IP and Computer Law Update

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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.

Transfer of “Bratz” Mark and $10 Million Copyright Award Vacated

A federal district court erred by holding that a doll designer's employment agreement with toy company Mattel, Inc. "clearly" assigned his drawings and sculpt of a “Bratz” fashion doll to Mattel, the U.S. Court of Appeals in San Francisco held.

The designer, while under contract with Mattel, had pitched the original idea for the Bratz dolls to MGA. A jury determined that the designer had thought of the name "Bratz" while he was employed by Mattel, as well as the name of one of the dolls, "Jade." Erroneously ruling that the designer's employment agreement “clearly” assigned his ideas to Mattel, the district court transferred copyright ownership rights to Mattel, imposed a constructive trust over the Bratz trademark portfolio, and enjoined MGA from producing and marketing the dolls, A jury awarded Mattel $10 million in copyright damages.

The employment agreement—which referred to "inventions"—could be interpreted to cover ideas, but the text did not compel that reading, according to the appellate court. The district court erred by failing to consider extrinsic evidence as to the meaning of "invention" in the design industry. Furthermore, the phrase—“at any time during my employment"—was ambiguous. The language could have referred to the entire calendar period the designer worked for Mattel, including nights and weekends, or it could have encompassed only inventions created during working hours. Extrinsic evidence supported each interpretation, and the matter should have been submitted to the jury.

Regardless of the scope of the employment agreement, it was inequitable to impose a trust over the entire trademark portfolio—which was estimated to be worth $1 billion—when MGA appropriated, at most, the names "Bratz" and "Jade." The value of the marks MGA eventually developed for the entire Bratz doll line was significantly greater because of MGA's own development efforts, marketing, and investment, the court said. The value added by MGA's hard work and creativity dwarfed the value of the original ideas the designer brought with him, in the court's view. Accordingly, the relief granted by the district court was vacated (Mattel, Inc. v. MGA Entertainment, Inc., 9thCir, CCH Copyright Law Decisions ¶29,951, IntelliConnect User Link; CCH Trademark Law Guide ¶61,657; IntellConnect User Link).

Cable T.V. Descrambling Devices Violated DMCA

A website operator violated Sections 1201(a)(2) and 1201(b)(1) of the Digital Millennium Copyright Act (DMCA) by manufacturing, selling, and distributing unauthorized cable television descrambling devices, the federal district court in Las Vegas held. The cable company was awarded statutory damages of $200 for each of the 1,112 illegal cable descramblers sold by the website operator.

Section 1201(a)(2) prohibits the manufacturing, offering to the public, or otherwise trafficking in any device primarily designed for the purpose of circumventing a technological measure that effectively controls access to a work protected under the DMCA. Section 1201(b)(1) prohibits circumvention of a measure that protects a copyright owner’s rights.

The cable company's "scrambler" qualified as a technological measure protected by the DMCA. The website operator’s descrambler was an addressable access control cable T.V. converter/decoder that had an additional board to enable the indiscriminate descrambling of any scramble/encoded signal. There was no legitimate purpose for the website operator's devices other than to descramble channels without the cable company's authorization (Comcast of Illinois X, LLC v. Kwak, DNev, CCH Copyright Law Decisions ¶29,962; IntelliConnect User Link).

Paper Towel Supplier Could Infringe Dispenser Maker’s Brands

A manufacturer of paper towels and touchless dispensers under the brand name "enMotion" could go forward with claims that a competitor engaged in contributory trademark infringement by marketing and selling to distributors an inferior paper towel product that was specifically manufactured for use in enMotion dispensers, the U.S. Court of Appeals in Richmond has decided.

The manufacturer leased its dispensers to distributors, who subleased them to restaurants, hotels, and other end-user customers. The manufacturer-distributor lease agreements expressly provided that only enMotion toweling could be used in enMotion dispensers.

By stuffing enMotion dispensers with the competitor's towels, end-user customers used one or more of the manufacturer's marks in connection with the distribution of the competitor's goods, according to the court. While genuine issues of material fact existed with regard to likelihood of confusion, the manufacturer could predicate its claim on a post-purchase confusion theory—that is, its assertion that restroom visitors who consumed toweling from enMotion dispensers constituted the relevant audience for purposes of the likelihood of confusion analysis. Three empirical studies showed that nearly half of those surveyed would expect that a paper towel dispenser and the toweling being dispensed would originate from the same source. Confusion caused by the placement of the competitor's allegedly inferior toweling in the enMotion dispensers could adversely affect the manufacturer's ability to control its reputation, the court noted (Georgia Pacific Consumer Products, L.P. v. Von Drehle Corp., 4thCir., CCH Trademark Law Guide ¶61,661; IntelliConnect User Link).

