, and despite that Baidu was a sophisticated party to the contract. It is very probable (and the Court even stated more or less) that, had Register.com simply followed its own security protocols or had the hacker gained access by directly hacking into Register.com's systems, the provisions would have protected Register.com from liability.

One piece of the Court's opinion that did not seem to make a lot of sense was that it appears to state that the provision in the contract providing that Baidu was responsible for the security of its own account was rendered ineffective against claims based on gross negligence because Register.com effectively assumed the duty to follow its security protocols, but that the provision still effectively barred any of Baidu's claims based on ordinary negligence. The cases and language cited by the Court in its opinion clearly and explicitly support that when one assumes a duty that person can be held liable even for actions of ordinary negligence. See Morgan Stanley, 645 F.Supp.2d at 256; Hilts, 50 A.D.3d at 1420. It makes no difference in this case either way, because the limitation of liability provisions would still effectively bar claims based on ordinary negligence, but it is worth pointing out that such claims would probably not be barred by the responsibility clause alone.

The Court's reasoning on the trademark infringement claim was spot-on as contributory liability goes, and it was a dubious claim at best. The Court did fail however to analyze whether there was trademark infringement by the hacker in the first place. The hacker was not using Baidu.com to sell anything, and the page itself clearly stated that the site was hacked, eliminating any potential that a user would be confused as to whether or not the site was actually Baidu's. If the Court had undergone such an analysis it would have obviated the need to determine whether or not Register.com had induced or controlled the hacker.

Of course, entities should still include limitation of liability provisions in service contracts with the broadest language possible, while keeping aware that such provisions may not provide any protection in cases of gross negligence and/or recklessness. I also suggest that clients add language to protect against specific, foreseeable events for which they would like to avoid liability in addition to the broader language. Again, such language may still be rendered ineffective in certain circumstances, but had Register.com specifically limited liability for failure to follow its own security protocol it may have had an easier time arguing its motion.

Additionally, companies and individuals need to be aware that any duty undertaken on behalf of a customer or client could give rise to liability for ordinary negligence, despite contractual language to the contrary. While it's possible that Register.com would find itself with no customers if it did not offer some sort of security for their accounts, any entity engaging in services should develop controls and processes to make sure that such services are performed in manner reasonably calculated to prevent foreseeable damages to their clients. Steps also must be taken to ensure that such processes are followed, as failure to do so can actually work against the entity providing the services.

i The Court also noted that the gross negligence exception applies, to a more exacting standard, even to contracts between sophisticated parties.

The Long Awaited Bilski Decision is In...Has Little Effect on Patent Law - Updated

The Bilski decision finally came in and, as I expected would happen, it was written in such a way as to have no effect on software patents whatsoever, and very little effect on business method patents (the actual subject of the case), except to say that they may be patentable in some circumstances, even if the particular method in this case was not. You can read the decision here, and my analysis below the break.

Bilski involves whether a method for hedging commodities is a patentable "business method." An interesting aside: the Court gives as an example of the method that a coal trader would buy coal from producers (who fear a drop in the price of coal) at a fixed price and then turn around and sell that coal to buyers (who fear a rise in the price of coal) for a fixed price; an example I think any Freshman in any business school in the world would already be very familiar with, yet there is hardly any mention of the "novelty" requirement, except that the Supreme Court decision states that it should be considered along with everything else. The patent was originally rejected and the Board of Patent Appeals and Interferences upheld the rejection. See Ex parte Bilski, No.2002-2257, 2006 WL 5738364 (B.P.A.I. Sept. 26, 2006). The Applicants appealed that decision to the United States Court of Appeals for the Federal Circuit, which eventually sat en banc for the review. See In re Bilski , 545 F.3d 943 (Fed. Cir. 2008).

