October 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

Internet Radio Service Not Required to Pay Licensing Fees
A webcaster (Launch Media) that enabled users to create personalized Internet radio stations was not an "interactive service" within the meaning of Section 114(j)(7) of the Digital Millennium Copyright Act (DMCA), the U.S. Court of Appeals in New York City ruled. Therefore, the webcaster did not infringe recording companies' copyrights and was not liable for failing to pay licensing fees to recording companies.

Under the DMCA, if a digital audio transmission occurs through an "interactive service," a copyright owner may demand a licensing fee for each transmission. If, on the other hand, a digital audio transmission is not made through an "interactive service," the transmitter need only pay a compulsory or statutory licensing fee set by the Copyright Royalty Board. A webcasting service is “interactive” if a user can either (1) request, and have played, a particular sound recording, or (2) receive a transmission of a program "specially created" for the user.

The LAUNCHcast website enabled a user to create "stations" that played songs within a particular genre or similar to a selected artist or song. When a user selected a "station," LAUNCHcast generated a playlist of 50 songs from a pool of approximately 10,000 songs using a logarithm based on several constantly changing variables. LAUNCHcast users had almost no ability to choose which specific songs would be pooled for selection to a playlist. Users could not even view the titles of unplayed songs in a playlist.

The fact that each playlist was unique to a particular user at a particular time did not necessarily mean it was "specially created" for the user within the meaning of the DMCA, according to the court. The phase "specially created" is not defined in the DMCA, but the statute’s legislative history indicated that Congress was primarily concerned with preventing a reduction in record sales stemming from outright piracy or the development of digital technologies that would discourage users from purchasing music. The LAUNCHcast system did not provide sufficient control to users to cause them to choose to listen to webcasts in lieu of purchasing music, the court concluded (Arista Records, LLC v. Launch Media, Inc., 2dCir, CCH Copyright Law Decisions ¶29,806; IntelliConnect User Link; CCH Computer Cases ¶49,796; IntelliConnect User Link).

Use of Magazine Images in Book Was Permissible Fair Use
An author's use of images from a publisher's magazine covers in his book about the artist who created the images was protected by the fair use doctrine because it was transformative, the federal district court in Philadelphia ruled. The main purpose of the book was to celebrate the art of the artist, while the original purpose of the covers was to sell magazines. Accordingly, the author was granted summary judgment on the publisher's copyright claims.

All four statutory fair use factors weighed in favor of the author. Regarding the "purpose and character" of the use, the book and the magazine used the images for entirely different purposes. The book used the magazine covers as several examples of the artist's work, while the magazines were devoted to discussing developments in the world of movie monsters. The transformative nature of the author's book rendered the "nature of copyrighted work" factor of limited usefulness, despite the fact that the copyrighted magazines were out-of-print. With regard to the "amount and substantiality used" factor, the portion taken by the author was from 1 percent to 1.5 percent of each of the magazines, and the covers were not the qualitative "heart" of the magazines. Rather, they were used to catch the eye of potential readers at the newsstand. Finally, because of the publisher's sheer neglect of his copyrights, the factor concerning the "effect on potential market value" also weighed in favor of the author. Although the magazine publisher's arguments focused on the market for derivative works, specifically a coffee-table book, he failed to exploit any derivative market and failed to even exploit the copyrights in their entirety for approximately 22 years (Warren Publishing Co. v. Spurlock, EDPa, CCH Copyright Law Decisions ¶29,802; IntelliConnect User Link).

TRADEMARKS

False Statements to PTO Not Fraud Absent Intent to Deceive
Consumer electronics manufacturer Bose did not commit fraud on the Patent and Trademark Office by making misstatements as to its use of the mark WAVE on certain goods in its renewal filings for the mark's registration, the U.S. Court of Appeals for the Federal Circuit has held. In the renewal, filed in 2001, Bose had stated that the WAVE mark was still in use in commerce on all the various goods listed in the original application, including audio tape recorders and players. However, Bose had stopped manufacturing and selling audio tape recorders and players sometime between 1996 and 1997.

