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.

Copyright Act Did Not Preempt Implied Contract Claim

A screenwriter's state law breach of implied contract claim—alleging that a television producer and television network used his concept for a television series without compensating him—was not preempted by the Copyright Act, the U.S. Court of Appeals in San Francisco has held. The understanding that the screenwriter would receive a partnership or "piece of the action" if the network used his idea qualified as an “extra element” that transformed the claim from one asserting a right exclusively protected by federal copyright law.

Although a concept for a film or television show cannot be protected by a copyright, it can be stolen if a studio violates an implied contract to pay the writer for using it. A writer and producer form an implied contract under circumstances where both understand that the writer is disclosing his idea on the condition that he will be compensated if it is used. Copyright law does not preempt a contract claim where a plaintiff alleges a bilateral expectation that he would be compensated for use of an idea. A three-judge panel's decision upholding a district court's dismissal of the screenwriter's claim as preempted was reversed (Montz v. Pilgrim Films & Television, Inc., 9thCir, CCH Copyright Law Decisions ¶30,070; IRN User Link ).

Claim Based on Unregistered Copyright Dismissed

A district court properly dismissed a software marketing company's infringement claim because its software copyright was not registered before the company filed its lawsuit as required by Section 411(a) of the Copyright Act, the U.S. Court of Appeals in New Orleans has ruled. Although the software was a derivative of registered software to which the marketing company claimed to have been granted exclusive marketing and sales rights, the company failed to produce a registration for its derivative software.

The district court’s dismissal of the company's state law breach of contract claim also was upheld, but on different grounds. Because the breach of contract claim involved an element—a contractual promise made by the parties—in addition to mere reproduction, distribution, or display rights, the district court erred in ruling that the claim was preempted.

Nevertheless, the marketing company failed to adequately allege that that it had entered into a contract with any of the defendants. Accordingly, the dismissal was affirmed for failure to state a claim (Real Estate Innovations, Inc. v. Houston Association of Realtors, Inc., 5thCir, CCH Copyright Law Decisions ¶30,071; IRN User Link ).

Action Based on Time-Barred Ownership Claim Dismissed

A sculptor was not entitled to damages of over $3 million based upon a ten percent royalty rate for the federal government's infringement of his copyright on a postage stamp, the U.S. Court of Federal Claims has determined. Rather, the sculptor was awarded $5,000, which was within the "zone of reasonableness" for the value of a work used on a stamp. That was the one-time fee amount he would have received if the Postal Service had paid to use his copyright.

The U.S. Postal Service's unauthorized depiction of the sculptor's copyrighted work on a commemorative stamp constituted unlawful infringement, and the sculptor was entitled to damages. However, by policy, the Postal Service is not permitted to pay a royalty for use of a copyright. The statute providing for recovery of damages for the Government's copyright infringement explicitly refers to the minimum statutory damages provision in Section 504(c) of the Copyright Act. The Postal Service has never paid more than $5,000 to incorporate an existing image on a stamp. It paid the photographer who took the image of the sculptor's work $1,500 to use the photo. Thus, the "zone of reasonableness" was between $1,500 and $5,000 (Gaylord v. United States, FedClCt, CCH Copyright Law Decisions ¶30,072; IRN User Link).

Change in Website Focus Showed Bad Faith Intent to Profit

A women's clothing and accessories company was entitled to an order of summary judgment on its claim that an Alabama corporation engaged in cybersquatting by operating a website at the domain name "newportnews.com," which was confusingly similar to the clothing company's five federally registered trademarks based on the phrase "Newport News," the U.S. Court of Appeals in Richmond has determined. Originally, the website featured information and advertising related to the city of Newport News, Virginia, but in 2007, the focus of the website was shifted to women's fashions.

