May 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

Supreme Court Upholds Settlement of Unregistered Copyrights

A district court had jurisdiction to approve a settlement agreement even though it included claims arising from unregistered copyrights, the U.S. Supreme Court ruled. Accordingly, the Court reversed the Second Circuit's vacation of the district court's settlement compensating unregistered copyright owners.

Freelance writers brought a class action lawsuit against publishers that converted their unregistered print newspaper, magazine, and journal articles into electronic files. The publishers sold access to the electronic files without authorization. The lawsuit was settled by an agreement stating that the publishers would compensate, up to $18 million, all affected authors.

Section 411(a) of the Copyright Act provides that no copyright infringement action shall be instituted until "preregistration or registration of the copyright claim has been made." The Second Circuit held that Section 411(a) was "jurisdictional."

However, the Supreme Court found the subsection does not "clearly state" that its registration requirement is "jurisdictional." Although there is a reference to "jurisdiction" in the last sentence of Section 411(a), it says nothing about whether a federal court has subject-matter jurisdiction to adjudicate claims for infringement of unregistered works, the Court observed. In fact, Section 411(a) expressly allows courts to adjudicate such claims in several circumstances, including where the copyright holder attempted to register the work and registration was refused, the Court noted. Notwithstanding its prior jurisdictional treatment, the Court concluded that Section 411(a) is nonjurisdictional (Reed Elsevier, Inc. v. Muchnick, USSCt, CCH Copyright Law Decisions ¶29, 914; IntelliConnect User Link).

Google Faces Another Class Action Suit for Book Digitization

A class of photography and graphic arts organizations and individual visual artists last month filed a copyright infringement lawsuit in the federal district court in Manhattan against Google, Inc., alleging that Google's Book Search project involves massive infringement of copyrighted images. (The American Society of Media Photographers, Inc. v. Google, Inc., No. 1:2010cv02977). The artists seek an injunction against Google and statutory damages of at least $30,000 per infringed visual work or at least $150,000 per infringed visual work, if the court finds that Google acted willfully.

The court last November preliminarily approved a $125 million settlement agreement in a pending suit between author and publisher groups and Google over its plan to digitize and distribute millions of out-of-print books (Authors Guild, Inc. v. Google, Inc, CCH Copyright Law Decisions ¶29,829; IntelliConnect User Link). Oral arguments on the settlement were held on February 18, 2010. The visual artists groups’ motion to intervene in the Authors Guild suit previously was denied by the court. It was "simply too late" to permit new parties into that case and it made “more sense" for the visual artists to file their own lawsuit, the court said.

TRADEMARKS

eBay Not Liable for Sales of Counterfeit Tiffany Merchandise

Internet auction company eBay, Inc. did not infringe or dilute fine jewelry seller Tiffany, Inc.'s well-known trademarks by advertising the availability of "Tiffany" merchandise on the eBay.com home page and in eBay documents or by purchasing sponsored-link advertisements promoting Tiffany jewelry, the U.S. Court of Appeals in New York City has held. eBay's advertising uses of Tiffany’s marks, however, could have constituted false advertising under the Lanham Act, according to the court.

eBay's descriptive use of the Tiffany marks constituted fair use, the appellate court said. Thus, eBay could not be liable for direct trademark infringement. eBay used the Tiffany mark to accurately describe genuine Tiffany goods offered for sale on eBay's website, and eBay’s use of Tiffany’s marks did not imply a false affiliation or endorsement. eBay was not required to guarantee the genuineness of all the purported Tiffany products offered on its site. eBay also was not contributorily liable for any direct infringement of Tiffany's marks by eBay sellers, according to the court. Although eBay had general knowledge that counterfeited Tiffany merchandise was being sold on its website, there was no evidence that eBay continued to supply its services to sellers when it knew or had reason to know of infringement by those sellers. When eBay became aware of Tiffany's belief that a particular listing was infringing, eBay removed the listing and took action against the seller when appropriate.

