By: David Muradyan

Online service providers and operators of such sites should take careful note of the Second Circuit Court of Appeals’ recent decision in Viacom Int’l, Inc. v. YouTube, Inc., Case No. 10-3342-cv (“Viacom”), where the court held that service providers and operators will not be protected from the safe harbor provisions of the Digital Millennium Copyright Act (“DMCA”), 17 U.S.C. § 512(c), if they have “actual knowledge or awareness of facts or circumstances that indicate specific and identifiable instances of infringement.”

For background, “[t]he DMCA was enacted in 1998 to implement the World Intellectual Property Organization Copyright Treaty,” Universal City Studios, Inc. v. Corley, 273 F.3d 429, 440 (2d Cir. 2001), and to update domestic copyright law for the digital age. Ellison v. Robertson, 357 F.3d 1072, 1076 (9^th Cir. 2004). In particular, the DMCA established a series of four “safe harbors” that allow qualifying service providers to limit their liability for claims of copyright infringement based on (a) “transitory digital network communications,” (b) “system caching,” (c) “information residing on systems or networks at [the] direction of users,” and (d) “information location tools.” 17 U.S.C. §§ 512(a)-(d). The safe harbor at issue in Viacom was § 512(c), which covers infringement claims that arise “by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider.” 17 U.S.C. § 512(c)(1). To qualify for protection under any of the safe harbors, a party must: (1) be a “service provider,” which is defined as “a provider of online services or network access, or the operator of facilities therefor,” Id. § 512(k)(1)(B); (2) satisfy certain “conditions of eligibility,” including the adoption and reasonable implementation of a “repeat infringer” policy that “provides for the termination in appropriate circumstances of subscribers and account holders of the service provider’s system or network,” Id. § 512(i)(1)(A), and (3) accommodate “standard technical measures” that are “used by copyright owners to identify or protect copyrighted works.” Id. §§ 512(i)(1)(B), (i)(2). The § 512(c) safe harbor will apply only if the service provider: 

            (ii)         in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent (“red flag knowledge” provision); or 

            (iii)        upon obtaining such knowledge or awareness, acts expeditiously to remove, or disable access to, the material; 

(B)                               Does not receive a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity; and 

(C)                               Upon notification of claimed infringement, responds expeditiously to remove, or disable access to, the material that is claimed to be infringing or to be the subject of infringing activity. 

17 U.S.C. § 512(c)(1)(A)-(C). Section 512(c) also requires services providers to designate an agent to receive notification of claimed infringement, and specifies the components of a proper notification, commonly known as a “takedown notice,” to that agent. Id. §§ 512(c)(2), (c)(3). In summary, actual knowledge of infringing material, awareness of facts or circumstances that make infringing activity apparent, or receipt of a takedown notice will each trigger an obligation to expeditiously remove the infringing material.

In Viacom, the plaintiffs—which included Viacom International, Inc., The Football Association Premier League Ltd., and various film studios, television networks, music publishers, and sports leagues (collectively, the “Plaintiffs”)—alleged that defendants YouTube, Inc., YouTube, LLC, and Google Inc. (collectively, “YouTube”) engaged in direct and secondary copyright infringement based on the public performance, display, and reproduction of approximately 79,000 audiovisual clips that appeared on the YouTube website between 2005 and 2008.  The United States District Court for the Southern District of New York (the “District Court”) had previously granted YouTube’s summary judgment motion, holding that YouTube was entitled to § 512(c) safe harbor protection primarily because they had insufficient notice of the particular infringements set forth in the suit.

