Seattle Copyright Watch - Insight and Commentary on Copyright and other Intellectual Property topics and, occasionally, Dogs

This post follows up on my post entitled YouTube's Safe Harbor Status Requires More Fact-Finding, Rules Second Circuit.  Viacom and other plaintiffs who are content owners sued YouTube for copyright infringement.  The district court granted YouTube’s motion for summary judgment, ruling that YouTube was protected by the DMCA §512(c) safe harbor.  On appeal, the Second Circuit ruled in YouTube’s favor on some issues, but remanded the case to the district court to address four specific issues.  On remand, the district court ruled in YouTube’s favor on all four of those issues, granted YouTube’s motion for summary judgment and dismissed the plaintiffs’ complaint.

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ReDigi Inc. claims that it is “the world’s first and only online marketplace for digital used music.”  (Opinion pdf page 1).  Capitol Records is the copyright owner for numerous songs sold on ReDigi’s website and did not authorize the sales.  Capitol Records sued ReDigi for copyright infringement, alleging direct copyright infringement, inducement of copyright infringement, contributory copyright infringement, vicarious copyright infringement and common law copyright infringement. 

The copyright owner’s exclusive rights under the Copyright Act include the right to make copies, distribute the work and publicly perform the work.  These rights are limited by the first sale doctrine, which allows the lawful owner of a particular copy of the work to sell the work without the permission of the copyright owner.  Last week’s blog post, First Sale Doctrine Not Limited by Geography, Rules U.S. Supreme Court, describes the first sale doctrine in detail.  “The novel question presented in this action is whether a digital music file, lawfully made and purchased, may be resold by its owner through ReDigi under the first sale doctrine.”  (Opinion pdf page 4.)  The district court ruled that it cannot.

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Dodger Productions, Inc. used a seven-second clip from The Ed Sullivan Show in its stage musical, Jersey Boys.  Jersey Boys is a play recounting the history of the pop band, the Four Seasons, and its members.  SOFA Entertainment owns the copyrights for the entire series of The Ed Sullivan Show, from 1948 to 1971.  SOFA sued Dodger for copyright infringement for its unlicensed use of the clip.

Dodger asserted a fair use defense to SOFA’s lawsuit.  Both parties moved for summary judgment on the fair use issue.  The district court ruled in Dodger’s favor, agreeing that Dodger’s use in the Jersey Boys was a fair use.  The district court also granted Dodger’s request for attorney’s fees and costs of $155,000.  “The district court viewed SOFA’s infringement claim as objectively unreasonable and determined that awarding fees would deter future lawsuits that might chill the creative endeavors of others.”  (Opinion pdf page 6).  The Ninth Circuit affirmed the district court’s decision.

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Third Degree Films filed a complaint against 110 John Doe defendants, alleging copyright infringement arising out the unauthorized distribution of its copyrighted pornographic movie through BitTorrent.  BitTorrent is a peer-to-peer file sharing protocol in which each peer acts as a server, storing and distributing small pieces of the work. 

Third Degree filed a motion to conduct expedited discovery to obtain names, addresses, telephone numbers and other information on the defendants from their Internet Service Providers (ISPs) using the Internet Protocol (IP) addresses collected by Third Degree’s investigator.  The district court denied the motion without prejudice, ruling that Third Degree’s need for expedited discovery did not outweigh the prejudice to the John Doe defendants. 

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Donald Harney, a professional photographer, took the photo of a man with his daughter riding piggyback on his shoulders outside of a church on Palm Sunday on Beacon Hill in Boston.  The man told Harney that his name was Clark Rockefeller and his daughter’s name was Reigh.  The Beacon Hills Times published the photo on the front page.  About a year later, the man in the photo, whose actual name was Christian Karl Gerhartsreiter, abducted the girl, his daughter, during a custodial visit.  The FBI placed Harney’s photo on a “Wanted” poster without Harney’s knowledge or consent.  The girl was returned safely and Gerhartsreiter arrested about a week later.

The story broke that Gerhartsreiter was a professional imposter, having assumed many false identities over the years, and that he was also being investigated in connection with a 20 year old homicide.  Public interest in Gerhartsreiter’s story remained high.  Harney subsequently licensed the photo for publication in numerous media outlets.  Sony Pictures created a made for TV movie about Gerhartsreiter.  Sony recreated Harney’s photo using the actors in its movie, without Harney’s permission.  Harney sued Sony for copyright infringement.  The district court ruled that Sony’s photo was not substantially similar to Harney’s photo, granted Sony’s motion for summary judgment and dismissed the case.  On appeal, the First Circuit Court of Appeals affirmed the district court’s ruling.

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Washington Shoe is a Washington State corporation that manufactures footwear for men, women and children.  Through one of its sales representatives, Washington Shoe had an ongoing relationship with A-Z Sporting Goods, a single retail store located in Alma, Arkansas.  A-Z is an Arkansas corporation.  A-Z does not sell products over the Internet.  Washington Shoe’s sales representative discovered that A-Z was selling infringing copies of two of Washington Shoe’s copyrighted children’s rain boot designs.  Washington Shoe’s attorney sent A-Z two cease and desist letters.  After receiving the second letter, A-Z moved the boots out of its store, but sold its remaining supply of the boots to a thrift store.

Washington Shoe sued A-Z for copyright infringement in the Western District of Washington.  The district court granted A-Z’s motion to dismiss for lack of personal jurisdiction, but denied A-Z’s request for attorneys’ fees.  Washington Shoe appealed the dismissal of its case.  A-Z cross-appealed the denial of its motion for attorneys’ fees.  The Ninth Circuit Court of Appeals reversed the order dismissing the case.  The Ninth Circuit ruled that A-Z, whose only relevant contact with Washington State was its alleged willful copyright infringement, was subject to personal jurisdiction in Washington State.

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Latin American celebrities Noelia Monge and Jorge Reynoso secretly wed at the Little White Wedding Chapel in Las Vegas, Nevada on January 3, 2007.  Three pictures were taken at the wedding ceremony and three more were taken that evening.  Monge and Reynoso kept their marriage a secret, in part to promote Monge’s image as a young, single singer.  Not even Monge’s and Reynoso’s family members and friends knew of their marriage.  In the summer of 2008, Reynoso used Oscar Viqueira’s car.  Viqueira later found a memory chip in the ashtray.  Viqueira discovered that the memory chip contained 3 videos and over 400 photos, including the photos taken at Monge’s and Reynoso’s wedding ceremony and on the wedding night.  Viqueira sold the images to Maya, which publishes a number of magazines.  Maya published the images in “TVNotas,” a Spanish-language gossip magazine.  The publication of the photos disclosed the marriage of Monge and Reynoso to the world.

Mongo and Reynoso registered copyrights in five of the six photos.  They then sued Maya for copyright infringement.  Maya claimed fair use and the district court agreed.  On appeal, the Ninth Circuit Court of Appeals reversed the district court, ruling that the district court did not properly analyze the fair use factors.

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RSA Network, Inc., is a Utah-based company that developed the pilot escort vehicle training program for the state of Utah.  A pilot escort vehicle is a vehicle that guides an oversized vehicle by driving directly in front of or directly behind the oversized vehicle.  RSA’s president, Randy Sorenson, wrote the pilot escort vehicle certification training manual for the Utah program in 1992.  Sorenson registered his copyright in the manual in 1993. 

Evergreen Safety Council is a non-profit Washington corporation that is the administrator for Washington State’s pilot escort vehicle training program.  Sorenson acted as a consultant to the State of Washington in the development of its pilot escort vehicle training program.  Washington State based its pilot escort vehicle training manual on Utah’s manual.  Evergreen’s president sent a draft copy of Washington State’s training manual to Sorenson in 1999, seeking comments and suggestions.  Sorenson did not respond and did not open the letter containing the draft manual until 2010.  Evergreen registered its copyright in a revised version of the Washington State manual in 2003.

In 2009, RSA accused the states of Oklahoma, North Carolina and Washington of infringing its copyright in its pilot escort vehicle training manual.  Evergreen filed a declaratory judgment action for a judgment of non-infringement against RSA.  RSA counterclaimed for copyright infringement, to which Evergreen pleaded the laches defense.  The district court granted summary judgment in Evergreen’s favor, ruling that RSA’s claims were barred by laches.  The Ninth Circuit Court of Appeals affirmed.

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Who would have thought that a book about copyright would contain anything that is relevant to this year’s presidential election?  William Patry’s book, How to Fix Copyright, does.  Patry’s discussion of trickle-down economics is so relevant to today’s political scene that it deserves a broader audience than just those who are interested in improving our copyright system.

In addition to the Republicans’ anti-women and anti-gay agendas, their arguments about economics are outrageous.  Their theory is that if taxes on the wealthy are decreased and taxes on the middle class are increased, the wealthy will have more money to invest in business and we will all be better off – a trickle-down theory.  Patry persuasively demonstrates that trickle-down theory does not work in practice. 

Patry describes how copyright has become a trickle-up system, with the ownership of copyrights and money flowing away from the artists into the hands of large corporations and staying there.  The U.S. economy has become a trickle-up system, too, with money flowing to the wealthiest people and staying there.  We have an opportunity in this election to reverse the trickle-up trend.

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Scholz Design, Inc. obtained copyright registrations for homes it designed in 1988 and 1989.  Scholz submitted both technical drawings and front-elevation drawings, i.e., scale drawings of the fronts of the homes, to the Copyright Office.  Scholz entered into contracts with Sard Custom Homes, LLC, allowing Sard to construct homes from Scholz’s copyrighted home plans.  Sometime after the contracts ended, Sard posted Scholz’s front-elevation drawings on Sard’s website.  Scholz sued Sard, alleging copyright infringement, trademark infringement, breach of contract and Digital Millennium Copyright Act (DMCA) violations.

Sard argued that Scholz’s drawings could not receive copyright protection, as they were registered prior to the effective date of the Architectural Works Copyright Protection Act (AWCPA) and they did not contain enough detail to construct a building.  The district court agreed with Sard and dismissed the complaint.  The Second Circuit reversed, vacated and remanded the district court’s ruling.

Copyright protection of a pictorial work, whether depicting a house, or a flower, or a donkey, or an abstract design, does not depend on any degree of detail.  The rights Scholz claims in this suit derive from the general copyright law and not from the AWCAP, which has no relevance to the suit.

(Opinion pdf page 8).