eBay's use of Tiffany's trademarks was not likely to cause dilution, the court additionally determined. Trademark dilution claims usually arise when a defendant has used the plaintiff's trademark to directly identify a different product of the defendant, the court noted. In this case, eBay’s use of the Tiffany trademarks were always associated with products that individual third party sellers characterized as "Tiffany" items. eBay never used Tiffany's marks to refer to eBay's own products or services.

eBay's advertising uses of Tiffany’s marks, however, could have constituted false advertising under the Lanham Act, the court found. eBay actively sought to promote sales of premium and branded jewelry, including Tiffany merchandise, on its website. The fact that counterfeit goods were offered by third-party sellers did not shield eBay from a claim that eBay's advertisements for Tiffany merchandise on eBay were misleading insofar as they implied the genuineness of Tiffany goods on eBay's site. The law prohibits an advertisement that implies that all of the goods offered on a party's website are genuine when in fact, as here, a sizeable proportion of them are not, the court explained. The case was remanded to the district court for consideration of this point (Tiffany (NJ) Inc. v. eBay Inc., 2dCir, CCH Trademark Law Guide ¶51,595; IntelliConnect User Link ; CCH Computer Cases ¶49,932; IntelliConnect User Link).

ISPs Enjoined from Hosting Counterfeiters’ Websites

Internet service providers (ISPs) were liable for willful contributory trademark infringement for providing hosting services to websites that allegedly sold counterfeit goods bearing marks owned by luxury goods distributor Louis Vuitton Malletier (Vuitton), the federal district court in San Jose, California has ruled. A jury's award of $10.5 million in statutory damages was allowed to stand, and the ISPs were permanently enjoined from further contributory infringement.

The underlying conduct of the operators of the websites hosted on the ISPs' servers was likely to cause consumer confusion, the court said. The websites advertised, offered for sale, and sold a variety of counterfeit goods imitating Vuitton's products. The counterfeit products were advertised and sold as "replicas" of Vuitton's products.

Although the evidence was insufficient to establish that the owner of the computer equipment hosting the sites had sufficient knowledge of the underlying misconduct to be liable for contributory trademark infringement, the evidence showed that the ISP defendants knew of the direct infringement occurring on websites hosted on their servers. The ISPs were in a position to directly control and monitor the instrumentality (the servers) used by the third party direct infringers, according to the court (Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., ND Cal., CCH Trademark Law Guide ¶61,591; IntelliConnect User Link; CCH Computer Cases ¶49,929; IntelliConnect User Link).

COMPUTER AND INTERNET LAW

Employee Had Right to Privacy in Attorney E-Mail Messages

An employee had a reasonable expectation of privacy and did not waive the attorney-client privilege by accessing e-mail in her personal Yahoo! account from a computer owned by her employer, the New Jersey Supreme Court has held.

Cache copies of eight e-mails between the employee and her attorney were stored as temporary Internet files on the hard drive of a laptop the employee returned to her employer when she left the company. The e-mails were discovered during the employer's forensic recovery exam of the computer's hard drive. The employee was seeking to prevent her former employer from using the e-mails in an employment discrimination action she filed against it.

The employee reasonably could expect that e-mails exchanged with her attorney on her personal, password-protected, web-based e-mail account would remain private, even if accessed on a company laptop, the court held. By using a personal e-mail account and not saving the password, the employee had a subjective expectation of privacy, the court found. In addition, her privacy expectation was objectively reasonable, in view of the ambiguous language of the employer’s electronic communications policy and the attorney-client nature of the communications.

The employee did not waive the attorney-client privilege. The employee took reasonable steps to keep her e-mail messages confidential and she was not aware that her employer could read e-mails sent to or from her Yahoo! account. The court stressed the important public interest served by confidential attorney-client communications. Although employers can adopt and enforce lawful policies relating to computer use, "employers have no need or basis to read the specific contents of personal, privileged, attorney-client communications in order to enforce corporate policy," according to the court. A corporate policy purporting to grant employers access to employees’ privileged personal communications would be unenforceable, the court opined (Stengart v. Loving Care Agency, Inc., NJSCt, CCH Computer Cases ¶49,918; IntelliConnect User Link).