Bose's general counsel testified before the TTAB that, in his belief, the WAVE mark was still being used in connection with those goods because Bose continued to repair previously sold tape recorders and players, some of which were still under warranty. The Trademark Trial and Appeal Board determined that Bose's activities did not constitute use sufficient to maintain a trademark registration. Thus, the TTAB decided, the WAVE registration was void ab initio and was canceled in its entirety.

In canceling the WAVE registration, the TTAB erred by failing to determine whether Bose intended to deceive the PTO, the court said. A trademark registration is fraudulently obtained only if the applicant or registrant knowingly made a false, material representation with the intent to deceive the PTO. There is a legal distinction between a false representation and a fraudulent one. A false statement must be willful to constitute fraud, according to the court. The TTAB incorrectly applied a "should have known" standard, equating constructive knowledge with a subjective intent to deceive. Fraudulent intent must be established by clear and convincing evidence. Without clear and convincing evidence to support an inference of deceptive intent, the TTAB's finding of fraud was in error. Cancellation of the entire WAVE registration was reversed, but the case was remanded with instructions to restrict the registration to reflect the fact that audio tape recorders and players were no longer sold by Bose (In re Bose Corp., FedCir, CCH Trademark Law Guide ¶61,474; IntelliConnect User Link).

“O” Logos for Motorcycle Apparel Not Likely to Confuse
A motorcycle apparel company (O'Neal) could not prevent a competitor (One Industries) from using a stylized "O" trademark on its products, including helmets, the U.S. Court of Appeals in San Francisco has decided. Confusion between the marks was not likely.

O'Neal could not "tack" the different versions of its stylized "O" logo for its products, for purposes of establishing priority of use, the court said. O'Neal began using a mark consisting of a letter "O" followed by an apostrophe in 1991. It made several changes to the design in 1992, 1993, and 1997 and adopted its current version of the mark in 2003. O’Neal’s sequential marks did not create the same, continuing commercial impression, according to the court.

Because One Industries adopted its "O" logo in 1999, O'Neal's 1997 mark was the correct mark to examine for the likelihood of confusion analysis, the court determined, rather than the 2003 mark. O'Neal's 1997 mark consisted of an angular, flattened "O" followed by a stylized apostrophe. One Industries' logo consisted of a letter "O" formed by two interlacing number ones. The marks were visually dissimilar, and there was no evidence of actual confusion. One Industries displayed its trade name on the boxes and product literature accompanying its helmets; there was nothing linking One Industries with O'Neal's mark.

O'Neal's assertion that One Industries intended to trade on the goodwill established by O'Neal's mark in connection with motorcycle helmets was supported by weak evidence, at best, in the court's view. In addition, the commercial strength of O'Neal's mark was diminished by the fact that several other companies in the industry used marks featuring the letter "O" (One Industries, LLC v. Lim O’Neal Distributing, Inc., 9thCir, CCH Trademark Law Guide ¶61,477; IntelliConnect User Link).

Unauthorized Online Sales Infringed “Mary Kay” Marks
A jury had enough evidence to conclude that a former independent sales representative for "Mary Kay" brand cosmetics willfully infringed Mary Kay's trademarks by selling a backlog of Mary Kay products online without authorization, according to the federal district court in Dallas.

The seller admitted that the inclusion of the word "pink" in the name of her eBay store—"Touch of Pink" —and website —“touchofpink.com" —could cause people to associate the store with Mary Kay. In addition, the seller used product descriptions and usage tips that were nearly identical to those on the Mary Kay website. The seller described its eBay store as a "one stop shop for all your Mary Kay needs." This evidence was sufficient to allow the jury to determine that the seller intended to deceive customers into thinking she was affiliated with Mary Kay, the court said.

The jury reasonably determined that the online sales were not protected by the first-sale doctrine and that they did not constitute fair use. The first-sale doctrine generally provides that resales by the first purchaser of original trademarked items do not constitute trademark infringement or unfair competition. The cosmetics at issue, however, were expired—a characteristic that made them materially different from authorized Mary Kay products, the court said. The seller’s conduct did not constitute not fair use because she did more than use the Mary Kay brand to identify the products she was selling. Her eBay store and website could have suggested affiliation with or sponsorship by Mary Kay by including Mary Kay's product descriptions and skin care tips.

