September 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

Publication of Harry Potter Lexicon Enjoined
A lexicon that consisted of descriptive lists of spells, characters, creatures, and magical items from J.K. Rowling's Harry Potter book series did not constitute a fair use of the authors’ copyrights, the federal district court in New York City held. Even though the lexicon had a transformative purpose, a factor that usually favors finding a work a fair use, the lexicon's actual use of the copyrighted works was not consistently transformative. Furthermore, many portions of the lexicon took more of the author's copyrighted book and companion works than was reasonably necessary to create a reference guide. The creative nature of the copyrighted works and the harm to the market for the author's companion works weighed in favor of the author. Accordingly, the publisher was enjoined from publishing the lexicon. However, because the lexicon was not published and the author did not suffer any harm beyond the fact of the infringement, she was awarded minimum statutory damages of $6,750 (Warner Bros. Entertainment, Inc. v. RDR Book, SDNY, 2008 Copyright Decisions ¶29,616).

Notice to Terminate Suspended License Was Invalid
A 1994 agreement between John Steinbeck's widow and a publisher terminated and superseded a 1938 agreement that granting licenses to publish certain of the author's works, the U.S. Court of Appeals in New York held. Therefore, a 2004 notice by the author's heirs—the widow's stepchildren—purporting to terminate the 1938 agreement was invalid because the 1938 agreement no longer existed. Accordingly, a district court's judgment that the termination notice was valid was reversed. Pursuant to Section 304(c) of the Copyright Act, the heirs had an inalienable right to terminate pre-1978 grants of transfers or licenses of copyright. However, when the 1994 agreement superseded the 1938, leaving no pre-1978 grant intact, the heirs' Section 304(c) right to terminate the grants was eliminated (Penguin Group (USA), Inc. v. Steinbeck, 2ndCir, 2008 Copyright Decisions ¶29,617).

TRADEMARKS

Jeweler Awarded Profits for Sale of Knock-Off Watches
Cartier, Inc. was entitled to an award of $94,000 in profits gained by a competitor that sold infringing knockoffs of Cartier's "Tank Française" luxury watches, according to the U.S. Court of Appeals in New York City. Cartier's "Tank Française" design was entitled to trade dress protection, and the competitor's bad-faith sales of look-alike watches were likely to cause consumer confusion. Both the genuine "Tank Française" watches and the imitations were luxury watches occupying the same market. The products were proximate in the marketplace even though Cartier watches were sold only in Cartier boutiques or by authorized Cartier dealers and the imitation watches were sold by lower-end jewelry merchants. A magistrate judge’s finding that the competitor sold 212 imitation watches was not clearly erroneous in view of the competitor’s failure to prove otherwise (Cartier, Inc. v. Sardell Jewelry, Inc., 2d Cir., CCH Trademark Law Guide ¶61,294).

Damages Reduced for Three-Stripe Shoe Mark Infringement
A jury verdict finding discount shoe retailer Payless liable for infringing and diluting the registered "three-stripe" design mark owned by athletic shoe manufacturer Adidas was supported by the evidence, the federal district court in Portland, Oregon has ruled. Payless' two- and four-stripe designs—as used on 267 separate lots of Payless shoes—were likely to be confused with the Adidas mark. The jury's award of $30.6 million in actual damages based on a "reasonable royalty" calculation was supported by substantial evidence and was allowed to stand. However, the court reduced the jury's “excessive” awards of $137 million each for profits and punitive damages.

Although the jury reasonably found that Payless acted with the requisite willfulness to support an accounting of profits, the amount of the award—over $137 million—was so high that it was punitive rather than compensatory, the court said. Thus, the award was reduced to $19.7 million, based on a commonly used measure of profit. Likewise, the jury's award of $137 million in punitive damages was grossly excessive. Even a one-to-one ratio between compensatory and punitive damages would be too high, according to the court. Payless' conduct involved no physical harm or disregard for a person's health or safety, and Adidas did not suffer lost sales or economic harm that jeopardized its business in any way. In addition, during a period of three-years, Payless reasonably believed its conduct was noninfringing, the court noted. Punitive damages, therefore, were reduced to $15 million to comport with due process concerns (Adidas America, Inc. v. Payless Shoesource, Inc., D Ore., CCH Trademark Law Guide ¶61,300).

COMPUTER AND INTERNET LAW

Virginia Bulk Email Law Held Unconstitutional
The unsolicited bulk electronic mail provisions of the Virginia Computer Crimes Act violated the First Amendment because the statute proscribed a substantial amount of protected speech, the Virginia Supreme Court has ruled. The statute proscribed intentionally falsifying routing information "in connection with the transmission of unsolicited bulk electronic mail through or into the computer network of an electronic mail service provider or its subscribers." Unlike other state anti-spam statutes, the Virginia law was not limited to unsolicited bulk e-mail of a commercial nature. Nor was the statute limited to the transmission of illegal or otherwise unprotected speech, such as pornography or defamation. The statute’s broad application would criminalize the anonymous transmission of all unsolicited bulk e-mails—including those containing political, religious, or other speech protected by the First Amendment, the court observed. As a content-based restriction subject to strict scrutiny, the statute was not narrowly tailored to protect the compelling interests advanced by the Commonwealth, the court concluded (Jaynes v. Commonwealth, Va. SCt, CCH Computer Cases ¶49,589).

