April 2008

From the editors of Wolters Kluwer Law & Business, this update describes important developments from CCH and Aspen Publishers intellectual property and computer law publications.

If you have any comments or suggestions concerning the information provided or the format used, we'd like to hear from you. Please send your comments to john.arden@wolterskluwer.com.

COPYRIGHT

Fees Not Available for Defending Reasonable Infringement Claim
Entertainment companies were not entitled to attorneys’ fees and costs, even though they were successful in their motion to dismiss a copyright infringement claim brought by a designer of an animated character, because the designer’s claim was not objectively unreasonable, the federal district court in New York City ruled. Prevailing parties are not entitled to fees merely because they have been successful. In determining whether to award attorneys’ fees, the Second Circuit has noted that the objective reasonableness factor should be given substantial weight because the imposition of a fee award against a copyright holder with an objectively reasonable litigation position would not generally promote the purposes of the Copyright Act. Only claims that are clearly without merit or patently devoid of legal or factual basis ought to be deemed objectively unreasonable. In this case, there were limited similarities between the parties’ rodent-like characters (which bore similar names—“Sqrat” and “Scrat” ). However, there was sufficient evidence that the entertainment companies had access to the designer’s creation and that the characters were sufficiently similar to render the designer’s claim reasonable (Silberstein v. Fox Entertainment Group, Inc., SD N.Y., 2008 Copyright Decisions ¶29,521).

Voluntarily Dismissed Defendant Was a “Prevailing Party”
A defendant video game company that was voluntarily dismissed from a copyright infringement action was entitled to “prevailing party” status, even though a district court did not in any way pass on the merits of the claim, the U.S. Court of Appeals in Chicago held. A litigant prevails when it obtains a “material alteration of the legal relationship of the parties.” Therefore, the defendant was entitled to an award of attorneys fees pursuant to Section 505 of the Copyright Act. Accordingly, the district court’s judgment was reversed and the matter remanded for an award of reasonable attorneys’ fees. Upon learning that it lacked evidence to prove copyright infringement, the plaintiff video poker game manufacturer moved to dismiss its claim. The district court dismissed the case with prejudice. As such, the defendant company obtained a favorable judgment, It was no less a victor than it would have been had the judge granted summary judgment or a jury returned a verdict in its favor. There was no reason to depart from the presumption that a prevailing party was entitled to attorneys’ fees, the appeals court held (Riviera Distributors, Inc. v. Jones, 7th Cir., 2008 Copyright Decisions ¶29,527).

One-Satisfaction Rule Applied to Copyright Infringement Claims
The one-satisfaction rule—which operates to prevent the overcompensation of a plaintiff for a single injury—was applicable to infringement claims under the Copyright Act, the U.S. Court of Appeals in Atlanta ruled. Thus, a district court erred in refusing to apply the rule to reduce a $1,598,278 judgment by the amounts received from co-defendants in settlement of claims based on the same injury. The district court had likened the defendants’ attempt to claim credit for the co-defendants’ settlements to a claim for contribution, which is not applicable to Copyright Act claims. Contribution holds that when two or more persons share responsibility for a wrong, it is inequitable to require one to pay the entire cost of reparation. In contrast, the one-satisfaction rule operates to prevent double recovery. Thus, the one-satisfaction rule was not akin to a claim for contribution, and the amounts received in settlement from co-defendants should have been credited against judgments for the same injury against the non-settling co-defendants (BUC International Corp. v. International Yacht Council Limited, 11th Cir., 2008 Copyright Decisions ¶29,532).

High Rate of Music Piracy at California Colleges Under Review
The California Assembly’s Committee on Higher Education heard testimony about the damage that music piracy causes to California’s music industry in terms of jobs and revenue. According to the testimony, California colleges and universities rank among the highest in the nation for number of pre-litigation letters and copyright infringement notices received for music piracy via illegal peer-to-peer file sharing. During the 2007-2008 academic year, the Recording Industry Association of America (RIAA) sent 681 pre-litigation notices and 4,045 Digital Millennium Copyright Act (DMCA) copyright infringement notices to California schools. A study cited by an RIAA official indicated that piracy costs the state 21,227 jobs and more than $930 million in wages annually. Through the use of education, enforcement, and technical measures, a number of colleges across the country have made strides in addressing the problem. An official from the University of Florida testified that implementation of technical measures resulted in a significant decrease in illicit peer-to-peer use, saving the university more than $1 million in network management costs. The RIAA has undertaken a number of initiatives designed to offer universities tools to more effectively minimize online theft and to educate students about copyright laws.