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Flava Works, Inc. (Flava) produces and distributes videos of black men performing erotic homosexual acts.  People must pay to view Flava’s videos online.  Users are allowed to download Flava’s videos, but not to upload them.   myVidster is an online social bookmarking service that allows people to bookmark online materials so that other people with similar tastes can find those materials easily.  myVidster does not host videos on its website.  People who access a video through a bookmark on myVidster’s website see the video through a frame that myVidster puts around it.  The video remains on the server it was uploaded to.  Flava sued myVidster for copyright infringement.  The discussion focused on whether myVidster is a contributory infringer when someone uses its website to bookmark a video and then someone else clicks on the bookmark and watches the video.

The district court judge granted Flava’s motion for a preliminary injunction based on his analysis of Flava’s likelihood of successfully establishing copyright infringement at trial.  myVidster appealed to the Seventh Circuit Court of Appeals.  In an opinion written by Judge Richard A. Posner, the Seventh Circuit vacated the grant of preliminary injunction.  The Seventh Circuit ruled that the district court judge erred by considering Flava’s likelihood of success on the merits as the only factor.  The Seventh Circuit further ruled that, on the basis of the record before it, myVidster did not copy or distribute copyrighted works, that it was not a contributory infringer and that there was no basis for the preliminary injunction to be granted.

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Liberty Media Holdings, LLC (Liberty) brought suit for copyright infringement against Cary Tabora and Schuyler Whetstone for allegedly using BitTorrent to pirate a motion picture, Corbin Fisher’s Down on the Farm.  Tabora is alleged to have let his roommate, Whetstone, use Tabora’s Internet connection to pirate copyrighted content.  Liberty asserted direct copyright infringement, contributory copyright infringement and negligence claims against Tabora.  The district court for the Southern District of New York granted Tabora’s motion to dismiss Liberty’s complaint for failure to state a claim upon which relief can be granted.

Section 301 of the Copyright Act preempts “all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 …and come within the subject matter of copyright as specified by sections 102 and 103 ….”  State law causes of action are preempted when the works are the type protected by the Copyright Act and the state law protects a right equivalent to an exclusive right protected by copyright law.  Negligence is a state law cause of action.

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Forest Park Pictures pitched its idea for a television show it called “Housecall” to USA Network.  Forest Park created and submitted written materials and made an oral presentation to USA Network about a doctor who treats medical patients who cannot pay, gets expelled from the medical community for doing that, then becomes a “concierge” doctor to rich and famous people in Malibu, California.  Communication between Forest Park and USA Network about Housecall ended after a few exchanges. 

About four years later, USA Network aired its own television show called “Royal Pains,” about a doctor who gets expelled from the medical community for treating patients who cannot pay, then becomes a concierge doctor to rich and famous people in The Hamptons on Long Island, New York.  Forest Park sued USA Network for breach of contract.  The district court dismissed Forest Park’s suit, holding that it was preempted by the Copyright Act.  The Second Circuit Court of Appeals vacated and remanded, holding that the Copyright Act did not preempt Forest Park’s claim and that the complaint alleged an enforceable state law contract.

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Was South Park’s video version of What What (In The Butt) a fair use of Brownmark’s original viral video version of What What (In The Butt)?  The district court thought so.  It made its decision based on South Park Digital Studios’ (SPDS) Fed.R.Civ.P. 12(b)(6) motion, comparing the two videos without considering other evidence.  Brownmark appealed to the Seventh Circuit Court of Appeals, arguing that the district court could not base its decision in a Rule 12(b)(6) motion on an affirmative defense. 

In a Rule 12(b)(6) motion, the defendant argues that the plaintiff failed to state a claim upon which relief can be granted.  Fair use (17 U.S.C. §107) is an affirmative defense, meaning that establishing the defense nullifies a claim of copyright infringement.  Brownmark argued that it is improper procedure for a district court to consider the defendant’s affirmative defense in a motion addressing the sufficiency of the plaintiff’s complaint.  The Seventh Circuit affirmed the district court’s ruling on both the procedural issue and the fair use issue, stating that the South Park video “is clearly a parody of the original WWITB video, providing commentary on the ridiculousness of the original video and the viral nature of certain YouTube videos.”  (Opinion pdf page 10).

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The American Society of Composers, Authors and Publishers (ASCAP) and MobiTV (Mobi) reached an impasse in their dispute about the royalty fees for a license for Mobi to publicly perform works controlled by ASCAP.  At the district court level, ASCAP claimed Mobi owed it $41 million in fees for the years 2003 to 2011.  Mobi calculated that it owed ASCAP $301,257.99 for fees due from November 2003 to July 2009.  The district court ruled that Mobi owed ASCAP $405,000 for fees from November 2003 through March 2010. 

The district court calculated its award using the amounts Mobi pays to cable television networks for content and the revenue Mobi receives from wireless carriers as the revenue base, i.e. the figure from which the royalties are calculated.  ASCAP appealed the case to the Second Circuit Court of Appeals, claiming that the district court should have calculated the royalty rate based on the retail revenues wireless carriers receive from sales to their customers.  The Second Circuit affirmed the district court’s decision.

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L.A. Printex is a fabric printing company based in Los Angeles.  Ms. Bubbles is an L.A-based apparel wholesaler.  Aeropostale, a mall-based retailer, purchases apparel from Ms. Bubbles and other vendors.  L.A Printex sued Aeropostale and Ms. Bubbles for copyright infringement when it discovered that Aeropostale was selling shirts, under the Aeropostale trademark, displaying a design similar to L.A. Printex’s C30020 floral design.  Aeropostale ordered the shirts from Ms. Bubbles.

The district court granted the defendants’ motion for summary judgment, finding that there was no issue for trial on whether defendants had access to L.A. Printex’s design and whether the two designs were substantially similar.  L.A. Printex appealed and the Ninth Circuit held that L.A. Printex raised a genuine dispute of material fact on both access and substantial similarity.

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This is a summary of the allegations in Domain Tools’ complaint.  Domain Tools, LLC is a King County-based company offering online domain name research and monitoring services.  Domain Tools’ services include domain name research, registration research, WHOIS information, historical WHOIS information and historical static screenshots of the home pages of websites that have been associated with specific domain names.  WHOIS information is the contact information that everyone who registers a domain name must provide, as per ICANN requirements.  ICANN is the Internet Corporation for Assigned Names and Numbers and is the entity that controls the domain name system. 

The historical screenshots provided by Domain Tools are not interactive and do not substitute for live websites.  Domain Tools believes that by providing access to historical information about the Internet, it provides a service that benefits the public.  The DOMAINTOOLS trademark is registered on the U.S. Patent and Trademark Office (USPTO) Principal Register, which means that it is a distinctive trademark.  Domain Tools, LLC is the exclusive licensee of the mark. 

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Seven music company members (Music Companies) of the American Society of Composers, Authors, and Publishers (ASCAP) sued East Coast Foods, Inc. and its sole officer and director, Herbert Hudson, for copyright infringement arising out of musical performances of eight works at the Long Beach, California, Roscoe’s House of Chicken and Waffles restaurant.  The Ninth Circuit Court of Appeals upheld the district court’s grant of summary judgment and award of $36,000 in damages in favor of the Music Companies and the district court’s award of $162,728.22 in attorney’s fees to the Music Companies.

East Coast owns the Roscoe’s restaurant chain.  The Long Beach Roscoe’s restaurant opened in 2001.  The Sea Bird Jazz Lounge is attached to the restaurant.  ASCAP is a nonprofit music licensing organization that collects royalties for its members.  ASCAP contacted East Coast shortly after the Long Beach Roscoe’s opened to offer East Coast a license to perform music in the restaurant and lounge.  East Coast did not obtain a license and between 2001 and 2007, ignored ASCAP’s recurring requests to pay licensing fees. 

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Enforcement of a single copyright by an individual owner is often cost prohibitive.  The Copyright Office describes the problem faced by copyright owners involved in small copyright claims disputes on its website, under Remedies for Copyright Small Claims. 

The Copyright Act protects the gamut of works, from single photographs with little commercial value to motion pictures worth millions of dollars.  The probable cost of bringing a federal lawsuit outweighs the possible recovery for some copyright owners.  The result is that some copyright owners are unable to enforce their rights granted by the Copyright Act.  The possibility of statutory damages and attorney fees does not help these copyright owners, since statutory damages and attorney fees are not available in every case and since statutory damages and attorney fees are awarded only after the copyright owner has paid for litigation expenses.

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YouTube announced its purchase of RightsFlow on its blog last Friday.  RightsFlow works with labels and distributors, artists and music services to simplify copyright licensing.  Mechanical licensing and royalty reporting are RightsFlow’s core services.  A mechanical license (also known as a “compulsory license”) gives anyone the right to make and distribute a recording of a musical work once the copyright owner has distributed a recording of the work to the public in the U.S.  The copyright owner cannot refuse permission for someone else to record the work, but whoever records the work must pay a preset compulsory license royalty.  17 U.S.C. §115 is the applicable statute.  RightsFlow boasts a database of over 10.5 million songs, economies of scale, and flexible, scalable data systems that are integrated with thousands of publishers and societies throughout the world.

The compensation issue was at the heart of the 2010 Viacom v. YouTube case.  Viacom and other content owners accused YouTube of harming their interests by allowing YouTube users to watch a massive library of unlicensed infringing copyrighted works.  They argued that YouTube was not entitled to the DMCA 17 U.S.C. § 512(c) safe harbor and that YouTube knew of infringing activity, but failed to stop it.  The §512(c) safe harbor provides that an online service or network access provider will not be liable for infringing content stored at the direction of a user if the provider meets certain conditions.   Although the district court ruled in YouTube’s favor, YouTube’s copyright protection procedures were scrutinized and criticized.  Since the Viacom case was filed, YouTube has taken steps to improve its protection of the copyrighted works posted on its site.

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Film companies from Australia and New Zealand filed suit in U.S. federal court, Western District of Washington, alleging copyright infringement and violation of the integrity of copyright management information for the unauthorized reproduction and distribution of films about Bruce Lee.

Facts alleged.  The copyrighted films at issue are The Intercepting Fist, owned and distributed by plaintiff Phoenix Films Proprietary, Bruce Lee’s Jeet Kune Do, owned and distributed by plaintiff Legacy Productions Limited and Bruce Lee:  Path of the Dragon, owned and distributed by Warrior Within Proprietary Limited.  Each of these films is a unique documentary and contains behind the scenes and rare footage of Bruce Lee.  These films were produced with the cooperation of and licenses from the Estate of Bruce Lee.  Each of these films contains copyright notices in the credits and packaging of authorized products that were disregarded by the defendants.  Each has a U.S. copyright registration.

