IP and Computer Law Update May 2009

May 2009

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

Removing Works from Public Domain Violated First Amendment
Removing works from the public domain pursuant to Section 514 of the Uruguay Round Agreements violated the vested First Amendment interests of artisans and businesses that relied upon them for their trade, the federal district court Denver has held. Section 514 restores the U.S. copyrights of foreign authors who lost those rights to the public domain for any reason other than the expiration of a copyright term.

The case was on remand from the U.S. Court of Appeals in Denver, which had determined that Section 514 required First Amendment review because it altered the traditional contours of copyright protection in a manner that implicated the plaintiffs' right to free expression. As a content-neutral regulation of speech, Section 514 could be sustained only if it advanced important governmental interests unrelated to the suppression of free speech and did not burden substantially more speech than necessary to further those interests.

Section 514 altered the time-honored principal that once a work enters the public domain, it cannot later be copyrighted. The government failed to show that any significant government interest was advanced by limiting the right of reliance parties to use works they had already exploited while the works were in the public domain (Golan v. Holder, DColo, CCH Copyright Law Decisions ¶29,727).

Breach of Contract Claim Arose Under Copyright Law
A software company's breach of contract claim based on a software developer's alleged failure to transfer rights associated with a software program, satisfied federal question jurisdiction because it arose under and required an interpretation of federal copyright laws, the federal district court in Sacramento held.

Pursuant to a Software Purchase Agreement, the developer agreed to transfer all rights associated with a software program to the company. However, after making substantial modifications to the program, the developer claimed the modifications constituted a derivative work that was not subject to the terms of the contract. The company sought a declaration that the contract was terminated by the developer's failure to perform and that the company was the owner of all rights related to the software.

The company contended that the federal court lacked jurisdiction because the complaint involved the parties' respective contractual rights. However, ownership was not the "sole question" for consideration because the software developer alleged that his modifications to the original software created a "derivative work" representing an original work of authorship. The declaration of ownership rights implicated federal copyright laws (XCEL Data Systems, Inc. v. Best, EDCal, CCH Copyright Law Decisions ¶29,728).

Associated Press Board Plans to Track Copyright Violators
The Associated Press and the newspaper industry plan to make an aggressive effort to track down copyright violators on the Internet and try to divert traffic from websites that do not properly license news content. The AP board, which is made up largely of newspaper executives, announced its copyright initiative at the AP's annual meeting held April 6, 2009. The AP's chairman stated that “we can no longer stand by and watch others walk off with our work under some very misguided, unfounded legal theories.” Specifics behind the copyright initiative are still being worked out. However, one idea under development would be to create a system that can track whether news content is being legally distributed online. The AP said it will work with newspapers and broadcasters to direct readers to “landing pages” that could offer news from the AP and its members, rather than unauthorized sites.

Libraries Request Court to Oversee Google Book Search Settlement
Three library associations filed Comments in the federal district court in Manhattan on May 4 requesting the court to closely monitor implementation of the proposed Google Book Search Settlement Agreement. Collectively, the American Library Association (ALA), the Association of College and Research Libraries (ACRL), and the Association of Research Libraries (ARL) represent over 139,000 libraries in the United States employing over 350,000 librarians and other personnel.

Although the library associations acknowledged that the October 28, 2008 Settlement Agreement between Google and the Author's Guild could provide unprecedented access to a library of millions of digital books, they expressed concern that the lack of competition for the services to be provided by Google and the new nonprofit "Books Rights Registry" could compromise "fundamental library values such as equity of access to information, patron privacy, and intellectual freedom.” Erika Linke, President of ACRL, is also concerned that “the cost of an institutional subscription may skyrocket, as academic journal subscriptions have over the past two decades."

In order to "mitigate the possible negative effects" of the settlement on libraries and the public, the associations urged the court to "vigorously exercise its jurisdiction over the interpretation and implementation of the Settlement." Tom Leonard, President of ARL, explained that such oversight is needed “to ensure that the powerful groups that control content do not leave individual researchers, libraries, other cultural organizations and the public without an effective voice.”