TRADEMARK

“Beanie Babies” Maker Entitled to Damages for Infringement
A damages award to toy manufacturer Ty Inc. for a competitor’s infringement of Ty’s “Beanie Babies” trademarks has been reinstated by the U.S. Court of Appeals in Chicago, which reversed a determination that Ty should be required to forfeit the damages award as a sanction for litigation misconduct (CCH Trademark Law Guide ¶60,481). The appellate court affirmed the jury’s likelihood of confusion finding and the district court’s entry of injunctive relief. The competitor (Softbelly’s Inc.) manufactured a product called “Screenie Beanies,” which looked and felt nearly the same as Ty’s “Beanie Babies,” except for having a chamois belly. Softbelly’s chose the “Screenie Beanie” name and the design of its products with reckless disregard for the likelihood of consumer confusion, according to the court. At the original trial in 2002, the court entered a judgment for Ty as a matter of law and awarded Ty both injunctive relief and $713,000 in damages. Softbelly’s then moved to vacate the judgment, asserting that days before the start of the trial, Ty’s principal had contacted an expert witness hired by Softbelly’s and attempted to dissuade him from testifying on whether “Beanies” had become a generic term. The appeals court subsequently determined that Softbelly’s was entitled to a new trial on liability because the district court had erroneously taken the issue of likelihood of confusion from the jury (CCH Trademark Law Guide ¶60,177). The appellate court also directed the district court to conduct an evidentiary hearing on the charge of witness tampering. On remand, the case was retried, and the jury found trademark infringement. The district court entered a permanent injunction barring Softbelly’s from selling plush products in connection with the “Screanie Beanies” Collection, but awarded no damages, ruling that forfeiture of the $713,000 in damages was the proper sanction for Ty’s witness tampering. The appeals court ruled that Ty had committed litigation misconduct, but caused no harm beyond the $78,000 in attorneys’ fees incurred by Softbelly’s in moving for sanctions, which Ty had agreed to pay (Ty Inc. v. Softbelly’s Inc., 7th Cir., CCH Trademark Law Guide ¶61,188).

“Chirp” Sound Refused Registration for Two-Way Radios
An application by Motorola, Inc. to register an electronic “chirp” sound as a mark for two-way radios has been rejected by the Trademark Trial and Appeal Board. In a nonprecedential opinion, the TTAB said that the chirp sound did not function as a trademark. The application was successfully opposed by Nextel Communications, Inc., a competitor of Motorola. The proposed mark was described as “an electronic chirp consisting of a tone at 911 Hz played at a cadence of 25 ms ON, 25 ms OFF, 50 ms ON.” Motorola’s radios emitted their 911 Hz chirp as an alert tone indicating that a channel was available for communication. The chirp was one of more than a dozen sounds emanating from Motorola’s radios, most of which signified particular functions. Motorola did not advertise its two-way radios via broadcast media, so potential consumers did not hear the chirp in any traditional advertisements, the TTAB noted. Rather, the chirp was heard during use of the product, user training, trade shows, and demonstrations by sales representatives. There was no evidence that Motorola had attempted to promote recognition by consumers of the chirp as a trademark in printed ads, in training manuals, or on its website (Nextel Communications, Inc. v. Motorola, Inc., TTAB, CCH Trademark Law Guide ¶61,200).

Retrial Denied in Suit Over Ralph Lauren “Polo” Logos
A jury’s determination that three out of four logos used by the United States Polo Association (USPA) did not infringe the famous “polo player” trademark owned by a trademark holding company has been upheld by the U.S. Court of Appeals in New York City. The suit had been brought by PRL USA Holdings, Inc.—the holder of the “Ralph Lauren” trademarks for apparel, home furnishings, fragrances, and accessories—which had used for many years a logo showing a mounted polo player in silhouette with polo mallet raised. PRL asserted that four logos used by the USPA—a nonprofit organization that governed the sport of polo in North America—and its licensee, Jordache, Ltd., infringed the Ralph Lauren polo player logo. Each of the USPA’s logos showed a pair of mounted polo players. At trial, the jury found that one logo, which depicted a solid double horseman silhouette without lettering, infringed the Ralph Lauren mark. However, the jury determined that the other three USPA logos were not likely to be confused with the Ralph Lauren mark. PRL appealed from the judgment in favor of the USPA and Jordache on ground that the court: (1) should not have admitted evidence of settlement negotiations, (2) improperly failed to give a jury instruction that the USPA was required to maintain a “safe distance” from PRL’s mark, and (3) improperly excluded a document that demonstrated USPA’s intent to compete unfairly by using an infringing mark. However, the appeals court held that the district court did not err in making the challenged rulings (PRL USA Holdings, Inc. v. United States Polo Association, Inc., 2nd Cir., CCH Trademark Law Guide ¶61,201).

