IP and Computer Law Update April 2010

April 2010

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.

COPYRIGHTS

Postage Stamp Was Not a Transformative Use of Sculptural Work
The Court of Federal Claims erroneously determined that The U.S. Postal Service's use of an artist's sculptural work in a commemorative postage stamp was a fair use, the U.S. Court of Appeals for the Federal Circuit ruled. The stamp did not transform the character of the artist's work. Accordingly, the federal claims court's finding of fair use was reversed and the case remanded for a determination of damages.

In analyzing the four statutory fair use factors, the federal claims court determined that the "purpose and character of use" factor weighed heavily in favor of fair use because the stamp was transformative. However, the stamp did not reflect any "further purpose" than the sculptural work. Moreover, the stamp, which generated $17 million from sales, clearly had a commercial purpose. Thus, the factor of "purpose and character" weighed strongly against fair use, according to the appeals court.

The federal claims court correctly found that the factors relating to the "nature of the copyrighted work" and the "amount and substantiality of portion used" weighed against fair use. Because the stamp did not use the sculptural work in a transformative manner, there was no reason to discount the expressive and creative nature of the sculptural work.

The federal claims court correctly determined that the fourth fair use factor of the "effect of use on potential market" favored fair use because the stamp had no impact on any potential market for the sculptural work. However, even though the stamp did not harm the market, allowing the government to commercially exploit a creative expressive work would not advance the purposes of copyright, the court observed (Gaylord v. U.S., FedCir, CCH Copyright Law Decisions ¶29,897; IntelliConnect User Link).

Despite Reasonable Claim, Prevailing Defendant Entitled to Fees
An individual publisher, who prevailed under the fair use doctrine against a publishing company's "not completely frivolous" copyright infringement claim, was awarded attorney's fees by the federal district court in Philadelphia. The court rejected the individual’s urging to construe an award of fees as a "rule or presumed." Instead, the court was guided by the nonexclusive factors enunciated in Lieb v. Topstone Industries, Inc., 788 F.2d 151 (3d Cir. 1986)—frivolousness, motivation, objective unreasonableness, and the need to advance considerations of compensation and deterrence.

The publishing company's argument that the fair use doctrine did not apply to the individual’s book was supported by facts and was not objectively unreasonable or frivolous, according to the court. However, the publishing company’s lawsuit and its aggressive litigation tactics were motivated by an improper desire to impugn and harm its hated competitor. The company’s filing suit in spite of its complete failure to exploit its copyrights for approximately 22 years and its questionable litigation strategy constituted behavior that warranted deterrence, the court determined. Moreover, the individual was entitled to be compensated to a degree in order to avoid stifling future artistic creativity. Awarding the individual some of his attorney's fees met the Copyright Act's aim of "enriching the general public through access to creative works,” according to the court (Warren Publishing Company v. J. David Spurlock dba Vanguard Productions, EDPa, CCH Copyright Law Decisions ¶29,886; IntelliConnect User Link).

TRADEMARKS

KHORAN for Wine Disparaging to Muslims, Not Registrable
An application to register the mark KHORAN for wine was refused by a divided, augmented five-judge panel of the Trademark Trial and Appeal Board. The mark was held to be disparaging to Muslims. “Khoran” was an Armenian word meaning “altar” in English. However, the mark also was the phonetic equivalent of "Koran," the name of the sacred text of Islam. The Koran forbids the consumption of alcoholic beverages.

When considering whether a mark should be refused registration on the ground that it would offend the sensibilities of an ethnic or religious group, the issue was whether the mark was disparaging to the members of that group, rather than whether the mark was offensive or scandalous, the TTAB explained. The "disparaging mark" analysis for purposes of Sec. 2(a) of the Lanham Act differed from the "scandalousness" provision of Sec. 2(a), which protected the public as a whole and involved examination of whether the mark offended a substantial composite of the general public. Determination of whether a mark was disparaging required application of a two-part test: (1) What is the likely meaning of the mark, taking into account the nature of the goods or services and the manner in which the mark is used? and (2) If that meaning refers to identifiable persons, institutions, beliefs, or national symbols, is that meaning disparaging to a substantial composite of the referenced group?

There was "no real dispute" that the Patent and Trademark Office had proved the second part of the test. The applicant unsuccessfully contended that the mark KHORAN did not refer to the Koran. In the TTAB's view, Muslim Americans would regard the mark as referring to the holy text of Islam. The terms were phonetically identical, and there were variations in the spelling of "Koran" in common usage, including the spelling "Khoran."

Two members of the TTAB panel dissented, arguing that the majority had misapplied the Lanham Act's disparagement test. In the dissenters' view, the determination of the likely meaning of an allegedly disparaging mark should not be made from the perspective of the disparaged group, but from that of the general population of the United States (In re Lebanese Arak Corp., TTAB, CCH Trademark Law Guide ¶61,582; IntelliConnect User Link).