Mark Protection Denied for Folding Chair’s X-Frame Design

A district court did not err by finding that a registered design mark consisting of the configuration of a folding chair was functional and, thus, not protectable as a trademark, the U.S. Court of Appeals in Chicago has determined.

The chair’s X-frame construction was functional because it provided an optimal trade-off between the chair's weight and its strength and had the function of folding itself naturally when it was knocked over. Other features of the chair design improved its functionality for use as seating in auditoriums, stadiums, and other large spaces.

Various aspects of the chair were covered by four utility patents held by the manufacturer, the court noted. Only the inward-slanting back of the chair was not covered by a utility patent, and the district court did not commit a clear error by concluding that the chair-back design was a functional improvement over a design previously used by the registrant.

The design was functional as a unit, and every important aspect of it was independently functional, the appellate court said. The design looked the way it did in order to make a better chair, not in order to be a better way of identifying who made it. A judgment declaring that a competitor's similar chair design did not infringe the manufacturer's asserted mark was affirmed (Specialized Seating, Inc. v. Greenwich Industries, L.P., 7thCir., CCH Trademark Law Guide ¶61,663, IntelliConnect User Link).

Google May Use Trademarks in Sponsored Link Ad Program

The federal district court in Alexandria, Virginia handed Google a decisive victory in a trademark infringement suit brought by language learning software provider Rosetta Stone over Google's use of Rosetta Stone's marks as keywords to trigger sponsored link advertising and within the text or title of sponsored ads. The court granted summary judgment in favor of Google on all counts—trademark infringement, contributory trademark infringement, vicarious trademark infringement, and trademark dilution under the Lanham Act and trademark infringement and unfair competition under Virginia law. In a separate order, the court dismissed Rosetta Stone's unjust enrichment claim.

Rosetta Stone contended that, by selling the right to use Rosetta Stone marks as keywords triggers for sponsored link advertising, Google induced third-parties to misappropriate Rosetta Stone's marks and misdirect consumers to websites selling competitors' products or counterfeit Rosetta Stone products.

Google’s conduct was not likely to confuse consumers as to the source or origin of Rosetta Stone's products. Five individuals who purchased counterfeit Rosetta Stone products after a Google search were not confused by Google’s sponsored links, but by the genuineness of products on the websites they visited. Consumers willing to spend hundreds of dollars on language-learning software likely were sophisticated enough to understand the difference between "organic" search results and separately labeled "Sponsored Links,” according to the court.

The court also held that Google's use of the Rosetta Stone marks as keyword triggers was protected from an infringement claim by the functionality doctrine. The functionality doctrine provides that a product feature is "functional," and therefore, non-infringing, if it is essential to the use or purpose of the article or if it affects the cost or quality of the article. Google keywords served an "essential indexing function" that enabled Google to readily identify in its databases information relevant to a user's query. Keyword search advertising promoted competition and provided consumers with an effective means of searching the Internet for goods and services at competitive prices, the court noted.

Rosetta Stone’s contributory trademark infringement claim failed because Google's generalized knowledge that counterfeiters bid on trademark keywords was insufficient to show that Google had "specific contemporary knowledge" of infringement. Its vicarious infringement claim failed because Google had no control over third-party advertisers' sponsored links or their use of the Rosetta Stone marks in ad text. Google could not be liable for trademark dilution because it was not in the business of selling goods, but in selling space on a search page. Moreover, there was no evidence that Rosetta Stone’s marks suffered loss of distinctiveness or reputation.

Rosetta Stone failed to state an unjust enrichment claim because there was no allegation that Google made an implied promise to compensate Rosetta Stone for use of its marks. Even if Rosetta Stone had stated a valid claim, it would be barred by Section 230 of the Communications Decency Act, the court added (Rosetta Stone Ltd. v. Google, Inc., EDVa, CCH Computer Cases ¶50,007, IntelliConnect User Link and CCH Computer Cases ¶50,008, IntelliConnect User Link).

Privacy Advocate May Publish Public Land Records Containing SSNs

Virginia's Personal Information Privacy Act's prohibition on public disclosure of Social Security Numbers (SSNs) was unconstitutional as applied to a privacy advocate whose website published public land records, the U.S. Court of Appeals in Richmond has ruled. The court affirmed a federal district court's findings on constitutionally, but reversed its permanent injunction as too narrow in scope.

The advocate lawfully had obtained most of the land records from the state's publicly accessible websites. For several years, Virginia made unredacted land records publicly available on the Internet. Despite the enactment in 2007 of a state law mandating redaction of SSNs from online land records, 15 clerks of court had not yet done so.

Virginia argued that the unredacted SSNs on the advocate's website should not be protected under the First Amendment because they facilitated identity theft and were not "an essential part of any exposition of ideas." On the contrary, the unredacted SSNs in the Virginia land records posted on the advocate's website constituted protected political speech integral to her message criticizing Virginia’s handling of public records, according to the court.