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Seattle design studio Modern Dog Design Company filed a complaint against Target and Disney (pdf), a few of their subsidiaries and others for infringing the copyright on some of Modern Dog’s dog drawings.  Modern Dog’s book, “Modern Dog:  20 Years of Poster Art,” contains the material that was allegedly infringed.  The inside front cover of the book consists of drawings of the heads of dogs of various breeds and is entitled “Dogs We Know.”  The inside back cover of the book likewise consists of drawings of the heads of dogs of various breeds and is entitled “Dogs We Don’t Know.”  (Dogs We Know, Dogs We Don't Know, Exhibit 5 to the complaint, pdf).  The defendants are accused of infringing Modern Dog’s copyright in the drawings of 26 of the 136 total drawings on the inside front and back covers.

The complaint alleges that the defendants Target and Disney partnered in producing a line of clothing called “D-Signed” and that they infringed Modern Dog’s copyright in the dog drawings in three ways:

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Fly, despite the Firms’ understandable desire to protect their business model, is breaking it.

(Opinion pdf page 60).

Financial services firms Barclays Capital, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., and Morgan Stanley & Co., Inc., (the Firms) sued news aggregator (pdf) Theflyonthewall.com (Fly) for copyright infringement and for committing the New York state law tort of “hot news” misappropriation.  Fly did not dispute the copyright claims.  The district court ruled in favor of the Firms on the “hot news” misappropriation claim.  On appeal, the Second Circuit Court of Appeals reversed the district court’s ruling on that issue.

The Parties.  The Firms generate research reports on publicly traded companies, employing hundreds of research analysts and spending hundreds of millions of dollars on these activities each year.  Before the market opens in the morning, the Firms release their Recommendations generated by their research activities to a select group of people.  The Firms believe that investors are more likely to place a trade with a Firm if the investor receives that information directly from the Firm.  “They assert that the timely, exclusive delivery of research and Recommendations therefore is a key to what they frequently refer to as their ‘business model.”  (Opinion pdf pages 12-13). 

Fly is a news aggregator, defined by the court as “a website that collects headlines and snippets of news stories from other websites.”  (Opinion pdf page 13).  Fly offers a subscription service providing early access to investors who are not authorized by the Firms to receive their Recommendations.  Fly compiles information and does not perform any independent analysis.  Fly views itself as a source of breaking financial news.  It continually updates its online newsfeed between 5:00 a.m. and 7:00 p.m. on market days.  Fly obtains its information from news outlets, chat rooms, IM blasts and conversations with its industry contacts.  The Firms view Fly’s activities as a threat to their business model and filed suit against it.

Copyright Preemption in general.  Preemption is the principle that federal laws made pursuant to the U.S. Constitution are “the supreme law of the land” and that federal law displaces state law when there is a conflict between the two.  My blog post Ninth Circuit Upholds Script Writer’s Implied Contract Claim under California State Law discusses preemption as viewed by the Ninth Circuit, which is slightly different from the Second Circuit’s discussion.

Title 17 U.S.C. § 301, enacted in 1976, sets forth a two-part test to determine whether a state-law claim is preempted by the Copyright Act, with a further ‘extra elements’ exception we discuss below. Such a claim is preempted (i) if it seeks to vindicate ‘legal or equitable rights that are equivalent’ to one of the bundle of exclusive rights already protected by copyright law under 17 U.S.C. § 106 -- the ‘general scope requirement’; and (ii) if the work in question is of the type of works protected by the Copyright Act under 17 U.S.C. §§ 102 and 103 -- the ‘subject matter requirement.’

(Opinion pdf pages 36-37).

The Second Circuit in Fly discussed the three prong “extra-element” test from the NBA case described below, declined to apply the test, but did not articulate its own test.

What is “hot news”?  The court illustrated what “hot news” is through its discussion of two other hot news cases:  International News Service v. Associated Press (INS) and National Basketball Association v. Motorola, Inc. (NBA).

In INS, AP investigated and reported the news.  INS took news facts from AP bulletins and wired them to INS papers, representing those facts as resulting from its own work, when it did not gather the facts or independently investigate them.  The U.S. Supreme Court “held that INS’s conduct was a common-law misappropriation of AP’s property.”  (Opinion pdf page 41).  The INS court indicated that the facts gathered by AP were the news of the day and were not copyrightable.  The decision was based on unfair competition law and not on copyright law.

The INS court defined the ‘hot news’ tort in part as ‘taking material that has been acquired by complainant as the result of organization and the expenditure of labor, skill, and money, and which is salable by complainant for money, and appropriating it and selling it as the defendant’s own.’

(Opinion pdf page 61).

In NBA, one of the defendants gathered information on NBA games as they were occurring, including score changes, ball possession, free-throw bonus, the quarter and time left in the quarter.  These statistics were transmitted to pagers owned or leased by Motorola almost simultaneously with the live games.  The NBA sued Motorola and the statistics gathering firm, claiming hot news misappropriation.  The Second Circuit ruled that since the statistics firm incurred the expense of gathering its own statistics, the defendants were not free-riding on the NBA’s product and that the defendants did not misappropriate the NBA’s hot news.

Although the Second Circuit in NBA ruled that Motorola did not commit the tort of hot news misappropriation, the court set out some factors to determine when the hot news misappropriation tort has been committed.  Both the district court judge and the parties in Fly thought that the correct analysis was to apply the NBA factors.  The Second Circuit disagreed:

[I]n NBA, the Court held that the facts of that case could not support a non-preemted “hot news” claim.  Its language regarding the elements that might in some later case allow a claim to avoid preemption, and its discussion of why such an exception to preemption was narrow, were useful commentaries on the reasoning and possible implications of the Court’s holding.  But the language itself was not meant to, and did not, bind us, the district court, or any other court to subsequently consider this subject.

(Opinion pdf, footnote 32, page 54).

The Second Circuit in Fly pointed out that the NBA opinion sets out two inconsistent five-part tests and a three prong “extra element” test as further justification that those parts of the opinion cannot be the law.

Copyright Preemption applied to this case.  The court ruled that the Firms claims under the New York state law tort of “hot news” misappropriation were preempted by the Copyright Act:

• The Firms’ reports and Recommendations are works of the type covered by 17 U.S.C. §102, i.e. original works of authorship fixed in a tangible medium of expression, fulfilling the subject matter requirement.
• The Firms’ reports and Recommendations fulfill the “general scope” requirement because the rights in those materials may be diminished by an act that, by itself, such as reproduction, performance or distribution, would infringe an exclusive right under the Copyright Act.
• Fly is not “free-riding” on the Firms’ efforts.

The rest of this post focuses on the court’s third point – the lack of free-riding.  Free-riding in this context is “unfair use of another’s labor, skill, and money, and which is salable by complainant for money.”  (Opinion pdf page 61).  The term “free-riding” implies acts that are inherently unfair.  Fly collects, collates and disseminates factual information.  The Firms’ Recommendations are news in and of themselves.  The court noted that Recommendation of the Firms can influence the price of a stock, at least in the short term.

The court also made the point that

In pressing a “hot news” claim against Fly, the Firms seek only to protect their Recommendations, something they create using their expertise and experience rather than acquire through efforts akin to reporting.

(Opinion pdf page 62).

The court summed up by stating:

We conclude that in this case, a Firm’s ability to make news -- by issuing a Recommendation that is likely to affect the market price of a security -- does not give rise to a right for it to control who breaks that news and how.

(Opinion pdf page 71).

The panel consisted of Judges Rosemary S. Pooler, Robert D. Sack and Reena Raggi.  Judge Sack wrote the opinion for the panel.  Judge Raggi wrote her own concurring opinion.  She agreed that the Firms’ hot news misappropriation claim was preempted by federal copyright law, but did not think the NBA five factor test should be rejected.

This case is Barclays Capital Inc. v. Theflyonthewall.com, Inc., No. 10-1372.

National Football Scouting, Inc. (NFS) recently filed a complaint (pdf) in the Western District of Washington, Tacoma, for copyright infringement and misappropriation and dissemination of trade secrets against The Sports Xchange, Inc., (TSX) and Rob Rang, one of TSX’s employees.

The parties.  NFS is a scouting organization owned by nineteen National Football League clubs.  NFS prepares scouting reports for the clubs that own its shares.  The scouting reports “are proprietary and copyrighted trade secrets that belong exclusively to NFS.”  (Complaint pdf page 2).  NFS’s principal place of business is in Indianapolis, Indiana.

TSX is a corporation that publishes football scouting information and does business as NFLDraftScout.com.  TSX’s principal place of business is Sacramento, California.

Rob Rang is a sportswriter and employee of TSX.  He lives in Gig Harbor, Washington.

The alleged facts.  NFS institutes a number of measures to protect its trade secrets, including requiring the clubs that own shares to enter into written agreements acknowledging that the scouting reports are proprietary information and trade secrets belonging to NFS; prohibiting the shareholder clubs from disseminating the information to anyone other than employees who need access to it to do their work; posting terms of use on its website that come up after log on; requiring agreement to a confidentiality provision before a shareholder employee can download content; and requiring its own employees and technology vendor employees to sign confidentiality agreements.  “NFS takes every reasonable step to maintain and keep the Scouting Information confidential.”  (Complaint pdf page 4).  See my blog post entitled Not All Organizational Secrets are Trade Secrets for a more complete discussion of trade secrets. 

The information contained in the scouting reports is obtained by scouts who travel to college campuses throughout the country, then organized, evaluated and analyzed by NFS.  This is done at great expense to the shareholder clubs.  The scouting reports prepared by NFS give the shareholder clubs a competitive advantage over non-member clubs.

NFS registered its scouting reports with the Copyright Office as unpublished works.  This allowed NFS to register the works without disclosing their contents to the Copyright Office and without disclosing NFS’s proprietary information.  17 U.S.C. §408 and 37 C.F.R. §202.20 address registering unpublished works.

Even though NFS makes substantial efforts to protect its trade secrets, TSX and Rang have repeatedly obtained and published information in NFS’ scouting reports through cbssports.com.  TSX and Rang have received compensation for knowingly and willfully disseminating NFS’s trade secrets.  NFS has informed TSX and Rang that the scouting reports are confidential and proprietary, has demanded that TSX and Rang cease and desist from disclosing NFS’s scouting reports in publications and has demanded that TSX and Rang remove the offending material and return any copies of the materials to NFS.  TSX and Rang have not complied with NFS’s demands.  TSX and Rang continued to publish NFS’s scouting information on such college football players as Prince Amukamara, Dontay Moch, Jake Locker, Christian Ponder, Nick Foles, Juron Criner, Chris Owusu and Terrell Pryor. 

Trade secret count.  NFS alleged that “Defendants’ continued knowing publication of NFS’s trade secrets constitutes deliberate, intentional, and outrageous conduct, warranting an award of exemplary damages.”  (Complaint pdf page 9).  NFS alleged that, based on TSX’s and Rang’s past conduct, they will continue to unlawfully disseminate NFS’s trade secrets and that NFS has been irreparably harmed.