TRADEMARKS

Google’s Sale of Marks to Trigger Ads Was Use in Commerce
Internet search engine operator Google's recommendation and sale of a computer services franchisor's trademark to Google's advertisers as a keyword to trigger their ads and links could have violated the Lanham Act if the mark was used in a manner that was likely to confuse users conducting a search using the franchisor’s mark, according to the U.S. Court of Appeals in New York City.

Google's alleged use of the franchisor's mark would constitute a "use in commerce" for purposes of Sec. 45 of the Lanham Act, the court said. Google displayed, offered, and sold the franchisor's mark to its advertising customers when selling its advertising services. In addition, Google encouraged the use of the franchisor's mark through its "Keyword Suggestion Tool," which identified keywords for advertisers to purchase and which had recommended the franchisor's mark to the franchisor's competitors.

Even if Google's use of the mark in its internal search algorithm did not constitute an actionable trademark use, Google's recommendation and sale of the mark to advertising customers were not internal uses. Moreover, an internal use of a mark in software could violate the Lanham Act, if the use created consumer confusion, the court said (Rescuecom Corp. v. Google, Inc., 2nd Cir., CCH Trademark Law Guide ¶61,408; CCH Computer Cases ¶49,720).

Color Scheme Was Nonfunctional, Protectable as Trademark
A manufacturer and seller of jewelry injection waxes was entitled to trade dress protection under the Lanham Act for its color coding scheme, the U.S. Court of Appeals in Cincinnati has held in a not-for-publication decision. The manufacturer could proceed with trade dress infringement claims against a competitor that allegedly used the exact same set of colors.

The asserted trade dress consisted of a set of eight colors, each associated with a jewelry injection wax having specific properties. There was evidence that the wax colors were nonfunctional. Even if any particular color provided a functional advantage, the manufacturer claimed trade dress rights only in its overall color scheme, the court noted. Nothing in the record indicated that the competitor would be placed at an unfair disadvantage if it were forced to adopt a different color coding scheme.

In addition, the manufacturer could proceed with claims that the competitor infringed its trademark rights in the names associated with its eight waxes, which were arbitrary or fanciful. The competitor's assertion that it was the actual inventor of the names and formulas for the waxes—and that it, therefore, owned the trade dress—was a disputed factual issue that precluded summary judgment (Kerr Corp. v. Freeman Manufacturing & Supply Co., 6th Cir., CCH Trademark Law Guide ¶61,400).

Paris Court Rules eBay Not Liable for Sales of Counterfeit Goods
Online auction giant eBay, Inc. is not liable for the sale of counterfeit l'Oréal products on its website, a Parisian civil court ruled on May 13. Rejecting l'Oréal's claim for €3.5 million in damages, the Tribunal de Grande Instance in Paris found that eBay adequately met its obligations to combat the sale of counterfeit goods on its website. The court, however, ordered the two sides to develop a cooperative plan to settle differences in mandated mediation.

Calling the decision a victory for eBay and for consumers, Alexander von Schirmeister, Director General of eBay France, said in a statement that the company was pleased with the court's acknowledgment of eBay's anti-counterfeiting efforts and its status as a hosting service provider.

The decision seems to contradict a ruling last July issued by a Parisian commercial court against eBay. Finding eBay’s anti-counterfeiting measures to be inadequate, the Tribunal de Commerce in Paris awarded €38 million to French luxury good conglomerate LMVH Moet Hennessy-Luis Vuitton S.A. eBay has appealed that judgment.

According to eBay, currently only one percent of auctions items involve suspect goods. In a paper published in Europe in March, Fighting Against Online Solicitation of Counterfeits, eBay discusses the global counterfeiting problem and eBay's efforts to combat it.

eBay’s European court battle with l'Oréal is not over. Although l'Oréal lost a similar case against eBay in Belgium last August, actions filed in Great Britain, Germany, and Spain are still pending.