The corporation had a bad faith intent to profit from the clothing company's marks, according to the court. Although a prior arbitration decision under the Uniform Dispute Resolution Policy (UDRP) had determined that the corporation’s original use of the domain name was lawful, when the corporation largely abandoned its city information service, it ceased to have a right to use the name Newport News to describe its services. The UDRP decision relied on the total lack of competition between the businesses. The fact that the corporation, with knowledge of the basis for the UDRP decision, later purposefully transformed its website into one that competed with the clothing company by advertising women's apparel weighed heavily in favor of a finding of bad faith.

The clothing company's cybersquatting claim was not barred by laches. Although the defending corporation had begun placing a few apparel ads on its site in 2005, the website was still city-focused. It was not clear until November 2007 that the clothing company had a viable cybersquatting claim. The clothing company was entitled to an award of attorney's fees incurred in litigating its claim, the court decided. The corporation's willful and deliberate actions made the case "exceptional" for purposes of Sec. 35(a) of the Lanham Act (Newport News Holding Corp. v. Virtual City Vision, Inc., 4thCir, CCH Trademark Law Guide ¶61,794; IRN User Link; CCH Computer Cases ¶50,168; IRN User Link).

Use of TV Show Title on Merchandise Could Confuse

The owner of a Michigan-based business selling home cookware under the registered mark "Bitchen Kitchen" was entitled to a preliminary injunction barring the Canada-based producers of a television show called "Bitchin' Kitchen" from selling kitchenware and other merchandise under the mark, the federal district court in Kalamazoo, Michigan has decided. The producers were barred from using the mark in any context other than the title of its TV series.

The likelihood of confusion factors weighed, on balance, in favor of the business owner, the court determined. The Michigan business and the Canadian TV producers sold very similar goods—aprons, cutlery, cookbooks, cooking magazines, and other kitchen-related goods. In addition, the marks sounded the same, carried the same meaning, and were almost identical textually. The parties used similar marketing channels, including TV commercials and Internet websites. A reasonable consumer could erroneously believe that the goods sold under both marks originated from the same source, the court said. Moreover, there was evidence that the TV producers chose the "Bitchin' Kitchen" mark in order to capitalize unlawfully on the goodwill and brand recognition built by the business owner for the nearly identical "Bitchen Kitchen" mark.

The court denied the business owner’s request to enjoin “Cooking Channel” cable TV network operator Scripps—which broadcasts the program in the United States—from continuing to use the "Bitchin' Kitchen" title. Preliminarily enjoining use of the TV show title could violate Scripps's free-speech rights, the court said. The title had artistic relevance to the underlying work—specifically, to the content, tone, style, purpose, and intended appeal of the show's combination of comedic, informational, and titillating material and moods. In addition, it was not clear that the business owner would be able to establish that the “Bitchin’ Kitchen” title explicitly misled the viewing public as to the source or content of the program—the show was characterized in large part not by cooking, per se, but by the purported sex appeal and personality of the show's hostess (Martha Elizabeth, Inc. v. Scripps Networks Interactive, LLC, WDMich, CCH Trademark Law Guide ¶61,806, IRN User Link).

PepsiCo Enjoined from Using POLAR SLUSH Mark on Slush Drinks

A soft drink bottler (Polar Corp.) that sold bottled water, soda, and other soft drinks under the brand POLAR was entitled to a preliminary injunction barring competitor PepsiCo from using the phrase POLAR SHOCK in connection with a line of noncarbonated, nonalcoholic, frozen, flavored slush beverages, the federal district court in Boston has ruled.

Polar Corp. was likely to succeed on the merits of its claim that PepsiCo's POLAR SHOCK marks would cause consumer confusion, the court said. PepsiCo's incorporation of the entire POLAR mark as the first word in its own mark rendered the marks confusingly similar, in the court’s view. In addition, the colors, shapes, and typefaces used in the parties' logos were similar enough that a substantial number of consumers reasonably could believe that POLAR SHOCK was sponsored by or associated with the POLAR brand. Although PepsiCo's slush products were different in look and feel from Polar Corp.'s drinks, consumers reasonably could conclude that Polar Corp. also produced slush drinks along with its other soft drink products. The parties' channels of trade—grocery stores, convenience stores, and entertainment venues—overlapped.