NFS requested a temporary and a permanent injunction,

• Ordering the defendants to cease and desist publication or dissemination of NFS’s scouting information;
• Ordering the defendants to remove the content from the Internet, weblogs and other media;
• Ordering the defendants to return any copies of NFS’s materials;
• Ordering the defendants to preserve all electronic data in their control, so that NFS can have computer forensics technicians remove NFS’s trade secrets found in it;
• Order the defendants to allow NFS to inspect defendant’s email accounts so that NFS can investigate defendants’ sources of NFS’s information; and
• Enjoin the defendants from engaging in such conduct in the future.

Trade secrets are protected by state law, not federal law.  Kewanee Oil Co. v. Bicron.  Washington State adopted the Uniform Trade Secrets Act, codified under Chapter 19.108.

Copyright count.  NFS alleged that the scouting reports prepared by it are original works that are owned by NFS.  NFS alleged that the defendants published portions of NFS’s scouting reports, without authorization, and in violation of the Copyright Act.  NFS alleged that the defendants deliberately and willfully infringed its copyrights in the scouting reports. 

NFS requested the court to require defendants to disgorge all of their profits from the infringements and award actual damages or statutory damages up to $150,000 for each copyright infringed.

This case is National Football Scouting, Inc., v. Rob Rang and The Sports Xchange, Inc., Case No. 11-05762-RBL, Western District of Washington, Tacoma.

Louis Vuitton was awarded $21,000,000 in statutory damages for willful contributory trademark infringement and $600,000 in statutory damages for willful copyright infringement by the district court against two defendants following a jury trial.  On appeal in Louis Vuitton Malletier v. Akanoc Solutions, the Ninth Circuit affirmed the district court’s rulings on liability, but disagreed with the district court’s damages calculations and vacated and remanded the judgment.

Facts.  Louis Vuitton distributes luxury merchandise displaying its trademarks and copyrighted designs.  It discovered websites it believed were selling goods that infringed its trademarks and copyrights.  The websites listed email addresses that prospective customers could contact, but the websites did not sell merchandise directly.  Louis Vuitton determined that the Internet Protocol (IP) addresses used by the websites were assigned to Managed Solutions Group, Inc., (MSG) and Akanoc Solutions, Inc., based in San Jose, California. 

MSG leased servers, bandwidth and IP addresses to Akanoc Solutions, Inc.  Akanoc ran a web hosting business with these resources.  Both companies were managed by Steven Chen.  Louis Vuitton sent MSG, Akanoc and Chen at least eighteen Notices of Infringement, describing the trademark and copyright infringements and demanding the removal of the infringing content.  Louis Vuitton received no response and sued MSG, Akanoc and Chen for contributory copyright and trademark infringement.  Louis Vuitton determined that the direct infringers were in China.  From the court’s description of the facts, the website owners were the initial contributory infringers and the defendants were a second tier of contributory infringers.  The people who used their email addresses to conduct the infringing sales were the direct infringers.

The case went to a jury trial.  The jury found in favor of Louis Vuitton, awarding $10,500,000 against each of the three defendants for statutory damages for willful contributory trademark infringement of thirteen trademarks ($31,500,000 total on trademark) and $300,000 against each defendant for statutory damages for willful copyright infringement of two copyrights ($900,000 total copyright). 

Defendants moved for judgment as a matter of law following the verdict.  The district court granted MSG’s motion.  It concluded that the evidence did not show that MSG sold domain names or operated the servers.  The district court denied Akanoc’s and Chen’s motions, awarded statutory damages against them and permanently enjoined them from participating in similar conduct.  Akanoc and Chen appealed.  Louis Vuitton cross-appealed the district court’s order granting MSG’s motion for judgment as a matter of law.

The Ninth Circuit’s opinion addressed the cross-appeal, Akanoc’s and Chen’s motion for judgment as a matter of law, jury instructions and damages.  This blog post discusses the damages calculations.

Copyright Damages Calculation.    17 U.S.C. §504(c)(1) describes statutory damages:

[T]he copyright owner may elect, at any time before final judgment is rendered, to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally, in a sum of not less than $750 or more than $30,000 as the court considers just.

The statutory maximum for willful copyright infringement under 17 U.S.C. §504(c)(2) is $150,000, but the jury awarded $300,000 per defendant for willful contributory copyright infringement on two Louis Vuitton copyrights.  The district court did not think this award violated the statutory maximum, since it worked out to $150,000 per copyright per defendant.  The district court did not specify whether the defendants were separately liable or jointly and severally liable.

The Ninth Circuit stated:

[W]hen statutory damages are assessed against one defendant or a group of defendants held to be jointly and severally liable, each work infringed may form the basis of only one award, regardless of the number of separate infringements of that work.

(Opinion pdf page 15).

The Ninth Circuit pointed out that “there was no legal basis for multiplying the award by the number of defendants.”  (Opinion pdf page 16).  Copyright statutory damages maximums are calculated based on the number of protected works, not the number of defendants.  The district court’s award was $600,000 for two works, twice the $150,000 per work statutory maximum.

Trademark Damages Calculation.  15 U.S.C. §1117(c)(2) sets out the statutory maximum for willful trademark infringement involving counterfeit marks.

if the court finds that the use of the counterfeit mark was willful, not more than $2,000,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just.

The statutory maximum changed from $1,000,000 to $2,000,000 while the case was pending and the parties agreed that the $1,000,000 maximum would apply.  The jury award of $10,500,000 per defendant was for the willful contributory infringement of thirteen marks.  The district court did not think this award violated the statutory maximum, either, as it worked out to $807,692 per trademark per defendant.

The Ninth Circuit applied the same reasoning to the trademark award as it did the copyright award, indicating that “15 U.S.C. §1117(c) entitles a plaintiff to anaward, not multiple awards.”  (Opinion pdf page 16).  The award of $10,500,000 per defendant exceeded the statutory maximum.

The Ninth Circuit determined that a new trial on the issue of damages was not necessary, as the jury intended each defendant to be liable for the same amount of damages.  The court ruled that the jury award should be enforced against Akanoc and Chen by making them jointly and severally liable for a single trademark damages award and a single copyright damages award.

This case is Louis Vuitton Malletier v. Akanoc Solutions, Inc., No. 10-15909.

This case discusses the potential liability of a corporate officer for the infringing acts of the corporation.  Defendant Larry Chasin, CEO of the corporate defendant IDS, filed a motion for summary judgment against Plaintiff Blue Nile.  Blue Nile filed a cross motion for summary judgment against defendant Chasin on the issue of Chasin’s liability for copyright infringement.  Judge Thomas S. Zilly, Western District of Washington, Seattle, denied Chasin’s motion for summary judgment and granted Blue Nile’s motion for summary judgment, finding Chasin liable for copyright infringement (pdf).

Facts

Blue Nile, Inc. is an online jewelry and diamond retailer.  It alleged that defendants Ideal Diamond Solutions, Inc. (IDS) and Larry Chasin infringed its copyrights by posting Blue Nile’s copyrighted images of diamonds and jewelry on websites owned and operated by IDS and Chasin.

Chasin created IDS to provide brick and mortar jewelry retailers with web services to enable them to compete online.  The court determined from declarations and the parties’ moving papers that IDS was the “brainchild” of the defendant Chasin, that it is a small company and that defendant Chasin controlled the company’s corporate affairs.

Chasin did not dispute the allegations of infringement in Blue Nile’s moving papers.  The bases for Chasin’s motion for summary judgment and his defense to Blue Nile’s motion were “1) he cannot be held liable for copyright infringement because he had no role in creating the infringing websites and no knowledge that content used on the websites was copyrighted by Blue Nile; and 2) he cannot be held liable for IDS’s alleged infringement.”  (Opinion pdf pages 2-3).

The court found that Chasin was mistaken as a matter of law and that no genuine issue of material fact existed and therefore granted Blue Nile’s motion and denied Chasin’s motion.  (Opinion pdf page 3).  The court did not rule on whether IDS infringed Blue Nile’s copyrights, but the order is written on the assumption that IDS did infringe.

Summary Judgment

Summary judgment shall be granted if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law.  Fed.R.Civ.P. 56(c).

(Opinion pdf page 3). 

The non-moving party must demonstrate that there is a genuine issue of material fact for trial by identifying “specific facts” to establish a genuine issue.

This blog also discusses the standard for granting summary judgment in Ninth Circuit Upholds Ruling that Sony’s God of War Video Game Not Infringing in Dath v. Sony, Photograph of Model Dancing Copyrighted Bronze Dance Steps Could be Fair Use and Copyright Infringement Suit Regarding Precast Concrete Vault Drawings Yields Summary Judgment Rulings.

Personal Liability for Copyright Infringement

Copyright is a strict liability tort; therefore there is no corporate veil and all individuals who participate are jointly and severally liable.

(Opinion pdf page 4.)

Corporate officers are liable as joint tortfeasors with the corporation when the corporate officer is the dominant influence in the corporation and determines the policies that produce the copyright infringement.

Because Chasin controlled the corporation, his argument that he did not create the infringing websites or know that infringing material was posted was not a defense.  The court stated that

[t]he Copyright Act is a strict liability regime under which any infringer, whether innocent or intentional, is liable.

(Opinion pdf page 5).

The court also indicated that there is a genuine question of material fact regarding whether Chasin is an “innocent infringer.”  Innocent infringement is discussed in my post Fair Use in AP Fairey Dispute but not in Cooks Source Magazine Controversy.  The distinction between an innocent infringer and an intentional infringer is important in calculating damages under the Copyright Act.  17 U.S.C. §504(c)(2).  Regarding innocent infringement, §504(c)(2) states:

In a case where the infringer sustains the burden of proving, and the court finds, that such infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright, the court in its discretion may reduce the award of statutory damages...

Vicarious Liability for Copyright Infringement

The court ruled that Chasin is alternatively “liable for vicarious copyright infringement because he had the right and ability to supervise the infringing activity and also had a direct financial interest in such activities.”  (Opinion pdf page 5).  Chasin admitted that he had the ability to remove infringing content, that he controlled corporate affairs, that he invested his own money in IDS and that he received a salary and benefits from IDS.

Vicarious liability is also discussed on this blog in Game Developer Alleges Copyright and Computer Fraud and Abuse Act Violations in Suit Against Unknown Defendants.

This case is Blue Nile, Inc. v. Ideal Diamond Solutions, Inc., et al., No. C10-380Z, Western District of Washington at Seattle.

On July 29, 2011, the Ninth Circuit filed what must be one of its shortest opinions in a copyright case:

We adopt and affirm the district court’s well-reasoned opinion in Bissoon-Dath v. Sony Computer Entm’t Am., Inc., 694 F. Supp.2d 1071 (N.D. Cal. 2010).