COMPUTER AND INTERNET LAW

Privacy Rights Lost by Posting Article on MySpace
Dismissal of a college student's invasion of privacy claim against a high school principal residing in the student's hometown was affirmed by a California appeals court because the student failed to allege intrusion on any interest in which she could claim a reasonable expectation of privacy. The student and her family, however, could proceed with their intentional infliction of emotional distress claims against the principal.

The student claimed that the high school principal invaded her privacy and inflicted emotion distress by giving a local newspaper a copy of an "Ode" that was written by the student and posted on myspace.com. The "Ode," which was highly critical of the students' hometown and its residents, was republished by the newspaper as a Letter to the Editor under the student's name. Publication of the "Ode" allegedly sparked a negative reaction in the community against the student and her family.

To state a claim for invasion of privacy in California, a plaintiff must show that a defendant violated a legally protected privacy interest in which the defendant has a reasonable expectation of privacy. The student forfeited any expectation of privacy in contents of her "Ode" when she made it available, even if only for six days, to a vast public audience by posting it on myspace.com, the court found. A matter that has been made public or which previously was part of the public domain is not private.

The student and her family adequately stated a claim of intentional infliction of emotional distress against the principal. Intentional infliction of emotional distress requires proof that the defendant engaged in extreme and outrageous conduct exceeding the bounds of civilized society. However, conduct that otherwise might not be considered extreme and outrageous could be found to be so if a defendant (1) abuses a relation or position that gives him power to damage the plaintiff's interest; (2) knows the plaintiff is susceptible to injuries through mental distress; or (3) acts intentionally or unreasonably with the recognition that the acts are likely to result in illness through mental distress. In this case, the student and her family alleged that the principal's conduct was extreme and outrageous because he abused his position of public authority by submitting the student's writing to the local newspaper, knowing he did not have permission to do so, with intent to cause emotional distress to the family, for the purpose of punishing them for the contents of the article (Moreno v. Hanford Sentinel, Inc., CalCtApp, CCH Computer Cases ¶49,719).

CDA Does Not Preempt State or Federal IP Claims
The Communications Decency Act did not preempt New York common law copyright infringement and unfair competition claims brought by recording companies against the operator of a website that facilitated users' access to unauthorized copies of sound recording on third-party websites, the federal district court in New York City has held.

The CDA preemption provision carves out an exemption for intellectual property claims: "Nothing in this section shall be construed to limit or expand any law pertaining to intellectual property," Section 230(e)(2). The website operator argued that the CDA preempted state, but not federal, intellectual property laws, citing Perfect 10, Inc. v. CCBill LLC (CCH Computer Cases ¶49,446), in which the Ninth Circuit held that the term "intellectual property" in the CDA really means "federal intellectual property."

The Ninth Circuit's opinion contravenes the plain language of section 230(e)(2), which carves out a blanket exemption all law intellectual property claims, according to the court. In four different places, section 230(e) expressly states whether it applies to local, state, or federal law. If Congress had wanted the phrase "any law pertaining to intellectual property" to actually mean only "any federal law pertaining to intellectual property," Congress knew how to make that distinction, but chose not to, the court explained (Atlantic Recording Corp. v. Project Playlist, Inc., SDNY, CCH Computer Cases ¶49,708).

Stored Communication Act Plaintiffs Must Prove Actual Damages
Statutory damages under the Stored Communications Act (SCA) could not be awarded to a former employee of a data conversion company without proof of actual damages, the federal district court in Alexandria, Virginia has ruled.

The SCA's civil damages provision permits a court to "assess as damages in a civil action under this section the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation, but in no case shall a person entitled to recover receive less than the sum of $1,000,” 18 U.S.C. 2707(c). If a violation is willful or intentional, a court may assess punitive damages. Costs and reasonable attorney’s fees also may be assessed against a violator.