U.S. Law Not Extended to Foreign Use of GALLUP PAKISTAN
Market research and public opinion polling company Gallup, Inc. was not entitled to a permanent injunction barring a foreign polling organization and its principal from publishing opinion polls on the Internet under the name "Gallup Pakistan," the federal district court in San Francisco has decided. Gallup, Inc.'s motion for summary judgment on its Lanham Act trademark infringement, dilution, and unfair competition claims and its California state-law unfair competition claims was denied.

The relief sought by Gallup, Inc. would require the court to exercise authority over activities that were wholly extraterritorial and not directed toward the United States, the court said. The principal of Gallup Pakistan was a citizen and resident of Pakistan and had no business connections with the United States. Gallup Pakistan conducted public opinion polls solely within Pakistan and did not sell or advertise services in the United States. There was little evidence that Gallup Pakistan's activities in releasing poll results on its website had inflicted or would inflict a cognizable injury upon Gallup, Inc. in the United States. Evidence that U.S. news organizations had published the results of six Gallup Pakistan polls in the United States under either the GALLUP or GALLUP PAKISTAN mark—among the hundreds or thousands of polls conducted by the defending pollster in Pakistan since 1980—did not justify the severe equitable relief sought by Gallup, Inc., in the court's opinion.

In addition, exercising extraterritorial jurisdiction would present troubling issues of comity. Both Gallup, Inc. and Gallup Pakistan were in the process of establishing their rights to the GALLUP mark within Pakistan's trademark system; thus, the current case presented a substantial risk of conflict with foreign law. It was unclear whether the court could even enforce compliance with the relief requested by Gallup, Inc., which sought to require transfer of Gallup Pakistan's website to a new domain name and to require Gallup Pakistan to publish its polls in a language other than English or to block all access to its website from the United States (Gallup, Inc. v. Business Research Bureau (PVT.) Ltd., NDCal, CCH Trademark Law Guide ¶61,573; IntelliConnect User Link).

COMPUTER AND INTERNET LAW

Parties Lacked Standing to Challenge Domain Name Seizure
A writ issued by a Kentucky appeals court prohibiting a circuit court from enforcing an order authorizing the Commonwealth of Kentucky to seize 141 Internet domain names as "illegal gambling devices” was vacated by the Kentucky Supreme Court because none of the defendants appearing in the action had proper standing. The action was initiated by the Commonwealth as an in rem civil forfeiture proceeding naming the domain names as defendants.

Finding that the domain names met the definition of "gambling devices” under Kentucky law (KRS §528.100), the circuit court ordered seizure of the domain names and instructed their registrars to transfer the names to the Commonwealth. An appellate court issued a writ prohibiting the seizure.

Attorneys appearing in the action to oppose the seizure order claimed to represent either the domain names themselves or gaming trade associations. Neither type of entity had standing, according to the court. The domain names lacked standing because property does not have constitutional, statutory, or judicial rights. In Kentucky in rem actions, only persons with an interest in the property—such as domain name owners or registrants—have a "judicially recognizable interest” in the litigation. The domain names could not assert an interest in the litigation; they were the interest. An association has standing only if its members could have sued in their own right. The gaming associations purported to represent domain name registrants, but they were unwilling to disclose the names of any specific registrants they represented, the court noted.

The Kentucky Supreme Court advised that it could accept transfer of the case for a decision on the merits if a party with proper standing re-filed the writ petition. The court noted three compelling arguments against the state’s authority to seize the domain names: (1) KRS §528.100 permits seizure only of tangible gambling devices, not intangible domain names; (2) the court’s in rem civil forfeiture proceeding was unauthorized because §KRS 528.100 contemplates only criminal sanctions; and (3) Kentucky lacks jurisdiction over the domain names because they are not located in the state (Commonwealth v. Interactive Media Entertainment And Gaming Ass'n, Inc., KySCt, CCH Computer Cases ¶49,910; IntelliConnect User Link).

Order Enjoining Prosecution of Minor for “Sexting” Upheld
The U.S. Court of Appeals in Philadelphia has upheld a preliminary injunction restraining a county district attorney from initiating felony charges against a high school student who appeared in a state of semi-undress in an image discovered on the cell phones of other students. The student was among 20 high school students who were threatened with prosecution under Pennsylvania law for possessing or distributing child pornography unless they agreed to a plea bargain requiring a six-month probation, drug-testing, and participation in a five-week educational program, which included writing an essay on why what they did was wrong.

The federal district court in Scranton, Pennsylvania found that the student and her mother were likely to prevail on their claims of First Amendment retaliation. To prevail on a First Amendment retaliation claim, a plaintiff must prove: (1) that she engaged in a constitutionally-protected activity; (2) that the government responded with retaliation; and (3) that the protected activity caused the retaliation.

The student and her mother established a reasonable likelihood that the district attorney violated their constitutional rights. By threatening to prosecute the student if she did not complete the mandatory education program, the district attorney likely violated the mother’s fundamental Fourteenth Amendment right to raise her child without undue state interference and the student’s First Amendment right against compelled speech. The essay was government-compelled speech because it was mandated by the educational program and the student faced prosecution if she failed to complete the program. While it may have been constitutionally permissible for the district attorney to offer the educational course voluntarily, he was not free to coerce attendance by threatening prosecution, according to the court (Miller v. Mitchell, 3dCir, CCH Computer Cases ¶49,903; IntelliConnect User Link).