In upholding the decision of the Board of Patent Appeals and Interferences, the Court considered the "threshold" issue of 35 U.S.C. § 101, which dictates that a patent can only be granted when one has invented or discovered a new and useful process, machine, manufacture, orcomposition of matter, or any new and useful improvement thereof. After agreeing that the method in this case would certainly qualify as a "process" under the literal meaning of the word, the Court noted that the Supreme Court has held that specific types of processes are not eligible for copyright. See, e.g., Gottschalk v. Benson , 409 U.S. 63 (1972) (holding that a process for converting numerical information into binary for digital computers was not eligible, partly because the process did not rely on any particular machine and yet did not transform or reduce an any article to a different state or thing, and noting that "[p]henomena of nature, though just discovered, mental processes, and abstract intellectual concepts ... are the basic toolsof scientific and technological work [and thus unpatentable]"). See also Mackay Co. v. Radio Corp. , 306 U.S. 86 (1939) (holding that, "[w]hile a scientific truth, or the mathematical expression of it, is not a patentable invention, a novel and useful structure created with the aid of knowledge of scientific truth may be"). The Court then iterated some of the various tests that have been used to decide eligibility under § 101, and decided that the machine-or-transformation test was the proper test to use in this case. The Court ultimately found that the patent is neither tied to a specific machine or apparatus nor does it transform an article in such a way as to "impose meaningful meaningful limits on the claim's scope." Bilski, 545 F.3d at 961. Because interpretation of the machine-or-transformation test is at the heart of the ongoing debate regarding software patents, the Supreme Court's grant of certiorari in the Bilski case instantly lit the software and legal communities abuzz with rumors that decision could change or solidify software patents forever.

Unfortunately, Bilski is not a very good test case for software patents (the biggest reason for which being that the patent in Bilski had nothing to do with software), so a lot of people watching the case did not get the software patent guidance they were hoping for. In cases like these, where there is a strong split of a public opinion and no clear, overwhelming effect of public policy, the Supreme Court (along with most jurisdictions) will often refrain from issuing a decision that has any large effects beyond the narrow confines of the fact pattern in the present case, which is exactly the type of decision the Supreme Court issued in Bilsk. In fact, the court went so far as to iterate that, "It is important to emphasize that the Court today is not commenting on the patentability of any particular inven-tion, let alone holding that any of the above-mentioned technologies from the Information Age [e.g., software programs] should or should not receive patent protection." Bilski v. Kappos , No. 08–964, slip op. at 10 (Sup. Ct. 2010).

The court addressed three issues in its decision, representing the three arguments against the patentability of the method at issue: (1) whether the method is not eligible because the claims are not tied to any particular machine and do not transform any article (machine-or-transformation test); (2) whether the method is not eligible because it is a business process; and (3) whether the method is not eligible because it is merely an abstract idea. Id. at 1. The Supreme Court first chided the Court of Appeals for considering only the machine-or-transformation test, and made it clear that this test is by no means meant to be exhaustive or exclusive. Id. at 7-8 (stating that it is possible that subject matter could fail the machine-or-transformation test but still be eligible for patent). The Court also directed that, in addition to the machine-or-transformation test subject matter should be tested for novelty, non-obviousness and a full and particular description, saying that they might invalidate a patent "even if it fits into the statutory definition of a 'process'." Id. at 12-13 (emphasis added). After parsing through the history of patentable subject matter the Supreme Court described two of the claims in the patent as explanations of "the basic concept hedging or protecting against risk," (remember that Freshman business student?) and the remaining claims as "broad examples of how hedging can be used in commodity and energy markets." ⁱ Id. at 15. "In making these assessments the Court stated, it is clear that petitioners' application is not a patentable 'process.'" Id. The Court found that, though the business method was a process, it was precluded from obtaining patent protection because it was an abstract idea.