Polar Corp. likely would suffer irreparable harm in the absence of preliminary injunctive relief. Although PepsiCo asserted that an injunction would cause it to incur $1 million in rebranding costs, as well as substantial lost sales, the likely harm to Polar Corp. from loss of control over its brand outweighed the harm to PepsiCo, the court concluded (Polar Corp. v. PepsiCo, Inc., DMass, CCH Trademark Law Guide ¶61,802; IRN User Link).

California Contract Law Preempted by Federal Arbitration Act

In a dispute over a consumer contract with an arbitration clause that included a class action waiver, the Federal Arbitration Act preempted a California rule of law that barred the waiver as unconscionable, the U.S. Supreme Court has held in a 5-4 decision. The court reversed and remanded a decision of the U.S. Court of Appeals in San Francisco declining to compel individual arbitration of a consumer’s claim for $30.22 in a dispute over a wireless telephone service provider's practice of charging sales tax on cell phones advertised as “free.”

Section 2 of the Federal Arbitration Act provides that a written contractual provision to arbitrate a controversy arising out of the contract is enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” In Discover Bank v. Superior Court, the California Supreme Court held that the doctrine of unconscionability barred enforcing class action waivers in arbitration clauses when the contracting party with superior bargaining power is alleged to have deliberately cheated large numbers of individual consumers out of small sums of money.

While acknowledging that unconscionability is a generally applicable doctrine of contract law, Justice Scalia, writing for the majority, concluded that Section 2 of the Federal Arbitration Act preempted California’s Discover Bank rule. A switch from individual to class arbitration would make the process slower, more costly, less informal, and would greatly increase the risks to defendants, according to the Court. When damages allegedly owed to tens of thousands of potential claimants are aggregated and decided at once, the risk of an error will often become unacceptable, the Court said.

Justice Breyer, in a dissent joined by Justices Ginsburg, Sotomayor, and Kagan, questioned whether a rational lawyer would have signed on to represent a client for the possibility of fees stemming from a $30.22 claim. The Federal Arbitration Act’s basic objective was to assure that courts treat arbitration agreements like all other contracts, according to the dissent (AT&T Mobility v. Concepcion, USSCt, CCH Computer Cases ¶50,173; IRN User Link).

Violation of Employer Computer Policy Supported Hacking Charge

A former employee of an executive search firm could be charged with violating the Computer Fraud and Abuse Act (CFAA) for conspiring with current employees to access the firm’s computer system and obtain trade secrets and other proprietary information in violation of the firm’s computer policy, the U.S. Court of Appeals in San Francisco has determined. The district court’s dismissal of the indictment against the former employee was reversed and remanded with instructions to reinstate the CFAA counts.

The CFAA punishes anyone who “knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value,” 18 U.S.C. §1030(a)(4). The court held that an employee “exceeds authorized access” under §1030 when he or she violates the employer’s computer access restrictions.

A dissenting judge argued that the majority’s interpretation of the CFAA would “make criminals out of millions of employees who might use their work computers…to access their personal email or to check the latest basketball scores.” The court countered that to incur criminal liability, an employee must not only violate his employer’s computer use restrictions, but he must do so with intent to defraud, in furtherance of his intended fraud, and thereby obtain something of value (U.S. v. Nosal, 9thCir, CCH Computer Cases ¶50,174; IRN User Link).

Users Failed to Allege Injury from Installation of “Flash Cookies”

A purported class of web users—bringing claims against online advertising network Specific Media for installing “Flash cookies” on their computers without their knowledge or consent—failed to allege an “injury in fact” resulting from Specific Media’s conduct, the federal district court in Los Angeles has ruled. The users brought claims under the federal Computer Fraud and Abuse Act and California’s Computer Crimes law, invasion of privacy statute, Unfair Competition Law, and Consumer Legal Remedies Act.