Mary Kay was entitled to an award of an accounting of profits earned by the seller from the unauthorized online sales, according to the court. The seller’s intent to confuse consumers about her relationship with Mary Kay warranted a profits award. In addition, the public interest supported the award because sales of expired products could have harmful effects (Mary Kay, Inc. v. Weber, NDTex, CCH Trademark Law Guide ¶61,486; IntelliConnect User Link).

COMPUTER AND INTERNET LAW

Internet Gambling Law Survives Constitutional Challenge
The Unlawful Internet Gambling Enforcement Act of 2006, which criminalizes the knowing acceptance of certain financial instruments in connection with unlawful gambling, was not unconstitutionally vague and did not abrogate a right to privacy, the U.S. Court of Appeals in Philadelphia has held. A non-profit gaming association argued that the Act was unconstitutional on its face because the statutory phrase "unlawful Internet gambling" lacked an "ascertainable and workable definition."

A statute is unconstitutionally vague if it fails to give fair notice of what conduct is prohibited, or if is so standardless that it authorizes or encourages seriously discriminatory enforcement. The Act provided adequate notice of the conduct it prohibits —knowingly accepting certain financial instruments in connection with a bet placed over the Internet, if that bet is illegal under any federal or state law applicable in the jurisdiction in which the bet is initiated or received. If conduct constitutes illegal gambling under the law of the applicable jurisdiction, it constitutes "unlawful Internet gambling" under the Act. The statute also was not rendered vague by an alleged difficulty in determining the jurisdiction from which an individual gambler initiated an Internet bet. What renders a statute vague is not the possibility that it sometimes would be difficult to determine whether the incriminating fact it establishes has been proved; but rather the inability to determine precisely what that fact is, the court clarified.

The association also asserted that the statute violated individuals’ constitutional right to engage in Internet gambling from the privacy of their home, similar to the right of consenting adults to engage in certain sexual conduct free from state interference in the privacy of their home. First, the association lacked standing to assert claims on behalf of individual gamblers with whom it had no direct relationship. However, even if the association could assert such rights, its constitutional privacy claim failed because the fundamental personal right to engage in private sexual conduct at home enjoys far greater legal protection that an alleged right to engage in unlawful Internet gambling—fundamentally commercial conduct—even if it occurs in the home, the court explained (Interactive Media Entertainment and Gaming Ass'n, Inc. v. U.S., 3dCir, CCH Computer Cases ¶49,798; IntelliConnect User Link).

Video-Sharing Site Not Liable for User Infringement
The Universal Music Group (UMG) failed to show, as a matter of law, that video-hosting website operator Veoh Networks was ineligible for the Digital Millennium Copyright Act's safe harbor defense against UMG’s infringement claims, the federal district court in Los Angeles has ruled. UMG asserted that Veoh failed to qualify for the safe harbor because (1) Veoh knew about, but failed to remove, infringing videos uploaded by users; (2) Veoh's repeat infringer policy was inadequate; and (3) Veoh had the right and ability to control infringing activity on its system.

It was undisputed that Veoh expeditiously removed videos that take down notices identified as infringing. The court rejected each of UMG’s attempts to impute culpable knowledge of infringement to Veoh, including that Veoh intentionally avoided knowledge of infringement by waiting two years to implement a third-party vendor's filtering system. The DMCA imposes no obligation on a service provider to implement filtering technology at all, let alone technology from the copyright holder's preferred vendor or on the copyright holder's desired timeline, the court observed.

With regard to Veoh's repeat infringer policy, UMG pointed to nothing in the statute, legislative history, or case law to support its contention that a policy that terminates a user only after a second warning was not reasonable or appropriate. In addition, UMG assertion that user must be terminated for attempting to uploading a video blocked by the third-party’s filtering system was without merit. The filtering software did not meet the standard of reliability and verifiability required to justify terminating a user's account. In Perfect 10, Inc. v. CCBill LLC (CCH Computer Law Cases ¶49,304; IntelliConnect User Link), the Ninth Circuit held that a user’s account could not be terminated based on a take-down notice lacking the sender’s sworn declaration.