Justice Stevens wrote a concurring opinion, joined by JJ. Ginsburg, Breyer and Sotomayor, in which he concurred with the opinion but dissented with what he feels has been too broad a reading of the term "process" by the majority opinion and the judiciary in general. Id. at 2 (page number in concurrence of Stevens, J.) though Justice Stevens agreed that the machine-or-transformation test should not be the sole test for the patentability of a method, he argues that it should not be suggested that any subject matter falling within the broadest definition of the word "process" should be eligible for patent as long as it does not fall in the restricted categories already defined by precedent (i.e., it is not an abstract idea or law of nature). Justice Stevens argued that the Court should have found simply that a general method for doing business is not a "process" and is thus not eligible for patent, imposing more strict limitations on what can be described as a "process" for the purpose of patent eligibility. Id. Justice Stevens also concurred with the judgment, and also argued that the term "process" in § 101 should be more narrowly construed than the average language definition would suggest.

What does this mean? Not much in a practical sense. Justice Kennedy's majority opinion simply restated what has already been set in precedent and made it clear that the machine-or-transformation test is not the only test to be used when considering the eligibility of a process as patentable subject matter. I think that the case possibly slightly lowers the bar for business method patents in that some parties, just as Justice Stevens did in his concurrence, will latch on to language in the majority opinion that seems to suggest that anything and everything can be a process and, as long as a method does not belong to one of the restricted categories (e.g., abstract ideas) and it doesn't violate some other requirement (e.g., that it be novel), there should be a strong argument that it is still patentable even if it violates the machine-or-transformation test. I do not think that a lot of courts will go along with that, but I foresee the argument appearing at least as a throwaway in the majority of process and software patent cases to come, and maybe as a (long shot) main argument in some cases where claimants will argue that their method is that one special case the Supreme Court said may exist.

All in all the decision was a major disappointment for those who thought we would be receiving more guidance on software patents, but I think that many attorneys probably knew not to expect a sweeping decision on this one. If we want more guidance on software I think we will have to wait for a better test case to make its way through the system.

Update : Now that most of the other bloggers out there have weighed in on this case, I can see that a lot of people have the opinion that this case will noticeably or even drastically reduce the bar for business method patents. I still do not think this will happen, but only time will tell. I will look for pending cases involving business method patents and post here as new interpretations of the Supreme Court's decision make it out of the lower courts.

i Look for a history on here that I plan on putting up in the next week by clicking on "Patent Law" in the upper-left corner or by clicking on the Patent Law Icon included on any of the patent stories (like this one). There are already several articles posted in various categories that describe different concepts of law and that are not visible on the front page (i.e., without going into the category itself). Soon I will add links to these "tutorials" from the homepage. -JE

Lawsuit Against Amazon Could Turn into the Smartest Trial Ever

I came across a very interesting trademark infringement case the other day, if only because I have been known to, on rare occasion, indulge in a sweet tooth I have had since I was a kid. If you, dear reader, grew up in the United States and also enjoyed a piece of candy from time to time, you are no doubt familiar with “Smarties,” which I can only describe as small, pill-like discs made from a compressed, pixie-dust-like powder consisting of sugar, food coloring and flavoring; even if you are familiar with these tiny, faux-pharmaceuticals for kids, you probably did not know that they are manufactured by a company named Ce De Candy in New Jersey. On the other hand, if you grew up “across the pond” in the UK or another part of Europe, the “Smarties” you are familiar with are slightly larger, slightly more colorful, and akin to large M&Ms more than to the rounded, Pez-like nibbles I just described; you also probably know that Nestlé makes these particular European delicacies. Is anyone starting to see a trial forming? Below I will both talk about the case and offer a brief primer of sorts regarding the levels of protection afforded to different types of trademarks.

Interestingly enough, Ce De has filed a complaint against Amazon for selling the Nestlé Smarties on its site, and I have seen no indication yet that Ce De has joined Nestlé as a defendant. I do think it is a safe bet, however, that we will all be seeing the name “Nestlé” on the right-hand side of Ce De Candy, Inc. v. Amazon.com Inc. , 2:10-cv-02856 (D.N.J. filed Jun. 3, 2010). The first thing that jumps out in this complaint is that Ce De produces “billions ” of Smarties candy rolls each year. The second is that Ce De did not register its Smarties trademark until April 13, 1965 while, according to Wikipedia, Nestlé has been selling its candies under the Smarties name since 1937; it is worth noting however that Nestlé 's Smarties have never officially been distributed in the U.S. Lastly, Ce De asserts that it has warned Amazon about the Nestlé Smarties product before, and that Amazon responded to the warning by removing the product after a few days.