On appeal, the Second Circuit interpreted § 512(c) and held that although the District Court correctly concluded that the § 512(c) safe harbor requires knowledge or awareness of specific infringing activity, summary judgment for YouTube was nonetheless premature because a reasonable jury could find that YouTube had actual knowledge or awareness of specific infringing activity on its website. The Court concluded that the statutory phrases “actual knowledge that the material . . . is infringing” (i.e., the “actual knowledge” provision contained in § 512(c)(1)(A)) and “facts or circumstances from which infringing activity is apparent” (i.e., the “red flag knowledge” provision contained in § 512(c)(1)(B)) both refer to “knowledge of specific and identifiable infringements.” The Court explained that the difference between actual and red flag knowledge was not between specific and generalized knowledge, but instead was between a subjective and an objective standard. The Court analyzed that the actual knowledge provision turned on whether the provider actually or “subjectively” knew of specific infringement, while the red flag provision turned on whether the provider was subjectively aware of facts that would have made the specific infringement “objectively” obvious to a reasonable person. After noting that the Ninth Circuit in UMG Recordings, Inc. v. Shelter Capital Partners LLC, 667 F.3d 1022 (9^th Cir. 2011) and other district courts had interpreted § 512(c) in a similar manner, the Court held that “actual knowledge or awareness of facts or circumstances that indicate specific and identifiable instances of infringement will disqualify a service provider from the safe harbor.” The Court reviewed the record and found, among other things (1) an email by the director of video partnerships for Google and YouTube, requesting that his colleagues take down any “clearly infringing, official broadcast footage” from a list of certain premier league clubs in advance of a meeting with the heads of several major sports teams and leagues, (2) a 2006 report by one of YouTube’s co-founders stating that episodes and clips of certain well-known shows could still be found on the website and that YouTube would benefit from preemptively removing content that was “blatantly illegal”, and (3) emails by another co-founder that suggested that a CNN clip of the space shuttle should be left on the website until CNN’s legal department requests that it be taken down.  In the Court’s view, in light of the foregoing facts in the record, Plaintiffs had raised a material issue of fact regarding YouTube’s knowledge or awareness of specific instances of infringement in part. The Court further determined that a reasonable juror could conclude that YouTube had actual knowledge of specific infringing activity, or was at least aware of facts or circumstances from which specific infringing activity was apparent.  Separately, on an issue of first impression, the court also held that the “willful blindness” doctrine may be applied, in appropriate circumstances, to demonstrate knowledge or awareness of specific instances of infringement under the DMCA, and instructed the District Court to consider in the first instance on remand. The Court noted that while section 512(m) does not require affirmative monitoring, online providers and operators shall not make a “deliberate effort to avoid guilty knowledge.”

In light of this decision, online service providers and operators of such sites should make sure that they remove infringing content when they have actual knowledge of specific infringing activity, or are at least aware of facts or circumstances from which specific infringing activity is apparent. 

By: Scott Plamondon

While champagne is rarely my drink of choice (the bubbles tickle my nose), those who prefer to imbibe champagne may have noticed that their favorite beverage might have quietly changed its name from “champagne” to “sparkling wine.”  In similar fashion, those who enjoy Basmati rice or Camembert cheese might also have noticed changes to the names of their favorite products.  Many may wonder what has happened, and why we are now drinking sparkling wine when we used to enjoy champagne, or why we must settle for brie when we previously enjoyed Roquefort and Camembert.

Although the names have changed, the products probably have not.  Rather, many countries have created a system which recognizes and protects the value of the intellectual property associated with the geographic origin of certain products.  Functioning like a trademark, a geographical indication can represent valuable intellectual property by identifying a particular region as the source of a certain product.  Although not traditionally protected by trademark laws, geographical indications and designations of geographic origin have traditionally been afforded protection by various countries.  Long known for its famous varieties of cheese, wine, and, of course, champagne, France introduced one of the first systems designed to protect geographical indications, known as appellation d’origine contrôlée, or the “AOC.”  The AOC makes it unlawful to manufacture and sell a product under a geographical indication identified by the AOC if the product does not comply with a set of strict criteria, which includes production of AOC-protected products in particular regions.

Acquiring protection of geographical indications is not automatic.  Each country that has agreed to the terms of the TRIPS agreement first must permit registration of geographical indications within their borders.  Further, all member governments must provide opportunities under their domestic intellectual property laws which permit the owner of a registered geographical indication to prevent the use of trademarks which tend to mislead the public as to the geographical origin of the particular good in question.  These governments may refuse to register a trademark, or invalidate an existing trademark, where that mark has a tendency to mislead the public as to the actual origin of the product underlying that mark.  Obviously reflecting a strong lobby from the French, Article 23 of the TRIPS agreement provides that all nations covered by the TRIPS agreement must provide the owner of a geographical indication the ability to prevent the use of geographical indications on wines and spirits which assert that those beverages originated outside of the place described by the geographical indication.  Such misleading geographical indications relating to wines and spirits must be discontinued, even where there is no evidence of actual confusion among consumers of these products.