Court Halts Aggregator’s Early Publication of Financial News

An online financial news aggregator (Flyonthewall.com) that republished equity recommendations prepared by research analysts at three major financial investment firms (Barclays Capital, Morgan Stanley, and Merrill Lynch/Bank of America) was liable for "hot news" misappropriation, the federal district court in New York City has ruled.

The aggregator was in the business of collecting and republishing financial news, rumors, and other information from Wall Street via its online subscription newsfeed. It promoted its service as reporting "breaking analyst comments as they are being disseminated by Wall Street trading desks" and "consistently beating the news wires." The financial firms contended that their analysts' recommendations and reports were "hot news" and that Fly's regular, systematic, and timely taking and redistribution of their recommendations constituted misappropriation.

To establish "hot news" misappropriation in New York, a plaintiff must show that: (1) it generates or gathers information at a cost; (2) the information is time-sensitive; (3) the defendant's use of the information constitutes free riding on the plaintiff's efforts; (4) the defendant is in direct competition with a product or service offered by the plaintiff; and (5) free-riding on the efforts of the plaintiff would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.

The first two elements were undisputed. With regard to the third element, the aggregator’s core business was "free-riding off the sustained, costly efforts by the Firms and other investment institutions to generate equity research that is highly valued by investors," the court said. On the fourth element, the parties were direct competitors in the dissemination of reports to investors. On the final element, new aggregators had caused the firms to reduce resources devoted to equity research—which constituted a "valuable social good" and played a "vital role in modern capital markets.”

The aggregator was enjoined from disseminating the firms' pre-opening recommendations until one-half hour after the opening of the New York Stock Exchange or 10:00 a.m., whichever is later. The injunction will be reevaluated in one year to determine whether the financial firms have taken action against other news aggregators, because "it would be inequitable to enjoin Fly from publication of the firms' recommendations if the firms failed to take action against others engaged in the same conduct,” according to the court (Barclays Capital, Inc. v. Theflyonthewall.com, SDNY, CCH Computer Cases ¶49,916; IntelliConnect User Link).

Hot Topics of the Month

Draft of Proposed Federal Privacy Legislation Released

A discussion draft of legislation to protect the privacy of information about individuals both on the Internet and offline was released by Representatives Rick Boucher (D, Virginia) and Cliff Stearns (R, Florida) on May 4. The measure would require companies that collect personally identifiable information about individuals to conspicuously display a clear, understandable privacy policy that explains how such information is collected, used, and disclosed to third parties.

According to Boucher and Stearns, the proposed legislation would set forth a general rule that companies are permitted to collect information about individuals, unless an individual affirmatively opted out of that collection. No consent would be required to collect and use operational or transactional data—such as session cookies—or to use data that was rendered anonymous. However, the legislation would require companies to obtain express opt-in consent before collecting sensitive information about an individual—such as medical data, financial account information, Social Security numbers, sexual orientation, government-issued identification information, and precise geographic location data.

Affirmative opt-in permission would have to be obtained before a company could share an individual’s personally identifiable information with unaffiliated third parties, other than for an operational or transactional purpose. The draft bill would create an exception to this opt-in consent requirement by applying opt-out consent to the sharing of information with a third-party ad network, as long as there is a clear, easy-to-find link to a webpage for the ad network that allows a person to edit his or her profile and to opt out of having a profile.

The Federal Trade Commission would be directed to adopt rules to implement and enforce the measure. States also could enforce the FTC’s rules through state attorneys general or state consumer protection agencies. The law would not create a private right of action and it would
preempt any state law that included requirements regarding the collection, use, or disclosure of information covered by the federal statute. Text of the discussion draft is available here on Representative Boucher’s website.

Antitrust Enforcers Reportedly Set to Probe Apple’s License Terms

According to published reports, the Federal Trade Commission and Department of Justice are negotiating to determine which agency will pursue an antitrust inquiry of Apple Computer Inc.’s new license agreement, which requires software developers to use Apple programming tools to create applications for the iPhone and iPad.