Ce De is suing Amazon for (1) trademark infringement under the Lanham Act; (2) unfair competition under the Lanham Act; (3) common law trademark infringement and unfair competition; (4) unfair competition under New Jersey Statute 56:4-1; and (5) false advertising under New Jersey Statute 56:8-1. Ce De demands injunctive relief as well as monetary damages, which it contends will be in excess of one million dollars if infringement should continue.

Ce De argues in the complaint that its trademark has “become distinctive and has obtained a secondary meaning as denoting Plaintiff and its candy products.” In a case like this (and in registering trademarks in general) it is important to establish the distinctiveness of your trademark because, by definition, it must be something that can identify to the public either a particular product or a particular source of goods or services, which a trademark cannot do if it can not be distinguished from any other mark. This threshold has led courts to create a three-tiered hierarchy to categorize trademarks that are at-issue. The most protected tier includes marks that are (1) arbitrary; (2) fanciful; or (3) suggestive. All marks that fit one of these three criteria are deemed inherently distinctive. In a nutshell, an arbitrary mark is one that has meaning, but the meaning has nothing to do with product or the product's source. A good example of this is the mark “Apple” for Apple Computers; the word “apple” has a meaning, but that meaning has nothing to do with Apple's products or services. A fanciful mark is one that has no meaning whatsoever; think “Pepsi” or “Xerox,” these words had no meaning until their respective companies made them up. Lastly, suggestive marks indirectly describe a company or product. For this example, think of “Eagle Airlines;” one could say that “Eagle” is descriptive of an airline company, but it is only indirectly so. “Eagle” itself has no connection to an airline, except that the word might make you think of majestically soaring through the air toward your destination.

The second tier consists of marks that are (1) descriptive; (2) geographically descriptive; and, in some cases, (3) highly common. These marks may not qualify as trademarks unless they have been used to the extent that they have acquired a “secondary meaning.” If a consumer is likely to think that a trademark describes a product, source, or the geographical attributes of a product or source, that mark is descriptive or geographically descriptive. In order to qualify for protection the owner must show that the mark has been used enough and is well-known enough that, even though it could be descriptive of many brands of of the same type of product, or companies in the same industry, that a consumer, coming across the mark, now is likely to only think of that one brand or company. The mark “Blue Ribbon;” would likely be descriptive of just about any product for which it was used; however, if there was a company called “Blue Ribbon Washing Machines,” and their washing machines were so well-known and prolific that the average consumer would think “washing machine” when someone said “I got a Blue Ribbon,” that mark would have a secondary meaning, and that washing machine company would have a protected trademark (though perhaps only in industries related to home appliances). Marks like “platinum,” “American,” and others are so common that a court would probably require that they have acquired a secondary meaning before allowing protection, even if they did not have anything to do with the goods or services.

The last tier consists of marks that cannot be used as trademarks. These include (1) marks that are generic; and (2) marks that are deceptive or misleading. For example, the word “soda” simply describes the genus that includes all bubbly drinks, and thus no company would ever be able to preclude other brands from using the word “soda,” even if “Soda brand soda” was the most popular and well-known soda (or pop) in the country (note that a company may be able to get trademark protection for the phrase “Soda brand soda”). Likewise, any mark that is likely to deceive or mislead a consumer about the product or source, or about the geographical attributes of the product or source, cannot qualify for trademark protection.

In this case it appears that Ce De is asserting in its facts that the “Smarties” mark might be descriptive, but has taken on a secondary meaning and should therefore qualify as a valid trademark. Without knowing how District of New Jersey courts have in the past determined whether a trademark is valid, I might have asserted that the mark is actually arbitrary, since the word “Smarties” has absolutely nothing to do with the candy product that it identifies. You could always assert that, in the event the court finds that the mark is not arbitrary, it has acquired a second meaning and should be valid anyway. I think that the facts in this case, that the mark is registered, and that the mark is arbitrary at best and probably holds secondary meaning at worse, sway the odds heavily in Ce De's favor that the court would find “Smarties” to be a valid trademark if asked to do so.