COMPUTER & INTERNET LAW

Use of Trademark as Ad Keyword Created Initial Interest Confusion
An Internet merchandise seller (Aroa) created initial interest confusion by using the trademark of a money clip manufacturer (Storus) as a Google’s AdSense keyword to trigger ads for Aroas’s website selling competing money clips, the federal district court in San Francisco has held. Initial interest confusion occurs when a defendant uses a plaintiff’s trademark in a manner calculated to capture initial consumer attention, even if no actual sale is finally completed as a result of the confusion. In this case, Aroa’s ads displayed Storus’ “Smart Money Clip” mark more prominently than any other information in the ad. The record showed that during the relevant period, Aroa’s ad was displayed 36,164 times and that users clicked on its link 1,374 times. Such a diversion of potential customers sufficed to establish initial interest confusion under the Lanham Act, the court found. It was immaterial that consumers were not confused by the ad. Under the “initial interest confusion” theory, “source confusion” need not occur. In the Internet context, the wrongful act is the defendant’s use of the plaintiff’s mark to “divert” consumers to a website that “consumers know” is not operated by the trademark owner, the court explained (Storus Corp. v. Aroa Marketing, Inc., ND Cal., CCH Guide to Computer Law ¶49,490).

CDA Preempts Publisher Liability Under Fair Housing Act
Internet publisher Craigslist, Inc. did not violate the federal Fair Housing Act by allowing users to post discriminatory housing ads on its website, the U.S. Court of Appeals in Chicago has held. The court affirmed the district court's determination that the Communications Decency Act shielded Craigslist from liability for publishing the third-party ads (CCH Computer Cases ¶49,223). The Fair Housing Act prohibits discrimination in the sale or rental of housing, based on color, religion, sex, handicap, familial status, or national origin and makes it illegal "[t]o make, print, or publish, or to cause to be made, printed, or published" discriminatory advertisements, notices, or statements. Craigslist provides "an electronic meeting place" for people who want to buy, sell, or rent goods and services, including housing. It was undisputed that some posted notices—including “NO MINORITIES" and "No Children"—violated the Fair Housing Act. Courts routinely enforce section 3604(c) of the Fair Housing Act against newspapers and other print publishers. The plaintiff, Chicago Lawyers' Committee for Civil Rights Under the Law, Inc., contended that section 3604(c) was equally enforceable against online publishers. Craigslist, however, argued that section 230(c)(1) of the CDA immunized it from any liability for publishing discriminatory housing ads posted by users to its website. Section 230(c)(1) states: "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." Craigslist contended that this provision grants "broad immunity from liability for unlawful third-party content." In the instant case, Craigslist itself did not compose, contribute to, or otherwise "cause" third parties to include discriminatory content in their ads. Because Craigslist could be held liable "only in its capacity as publisher," the Fair Housing Act claims were barred by section 230(c)(1). However, the creators of the discriminatory ads could be pursued under the Fair Housing Act (Chicago Lawyers’ Committee for Civil Rights Under the Law, Inc. v. Craigslist, Inc. 7th Cir., CCH Guide to Computer Law ¶49,497).

Operators of Complaint Website Qualified for CDA Immunity
The Communications Decency Act shielded the operators of a consumer complaint website from liability for allegedly defamatory reports posted by users about an investment training company, the federal district court in Fort Meyers, Florida has held. The "Rip-Off Report" website allowed users to post and view reports about companies that purportedly had "ripped off" consumers. An investment training company filed defamation claims against the website, the company that operated the website (Xcentric), and Xcentric's founder. Contrary to the training company’s claims, the founder of the website qualified for CDA immunity as a "provider or user of an interactive computer service" under the Act. Furthermore, the website operators did not lose their immunity by participating in the creation of content for the consumer reports. The website required users to select a category from a predetermined list to describe their report. The investment training company contended that the categories users selected to describe their reports about the company—“con artists," "corrupt companies," and "false TV advertisements"—contributed content to the defamatory reports. However, there was no evidence that the website operators were involved in any way in selecting the particular categories used to describe reports about the company. The mere fact that the website provided categories from which posters must make a selection was not enough to transform the website operators into information content providers, the court concluded (Whitney Information Network, Inc. v. Xcentric Ventures, LLC, M.D. Fla., CCH Guide to Computer Law ¶49,486).