The U.S. Supreme Court interpreted nearly identical language contained in the Privacy Act's damages provision to mean that statutory damages are available only to plaintiffs who first proved that they suffered actual damages. Doe v. Chao, 540 U.S. 614 (2004). Thus, just as the Privacy Act required proof of "actual damages" as a prerequisite to recovering statutory damages, so did the SCA, the court concluded. Unlike statutory damages, however, the CDA authorizes punitive damages and allows for an award of costs and reasonable attorney’s fees without any reference to actual damages. While not improper, the jury’s punitive damage award and the court’s assessment of attorney’s fees were vacated, along with the statutory damages award, for reconsideration by the district court (Van Alstyne v. Electronic Scriptorium, Ltd., 4thCir, CCH Computer Cases ¶49,703).

HOT TOPICS OF THE MONTH

FTC Testifies on Data Security, Peer-to-Peer File Sharing Bills
The Federal Trade Commission Acting Director of the Bureau of Consumer Protection Eileen Harrington testified May 5 before the House Energy and Commerce Committee Subcommittee on Commerce, Trade and Consumer Affairs in support of two pieces of legislation— H.R. 2221, the proposed "Data Accountability and Trust Act" and H.R. 1319, known as the “Informed P2P User Act.” The FTC's testimony is available here.

The Data Accountability and Trust Act, introduced April 30 by Rep. Bobby Rush (D-Ill.), would require companies that own or possess data in electronic form containing personal information—or that contract to have a third-party maintain such data—to establish and implement reasonable security policies and procedures to protect that data. The measure would also provide for nationwide notice in the event of a security breach. The proposed law would be enforced by the Federal Trade Commission and state attorneys general. The FTC suggested that the data security legislation be extended to cover data stored on paper, as well as electronic data. It also recommended that certain provisions imposing obligations on information brokers be targeted specifically to address harms consumers may face when brokers sell information about them.

The Informed P2P User Act, introduced by Rep. Mary Bono Mack (R-Calif.), would prevent the inadvertent disclosure of information on a computer through the use of certain "peer-to-peer" file sharing software without first providing notice and obtaining consent from the owner or authorized user of the computer. A violation of the Act would also constitute a violation of the FCT Act. The FTC would be authorized to enforce the law and to seek civil penalties for violations. Although P2P technologies hold potential benefits for computer users and businesses, they also can raise the risk that sensitive information will be made available over P2P networks, either through inadvertent sharing or through malware, according to the FTC.

The FTC noted that the agency had brought cases related to P2P file sharing, had helped P2P software developers devise voluntary best practices to help consumers prevent inadvertent file sharing, and had continued to monitor efforts by companies to comply with these practices.

White Paper Warns About Cyber Crime, Suggests Security Practices
The dangers of cyber crime and the measures that can be taken to protect cyber property are the subjects of a new report issued by Wolters Kluwer Law & Business.

Cyber Crime and Cyber Security: A White Paper for Franchisors, Licensors, and Others explains how malicious and well-organized hackers pose serious threats to firms’ intellectual property, confidential data, and collections of customers’ personal and financial information.

“As they say in the cyber security world, there are only two kinds of computer systems: those that have been hacked and those that will be hacked,” write authors Bruce S. Schaeffer, Henfree Chan, Henry Chan, and Susan Ogulnick.

Practically any business and any person can be vulnerable. Despite a “hacker safe” notification from McAfee ScanAlert on its website, online retailer Geeeks.com was the victim of a cyber attack that accessed customer credit card numbers and other personal information. Even Deborah Platt Majoras, Chairman of the Federal Trade Commission from 2004 to 2008, was the victim of identity theft.

Cyber attacks can come from internal networks, the Internet, or other private or public systems, according to the authors. Major liability may follow in the form of individual and class litigation, regulatory action, contract disputes, customer loss, damage to reputation, cyber-extortion, and fraud.

Companies are advised to have policies in place for data protection, data retention, data destruction, privacy, and disclaimers to customers. If a security breach occurs, a company should be prepared for a regulatory investigation and implement a crisis management plan.