We will save the discussion of whether Amazon and/or Nestlé might actually be infringing on Ce De's trademark for another day, perhaps when we see the expected joinder motion mentioned above. Until then, try not to eat too many sweets!

Confused by Copyright Protection Periods?

I found this excellent online application for determining whether or not a work is still protected by copyright, based on when the work was authored, and when it was published. If you get the chance, it is definitely worth checking out at: http://librarycopyright.net/digitalslider/. Do not forget that, even when a work is protected, your use may be protected by an exception, such as fair use, or a defense, such as laches.

Red Hat and Novell Win the First Ever Patent Lawsuit Against Linux

The Eastern District of Texas, notorious in some circles as being very friendly to patent infringement plaintiffs, last Friday issued an utter defeat to IP Innovation, a company that, by all accounts, appears to specialize in buying patents from other companies which it then can use to threaten litigation. In IP Innovation, LLC. et al v. Red Hat, 2:07-cv-447 (E.D. Tex. 2010), a jury in the Eastern District of Texas found that the patents IP Innovation was suing under were entirely invalid.

IP Innovation, a subsidiary of Acacia Technologies Group, and Technology Licensing Corporation filed a patent infringement suit against Novell and Red Hat in 2007, for what they said were infringements in the Linux operating system distribution produced by those companies over U.S. Patents 5,072,412, 5,394,521 and5,533,183, all titled "User interface with multiple workspaces for sharing display system objects." IP Innovation had, shortly before the 2007 lawsuit, also threatened to sue Apple over the same patents. It can only be assumed that Apple paid some sort of settlement fee, since no litigation was ever commenced in that case.

Specifically, IP Innovation claimed that the defendants were infringing on (claims summarized in my own words): (1) claim 1 of the '412 patent - A system comprising of a display with separate data structures for first and second workspaces, along with controller and display objects so that the workspaces could be controlled and displayed separately; (2) claim 1 of the '521 patent - An "article of manufacture" for use in a system that includes a display, memory and input device and can switch between multiple workspaces; and (3) claim 3 of the '183 patent - A system comprising of a display, memory and an input device that is capable of showing visual objects, and capable of receiving a signal to switch between multiple workspaces.

I have not yet read the trial transcripts, as the Court has not yet released them to the public, but from my research it appears that IP Innovation not only asserted that Linux's multi-workspace functionality was infringing on its patents, but also that the open source model in general may be unethical (again, I need to read the transcripts, but I suspect that the argument went that, since open source software has many people all over the world contributing into it, these people are probably just stealing someone else's intellectual property and throwing it into open source, where it then is given away for free). I also got the sense from articles I have read that IP Innovation tried to position itself as a protector of the U.S. patent system and the defendants as detractors and thus at odds with democracy.

Accounts also state that the defendants focused on explaining the open source model to the jury in basic, understandable terms, and on prior art that existed before the patents at issue came into being. RedHat and Novell were lucky in that they had an overwhelmingly large number of examples of prior art, due in large part to their efforts in reaching out to the open source community and long-time software engineers and developers to contact them with examples of similar technology that existed prior the patents at issue. This grassroots litigation strategy was, in my opinion, a brilliant move on the part of defense counsel, one that paid off in spades. The sideshows regarding open source and the patent system... well... aside, the jury by all accounts decided the case based on the overwhelming amount of prior art that existed when the patent was first filed. This art led the jury to determine not only that Red Hat and Novell were not infringing on IP Innovation's patents, but that the three patents themselves were invalid in the first place, a stunningly decisive victory for Red Hat and Novell.