A service provider's "right and ability" to control and remove material, by itself, did not make a service provider ineligible for the safe harbor, the court noted. On the contrary, service providers are required to control and remove content in order to comply with the statute. The DMCA does not place the burden of ferreting out infringement on the service provider, the court said (UMG Recordings, Inc. v. Veoh Networks, Inc., CDCal, CCH Computer Cases ¶49,80; IntelliConnect User Link).

Link to Website Terms Was Not Sufficiently Visible
A consumer who incurred a restocking fee when she returned a vacuum cleaner purchased from closeout retailer Overstock.com, could proceed with a putative class action suit alleging breach of contract, fraud, and New York unfair business practices claims against the retailer, the federal district court in Brooklyn has held. The court denied Overstock.com's motion to stay or dismiss the action in favor of arbitration pursuant to the "Terms and Conditions of Use" on its website.

The consumer claimed that she had no notice of Overstock.com's Terms and Conditions because the link to them could be seen only by scrolling down to the bottom of the screen—an action that was not required to effectuate her purchase.

Overstock.com failed to show that the website gave users constructive notice of the Terms and Conditions, according to the court. The website did not prompt users to review the Terms, and the link to them was not conspicuous enough to provide reasonable notice to users. In addition, Overstock.com's notification to users that "Entering this Site will constitute your acceptance of these Terms and Conditions" was provided only within the Terms and Conditions themselves (Hines v. Overstock.com, Inc., EDNY, CCH Computer Cases ¶49,803; IntelliConnect User Link).

Hot Topic of the Month

Parties Given Time to Revise Google Book Settlement
The federal district court in New York City has agreed to give Google and publishers until November 9 to submit a revised proposed book search settlement agreement. In a joint brief filed September 22, the Authors Guild, the Association of American Publishers, and other plaintiffs filed a motion asking the court to delay an October 7 “Fairness Hearing” to give the parties time to work out new proposed settlement terms with the Department of Justice. The court agreed to the parties’ request for the November 9 deadline at a status hearing on October 7.

The terms of the original proposed settlement agreement, reached in October 2008, would have required Google to pay $125 million to the plaintiffs for the right to: (1) continue to digitize books and inserts; (2) sell subscriptions to an electronic books database; (3) sell online access to individual books; (4) sell advertising on pages from books; and (5) make other uses described in the agreement. The agreement also would have created an independent Book Rights Registry that would ultimately keep licensing payments intended for copyright holders that were unable to be located.

The Justice Department filed a Statement of Interest on behalf of the United States on September 18, joining hundreds of commenters, including five states attorneys general, objecting to the settlement agreement. A document dated September 28—prepared for library associations—categorizes over 400 comments filed in the action.

The Justice Department urged the court to reject the proposal due to class action, copyright, and antitrust concerns. In its filing, the Justice Department proposed that the parties consider a number of changes to the agreement to help address the government's concerns, including imposing limitations on the most open-ended provisions for future licensing, eliminating potential conflicts among class members, providing additional protections for unknown rights holders, addressing the concerns of foreign authors and publishers, eliminating the joint-pricing mechanisms among publishers and authors, and providing some mechanism by which Google's competitors can gain comparable access.

Wolters Kluwer Law & Business Publications

Scott on Information Technology Law, Third Edition, by Michael D. Scott. The 2010 Supplement recently went live on the Intellectual Property/Computer and Internet Law tab of the CCH Internet Research Network and on CCH IntelliConnect under Computer and Internet Law. Whether you’re an experienced IT lawyer, a transactional or intellectual property attorney, an industry executive, or a general practitioner whose clients are coming to you with new issues, Scott on Information Technology Law provides practical, expert guidance on identifying and protecting intellectual property rights, drafting effective contracts, understanding applicable regulations, and avoiding civil and criminal liability. Written by Michael D. Scott, who practiced technology and business law for 29 years in Los Angeles and Silicon Valley, Scott on Information Technology Law offers a real-world perspective on many substantive areas that affect technology law practice, including torts, constitutional issues, and the full range of intellectual property protections.