The term “Flash cookies” refers to data called “local shared objects,” which are stored on a user’s computer and used by Adobe Flash Player media software. Such data files allegedly circumvent the privacy and security controls of users who set their web browsers to block or to periodically delete conventional cookie files. The users did not allege that Specific Media actually tracked their online activity, the court noted. They asserted only that they believed the Flash cookies could be used as substitutes for previously deleted standard cookies and to “re-spawn” previously deleted cookies.

Even if the users could allege that they were affected by Specific Media’s installation of Flash cookies, they made only conclusory allegations of harm, according to the court. The argument that Specific Media’s practices caused the users to sustain damage to the economic value of their personal information was potentially valid in the abstract. However, the users would have to provide particularized details of the harm suffered. For example, the users would have to explain how Specific Media’s conduct deprived them of the opportunity to engage in a “value-for-value exchange” for their information and how that deprivation diminished the economic value of their information (La Court v. Specific Media, Inc., CDCal, CCH Computer Cases ¶50,175; IRN User Link).

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

The 2011-2 Supplement to Scott Multimedia Law, Third Edition, was recently added to Wolters Kluwer IntelliConnect in the Intellectual Property practice area and on the Computer and Internet Law tab of the CCH Internet Research Network. 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 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 2011-2 Supplement covers recent developments in multimedia law, including: (1) expanded analysis of the legal issues of social media; (2) discussion of the most recent Ninth Circuit cases on copyright law, including MDY Industries v. Blizzard Entertainment and Vernor v. Autodesk; (3) expanded coverage of the anti-circumvention provisions of the Digital Millennium Copyright Act (DMCA); (4) new discussion of the DMCA provisions relating to copyright management information (5) addition of the most recent cases on the “work-made-for-hire” copyright law doctrine; (6) expanded coverage of videogame law; (7) discussion of the recent U.S. v. ASCAP case on downloading and public performance law; (8) new discussion of the difference between covenant and conditions in software licenses; (9) expanded analysis of use of a work exceeding license terms; (10) expanded coverage of license agreement termination provisions; (11) analysis of the most recent cases on Section 230 of the Communications Decency Act; and (12) addition of a new section on the recently enacted Restore Online Confidence Act.

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 them for your own practice. This highly practical addition enables you to immediately support the widest variety of client needs—and save time throughout all stages of bringing multimedia products to market.

For more information on Scott on Multimedia Law, visit the Aspen Publishers website.

Law of the Internet, by George B. Delta and Jeffrey H. Matsuura

The 2011-2 Supplement for Law of the Internet recently went live on Wolters Kluwer IntelliConnect in the Intellectual Property practice area and on the Computer and Internet Law tab of the CCH Internet Research Network. Law of the Internet offers a comprehensive overview of the Internet, lucid discussion of its current applications, and thoughtful analysis of recent trends. The authors identify the legal issues that arise from the use of the Internet and its applications, provide incisive analysis of how existing law applies, and alert readers to potential issues and future areas of concern.

The 2011-2 Supplement covers new developments in the fast-changing field of Internet law and adds significant new and revised material on a number of critical topics, including: (1) discussion of the legal issues raised by the WikiLeaks disclosure of U.S. government materials; (2) examination of the Federal Communications Commission's Net Neutrality rules; (3) update on privacy law implications of actions taken against Google based on its "Google Earth View" program, in the United States and abroad; (4) analysis of copyright and trade secrets aspects of the litigation between Google and SAP, and their potential impact on the software support industry; (5) review of antitrust initiatives targeting Google, IBM, and Apple, and their impact on the information technology industry; (6) discussion of legal issues facing providers of technology services to the government, including Google, Microsoft, Hewlett-Packard, and others; (7) examination of the impact of the H-1B visa fee increase on the technology sector; and (8) new discussion of the Computer Fraud and Abuse Act.

For more information on Law of the Internet, visit the Aspen Publishers website.