Patent suits are complex, complicated and technical. The key to winning such a suit is to keep things simple. It is imperative that you are, or your attorney is, able to explain your position and the relevant facts to jury and/or to the judge in concise, simple language that will draw the picture for you, without getting bogged down in the infinite minutia that is bound to accompany any case arising from technical innovation. Have a simple, compelling theme, and stick to it as pithily as possible. Here the defense's theme was clear and concise: prior art. Sure, they had to explain open source and also their criticisms of the U.S. Patent System, in order to counter the plaintiffs' themes, but in the end these other issues have nothing to do with the validity of the patents at issue.

Another key takeaway from this case lies in the brilliant way defense counsel utilized the existing community around Linux to do its legwork for it. Realizing that a worldwide, cooperative community of software engineers would have far better luck remembering and finding, at no charge, long-gone prior art than any team of lawyers or consultants ever could, defense counsel leveraged that massive resource to very good effect. Anyone involved in any type litigation would do well to remember that "outside-the-box" thinking can often reap large rewards.

As for open source, some believe that this suit was set in motion by competitors to cast a veil of uncertainty over Linux and open source in general, mostly due to the fact that some high level individuals in IP Innovation and its parent company are ex-Microsoft employees. Those suspicions notwithstanding, this case, along withJacobsen, serves only to bolster the open source model in the market place, and shows that it can pay to defend yourself against patent infringement suits, even if you find yourself a defendant in Texas' notorious Eastern District.

Jacobsen v. Katzer Validates Open Source Licenses

Decided just the other day, the Court in Jacobsen v. Katzer, 535 F.3d 1373 (Fed. Cir. 2008) tested an open source copyright license for the first time and validated its legitimacy.

Jacobsen v. Katzer started in the United States District Court for the Northern District of California where when the copyright holder and Plaintiff filed an action against the Defendant for alleged infringement of computer programming code the Plaintiff had written, and for summary judgment that Plaintiff's programming code did not violate patents Defendant had received after the code had been written.ⁱ

The crux of the dilemma in Jacobsen v. Katzer was whether open source licenses like the GNU General Public License (the “GPL”) and the Artistic License give away so much that they destroy an author's copyright protection.^{ii, iii} The Federal Circuit Court held that they do not. The case is interesting both because there are so few cases about open source licensing and because if it had gone the other way it would have invalidated much that open source licenses exist to accomplish. It is also of note that the case was essentially a copyright case created in part from patent law and decided in part using contract law.

The dispute at the center of Jacobsen involved a set of computer software tools used for controlling model railroad systems, called the Java Model Railroad Interface (“JMRI”) .^iv JMRI is written and maintained by a group of developers, who hold the copyrights to the source code and who offer the software for free under the GPL 2.0 (though it is important to note that the dispute here centered around a version of the JMRI that was offered under the Artistic License, rather than under the GPL). Matt Katzer (“Katzer”) was issued a patent for a “Model train control system,” which published on December 7th, 2004. Shortly after the patent issued Katzer sent one of the JMRI developers, Robert Jacobsen (“Jacobsen”), bills demanding in excess of $200,000 in royalties.^v

After he received the bills, Jacobsen commenced an action against Katzer in the Northern District of California.^vi Jacobsen's complaint sought (among other things) a preliminary injunction to block Katzer from infringing the copyrighted JMRI material.

A plaintiff is entitled to a preliminary injunction when it can demonstrate either: (1) probable success on the merits and the possibility of irreparable injury, or (2) the existence of serious questions going to the merits and a balance of hardships sharply in plaintiff's favor.^vii Under federal copyright law, a plaintiff who demonstrates a likelihood of success on the merits of a copyright claim is entitled to a presumption of irreparable harm.^viii The District Court denied Jacobsen's motion for a preliminary injunction, holding that the broad scope of the rights afforded by the GPL's language created a non-exclusive license to use, distribute and copy the JMRI application. In effect, the Court held that Katzer could not have breached Jacobsen's copyright because he already had a license to use the material. Consequently, the Court reasoned, any infringement on Katzer's part amounted to breach of an existing license contract and not to a copyright violation.^ix Since the proper claim, the Court reasoned, was a claim for breach of contract and not for copyright infringement, Jacobsen had not met the burden of showing either probable success on the merits or the existence of serious questions going to the merits. the Court denied Jacobsen's motion for preliminary injunction and Jacobsen appealed to the United States Court of Appeals for the Federal Circuit.