Dath v. Sony Computer Entertainment, No. 10-15783.

Facts.

The Plaintiffs Jonathan Bissoon-Dath and Jennifer B. Dath alleged that Sony Computer Entertainment of America, Inc., and one of Sony’s former employees infringed their copyrights in five works with the God of War video game, developed by Sony for its PlayStation 2 and PlayStation Portable video game consoles.  Plaintiffs wrote five works describing the story of Spartan kings at war against Athens, the involvement of the Greek Gods, how the Gods choose a mortal to achieve peace and how the mortal eventually secures peace and democracy in Greece.  Plaintiffs started distributing their works in early 2002.

Sony’s God of War video game also involves the tale of war between Sparta and Athens, but the mortal chosen by the Greek God Athena to end the war later becomes the Greek God of War, overseeing modern wars such as World War II and the Vietnam War.  Sony released the game in March 2005.

Plaintiffs filed this case in February 2008.  After the parties were unable to resolve the case through alternative dispute resolution, the defendants filed a motion for summary judgment.

The decision on summary judgment.

Summary judgment is a pretrial motion to decide the case on its merits without a trial.  The case is decided as a matter of law, relying on the evidence obtained by the parties as of the time the motion is made.  See my posts Photograph of Model Dancing Copyrighted Bronze Dance Steps Could be Fair Use and Copyright Infringement Suit Regarding Precast Concrete Vault Drawings Yields Summary Judgment Rulings for more detailed discussions of the requirements.  Those posts also discuss substantial similarity and scenes a faire, concepts relevant to this case.

Although summary judgment is not highly favored on questions of substantial similarity in copyright cases, summary judgment is appropriate if the court can conclude, after viewing the evidence and drawing inferences in a manner most favorable to the non-moving party, that no reasonable juror could find substantial similarity of ideas and expression.

(District court opinion page 1078).

The “substantial similarity” referred to by the court in the quote above is an aspect of the test used by the court to determine copyright infringement.  The plaintiff must prove that 1) she owns a valid copyright in the work and 2) “the defendant copied protected elements of that work.”  (District court opinion page 1078).  In this case, the defendants did not dispute the validity of the plaintiffs’ copyrights.  The issue on summary judgment was whether plaintiffs could establish that defendants copied the protectable elements of their works.

A plaintiff may establish copying either (1) by presenting direct evidence of copying or (2) by showing that the defendant had access to the work and that the works at issue are substantially similar.

The plaintiffs did not present direct evidence of copying and relied on showing access and substantial similarity.  The Ninth Circuit recognizes a relationship between access and substantial similarity with its “inverse ratio rule.”  When there is a high degree of access, a lower standard of proof of substantial similarity is required. 

The “substantial similarity” element includes a two-part test of its own:  1.  The extrinsic test is an objective test which examines whether “there are substantial similarities in both ideas and expression.”  (District court opinion page 1079).  2.  The intrinsic test is a subjective inquiry into the similarity of expression and is a test for the jury to apply.  The court considers only the extrinsic test on summary judgment.

Copyright law only prohibits copying of the protectable elements of a plaintiff’s work.  Ideas are not protected, but the expression of those ideas is.  General plot ideas and scenes a faire,stock scenes, are also not protected.  A particular sequence of a significant number of unprotectable elements may itself be a protectable element.  The court determines what the protectable elements are and disregards the non-protectable elements.

The court ruled that “no reasonable juror could find substantial similarity of ideas and expression, even if access to all of plaintiffs’ works were proven.”  The court examined the protectability of plaintiffs' works and the articulable similarities between the works, using the following elements:

• Plot
• Themes
• Dialogue
• Mood
• Settings 
• Pace
• Characters
• Sequence of Events

Plot.  The court found similarities between the two plots, but stated that “[o]nce the unprotectable elements are filtered, the two stories’ plots are similar only at a level of abstraction that is barely meaningful, if at all.”  (District court opinion page 1082).

Themes.  The court found that the themes are quite different.  Plaintiffs’ works focus on the establishment of peace and democracy, while God of War focuses on violence, divine forgiveness and continued war.

Dialogue.  The court found that the dialogue similarities either referred to different things in the plaintiffs’ works and God of Waror were clichéd and unprotectable.

Mood.  The court found the mood for plaintiff’s works to be light-hearted, with some darker scenes sprinkled in for contrast and the mood of God of War to be dark and extremely violent.

Settings.  The court found that the shared settings of Greece, Athens, Mount Olympus, Sparta and the Underworld were generic and clichéd and unprotectable elements of stories concerning ancient Greece and Greek gods.

Pace.  The court found that plaintiffs’ works are relatively fast-paced and that God of War is very fast paced, but that the pace of the game is indicative of a violent video game and not of copying plaintiffs’ works.  In addition, the storyline in plaintiffs’ works is linear, whereas in God of War it is repeatedly interrupted with flashbacks.

Characters.  “Greek gods, dialogues among them about mortal affairs, rivalries among the gods, and mythical beasts such as the Hydra or the Nemean Lion are unprotectable elements; it is uncontroversial that they have been used widely in both ancient and modern artistic works, in the naming of astronomical bodies and spacecraft, and in other fields.”  (District court opinion page 1088).

Sequence of Events.  As indicated under the Pace element, the plaintiff’s storyline is linear, with scenes occurring in chronological order, while the scenes in God of War jump around through flash-backs.

In summing up, the court indicated that plaintiffs’ works were comprised of stock elements used in literary and artistic works for a long time.  Even though a particular sequence of stock elements can be protectable, in this case, the sequences of elements and relationships between the elements in the two works were entirely dissimilar.

Plaintiff Square Enix Limited develops, distributes and markets copyrighted computer video games worldwide.  This case concerns “Deus Ex: Human Revolution” (the Game), the eagerly awaited sequel to Square Enix’s “Deus Ex.”  Square Enix is preparing to commercially release the Game around August 2011.  Square Enix is a British corporation located in London, England.

Square Enix alleges the following facts (pdf):  To generate prerelease publicity, Square Enix created an unpublished version of the Game for limited preview to select video game media representatives.  It distributed the Game preview through Steam.  Steam is an Internet game distribution platform operated by Valve Corporation.  Valve is headquartered in Bellevue, Washington, in the Western District of Washington.  “Steam delivers game content using a proprietary file transfer protocol and protects it with digital rights management software.”  (Complaint pdf page 4).  Steam is believed to collect and store information about user accounts, including IP addresses and hardware identification numbers.

Square Enix authorized a reviewer from the Italian video game review magazine “Giochi per il Mio Computer” (GMC) to preview the Game using Steam.  Media representatives who previewed the Game, including GMC and its reviewer, signed nondisclosure agreements agreeing not to reproduce or disclose the Game preview.  Square Enix preregistered its copyright for the Game with the United States Copyright Office.

On May 29, 2011, one or more of Defendants Does 1-15 used the GMC reviewer username and password to log onto the restricted Steam account from an IP address not associated with GMC or its parent company.  One or more of the Defendants accessed and copied the Game preview from the Steam server without authorization and “distributed it to other Defendants and third parties using the peer-to-peer file sharing protocol BitTorrent.”  (Complaint pdf page 4).  Defendants and others then made unauthorized copies of the Game preview.

Square Enix claimed direct, contributory and vicarious infringements of its copyright by the Defendants.  Direct infringement occurs when someone copies a copyrighted work without authorization.  Contributory infringement occurs when someone who knows of the infringing activity assists in someone else’s infringing activity.  Vicarious infringement occurs when someone who has the right and ability to control the infringer’s conduct receives direct financial benefit from the infringement.  “Defendants copied, distributed, displayed, exhibited, performed, and/or created derivative works of the Game Preview, which consisted of a significant and material portion of the Game.”  (Complaint pdf page 5).  Square Enix alleges that Defendants also participated in each other’s infringing conduct and that some of the Defendants who had the ability to control the infringing conduct of others received direct financial benefits from the infringement.

Square Enix also claimed that Defendants violated the Computer Fraud and Abuse Act (CFAA).  The CFAA (18 U.S.C. §1030) protects against a variety of computer abuses arising out of unauthorized access or exceeding authorized access to a computer.  Square Enix alleges that Valve’s server is the computer which Defendants accessed without authorization and/or exceeded authorized access to obtain information they were not entitled to access.  Square Enix stored its proprietary information on Valve’s computer, limited authorized access to the information and was damaged by Defendants’ unauthorized access and/or access exceeding authorization.

This case is Square Enix Limited v. Does 1-15, C11-1045 MJP, Western District of Washington at Seattle.

Plaintiff Susan Tierney Cockburn filed suit (pdf) in the Western District of Washington against five out of state defendants – one manufacturing defendant and four retail defendants.  The defendants filed motions to dismiss the complaint for lack of personal jurisdiction and to dismiss plaintiff’s Lanham Act (federal trademark) and state law claims for failure to state a claim upon which relief can be granted under Fed. R. Civ.P. 12(b)(6).  The defendants also questioned whether plaintiff’s works were copyrighted, although that does not appear to have been part of the formal motion.  Judge Robert S. Lasnik granted the motion to dismiss in part and denied it in part.

Facts.  Plaintiff is a professional author and artist in Redmond, Washington.  She creates floral art with paper and three dimensional paper flowers for use in crafts and hobbies.  She “developed a unique line of paper punches to enhance her paper floral art and three dimensional paper flowers.”  (Order pdf page 2).  Plaintiff registered copyrights for two books:  Paper Bouquet and The Paper Garden – Summer Blooms.

Defendant SWS Industries, Inc. is an Illinois corporation that manufactures punches used in office products, industrial supply/hardware and crafts.  An SWS representative contacted plaintiff in 2009, asking whether plaintiff would work with it on augmenting its existing paper punches.  SWS later presented plaintiff with a contract to purchase and manufacture her floral designs, but the parties failed to come to an agreement.  Plaintiff alleges that SWS created infringing works which it sold to Internet and retail customers all over the United States.  Plaintiff alleges that the retail defendants sold SWS’s infringing products either online or through retail stores.  The retail defendants are Archiver’s, a Minnesota corporation, Notions, a Michigan corporation, Moore, a Florida corporation, and CreateForLess, LLC, an Oregon limited liability company.  The defendants are not licensed to do business in Washington state and do not have employees or a physical presence in Washington.

Plaintiff claimed copyright infringement, violation of the Lanham Act, 15 USC §1125(a), violation of Washington’s Consumer Protection Act, and violation of Washington trade dress and trade name protection.  She sought a constructive trust and an accounting, both of which are state law claims.