While consuming the contents of the champagne bottles might have been sufficient to avoid the onset of international conflict regarding this bubbly adult beverage, it is the change to the bottles’ labels which has permitted makers of the bubbly to avert a potential international dispute.  So, next time you reach for a bottle of Ballatore or Chandon, you can be confident that it’s still the product you’ve become accustomed to, even though it’s not Champagne.

By: Jeff Pietsch

What happens when someone takes your virtual goods?  You know, the virtual goods that you earn or buy by playing games such as Farmville or Second Life.  Usually, these goods are in the form of virtual objects such as weapons or special character features.  Virtual goods can also be in the form of virtual currency which can be used to purchase virtual objects.

Virtual goods and currencies were recently valued at more than $3 billion dollars globally.  Despite the large virtual economy, the law is relatively unclear when it comes to how virtual goods are treated.  Should virtual goods be treated similar to property laws or are virtual goods merely an aspect of a game that can be changed or eliminated at the whim of the game creator?  A recent class action lawsuit against Google may help clarify these issues for gamers and game developers alike.

The plaintiffs in this case are players of an online video game known as SuperPoke! Pets (“SPP”) who purchased virtual gold or other virtual items within SPP.  SPP allows its users to adopt, name and care for a virtual pet.  Users can interact with their virtual pet, dress it, customize its environment and also interact with other user’s virtual pets.  From its creation in 2008, SPP’s popularity increased and it was eventually acquired by Google in 2010.

Due to the popularity of the game, SPP could directly influence the value of new items by releasing virtual items in limited quantities.  For example, if a virtual item quickly sold out, SPP often restocked that item but now with a much higher price.  SPP also helped to develop a secondary market where users could buy and sell their “used” virtual items.  SPP allowed users to advertise their goods for sale as well as rate users based on their transaction experience.  SPP strongly encouraged such trading as it encouraged users to purchase SPP’s virtual goods to capitalize on any price movement.

Despite SPP’s willingness to encourage users to purchase and re-sell their virtual goods, SPP’s Terms of Use (“TOU”) specifically stated that the users have no right or title in any virtual goods or virtual currencies appearing in the game.  The TOU also stated that SPP can control and eliminate the virtual goods in its sole discretion with no liability to its users.  So even though SPP encourages its users to spend money on these virtual goods, SPP could delete or modify these goods at any time and for any reason under its TOU.

In July 2011, after several changes to the game structure, SPP eliminated all gold balances remaining in users’ accounts.  SPP did not refund the cash value of “gold” that was not used by its users.  One month later, SPP announced that the game would be terminated by March 2012 leaving all virtual pet owners with virtually nothing.  At this time, a class action was filed against Google to recover the users’ value of the property.

It is unclear how the court will treat this matter.  The law with respect to virtual goods is minimal to say the least.  The question centers on whether the virtual goods should be treated as a property right or as a service that is provided by the game provider.  If it is the latter, the terms of use or end user license agreement will control the users’ rights.  If it is the former, then developers will need to overhaul their current game configurations.  It also begs the question on how this virtual property will be treated for other purposes, such as sale and income tax laws.  The court may, however, view the TOU as an illusory contract because SPP encouraged its users to purchase virtual goods while having the sole ability to cancel or terminate the contract.  If the court made this finding, they may require SPP to reimburse its users for the purchases they made.  Either way, this case should shed some much needed light on the rights that virtual owners have with respect to their virtual goods.

By: Audrey A. Millemann

In Marine Polymer Technologies, Inc. v. HemCon, Inc., 2012 U.S. App. LEXIS 5567 (Fed. Cir., March 15, 2012), the Federal Circuit Court of Appeals reversed an earlier decision by a panel of the court that had created uncertainty as to the rights of an infringer resulting from patent reexamination proceedings.  The court held in a sharply split en banc decision that intervening rights arise in a patent reexamination only when the claims have been amended or are new.  The decision overturned the panel’s September 2011 decision that held intervening rights arise even if the patent owner does not amend the claims, but merely even makes an argument that changes the meaning of the claims.  The decision also reinstated a $29.4 million jury verdict for the plaintiff.

Marine Polymer owned a patent that covered a composition that was used in biomedical and pharmaceutical applications, including the treatment of wounds.  The claims contained the limitation that the compositions were “biocompatible” (i.e., that the compositions were not highly reactive with living cells.  