While the human factor can be the weakest link in any security program, businesses can adopt “best practices” for use by employees. These include warning employees not to share or write down pass phrases, click on links or attachments from unknown sources, or send sensitive business files to personal e-mail addresses. Employees should be encouraged to report suspicious or malicious activity and to secure their mobile devices when traveling.

The White Paper—which includes an appendix to articles on cyber crime and a glossary of cyber security terms—is available for free download at http://business.cch.com/

Wolters Kluwer Law & Business Publications

Perle & Williams on Publishing Law, Third Edition, by E. Gabriel Perle, John Taylor Williams, and Mark A. Fischer. The 2009 Supplement is now available on the Intellectual Property/Computer and Internet Law tab of the CCH Internet Research Network. Perle & Williams on Publishing Law is a valuable handbook covering the latest approaches to relations between writer/publisher and publisher/public including timely and practical advice on issues commonly encountered in negotiating royalties, advances, options, writer's warranty, subsidiary rights splits, and much more. It also covers intellectual property issues as they affect publishing, including electronic publishing and software, trademark and copyright law, filing procedures, and antitrust issues.

The 2009 Supplement includes: (1) a discussion on e-books and digital rights, including the technology involved and lessons to be learned from music sharing infringements; (2) an update on the military's policy concerning embedded journalists; (3) cases developments on the issue of copyright as it pertains to compilations; (4) up-to-date developments in the area of fair use; (5) case developments regarding termination of licensing rights; (6) updated status on the First Amendment challenge to automatic restoration of foreign copyrights; (7) a discussion of the Prioritizing Resources and Organization for Intellectual Property Act; and (8) a description of the Shaw Bentley Orphan Works Act.

Scott on Multimedia Law, Third Edition, by Michael A. Scott. The 2009 Supplement has been added to the Intellectual Property/Computer and Internet Law tab of the CCH Internet Research Network. Scott on Multimedia Law provides up-to-date information on the evolving law and gives the legal framework for the development, marketing, distribution, and licensing of multimedia products. More than 60 electronic forms covering numerous transactions across a wide variety of media are also included.

Coverage includes: (1) registration of a website trademark to comply with evolving standards in the international regulatory environment; (2) a panoply of intellectual property rights issues; (3) legal issues, including titles and characters, rights of publicity, right of privacy, defamation, and unfair competition; (4) employment agreements, development agreements, and distribution agreements; (5) licensing issues for incorporated materials; and (6) involvement with guilds, unions, and trade associations.

Law of the Internet, Third Edition, by George B. Delta and Jeffrey H. Matsuura. The 2009 Supplement is now available on the Intellectual Property/Computer and Internet Law tab of the CCH Internet Research Network. Law of the Internet is a two-volume resource covering the legal disciplines influenced by the Internet, with special focus on electronic commerce and online contracts, privacy and network security, intellectual property and online content management. Special features of this two-volume resource include timesaving checklists and references to online resources.

Law of the Internet offers comprehensive coverage of the legal disciplines influenced by the Internet, with special focus on: (1) Electronic Commerce and Online Contracts — Planning and management of electronic contracts and licenses, telecommunications, electronic payment systems, securities transactions, e-government, tax payments, on-line advertising, and other important and rapidly advancing areas; (2) Privacy and Network Security — Clear explanation of the applicable laws, regulations and precedents, including legal questions surrounding e-mail, the Web, search engines, the protection of personal privacy on-line, and regulation by different jurisdictions; and (3) Intellectual Property and Online Content Management — Practical guidance on how to manage and protect intellectual property, including the use of licenses, Internet copyright, patent, trademark, trade secrets, and moral rights issues. Full details of federal constraints on the distribution of obscene materials, and the strategies an Internet service provider (ISP) can use to reduce risk and minimize liability.

Further information regarding Wolters Kluwer Law & Business publications is available on the CCH Online Store.