Personal Jurisdiction.  The court undertook the same analysis described in my June 1, 2011, post Personal Jurisdiction Found Lacking in Copyright Infringement Action.  Washington State’s long arm statute extends to the limit of the Due Process Clause. 

For a forum state to have personal jurisdiction over an out-of-state defendant, that defendant must have certain minimum contacts with the forum state, such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.

(Order pdf page 5).

The court set out the three-part test used in the Ninth Circuit to analyze specific jurisdiction:

1. The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws;
2. the claim must be one which arises out of or relates to the defendant’s forum-related activities; and
3. the exercise of jurisdiction must comport with fair play and substantial justice, i.e. it must be reasonable.

(Order pdf page 5).

The court indicated that “[i]n tort cases, courts typically inquire whether a defendant purposefully directs his activities at the forum state, applying an ‘effects’ test that focuses on the forum in which the defendant’s actions were felt, whether or not the actions themselves occurred within the forum.”  (Order pdf page 6).  Tort claims include a claim for willful copyright infringement. 

The first part of the above three-part test, purposeful availment, has its own three part test:  “the defendant allegedly must have (1) committed an intentional act, which was (2) expressly aimed at the forum state, and (3) caused harm, the brunt of which is suffered and which the defendant knows is likely to be suffered in the forum state.”  (Order pdf page 6). 

The Ninth Circuit has approved a sliding scale analysis in addition to the effects test:  “[T]he likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet.”  (Order pdf page 6). 

The court ruled that the defendant retailers conduct with Washington involved the sale of a small number of non-infringing products and was “insufficient to show that they directed their activity towards Washington in a substantial way.”  (Order pdf page 7).  The retail defendants’ conduct was also found not to have been expressly aimed at the forum, as the retail defendants did not previously know of plaintiff’s existence, her dispute with SWS or her residence in Washington state.  The court granted the retail defendants’ motion to dismiss for lack of personal jurisdiction.

SWS argued that exercising personal jurisdiction over it would be unreasonable.  “Defendant must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.”  (Order pdf page 8).  The seven factors for determining reasonableness are:

1. the extent of the defendants’ purposeful contacts;
2. the burden on defendant of having to defend in Washington;
3. the extent to which jurisdiction conflicts with the sovereignty of the defendant’s resident state;
4. Washington’s interest in adjudicating the dispute;
5. which forum is the most efficient for resolution of the dispute;
6. plaintiff’s interest in choosing the Washington forum; and
7. the existence of an alternative forum to adjudicate plaintiff’s claims.

The court discussed the factors one by one.  It found that factors one, three, four and six weigh in favor of the plaintiff and factors two, five and seven weigh in favor of the defendant.  SWS did not present a compelling case that jurisdiction in Washington State is unreasonable.  The court denied SWS’s request to dismiss for lack of personal jurisdiction.

Copyright.  The defendants questioned whether plaintiff’s works were copyrighted, but did not provide support for that argument.  Defendants next argued that plaintiff’s designs become a useful article when used with a paper punch.  However, the designs can be cut with scissors or drawn.  The court did not think they were useful articles.  Defendants also argued that plaintiff’s floral designs are scenes a faire, since their origins are objects of nature.  The court ruled that this doctrine is inapplicable, since plaintiff did not claim copyright protection for the shape of certain flowers, but only for the designs of those flowers as rendered in her books. 

Lanham Act claim.  Plaintiff argued that SWS’s products used a trade dress confusingly similar to her products, in violation of the Lanham Act, 15 U.S.C. §1125(a).  Defendants argued that plaintiff’s Lanham Act claims duplicated her copyright claims and failed as a matter of law.  The court stated that “parallel copyright and Lanham Act claims are not per se improper” and that courts limit the application of trademark law when copyright laws “provide an adequate remedy.”  (Order pdf page 12).  The court indicated that plaintiff’s Lanham Act claim includes other elements that are not necessarily compensable under copyright law, such as a false designation of origin and/or sponsorship and SWS passing off its products as plaintiff’s.  The court stated that “courts typically resolve the issue of whether the Lanham Act and copyright claims overlap at the summary judgment stage rather than on a motion to dismiss.”  (Order pdf page 13).  The court denied defendants’ motion to dismiss the Lanham Act claim.

State law claims.  The defendants argued that plaintiff’s state law claims are preempted by the Copyright Act.  Preemption was discussed in my May 10, 2011, post Ninth Circuit Upholds Script Writer’s Implied Contract Claim under California State Law.  The two part preemption test adopted by the Ninth Circuit is

• courts must first determine whether the subject matter of the state law claim falls within the subject matter of copyright as described by 17 U.S.C. §§102 and 103, and
• courts must determine whether the rights asserted under state law are equivalent to the rights contained in 17 U.S.C. §106.

To survive preemption, the state law claim must include an extra element that is not protected by the Copyright Act.  The court ruled that plaintiff’s Consumer Protection Act (CPA) claim does not include the required extra element and dismissed that claim as preempted.  Of note to attorneys practicing in the Western District of Washington, the court stated that

[P]laintiff’s response does not address her CPA claim, which the Court construes, pursuant to Local Rule 7, as a concession that defendants’ arguments regarding that claim have merit.

The court found that plaintiff’s Washington State trade dress claims are not preempted, for the same reason the Lanham Act claims are not preempted.

The court found that plaintiff’s state law trade name claim based on words used by plaintiff in her copyrighted works is preempted by copyright law. 

Plaintiff’s state law trade name claim based on the alleged misuse of her name by the defendants is not preempted by copyright law.  “A person’s name or likeness is not a work of authorship within the meaning of 17 U.S.C. §102.”  (Order pdf page 15).

Plaintiff’s state law constructive trust claim was dismissed as preempted, as it was based on defendants’ violation of plaintiff’s copyrights. 

This case is Susan Tierney Cockburn v. SWS Industries, Inc., et al., Case No. C10-1566 RSL, Western District of Washington at Seattle.

Washington Shoe Company manufactures, designs, distributes and sells footwear.  Its territory covers the U.S. and some foreign countries.  It sells both directly and through licensees.

Academy Ltd. does business as Academy Sports + Outdoors.  Academy sells a variety of sports and outdoor merchandise through its website, www.academy.com.  Academy offers footwear for sale through its website.

Washington Shoe sued Academy for copyright infringement (pdf) in the Western District of Washington on May 5, 2011.  Washington Shoe alleges that it has registered copyrights in two different boot designs, Magic Carpet and Zebra Supreme.  It alleges that Academy infringes its copyrights by reproducing, adapting, distributing, selling, performing or displaying its copyrighted works without authorization.  Academy is specifically alleged to offer for sale, display and distribute unauthorized copies in interstate commerce for financial gain.

Washington Shoe's Exhibit A (pdf) to its complaint is a copy of the copyright certificate and deposit for the Magic Carpet design.  Exhibit B contains photographs of the boots offered for sale by Academy.

Washington Shoe’s Exhibit D (pdf) contains photographs of its Zebra Supreme design.  Exhibit E is a copy of the copyright certificate and deposit for the Zebra Supreme design.  Exhibit F contains photographs of the boots offered for sale by Academy.

Washington Shoe alleges that it sent cease and desist letters to Academy’s counsel with respect to both designs.  Washington Shoe claims willful infringement, irreparable injury, loss and damage and entitlement to gains, profits and advantages obtained by Academy resulting from its infringing acts.

VendNovation, LLC, filed a complaint (pdf) claiming copyright infringement, breach of contract, misappropriation of trade secrets, unfair business practices and other causes of action against Apex Industrial Technologies LLC, on April 26, 2011, in the Western District of Washington.  VendNovation developed “Web Management Software,” a server-hosted software program that allows the user to remotely control vending machines through an Internet connection.  Special control boards programmed by VendNovation are installed in the vending machines.  VendNovation claims trade secrets in the design of the software and the know-how to make it work.  It licensed its software, but did not license the source code.  VendNovation also protected its trade secrets by using a secure procedure to register its software copyrights.  Apex markets and sells vending machines.

VendNovation alleges that it, Apex and a vending machine manufacturer formed a three-way venture to manufacture, market and license vending machines with VendNovation’s Web Management Software and control boards.  The parties operated under an oral agreement for about two years. 

VendNovation alleges that in April 2008, Apex wanted to acquire VendNovation’s assets or become an exclusive licensee and obtain access to VendNovation’s source code so that it could pursue an opportunity with a large customer (Fastenal).  VendNovation declined, but Apex started selling vending machines with VendNovation’s Web Management Software and control boards to Fastenal without an exclusive license from VendNovation or access to its source code.  The Web Management Software used by Fastenal was hosted on VendNovation’s servers.

Users must agree to VendNovation’s End User License Agreement (EULA) before they can access its website.  The EULA is a “click through” license in which users must acknowledge reading the EULA by clicking a button.  The EULA contains language claiming VendNovation’s copyright and intellectual property rights in the software, including the software’s look and feel.  The EULA prohibits reverse engineering, modification or de-compiling the software.

VendNovation alleges that it entered into a written licensing contract with Apex in February 2009.  The license reiterates VendNovation’s ownership in the software, control boards and derivative works.  The license provides that Apex can access VendNovation’s source code and produce derivative works only if VendNovation becomes insolvent. 

VendNovation allegedly learned in January 2011 that Apex ordered vending machines from the manufacturer without VendNovation’s control boards.  It alleges that Apex developed its own competing control board and an inferior substitute for VendNovation’s Web Management Software.  Some people installing Apex’s competing software believed that VendNovation designed the software and contacted VendNovation for technical support.  VendNovation alleges that Apex sold vending machines with Apex’s competing control board and access to Apex’s competing software to Fastenal.  Apex also sold a desktop vending machine model incorporating VendNovation’s control board and Apex’s competing web management software to Fastenal and others.

Apex’s competing works allegedly use VendNovation’s trade secrets and copyrighted works, without VendNovation’s authorization.  VendNovation has not received compensation from Apex for using VendNovation’s copyrighted works or trade secrets.

VendNovation’s cause of action for copyright infringement includes claims against Apex of willful infringement and Apex’s unauthorized copying, distributing and creation of derivative works.  VendNovation requests injunctive relief under 17 USC §502 and impounding and destruction of infringing materials pursuant to 17 USC §503. 

The number for this case is Case 2:11-cv-00700-JLR, Western District of Washington at Seattle.

Northwest Home Designing, Inc. filed two complaints alleging copyright infringement in the U.S. District Court for the Western District of Washington on April 15, 2011. 