Virginia SSN Law Violated Website Operator’s Free Press Rights
The federal district court in Alexandria, Virginia has determined Virginia's Personal Information Privacy Act’s prohibition against intentionally disclosing another person's Social Security number (SSN), was unconstitutional as applied to a privacy advocate's website. The privacy advocate, who opposed Virginia's practice of publishing public land records online without redacting SSNs, drove home her message by posting on her website public land records displaying the SSNs of several elected Virginia officials. The privacy advocate's website qualified for First Amendment protection afforded to the press. Although the website was not part of the traditional news media, it undertook a government watchdog role that was "analytically indistinguishable from a newspaper," according to the court. Freedom of the press includes the right to publish the true content of lawfully obtained public records, the disclosure of which is in the public interest.

The state contended that protecting citizens' privacy and preventing the abuse of their SSN's comprised a state interest "of the highest order" that trumped the public's interest in the disclosure of land records containing SSNs. However, the state itself chose to make SSNs publicly available by publishing unredacted land records on the Internet. In addition, a 2007 law that would require clerks to redact SSNs from online land records was conditioned on the availability of state funding, which was not forthcoming. On this record, it was impossible to conclude that the state regarded preventing the disclosure of SSNs via online land records to be an "interest of the highest order," according to the court (Ostergren v. McDonnell, ED Va., CCH Computer Cases ¶49,582).

Fair Use Must Be Considered Before Sending DMCA Take-Down Notice
A youtube.com user who uploaded a 29-second video of her toddler dancing to a copyrighted song could proceed with a Digital Millennium Copyright Act misrepresentation claim against Universal Music, the song's owner, the federal district court in San Jose has determined. The user claimed that Universal violated Section 512(f) of the DMCA, which provides that "any person who knowingly materially misrepresents" that material is infringing is liable for damages resulting from the ISP's removal of the material. The user alleged that Universal’s failure to consider her fair use before sending its take-down notice to YouTube violated the DMCA, which requires take-down notices to contain a statement of the sender’s “a good faith belief that use of the material in the manner complained of is not authorized by…the law." While the DMCA does not expressly mention the fair use doctrine, fair use is a lawful use of a copyright under Section 107 of the Copyright Act, the court explained. Therefore, before forming a good faith belief under the DMCA that material is not "authorized by law," a copyright owner must evaluate whether the material makes fair use of the owner's copyright, the court concluded (Lenz v. Universal Music Corp., ND Cal., CCH Computer Cases ¶49,587).

Hot Topic of the Month

Congress Passes PRO-IP Bill
Senate bill 3325, “Prioritizing Resources and Organization for Intellectual Property Act of 2008” (dubbed the “PRO-IP Act”), passed in the House by roll call vote on September 28, 2008. The bill which passed by unanimous consent in the Senate two days earlier, now awaits the President’s signature. The legislation would enhance infringement penalties, including amending the Lanham Act to allow treble damages for counterfeiting. The bill also would create an Intellectual Property Enforcement Coordinator (IPEC) within the Executive Office of the President to coordinate domestic and international intellectual property enforcement activities (Text of S.B. 3325).

ASPEN IP and Computer Law Publications

Scott on Outsourcing Law and Practice by Michael D. Scott
The September 2008 Supplement recently went live on the Intellectual Property/Computer and Internet Law tab of the CCH Internet Research Network. This two-volume looseleaf treatise offers comprehensive coverage of all areas of computer law. It is a valuable resource for intellectual property lawyers, entertainment lawyers, in-house counsel, and computer lawyers.

This latest supplement includes updates on: (1) Copyright issues, including preemption, the de minimis defense, and a new section discussing cases involving claims by copyright owners based on a "making available" theory, particularly in the context of file sharing; (2) Patent issues, including the Supreme Court's decision in KSR v. Teleflex concerning obviousness; (3) Trademark issues, including expanded discussion of initial interest confusion; (4) Online contracting issues, including cases involving enforcement of forum selection clauses, arbitration clauses, and other terms of use, as well as the voidability of contracts by minors; (5) Expanded analysis of CDA §230 protection for service providers, including cases where conduct has not been immunized by §230 and preemption under §230; and (6) Developments in tort law, including expanded discussion of privacy torts in the online context; and the growing tendency to recognize conversion claims in intangible property.

Drafting Internet Agreements by Gregory J. Battersby and Charles W. Grimes
The August 2008 Supplement is now available on the Intellectual Property/Computer and Internet Law tab of the CCH Internet Research Network. Covering the full range of Internet law transactions, the book contains more than 80 forms that have been developed by experienced Internet lawyers and used in actual transactions. For each agreement, the authors provide a model agreement, an overview of the issues, a checklist of clauses that should be included, and practice tips that alert you to special issues that arise in each transaction. Included is a CD-ROM containing electronic versions of all forms found in the book.

The 2008 Supplement brings you up to date with the following new forms and agreements: (1) a children's web site privacy policy for web sites with third-party advertising; (2) a privacy policy for web sites with interactive user features such as a forum, message board, or chat room; (3) Terms of Use for web sites with user-generated content; (4) Rules of Conduct for a web site with a user forum or chat room; (5) discussion of recent developments in liability of web sites that publish third-party material, including the Perfect 10 cases; and (6) discussion of and a new set of forms for trademark registration under the Madrid Protocol.