Apple’s license agreement would prevent developers from employing other tools—such as Adobe Systems Inc.’s Flash format—used to create web videos, games, and other interactive features. Antitrust enforcers will address the issue of whether this policy injures competition by forcing developers to choose between designing applications that can run only on the iPhone and iPad and creating applications that are “platform neutral” and can run on operating systems produced by Google, Microsoft, and others.

A story ("An antitrust app") published May 3 in the New York Post said that federal antitrust enforcers are “days away from making a decision about which agency will launch the inquiry,” which could lead to a full fledged investigation. None of the players in the scenario—the FTC, the Department of Justice, or Apple Computer Inc.—has publicly commented on the news reports.

However, Apple CEO Steve Jobs posted a piece (“Thoughts on Flash”) on the company website, explaining “why we do not allow Flash on iPhones, iPods and iPads.” Rather than being “primarily business driven,” the decision was “based on technology issues,” according to Jobs. Contrary to Adobe’s claims, Flash is actually “a closed system,” while Apple has adopted “open standards” like HTML5, CSS and JavaScript, Jobs wrote.

While Adobe contends that Apple mobile devices cannot access “the full web” because 75% of the video on the web is in Flash, Jobs maintained that “almost all this video is also available in a more modern format, H.264, and viewable on iPhones, iPods and iPads.” Jobs further cited reliability, security, and performance issues, arguing that Flash has a poor security record, causes Macs to crash, and does not perform well on mobile devices. In addition, Jobs criticized Flash for using too much battery power, for not being designed for “touch” screens, and for having “major technical drawbacks.”

On May 4, The Wall Street Journal (“Apple Attracts Scrutiny From Regulators”) pointed out that the “growing interest in Apple’s activities by antitrust authorities shows the extent to which the Cupertino, Calif., company has become a powerful player in mobile devices like smartphones, which many people see as the next dominant computing platform after personal computers.” The article compares Apple’s conduct with the tactics by Microsoft Corp. that drew attention from antitrust enforcers in the 1990s.

“Apple is playing right out of Microsoft’s playbook—and it’s one they complained about a lot,” said David Balto, a senior fellow at the Center for American Progress and former attorney for the FTC and Department of Justice.

Wolters Kluwer Law & Business Publications

Scott on Multimedia Law, Third Edition, by Michael D. Scott

The Third Edition of Scott on Multimedia Law is now available on the Intellectual Property/Computer and Internet Law tab of the CCH Internet Research Network and in the Computer and Internet Law practice area of Wolters Kluwer IntelliConnect. As technologies advance and media platforms proliferate, attorneys must be able to guide clients across the multimedia landscape, helping them to avoid pitfalls while maximizing the value of intellectual property. Scott on Multimedia Law, Third Edition is the one completely current resource that can take you from start to finish throughout the complex multimedia arena.

Based on years of professional experience, the author combines reliable analysis of the substantive law with practical, how-to advice, including insightful discussions of key topics and analysis of various trends and practices in multimedia law. The new and updated Scott on Multimedia Law, Third Edition immediately enables you to (1) fully account for every intellectual property dimension of multimedia law, including trademark, copyright, moral rights, international aspects, patents, trade names and trade secrets; (2) provide advice on the licensing of every type of content— video, videogames, text, still images, digital images, music, performance, and more; (3) follow all the necessary steps to clear rights; (4) enter into effective agreements with vendors and distribution partners; (5) anticipate the relevance of tort, privacy, and publicity law in order to prevent third party claims from interfering with the commercialization of your client’s products; (6) draft effective employment, development, and distribution agreements; and (7) work competently with guilds, unions, and trade associations.

Scott on Multimedia Law, Third Edition includes more than 60 forms covering numerous transactions across a wide variety of media. The accompanying CD-ROM contains electronic versions of the forms, making it simple to use or adapt to your own practice needs. For more information on Scott on Multimedia Law, visit the Aspen Publishers website.