In the first case, Northwest Home Designing, Inc. (NHD) sued (pdf) Golden Key Construction, Inc., Capstone Land Development, Inc., Cornerstone Brokers, Inc., individuals believed to be associated with the corporate defendants and an architectural designer.  NHD designs and sells home plans.  It alleged that it owns copyrights in original collective works and original and derivative home plans.  NHD publishes its home plans in catalogs and trade publications and makes them available on the Internet.  NHD alleged that (1) the defendants obtained copies of two of its home plans without permission or consent from NHD; (2) the defendants had the NHD home designs redrawn and used the unauthorized copies to build multiple homes; and (3) the defendants marketed and advertised the infringing home plans.  NHD further alleged willful infringement.  NHD also asked the court for an injunction to prevent the defendants from continuing to infringe NHD’s copyrights.

The second case (pdf) names defendants Pioneer Pacific, Inc., Caliber Company Inc., and individuals believed to be associated with the corporate defendants.  NHD alleged that (1) the defendants obtained a copy of one of its home plans without permission or consent from NHD; (2) the defendants redrew the NHD plans and used the unauthorized copies to build multiple homes; and (3) the defendants marketed and advertised the infringing home plans.  NHD again alleged willfulness and asked for an injunction.

In a third case, NHD recently obtained a consent judgment (pdf) against Sound Built Homes, Inc. and other defendants for copyright infringement.  The complaint (pdf) alleged that (1) the defendants purchased copies of NHD home plans and received a limited license to construct a single home with each of the purchased plans, (2) the defendants copied the NHD designs without NHD’s permission or consent and used the unauthorized copies to build multiple homes, and (3) the defendants marketed the infringing home plans in advertising and on their website.  NHD alleged willfulness and asked for an injunction. 

The findings of fact in the consent judgment indicate that the defendants copied NHD’s copyrighted plans and built homes with those plans without permission.  Defendants also created derivative works it used to construct homes, without NHD’s permission.  Defendants infringed NHD’s copyrights.  Damages were NHD’s lost profits and defendants’ realized profits from the sale of homes built using the unauthorized plans.  Defendants were ordered to pay NHD the amount indicated in the settlement agreement and were permanently enjoined from further copying, distributing, making derivative works or otherwise using NHD’s plans without permission or as permitted under the settlement agreement.  Each party was responsible for its own litigation fees and costs.

Many thanks to Michael G. Atkins of Graham & Dunn PC for teaching me how to use PACER to find current copyright cases in the U.S. District Court for the Western District of Washington. Mike publishes Seattle Trademark Lawyer and lectures on trademark law at the University of Washington School of Law.

Last week, Judge Denny Chin, sitting in the U.S. District Court, Southern District of New York, rejected the Google book settlement. He concluded that the settlement “is not fair, adequate, and reasonable.”  This post discusses how he came to that conclusion.

Background

Google began scanning library books in 2004.  Many of those books were still protected by copyright.  Google did not get permission from the copyright owners to copy the books.  In 2005, a group of authors and publishers brought the class action copyright infringement suit against Google that gave rise to the Google book settlement.  The parties filed a proposed settlement agreement on October 28, 2008, which was preliminarily approved on November 17, 2008.  That proposed settlement received hundreds of objections.  The Amended Settlement Agreement (ASA) just rejected by the court was filed for final approval on November 13, 2009.  It was preliminarily approved on November 19, 2009, and it, too, was met with hundreds of objections.  The court held a fairness hearing on February 18, 2010.

The ASA

The Class covered by the ASA includes all people who own a U.S. copyright interest in books or inserts (forwards, etc.) affected by a use authorized by the ASA.  Class members must affirmatively opt-out to be excluded from the settlement.  Under the ASA, Google was authorized to “(1) continue to digitize Books and Inserts, (2) sell subscriptions to an electronic Books database, (3) sell online access to individual Books, (4) sell advertising on pages from Books, and (5) make certain other prescribed uses.”  (Opinion, page 6).  Google would pay rightsholders a percentage of the revenues from these uses and from net revenues from sales and advertising.  A “Books Rights Registry” would administer the revenue distributions. 

The Registry would be required to locate rightsholders using “commercially reasonable efforts.”  Funds unclaimed after 5 years could be used to cover the expense of locating rightsholders of unclaimed works and after 10 years, unclaimed funds could go to literary-based charities.

Under the ASA, Google could not display in-print books without prior express authorization from the rightsholders.  Google could display out-of-print books without prior express authorization from the rightsholders, but would be required to stop if directed to by the rightsholders.  There are many nuances this brief description does not discuss.

The Court’s Opinion

The court’s opinion is organized around the kinds of objections received to the ASA.  These objections are:

• Adequacy of Class Notice
• Adequacy of Class Representation
• Scope of Relief Under Rule 23
• Copyright Concerns
• Antitrust Concerns
• Privacy Concerns
• International Law Concerns

Judge Chin pointed out that the vast majority of the submissions filed commenting on the ASA objected to the ASA.  Around 6,800 class members opted out, which he thought was an extremely high number.  He thought the objections were great in number and some of the concerns significant.

A federal court cannot approve a class action settlement unless it is “fair, adequate, and reasonable, and not a product of collusion.” (Opinion, p. 14).  Judge Chin applied that standard in evaluating the objections to the ASA.

Adequacy of Class Notice.  Judge Chin thought the class received adequate notice.  Over 1.26 million individual notices were sent to potential class members worldwide, in thirty-six languages.  The Plaintiffs also maintained a website with information about the case.  In addition, there was a huge amount of publicity.  He thought it “hard to imagine that many class members were unaware of the lawsuit.”  (Opinion, page 19).

Adequacy of Class Representation.  Judge Chin concluded that “there is a substantial question as to the existence of antagonistic interests between named plaintiffs and certain members of the class.”  He thought the differences were troubling.

Scope of Relief Under Rule 23.  This part of the discussion refers to Federal Rules of Civil Procedure, Rule 23, governing class actions.  Judge Chin determined that the ASA contains two distinct parts.  The first part covers past conduct.  Google would be released from liability for past copyright infringement.  The second part covers future acts.  It would transfer certain rights to Google in exchange for future and ongoing arrangements and would release Google from liability for certain future acts.  Judge Chin found that the second part exceeds the scope of Rule 23.  The US DOJ argued that the ASA “is an attempt to use the class action mechanism to implement forward-looking business arrangements that go far beyond the dispute before the Court in this litigation.”  (Opinion, page 21).

Further, Judge Chin thought “the establishment of a mechanism for exploiting unclaimed books” should be addressed by Congress, not the courts.  He also reiterated that the class plaintiffs did not adequately represent the interests of some class members.  For example, the interests of academic authors and The Authors Guild authors are not aligned, as academic authors seek maximized access to knowledge and The Authors Guild authors seek maximized profits.

Judge Chin also indicated that the ASA is unlike other class actions settlements in which class members who have not been heard from release their claims for purported past grievances.  Under that ASA,

class members would be giving up certain property rights in their creative works, and they would be deemed-- by their silence-- to have granted to Google a license to future use of their copyrighted works.

(Opinion, page 30).

Copyright Concerns.  Judge Chin’s first point is that under the Copyright Clause of the U.S. Constitution (Article I, Section 8, clause 8), Congress was granted the power to address copyright issues presented by technology.  The courts were not granted that power.

Judge Chin’s second point is that the ASA opt-out provisions grant Google “the ability to expropriate the rights of copyright owners who have not agreed to transfer those rights” and that this may violate the Copyright Act, 17 USC §201(e).  Section 201(e) provides that government bodies, other officials, and organizations cannot seize exclusive rights under copyright when those rights have not been transferred voluntarily by the copyright owner.  The argument is that the ASA uses the court system to unlawfully seize these rights on Google’s behalf.  Judge Chin did not think it was necessary for him to rule on this point, although he is troubled by it. 

Judge Chin indicated that a copyright owner’s right to exclude others from using the work is beyond dispute.  A copyright owner has no obligation to exploit a work.  Under that ASA, absent class members who do not opt out of the class are “deemed to have released their rights even as to future infringing conduct.”  (Opinion, page 33).  Judge Chin stated

it is incongruous with the purpose of the copyright laws to place the onus on copyright owners to come forward to protect their rights when Google copied their works without first seeking their permission.

(Opinion, page 35).

Antitrust Concerns.  The first concern is that Google would have a de facto monopoly over unclaimed works.  The second concern is that Google would have control over the search market.  Google would have the only complete commercial database of orphan works (works for which the copyright owner cannot be located), adding to its market power in online search.  

Privacy Concerns.  A privacy concern is that the ASA does not follow established law protecting reader privacy by limiting the disclosure of reader information.  Judge Chin thinks the privacy concerns are real, but does not consider them by themselves a reason to reject the ASA.

International Law Concerns.  Although Google argues that the settlement affects only U.S. copyright interests, it is in fact much broader than that.  The U.S. is a 1989 signatory to the Berne Convention, so that all books published in any Berne Convention signatory country after 1989 are protected by U.S. copyright law.  The ASA attempts to restrict its application to foreign books registered in Washington, D.C. or published in Canada, the United Kingdom or Australia on or before January 5, 2009.  Foreign rightsholders are still concerned, though, because many foreign books were registered in the U.S. before 1989 to ensure U.S. copyright protection.  Foreign rightsholders also object, arguing that the ASA would violate international law, such as the Berne Convention and WTO TRIPS (World Trade Organization Trade-Related Aspects of Intellectual Property Rights). Foreign authors also have trouble determining whether they are covered by the ASA, due to the unavailability online of Copyright Office records dated before 1978.  

Orphan works are a problem all over the world, not just in the U.S.  Foreign objectors point out that each country should address this problem and that a class action settlement in the U.S. is not the best way to solve a problem affecting global competition.  Judge Chin thinks the objections of foreign nationals and governments are another indication that Congress should be the one to act, not the courts.

Conclusion.  As indicated above, Judge Chin concluded “that the ASA is not fair, adequate, and reasonable.”  He went on to say that “many of the concerns raised in the objections would be ameliorated if the ASA were converted from an ‘opt-out’ settlement to an ‘opt-in’ settlement.”  (Opinion, page 46).  He urged the parties to consider revising the ASA along those lines.

The White House recently issued a white paper on intellectual property enforcement legislative recommendations. I read the white paper after reading White House wants new copyright law crackdown, by Declan McCullagh. McCullagh states, “The White House today proposed sweeping revisions to U.S. copyright law, including making “illegal streaming” of audio or video a federal felony and allowing FBI agents to wiretap suspected infringers.”  I think a more accurate description is to say that the White House requests Congress to enact measures that increase the ability of the federal government to prosecute conduct that is already criminal and involves the use of intellectual property.