The question facing the Court of Appeals was whether a copyright holder can dedicate certain work to free public use and still enforce a copyright license to control the future distribution and modification of that work. Katzer argued that since Jacobsen did not use his copyright to reserve any economic rights for himself Jacobsen was essentially trying to enforce moral rights over his work , which were outside the bounds of copyright protection.^x Without economic protection, Katzer argued, Jacobsen had effectively created a non-exclusive license and any limiting language constituted limitations in contract and not limitations in the scope of the copyright license. Jacobsen argued that the limitations provided for in the GPL constituted limitations in the scope of the copyright license, and that each individual in compliance with these limitations created an exclusive license to use and distribute Jacobsen's copyrighted work, while anyone not in compliance would have no license and would be infringing on the copyright.

The Court of Appeals reiterated that a copyright owner has the right to control the modification and distribution of his copyrighted material and that licenses are designed to support that right, regardless of the existence of money damages. the Court focused on the language of the GPL that grants rights “provided that” the user complies with the limitations. The “provided that” language typically denotes a condition under California contract law and here the Court found that the limitations in the GPL were conditions to the grant of the license. the Court also held it was inconsequential whether those conditions reserved economic or non-economic rights for the copyright holder. the Court determined that the conditions created a limited copyright license and that Katzer's actions were outside the scope of that license. Having determined that the terms of the license were enforceable copyright conditions, the Court vacated the District Court's decision and remanded so that the District Court could determine whether Jacobsen demonstrated the necessary elements to support a preliminary injunction.

In the end the Courts decided that open source licenses do not give away so much that they constitute a blanket license for anyone to use the author's work. the Courts determined that the open source terms grant a non-exclusive license to each individual user of the author's works, and that if that user runs afoul of the limiting language of the license then he or she has not merely breached a contract with the author, but rather has violated the author's copyright. Jacobsen constitutes a huge win for the open source community, essentially validating exactly what the community is trying to accomplish with open source licenses and offering the maximum protection to authors who choose to publish their works under those licenses.

v United States Patent 6827023, abstract: “A system which operates a digitally controlled model railroad transmitting a first command from a first client program to a resident external controlling interface through a first communications transport. A second command is transmitted from a second client program to the resident external controlling interface through a second communications transport. The first command and the second command are received by the resident external controlling interface which queues the first and second commands. The resident external controlling interface sends third and fourth commands representative of the first and second commands, respectively, to a digital command station for execution on the dig(e.d.itally controlled model railroad.”

vii Jacobsen v. Katzer, 2007 WL 2358628 (N.D.Cal. 2007) (citing GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1204-05 (9th Cir. 2000)).

ix the Court focused on language in the GPL that explicitly grants members of the public the right to use, modify and distribute the material in any way, and found that the limiting language of the GPL (the Court cited only the GPL's requirement that the user insert a notice of attribution) constituted mere covenants to be included in the license contract, rather than prerequisites to the license itself.

x Moral rights exist separate from economic rights and normally include the right of attribution, the right to have work published anonymously, and the right to the integrity of the work (the right to protect the work from being distorted or destroyed). In many countries in Europe an author retains moral rights over his work even if he has sold the particular piece of work to someone else. As an example, if an artist in a moral rights country sells a painting, that artist can force the buyer and all subsequent owners to attribute the work to him or to not attribute the work to him as he desires. The original artist may also block subsequent owners from altering or destroying the painting. Moral rights are not generally recognized in the United States, except in the case of certain works of visual art under limited circumstances (see the Visual Rights Act of 1990 and subsequent interpreting decisions).

Latest Article from www.technology-law-online.com

Viacom's Appeal Against Google and YouTube - Part I of II (History)