Hot Topics of the Month

FCC Lacked Authority to Regulate Net Traffic
The Federal Communications Commission lacked the statutory authority to sanction Internet service provider Comcast Corp. for its network management practices, which included blocking bandwidth-heavy peer-to-peer applications, the U.S. Court of Appeals in Washington, D.C. has ruled. In 2008, the FCC issued an order (FCC 08-183) against Comcast, finding that traffic management on its broadband Internet network unduly interfered with Internet users' right to access lawful Internet content and to use the applications of their choice, in violation of FCC policy promoting an open and accessible Internet.

Lacking an express statutory authority to regulate ISP network management practices, or “net neutrality,” the FCC argued that it was authorized to do so under its “ancillary authority” under section 4(i) of the Communications Act of 1934. That section authorizes the Commission to “perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions” (47 U.S.C.§ 154(i)). However, FCC action taken pursuant to section 4(i) must be “reasonably ancillary to the Commission’s effective performance of its statutorily mandated responsibilities” and each new exercise of ancillary authority must be “independently justified,” the court explained.

The FCC failed to cite any Communication Act provision to support ancillary jurisdiction over ISP network management, according to the court. The court rejected the FCC’s argument that policy statements set forth “statutorily mandated responsibilities” justifying the exercise of ancillary authority. Congressional policy statements alone do not delegate regulatory authority and, therefore, cannot provide the basis for the Commission’s exercise of ancillary authority, the court said. The Communication Act provisions cited by the FCC—which arguably could be read as delegating regulatory authority to the Commission, including over common carriers and broadcast—did not delegate any specific powers that could be construed as relating to the Commission’s stand-alone policy objective of regulating ISP Internet traffic management, the court concluded (Comcast Corp. v. FCC, DCCir, will appear as CCH Computer Cases ¶49,933).

In an April 8 press release announcing the FCC’s 2010 Broadband Action Agenda, Chairman Julius Genachowski said that the court’s decision “merely invalidated one technical legal mechanism for broadband policy chosen by prior Commissions.” The court did not question the Commission’s broadband policy goals or “the ultimate authority of the FCC to achieve these goals,” Chairman Genachowski said.

In March, the Commission presented its National Broadband Plan to Congress. The Commission’s broadband goals include: (1) reallocating up to 500 MHZ of cable broadband spectrum for wireless and mobile broadband use by 2020; (2) ensuring that affordable broadband with speeds of 50 Mbps is available in underserved communities to over 100 million households by 2015; (3) including broadband in FCC programs providing telephone service in low-income areas; (4) ensuring competition in multi-channel video distribution markets; (5) protecting consumer privacy; (6) establishing a public safety wireless network; and (7) requiring states to enable consumer use of broadband to track their real-time energy consumption.

Senator Asks FTC to Scrutinize Google’s Purchase of AdMob
A key U.S. Senator this week urged the Federal Trade Commission to closely scrutinize Google’s proposed acquisition of mobile advertising service provider AdMob. Senator Herb Kohl (D-Wisc.), Chairman of the Senate Judiciary’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights, expressed his concerns in an April 6 letter to FTC Chairman Jon Leibowitz. Shortly after Google announced its acquisition of AdMob for $750 million last November, the FTC requested further information.

Senator Kohl pointed out that the combination would allow Google to “leverage its dominance of PC-based search advertising market into the emerging mobile advertising market.” Google-AdMob’s combined market dominance potentially could result in higher mobile advertising prices and lower revenues for applications developers, Kohl said.

Google and AdMob contend that the mobile advertising market is too nascent to determine if any one transaction will result in dominance. According to Senator Kohl, however, the stakes are too high to avoid protecting competition in an emerging market where revenues are predicted to leap from $416 million in 2009 to $1.56 billion in 2013.

Senator Kohl also urged the Commission to ensure that consumers’ privacy would be safeguarded if the deal is approved. “[T]he combined firm will gain access to a treasure trove of data on millions of consumers’ behavior, search and product preferences,” Senator Kohl noted.

Senator Kohl’s letter arrived amidst news reports that FTC lawyers are preparing to challenge the Google-AdMob deal on antitrust grounds. Any action taken by the FTC would need to be cleared by the agency's Bureau of Competition and approved by the FTC Commissioners. Senator Kohl’s letter is available here.

Wolters Kluwer Law & Business Publications

Trade Regulation Talk — Top Ten Business Law Blog
Trade Regulation Talk, a blog published by the CCH Trade Regulation Group, has been listed in the top 10 of the “50 Great Business Law Blogs” elected by the Career Overview website. The 50 blogs were described as “filled with news, legislation, cases and counsel that every lawyer can read and use.”

The “Top Ten” were chosen as the best on the web “because they are popular, helpful, and powerfully thorough.” Others in the top ten included the Wall Street Journal Law Blog and the ABA Journal Blawgs.

Trade Regulation Talk provides news and views in the areas of antitrust, franchising, consumer protection, advertising, privacy, and civil RICO law. It may be found here.