The 2010 Supplement brings you up to date on the latest developments, including: (1) extensive revision of Chapter 1; (2) expanded coverage of "business method patents" and the "doctrine of equivalents" under patent law; (3) updated materials on licensing law, including clickwrap, shrinkwrap, exclusive, and non-exclusive licenses; (4) discussion of the Federal Circuit decision in Jacobsen v. Katzer regarding breach of contract vs. copyright infringement; (5) revision and expansion of discussion of Section 230 of the Communications Decency Act; (6) discussion of recent cases on what constitutes unauthorized access under the Computer Fraud and Abuse Act; (7) expanded analysis of search and seizure cases under the Fourth Amendment involving computers and the use of the Internet; (8) analysis of documentary formalities for copyright transfers; (9) discussion of incorporation by reference under Copyright law; (10) extended discussion of the enforceability of choice of forum clauses in both offline and online agreements; and (11) a new section on the application of third-party beneficiary law to online Terms of Use. Further information on Scott on Information Technology Law is available on the Aspen Publishers website.

Federal Telecommunications Law, Second Edition, by Peter W. Huber, Michael K. Kellogg, and John Thorne. The 2010 Supplement is now available under the Intellectual Property/Computer and Internet Law tab of the CCH Internet Research Network and on CCH IntelliConnect under Computer and Internet. Federal Telecommunications Law explores trends in competition, industry structures and technology, offering a total picture of the telecommunications industry in areas such as telecommunications equipment, long distance services, wireless services, the Internet and data services, information services, video services and more.

The 2010 Supplement, prepared by Zachary Wolfe, brings you up to date on the latest regulatory developments and case law, including: (1) the FCC's rural broadband strategy and its report on development of the strategy; (2) the FCC's approval of the license transfer from ALLTEL to Verizon Wireless; (3) DSL price-squeeze claims and exclusivity contracts, including the FCC's order regarding "triple-play" services; (4) Ancillary Terrestrial Components and Mobile Satellite Services; (5) NSA Wiretaps and use of customer proprietary information to retain customers; (6) the FCC's Commercial Mobile Alert System third report and order; (7) VoIP service obligations and internet-based telecommunications relay services; (8) regulation of "White Spaces; and more. For more information on Federal Telecommunications Law, visit the Aspen Publishers website.

Drafting Technology Patent License Agreements, Second Edition, by Michael J. Lennon. The 2010 Supplement has been added to the Patent Law tab of the CCH Internet Research Network and on CCH IntelliConnect under Patent Law. Drafting Technology Patent License Agreements covers all of the legal and business transactional issues you are likely to encounter during the drafting and negotiation of patent licensing agreements. It guides you step-by-step through the unique aspects of the implementation of a patent licensing program for computers, electronics, telecommunications, and other industries, and it clarifies the issues involved in the enforcement and litigation of these patents. Drafting Technology Patent License Agreements describes commonly negotiated licensing arrangements, including any license issue fees and royalties on licensed product sales. Included with this key resource are 40 time-saving forms on the bonus CD-ROM.

The 2010 Supplement brings you up to date on the latest developments, including: (1) a fully revised section on the patent exhaustion doctrine, discussing the district court, federal circuit court and Supreme Court decisions in Quanta Computer where the U.S. Supreme Court addressed whether the doctrine of patent exhaustion applied to method patents; (2) discussion of patent exhaustion in Intel v. ULSI Systems Technology, Inc., where Intel entered into a cross-licensing agreement with HP under which HP was given a royalty free license; (3) analysis of various suits by Cyrix alleging patent infringement and antitrust violations in Cyrix I and Cyrix II; (4) a section on Mallinckrodt, Inc. v. Medipart, Inc., where the Federal Circuit held that a patentee's right to restrict the use of its patented medical device was not exhausted by the first sale of those devices; (5) discussion of In re Yarn Processing Patent Validity Litigation, where the Fifth Circuit distinguished between restrictions placed on the manufacturing licensees of a patented process and restrictions imposed on the purchasers of the machines; and (6) analysis of Intergraph v. Dell, where Intergraph filed suit for patent infringement against Dell, Inc., Hewlett-Packard Company, and Gateway and Gateway raised patent exhaustion as a defense. To find out more about Drafting Technology Patent License Agreements, visit the Aspen Publishers website.