Marine Polymer moved for summary judgment of infringement based on the district court’s construction.  The district dourt granted the motion.  The issues of patent validity and damages for infringement were then tried to a jury.  The jury found the patent valid and awarded $29.4 million in damages to Marine Polymer.  The district court also entered a permanent injunction.  HemCon appealed to the Federal Circuit. 

During the infringement case, before the final judgment, HemCon had filed a request in the United States Patent and Trademark Office for an ex parte reexamination.  During the reexamination, the patent examiner construed “biocompatible” more broadly than the district court and found all of the claims to be obvious over the prior art.  Marine Polymer responded by cancelling the claims that were rendered obvious by the prior art and argued that the examiner should adopt the district court’s narrower construction of “biocompatible.”  The examiner accepted Marine Polymer’s argument, and found all claims patentable based on that construction.

On appeal to a panel of the Federal Circuit, HemCon argued that it had obtained intervening rights during the reexamination of Marine Polymer’s patent and was therefore not an infringer.  The panel agreed and reversed the district court’s judgment of infringement and the jury’s verdict of damages. 

Marine Polymer petitioned for an en banc rehearing by the court.  The en banc court, in a divided decision, affirmed the district court’s judgment for Marine Polymer.

On appeal to the full court, HemCon did not dispute infringement, but argued that it had obtained intervening rights during the reexamination.  HemCon contended that the patentable claims had changed in scope during the reexamination because  the claims were narrowed during reexamination due to Marine Polymer’s cancelling of certain claims.  HemCon’s position was that because arguments made by a patent applicant during prosecution can affect the scope of the claims, so should arguments made by the patent owner during a reexamination.

Marine Polymer argued that intervening rights cannot be acquired unless the claims have been amended or are new, and that the surviving claims in this case had not been amended and were not new.

The court agreed with Marine Polymer.  The court explained that the doctrine of intervening rights was originally applied to patents modified through reissue proceedings, but that the doctrine also applies to reexamined patents pursuant to statute.  Under 35 U.S.C. §307(b), any amended or new claim held patentable in a reexamination is subject to the same intervening rights as pertain to reissued patents under 35 U.S.C. §252.

Section 252 sets forth two types of intervening rights: absolute and equitable.  Absolute intervening rights absolve the infringer of liability if the accused product was made or used before the new or modified claim became patentable in the reissue or reexamination proceeding.  Equitable intervening rights are discretionary, and mitigate the infringer’s liability for products made or used after the new or modified claim became patentable in the reissue or reexamination proceeding if the infringer engaged in substantial preparation for the infringing activity before the claim became patentable. 

The court held that HemCon had not acquired intervening rights.  The court relied on the express language of section 307(b) to find that “only ‘amended or new claims’ incorporated into a patent during reexamination…will be susceptible to intervening rights.”  Thus, if the claim in question is not amended or new, the infringer cannot have obtained intervening rights. 

According to the court:

“Whether or not Marine Polymer’s arguments to the examiner and cancellation of claims during reexamination may have affected the remaining claims’ effective scope, they did not ‘amend’ those claims for intervening rights purposes or make them ‘new,’ which is what the statutory language requires.  Intervening rights are therefore unavailable under §307(b) as a matter of law.”

The court also addressed HemCon’s concern that this interpretation of section 307(b) would open a loophole for patent owners to avoid intervening rights by relying on arguments instead of amendments in reexamination proceedings.  The court stated that the risk of such abuse was minimal, given that the reexamination examiner would require an amendment to the claims if it was needed to overcome a rejection.  The court noted that the risk of abuse by infringers was far greater if the court adopted HemCon’s position - infringers would file meritless reexaminations to force the patent owner to make an argument that affected the scope of the claims, and then contend that intervening rights had been acquired because an argument had been made.

This case is a significant one and numerous amici curiae filed briefs on both sides.  The tech industry (Hewlett-Packard, Cisco, Dell, eBay, Facebook, Google, and others) supported HemCon, while the biotechnology and pharmaceutical industries supported Marine Polymer. 

Most commentators agreed that the panel’s decision created uncertainty in that a patent owner would not know whether intervening rights had been acquired by the infringer in a reexamination and that that issue would likely be subject to separate litigation.  The test as set forth in the en banc decision is clear-cut: no intervening rights can attach unless the claim has been amended or is new. 

In the end, while the case triggered a lot of legal discussion by outsiders, it was probably the $29.4 million jury verdict that was driving the parties. 