The white paper recommends changes in the following categories:

• Increasing the statutory maximum sentences for crimes involving economic espionage and drug offenses under the Federal Food, Drug and Cosmetic Act (FFDCA), particularly for counterfeit drug offenses.
• Increasing the range of U.S. Sentencing Guidelines for intellectual property offenses for crimes involving (1) the theft of trade secrets and economic espionage, (2) trademark and copyright offenses when infringing products are knowingly sold for use in national defense, national security, critical infrastructure, or by law enforcement, (3) intellectual property offenses committed by organized criminal enterprises/gangs, (4) intellectual property offenses that risk death or serious bodily injury and for offenses involving counterfeit drugs and (5) repeat intellectual property offenders.
• Legislative changes to give enforcement agencies the tools they need to combat infringement by (1) clarifying that, in appropriate circumstances, infringement by streaming, or by means of other similar new technology, is a felony, (2) authorizing Homeland Security (DHS) to share pre-seizure information with rightholders and (3) giving law enforcement authority to seek a wiretap for criminal copyright and trademark offenses.
• Legislative changes to allow DHS to share information about enforcement activities with rightholders and information about and samples of circumvention devices with rightholders post-seizure.
• Legislative changes to improve U.S. enforcement efforts involving pharmaceuticals, including counterfeit drugs.
• Legislative changes increasing U.S. Customs and Border Protection’s (CBP) authority to issue administrative penalties.
• A legislative change to create a right of public performance for copyright owners for sound recordings transmitted by over-the-air broadcast stations.

The white paper discusses increasing sentences and enabling law enforcement to use newer technology tools than those currently authorized to detect conduct that is already a crime.  Regarding infringement by streaming, the white paper states:

Existing law provides felony penalties for willful copyright infringement, but felony penalties are predicated on the defendant either illegally reproducing or distributing the copyrighted work.  Questions have arisen about whether streaming constitutes the distribution of copyrighted works (and thereby is a felony) and/or performance of those works (and thereby is a not a felony). These questions have impaired the criminal enforcement of copyright laws.  To ensure that Federal copyright law keeps pace with infringers, and to ensure that DOJ and U.S. law enforcement agencies are able to effectively combat infringement involving new technology, the Administration recommends that Congress clarify that infringement by streaming, or by means of other similar new technology, is a felony in appropriate circumstances.

Not all infringing streaming is a crime or “illegal streaming.”  Many people would say that the peer to peer streaming the U.S Supreme Court condemned in MGM v. Grokster  is “illegal streaming.”  That case, however, is about the extent to which the providers of software that could be used for non-infringing purposes could be held liable for the end users’ infringing uses.  Grokster was a civil copyright infringement case and there is no suggestion in the court’s opinion that MGM thought Grokster committed a crime.  The type of “illegal streaming” that is discussed in the white paper is streaming that is used by criminals to further their crimes. 

Presently, infringing downloading can be a criminal offense when it is willful.  17 USC §506.  An infringer acts “willfully” when she has knowledge that the act is infringing or recklessly disregards the possibility of infringement.  Subsection 506(a)(1)(C) provides that a person who willfully infringes a copyright commits a criminal infringement

by the distribution of a work being prepared for commercial distribution, by making it available on a computer network accessible to members of the public, if such person knew or should have known that the work was intended for commercial distribution.

To that extent, “illegal streaming” is already a crime and can be a felony under 18 USC §2319(d) and 18 USC §3559(a). The white paper proposes to clarify when “illegal streaming” is a felony and when it is not.

The white paper does not advocate increasing copyright and trademark protection and enforcement across the board.  Instead, it distinguishes activity that is more commonly thought of as a less serious violation.  For example, with respect to enhancing the offense level for a defendant who knowingly sells infringing products for military or other critical uses,

The Administration also recommends adding an application note to the provision to ensure that sales that only indirectly impact national defense or security, law enforcement functions, or critical infrastructure are not swept into the provision. Thus, a sale of counterfeit semiconductors for use in a military system qualifies for the enhancement; the sale of a counterfeit toner cartridge for a computer printer used at military headquarters would ordinarily not.

The changes proposed in the white paper are not sweeping changes to copyright law, but rather more modest changes to aid law enforcement and to protect people from truly harmful intellectual property infringements such as occur with counterfeit drugs.

In writing posts for this blog, I receive helpful feedback from Dee, my partner, and staff members at LexBlog.  In response to my post AP and Fairey Fair Use Dispute Resolved, one of the LexBlog staff members asked me how the AP/Fairey fair use situation differs from the Cooks Source Magazine controversy.  The specific question was whether my argument in the AP/Fairey post that Fairey created the market for the AP photo is valid when the editor of the Cooks Source Magazine was severely criticized online for copying a web article, editing it to improve it and publishing it in the magazine without permission.  The editor of Cooks Source Magazine arguably created a greater market for the web article.  The argument that the editor of Cooks Source Magazine helped the writer by copying her online article is invalid as a defense to copyright infringement, so why is a similar argument in the AP/Fairey case not also invalid?

For readers unfamiliar with the Cooks Source Magazine controversy, Caitlin Fitzsimmons provides a nice description in Cooks Source Magazine Forced to Close, Following Facebook Backlash.  Monica Gaudio posted a story called A Tale of Two Tarts  on the Gode Cookery website.  She discovered that Cooks Source Magazine republished the article without her permission.  When Ms. Gaudio contacted Judith Griggs, the editor of Cooks Source Magazine, about the infringement, she was told that content on the web is in the public domain and she should compensate Ms. Griggs for editing the story.  This account of the story was posted by Ms. Gaudio on her blog under Copyright Infringement and Me.  Ms. Griggs and the magazine became the subject of enough negative reaction on the Internet that the magazine lost advertisers and was forced to go out of business.

Ms. Gaudio points out on her blog that the Gode Cookery webpage displays a copyright notice.  A writing on the Internet is protected by copyright law even though it does not display a copyright notice.  Copyright is created by the act of fixing an original work in any tangible medium of expression, such as posting an article on a website.  The use of a copyright notice has the benefit of eliminating the innocent infringer defense.  For example, the copier cannot credibly argue that she thought the copied work was in the public domain if it contains a copyright notice.  Most of the material posted on the Internet is not in the public domain.  The general rule for copying material from the Internet is that if you didn’t write it, the copyright belongs to someone else and that if you want to repost it or republish it without infringing the copyright, you need to get permission.

Getting back to the question from the first paragraph, how is it that creating the market for a copyrighted work is a valid argument in the AP/Fairey case but not in the Cooks Source Magazine controversy?  There are some important differences between the two cases.  Firstly, the Cooks Source editor admitted copying Gaudio’s article and did not claim fair use.  Instead, she reportedly made the outrageous claim that material posted on the web is in the public domain.  Secondly, in a fair use case, the statute requires the court to consider “the effect of the use upon the potential market for or value of the copyrighted work.”  So in a fair use case, arguing that the copier created the market for the original work is a valid argument, as the court is required to examine the market for the original work.

What makes a case a fair use case?  It starts off with the alleged infringer claiming fair use.  Fair use is not merely copying, but creating a derivative work.  A derivative work is based on a preexisting work and involves recasting, transforming or adapting the preexisting work.  Creating a derivative work is one of the exclusive rights reserved to the copyright owner.  Fair use is a defense to copyright infringement, hence the name of the fair use statute:  “Limitations on exclusive rights:  Fair use.” 

Fair use is not an available defense for the Cooks Source editor, as she argued that the web article was in the public domain.  The fair use defense does not apply unless there is first an infringement.  If something is in the public domain, it is not copyrightable and the Copyright Act does not apply.  There can be no copyright infringement of a work in the public domain.  In the AP/Fairey case, Fairey made an AP photo of Obama into a stylized poster.  Whether Fairey’s transformation of the AP photo into a new work was sufficient to gain the protection of the fair use statute is the unanswered question from the AP/Fairey case.

Most people know of the Digital Millennium Copyright Act (DMCA) as a result of its takedown notice and safe harbor provisions.  Those provisions generate frequent discussion, particularly in the wake of a high profile case such as Viacom International, Inc. v. YouTube, Inc. YouTube’s motion for summary judgment in the face of Viacom’s claims of intentional, direct and vicarious copyright infringement was granted on the basis that YouTube was protected by the §512(c) safe harbor.

Anticircumvention is a less well-know side of the DMCA.  The DMCA anticircumvention provisions prohibit hacking software designed to prevent unauthorized copying, for example.  Antcircumvention was one of the topics in I Like (Big) Bots and I Cannot Lie: Bots as Copyright Infringement and DMCA Violations, an excellent post by Drew Boortz on Developing Concerns. Boortz described a recent case in which, as he saw it, the Ninth Circuit ruled that the copyright owner’s right to guard against unwanted access is one of the rights in the copyright bundle and was created by the DMCA. For those who have always believed that §106 defines the copyright bundle of rights, that's an amazing ruling!   For me, the most intriguing part of the post was Boortz’s reference to the DMCA exemptions.

The DMCA implements two World Intellectual Property Organization treaties and contains five titles. Section 1201 incorporates the anticircumvention provisions. The first sentence reads, “No person shall circumvent a technological measure that effectively controls access to a work protected under this title.”  Under a 2001 court ruling, this meant that people were prohibited from using a decryption computer program to bypass the encryption features of a motion picture DVD so that they could freely copy the DVD. One of the arguments against technologic measures used to protect copyrighted works is that they prevent the fair use of those works.

That seems like a pretty straightforward prohibition, right?  Not so fast!  Section 1201(a)(1) also provides for a rulemaking procedure designed to soften the impact of the circumvention prohibition by exempting users of certain classes of copyrighted works from application of the prohibition.  Every 3 years, the Librarian of Congress, with input from the Register of Copyrights and the Assistant Secretary for Communications and Information of the Department of Commerce, sets the rules for the next three years.  The most recent set of rules became effective on July 27, 2010. If the exemptions change every three years, what does that mean for people who have built businesses or livelihoods that depend on the existence of one or more exemptions?

Six classes of works are currently exempt from the circumvention prohibition. Technical protections for motion pictures on DVDs can now be circumvented solely to allow the incorporation of short portions of the film into new works for the purpose of criticism or comment.  The use is limited to educational uses by college and university professors and certain students, to documentary filmmaking and to noncommercial videos.  It looks like some of the people who may have decrypted DVDs for fair use purposes prior to 2001 joined forces to persuade the Librarian of Congress to grant them an exemption. Other classes of exempt works include circumventing computer programs on wireless phones to enable application interoperability and to allow owners of used handsets to access a wireless network, and circumventing controls on personal computer video games to fix security bugs. I wonder how many similarly situated groups of potential fair users there are who could benefit from such an exemption.  It seems that taking advantage of the rule setting process is a great strategy for those who want to make fair use of copyrighted materials that are currently protected by technical measures.