The government may prohibit the publication of lawfully obtained, truthful information about a matter of public significance only when the prohibition is “narrowly tailored to a state interest of the highest order." Virginia's interest in protecting individual privacy by limiting SSNs' public disclosure could qualify as "a state interest of the highest order." However, prohibiting the advocate from posting public land records could not be considered a narrowly tailored means of protecting privacy when the state itself made land records available online.

The district court's order protected the advocate's right to "republish publicly obtainable documents containing unredacted SSNs of Virginia legislators, Virginia Executive Officers or Clerks of Court.” However, as the advocate's constitutional right to publish Virginia land records with unredacted SSNs did not depend on the residency or the political status of people whose SSNs were disclosed, the district court’s order for permanent injunctive relief was reversed and remanded (Ostergren v. Cuccinelli, 4thCir, CCH Computer Cases ¶50,000, IntelliConnect User Link).

Senators Propose Data Security Measure

Senators Mark Pryor (D-Ark) and John D. Rockefeller IV (D-W Va), introduced legislation (S. 3742) on August 5 to require businesses and nonprofit organizations that store consumers' personal information to put in place strong security features to safeguard sensitive data, alert consumers when this data has been breached, and provide affected individuals with the tools they need to protect their credit and finances. Currently, there is no single federal standard for guarding many types of consumer information.

"Data security breaches can wreak havoc on people's lives, leading to identity theft and threatening families' financial stability," said Senator Pryor, Chairman of the U.S. Senate Subcommittee on Consumer Protection, Product Safety, and Insurance. "As more and more of our personal information is collected and stored online and on computers, we need to ensure that the businesses storing this information are keeping it safe and giving us quick warning if it falls into the wrong hands."

The Data Security and Breach Notification Act of 2010 would authorize the Federal Trade Commission to require entities that own or possess data containing personal information to establish reasonable security policies and procedures to protect that data. If a security breach occurs, entities would have to notify each individual whose information was acquired or accessed as a result of the breach within 60 days. Affected consumers would be entitled to receive consumer credit reports or credit monitoring services for two years, as well as instructions on how to request these services. Senator Pryor’s August 5 remarks are available here.

Drafting Internet Agreements, Second Edition, by Gregory J. Battersby, Leonard T. Naura, and Charles W. Grimes

The 2010 Updated Second Edition of Drafting Internet Agreements is now available on the Intellectual Property/Computer and Internet Law tab of the CCH Internet Research Network and in the Intellectual Property practice area of Wolters Kluwer IntelliConnect. Drafting Internet Agreements is the most comprehensive single volume collection of annotated forms for the Internet. As the Internet has grown in popularity and become commonplace, so too have the number of legal issues that have been created by its widespread use and acceptance. Terms such as “e-commerce,” “linking,” “electronic signatures,” “downloading,” “broadband,” “social networks,” “social media,” and “cloud computing” have become part of our daily lexicon. Each of these terms, however, brings with it a potential legal relationship that must be defined and memorialized in agreements that 10 years ago would have been foreign to virtually every practitioner. Drafting Internet Agreements provides the practitioner with a collection of forms that can serve as a starting point for the drafting of a final agreement to memorialize a transaction.

This easy-to-use reference with accompanying CD-ROM offers instant access to more than 40 sample agreements for every area of Internet practice including: Internet advertising, Internet consulting, electronic commerce, Internet joint ventures, Internet licensing, technology development, website agreements, and more. Organized by type of transaction, each chapter includes a full agreement that illustrates the entire transaction as a whole, as well as a variety of agreements for closely related issues. For each form, the authors provide a brief overview, an analysis of the different kinds of forms that relate to the topic, a description of the form's applicability and use, and practice tips. For more information on Drafting Internet Agreements, visit the Aspen Publishers Website.

License Agreements: Forms and Checklists by Gregory J. Battersby and Charles W. Grimes

The 2010 Updated version of License Agreements: Forms and Checklists is now available on the Intellectual Property/Computer and Internet Law tab of the CCH Internet Research Network and in the Intellectual Property practice area of Wolters Kluwer IntelliConnect. License Agreements: Forms and Checklists puts at your fingertips—and on your computer screen—all the critical tools needed to draft, negotiate, and finalize licensing deals more quickly and effectively. This time-saving reference gives you proven-effective agreements that can be used as the starting point for the preparation and negotiation of virtually any licensing transaction.

License Agreements: Forms and Checklists contains 60 fully editable sample agreements that can be easily modified to meet your needs in virtually any transaction. For each form, the authors provide an explanation of the form’s purpose and applicability, an in-depth analysis of the legal principles that must considered from both the licensor and the licensee perspective, and authoritative discussions of "hot issues" that will likely come up for negotiation and how to handle them. More information about License Agreements: Forms and Checklists is available on the Aspen Publishers Website.