By: Scott Hervey

Brand licensing transactions can be structured in a wide variety of ways.  However the fundamental purpose remains the same; to give a third party the right to benefit from the goodwill and economic value associated with an established mark.  Regardless of the structure of the transaction, there are key deal terms that all brand owners need to consider in all licensing transactions. 

1.         Consider Equity.           Most licensing transactions take the form of a contractual relationship whereby the brand owner (licensor) grants the licensee the right to use a brand for a specific purpose in exchange for a royalty.  Although this arrangement is fine for most instances, in certain circumstances it may be more advantageous to the licensor to take a different approach.   For example, the licensor and licensee can form an entity and then have the entity enter into a license agreement with the licensor, which has certain advantages.  First, if the venture is one that lends itself to possibly being acquired by a third party, by virtue of having an equity position, the licensor can participate in the purchase or any other liquidity event.  Obviously a license agreement could also be structured to protect against a licensor not participating in the sale of the licensee. There are however other good reasons to consider running the transaction through an entity.

Additionally, controlling shareholders and managing members owe certain duties to minority shareholders and members.  These duties, which at a minimum include the obligation to act in the best interest of the company and impose fiduciary obligations, are likely greater than the contractual obligations imposed in an ordinary license agreement.

2.         Require Performance.    Regardless whether the license is exclusive or non-exclusive, it is best practice to require the licensee to meet certain performance requirements.  Some may think that a performance requirement is not necessary for a non-exclusive license agreement because the licensor is free to enter into other licenses.  However, there is an opportunity cost to not being able to grant an exclusive license.  A licensor who has granted a non-exclusive license that is underperforming may be forced to pass on an otherwise potentially lucrative arrangement because it cannot grant an exclusive license. 

3.         Protect Against Self Dealing Through Affiliates or Sub Distributors.        Sub distributors play a vital role in the exploitation of licensed product.  However, cautious counsel for the licensor should protect against the chance that a licensee will use a sub distributor (who most likely will be an affiliate) to siphon off a lion’s share of revenue.  One way to protect against this is to require licensor approval over all sub-license arrangements.  I also like to include the following provision which requires that the economic terms of any sub-license be fair and reasonable:

The parties acknowledge that Licensee utilizes sub-distributors for certain territories outside of North America and Licensee shall be permitted to sublicense the rights herein solely to its sub-distribution partners.  If Licensee enters into an agreement with an affiliated company for the sub-distribution of the Licensed Products or any of the rights hereunder whereby the sub-distributor is entitled to receive a fee, Licensee shall establish fair, just and equitable licensing fees and arms-length terms in such dealings which shall be created on a reasonable and empirically justifiable basis. 

4.         Representations and Warranties.  A representation and warranty provision is standard fare for any contract, and such a provision is also included in licensing transactions.  In addition to standard representations and warranties, a licensor should always require that the licensed product be manufactured in compliance with all laws and regulations, not contain material that is toxic or otherwise hazardous or unsafe, and will not be inherently dangerous as long as the licensed product is used in compliance with the instructions on the label for each product.   The licensor can also require the licensed product to meet certain other factors that are important to licensor, such as environmental impact.  Not only is this important to ensure that the licensee intends to manufacture a quality product, but it is also an opportunity to convey certain ethical concerns that may be of importance to the celebrity or brand.   The licensor should require the licensee to insure that all sublicensees meet these same qualifications

Licensee shall exercise reasonable diligence with respect to representations and warranties from each approved sublicensee concerning the manufacture, sale and marketing of any Licensed Product and shall terminate all licenses with respect to any approved sublicensee in the event that such approved sublicensee or the manufacturer of any Licensed Product engages in any activity that may, in Licensor’s good faith determination, adversely impact the goodwill in the Licensor Properties or otherwise subject Licensor to public disrepute or criticism.

If the licensed products are to be manufactured in a foreign nation or are an apparel product, the licensor should specifically require that the licensee and all sublicensees comply with laws and regulations concerning fair labor standards in connection with the manufacture of all of licensee’s products and not just the licensed products.

Licensee represents and warrants that the operation of its business (including without limitation the manufacture, promotion and exploitation of Licensee’s products (including, without limitation, the Licensed Products) shall in each instance be in accordance with all applicable national, state, provincial, local and municipal laws, orders and regulations and the standards and guidelines established by any recognized industry or trade organizations relating to human rights and labor standards.