ASPEN IP and Computer Law Publications

Scott on Outsourcing Law and Practice by Michael D. Scott
The 2008 Supplement recently went live on the Intellectual Property/Computer and Internet Law tab of the CCH Internet Research Network. This one-volume looseleaf treatise is the “one-stop” legal guide to the outsourcing process. The publication covers common mistakes in outsourcing ventures and how to avoid them; how outsourcing and intellectual property laws intersect in IP licensing, open source software, and other IP agreements; how privacy and security laws apply to outsourcing transactions; how to resolve outsourcing disputes through arbitration and mediation; and how to gather the facts, plan strategy, and organize a case should litigation become unavoidable.

This latest supplement includes updates on (1) multi-process outsourcing, including multi-supplier operating agreements to protect customers from finger-pointing among vendors and considerations involved in using a single vendor versus multiple vendors; (2) the use of partial termination provisions in drafting contracts for and managing outsourcing relationships; (3) special issues related to regulated industries, such as FDIC guidance on risks related to outsourcing in financial services, and to the professions, such as ethical risks relating to outsourced legal work; (4) the use of stabilization and renegotiation clauses to deal with political and economic risks; and (5) regulation of privacy and security of data, including the FACT Disposal Rule, state data disposal laws, and data security breach notification laws.

Hot Topic of the Month

Anti-Piracy Bill Passes House Subcommittee
A bill to strengthen the federal government’s hand in the war on intellectual property piracy passed the House Judiciary Subcommittee on the Courts, the Internet and Intellectual Property on March 6, 2008, and was referred to the full House Judiciary Committee.

The proposed Prioritizing Resources and Organization for Intellectual Property Act of 2007 would:

(1) Increase criminal penalties for infringement of a copyright, for trafficking in counterfeit labels or packaging, and for causing serious bodily harm or death while trafficking in counterfeit goods or services;

(2) Enhance civil and criminal forfeiture provisions for copyright infringement and provide restitution to victims of such infringement;

(3) Establish a White House coordinator of national and international anti-piracy efforts;

(4) Direct the Under Secretary of Commerce for Intellectual Property and the Director of the U.S. Patent and Trademark Office to appoint 10 additional intellectual property attaches to work with foreign countries to combat counterfeiting and piracy of intellectual property; and

(5) Create within the Department of Justice an Intellectual Property Enforcement Division, to be headed by an Intellectual Property Enforcement Officer.

The legislation would further direct the U.S. Attorney General to review Computer Hacking and Intellectual Property units and provide additional support and resources; direct each U.S. Attorney to review policies for accepting or declining prosecutions for intellectual property thefts; deploy five additional IP Law Enforcement Coordinators in foreign countries to protect the IP rights of U.S. citizens; and increase the Department of Justice training and assistance to foreign governments to combat counterfeiting and piracy.

Before passing the bill by a voice vote, subcommittee deleted a controversial provision that would have increased fines for compilation CDs containing pirated music by 10 times or more. With the provision, which was strongly supported by the recording industry, fines for a 10-song compilation CD would range from $7,500 to $1.5 million, instead of the current $759 to $150,000.

The bill (H.R. 4279) was introduced on December 5, 2007, by U.S. Representative John Conyers, Jr (D-Mich.), with 17 cosponsors. Further information, including full text of the bill, appears at the Library of Congress’ Thomas website: http://thomas.loc.gov/

NEW PRODUCTS

Privacy Law in Marketing Is Subject of CCH Reporter
Information gathered through marketing efforts can be personal, valuable, and subject to a variety of U.S. and international laws and regulations governing its collection, protection, and use. That’s why Wolters Kluwer Law & Business has launched a new publication (in print and online) to help untangle the complex web of legal regulation from around the world. CCH Privacy Law in Marketing brings together treatise-style explanations by D. Reed Freeman, Jr. and J. Trevor Hughes with the full text of privacy laws and regulations from the U.S. and 35 foreign jurisdictions (provided in English translation).

Topics include telemarketing, e-mail marketing, marketing to wireless devices, cookies and web beacons, information security, identity theft, "phishing," children’s privacy, fax marketing, online privacy policies, use of Social Security numbers, and international privacy law. Monthly reports include new and amended laws and regulations, court decisions and other new developments, a list of pending legislation, and an informative newsletter. For further information about Privacy Law in Marketing, call the CCH customer service department (1-800-248-3248) or visit the CCH Online Store (http://onlinestore.cch.com) and search the keyword “privacy.”