5.         Termination.      Aside from the right to terminate the agreement in the event of an uncured material breach, licensors chose licensed property consists of consumer-facing brands need to have the ability to get out of a license arrangement in the event of a negative public relations incident involving the licensee, the licensed products or anything else that could taint the licensor’s brand.  

Licensor may terminate this Agreement following 10  days written notice to Licensee and the opportunity to cure (if curable) if the Licensed Products, Licensee’s use of Licensor’s Marks, or Licensee’s acts or omissions may damage the goodwill and/or reputation of Licensor or Licensor’s Marks, as determined in Licensor’s sole discretion.

6.         Avoid Liability for False Endorsements. Celebrity licensors are routinely asked to promote, market and support the sale of the licensed product.  In such situations, counsel for the licensors should require prior approval over all forms of advertising and promotion, including social media activities (tweets, Facebook posts, blog posts, etc.).  Counsel should specifically be on the lookout for claims or statements the licensee wants the licensor to make that push the bounds of truthfulness.  Statements by the licensor that he/she uses the licensed product when in fact he/she doesn’t or that the licensor experienced certain results when he/she didn’t, will subject both the licensee and licensor to liability.  Additionally, requiring the licensor to promote the licensed product during personal appearances (i.e., talk show appearances) or in social media without a disclosure of the relationship between the licensor and licensee may also be problematic for both licensor and licensee.  Where I represent a celebrity in those circumstances (and also in sponsorship or endorsement engagements) I always require the licensee warrant that they will comply with the FTC “Guides Concerning the Use of Endorsement and Testimonials in Advertising.”

Each licensing transaction presents its own facts and circumstances and there are numerous other terms and provisions that can be used to protect a licensor’s best interest.

By: Nathan Geronimo

A few months ago I wrote about the dangers of posting information online that contradicted your own contentions when involved in litigation.  I cited to cases where posts on social networking sites were used as evidence against plaintiffs in civil cases.  A recent case involving blogs and social networking sites illustrates yet another legal issue associated with internet posts in the modern times: Posts affecting a third party’s privacy, and the possibility that such posts can be considered harassment.

Johnson v. Arlotta is a classic “jilted lover” story with a modern twist.  Andrew Arlotta and Ann Marie Johnson had a romantic relationship for just under a year.  After this relationship terminated, Arlotta continued to contact Johnson, who did not welcome Arlotta’s communications.  In late December 2009, Johnson obtained a six-month harassment restraining order against Arlotta, which prohibited Arlotta from committing any acts intended to adversely affect Johnson’s safety or privacy, and from having any contact with Johnson by email or by other means or persons.

On appeal, Arlotta argued that his blog and emails could not be considered harassment because they were directed to third parties.  The Court disagreed, finding that the blog had a substantial adverse effect on Johnson’s privacy, and Arlotta’s communications were intended to, and eventually did reach Johnson.  The Court also found Arlotta’s contention that he was trying to help Johnson similarly unavailing. 

The Court, while recognizing that information published on the internet enjoys the same level of protection as information published in other media, analogized harassment speech to other constitutionally unprotected speech such as “fighting words.”  The Court noted that states have a compelling interest in ensuring an individuals’ right to be free from harassment, and determined that the harassment restraining order did not violate the constitution.    

These days, a lot of information about a person can be found on the internet.  And technically, if that information is true, it is usually “fair game.”   However, if a person uses internet posts to air grievances in a public forum, that person may find himself defending those actions in Court.  Not only can web posts be used to impeach a person’s testimony in Court, they can also be the reason a person finds himself in Court in the first place.  

By: James Kachmar

The Ninth Circuit recently addressed the availability of a wide variety of damages in a trademark infringement case. In Skydive Arizona, Inc. v. Quattrocchi  (2012 U.S. App. LEXIS 5100), the Court analyzed the various types of damages that are available to litigants in a trademark infringement action.

Skydive Arizona, Inc. (“Skydive”) operates one of the largest skydiving operations in the world.  Defendants operated an internet and telephone based advertising service which made skydiving arrangements for its customers as well as offered coupons for various skydiving centers.  Defendants operated several internet domain names that were strikingly similar to Skydive’s trademark and apparently falsely advertised that it was the owner of several skydiving centers in Arizona.  In addition, Defendants sold skydiving certificates that allegedly misled customers into believing that Skydive Arizona would accept them for their skydiving center.

The Ninth Circuit was faced with the issue of whether the District Court abused its discretion and erred in not only upholding the trademark infringement jury award, but also in enhancing it.  As to the award of actual damages, the Ninth Circuit recognized that a court “in its discretion” has the authority under the Lanham Act to award “(1) defendant’s profits; (2) any damages sustained by the Plaintiff; and (3) the cost of the action” as a result of trademark infringement.  The Ninth Circuit held that in reviewing a jury’s award of actual damages, the court was required to “accept `crude’ measures of damages based upon reasonable inferences so long as those inferences are neither `inexorable ... [nor] fanciful’.”  The Court continued by observing that the nature of the proof of damages in a trademark infringement case depends on the circumstances:  “The trier of fact must distinguish between proof of the fact of damages and the amount of damages because a mark holder is held to a lower standard in proving the exact amount of actual damages.”  In addition, a jury may also consider the amount of expense incurred by a plaintiff in building its goodwill or business reputation in awarding damages.

In affirming the award of actual damages, the Court noted that the jury considered “an array of customer evidence and three different financial record exhibits” concerning Skydive’s “stellar business reputation” and the significant expense it incurred in building its reputation.  The Court noted that Skydive had offered exhibits showing its advertising expenditures for a period of 10 years as well as evidence of customers who were dissatisfied with Skydive for problems caused by Defendants’ improper issuance of certificates for use at Skydive.

The Court noted that unless the jury’s verdict “is contrary to the clear weight of the evidence,” the Court was largely bound to accept its determination unless it was necessary “to prevent a miscarriage of justice.”  Given that there was sufficient evidence to support the jury’s award, the Ninth Circuit affirmed the award of actual damages.

With regard to the issue of lost profits, Defendants argued that the Court abused its discretion in upholding the award because Plaintiff’s expert had made mistakes in his calculations.  Specifically, Defendants argued that Plaintiff’s expert “did not properly deduct vendor payments or overhead costs and he applied an improper interest rate.”  However, Defendants failed to raise these issues while the expert was testifying at trial.  Because Defendants did not challenge the admissibility of this testimony in a timely manner, the Court held that the lower court did not abuse its discretion in upholding the award of lost profits.

Turning to the issue of the enhancement of damages by the trial court, the Ninth Circuit recognized that the Lanham Act gives a court discretion to award a judgment “for any sum above the amount found as actual damages not exceeding three times such amount.”  The Lanham Act continues: “if the Court shall find that the amount of the recovery based on profits is either inadequate or excessive, the Court may in its discretion enter judgment for such sum as the Court shall find to be just according to the circumstances of the case.  Such sum in either of the above circumstances shall constitute compensation and not a penalty.”  The Court noted that the Lanham Act specifically forbids “the award of damages to punish an infringer.”  The Ninth Circuit reasoned that it was not necessary to determine whether defendant’s conduct was willful infringement, but rather whether the District Court “abused its discretion in enhancing Skydive Arizona’s actual damages to punish [Defendants].”  The Court noted that, in its ruling, the District Court focused on defendants’ “seeming disregard for the people they harmed and the reputation they sullied” and that it was necessary for Defendants to “appreciate” and “accept the wrongfulness of their conduct.”  The Ninth Circuit concluded that it was apparent that the District Court intended to punish Defendants for their infringing misconduct and therefore reversed the District Court’s enhancement of actual damages.

Finally, Defendants argued that given their small corporate size, the significant award of damages against them was “grossly excessive” and should be reduced.  The Court noted that Defendants were unable to cite any authority “allowing a defendant to escape liability for trademark infringement and false advertising damages by claiming, essentially, that it is too small to justify such a large award.”    Given the jury’s refusal to accept Defendants’ challenges to the evidence offered by Skydive in support of its damages, the Court concluded that the damages awards were not improperly excessive.

The Skydive Arizona case makes clear that when a plaintiff in a trademark infringement case offers suitable evidence in support of its damages, a reviewing Court will not strike down or reduce a jury’s award of damages.  Litigants must also be careful in requesting the District Court to enhance their damages under the Lanham Act to ensure that it is a proper exercise of the Court’s authority and not intended to punish the Defendant which can result in an enhancement award being struck down.

By: Zachary

On April 14, 2012 in Cleveland, Ohio, iconic rock band Guns N’ Roses will be inducted into the Rock and Roll Hall of Fame.  The induction comes 25 years after original members Axl Rose (lead vocals), Saul Hudson aka “Slash” (lead guitar), Izzy Stradlin (rhythm guitar), Duff McKagan (bass), and Steven Adler (drums) released their debut album, Appetite for Destruction, which sold more than 28 million copies worldwide and ranks as the best-selling debut album ever.  After a meteoric rise in popularity, the original lineup began to break up in the early 1990’s due to problems with substance abuse by various band-members and acrimonious infighting over the creative direction of the group.  This ultimately led to Axl Rose gaining sole control of all Guns N’ Roses intellectual property and its musical catalog, but also becoming estranged from the original members.  Today, Rose tours as Guns N’ Roses along with a group of new musicians who perform many of the band’s original tunes, along with the band’s new material from its most recent album, Chinese Democracy.

Rock and Roll Hall of Fame inductees traditionally perform a short set during the induction ceremony.  In years past, long-separated bands such as The Police and The Eagles have put aside their differences during the ceremony for a one-time-only reunion performance.  News of Guns N’ Roses’ induction has naturally produced speculation that the original lineup may reunite for the ceremony, which would be a highly anticipated event among the 30 and 40-something rock music crowd.  The only stumbling block appears to be continued animosity between Rose and Slash, which has resulted in multiple public spats and lawsuits over the years. 

A music synchronization license - or sync license, for short - is a license that allows the license holder to "sync" music to some kind of media.  Sync licenses are often used for TV shows, movies, and commercials, but any kind of visual paired with music, such as Activision’s Guitar Hero III video game, requires a sync license.  A sync license typically covers a specific period of time, and the license will usually stipulate parameters of how the song can be used in the planned visual medium.

In his lawsuit, Rose claims that Activision fraudulently induced him to execute a sync license authorizing the use of Welcome to the Jungle by telling him that the game would not feature any reference or depiction of Slash.  The lawsuit recounts Rose’s considerable efforts to protect the brand and image of the current iteration of Guns N’ Roses which does not include Slash, instead of the previous version which did include Slash but has not been in existence for almost fourteen years.  Rose claims that during negotiation of the license, "(Activision) began spinning a web of lies and deception to conceal its true intentions to not only feature Slash … but also promote the game by emphasizing and reinforcing an association between Slash and Guns N' Roses and the band's song 'Welcome to the Jungle.'"

Prior to actual release of Guitar Hero III, Rose apparently found out that a character resembling Slash would appear in the game and immediately refused to allow Welcome to the Jungle to be used under the sync license.  In a series of e-mails sent to Activision after the sync license was signed, Rose's lawyers allegedly told Activision that Rose withdrew his approval because he was never told that Slash's image was going to be used as an avatar in the game.  Activision went ahead with the game anyway believing that it had all the necessary rights because the written sync license terms did not include any restrictions.  Activision says that the e-mails sent by Rose's reps to the contrary before the game came out don't constitute a written contract between the parties. 

Rose’s lawsuit seeks $20 million in disgorgement of profits improperly earned by Activision due to the alleged violation of the sync license.  Activision filed a motion for summary judgment, which was recently denied by the court.  A trial date has been set in January 2013, and it will be interesting to see how the judge and jury deal with sync licenses as applied to virtual avatars in a video game.  In the meantime, Guns N’ Roses’ induction ceremony is scheduled for April 14, 2012.  If Rose is adamant that Slash’s avatar cannot be depicted in connection with Guns N’ Roses in a video game, it seems unlikely that Rose would feel comfortable performing on stage next to the real life version of Slash at the Rock and Roll Hall of Fame induction ceremony.  Don’t Cry Guns N’ Roses fans, but unless an unexpected reconciliation occurs in short order, the chance of a reunion of the original Guns N’ Roses lineup for a one-time-only performance appears to be no better than One in a Million.

Congratulations to our clients, executive producers Jason Hervey and Eric Bischoff, on Nick At Nite's pick up order of twenty episodes of the network's first original scripted comedy pilot, Daddy’s Home, starring Scott Baio.

For the full story, please click the link  to visit Deadline Hollywood:  http://www.deadline.com/2012/03/nick-at-night-picks-up-scott-baio-family-comedy-to-series/

By: David Muradyan

Restaurants, bars, night clubs and similar establishments who play copyrighted music or have live performers play the compositions from copyrighted music should pay particular attention to a recent Ninth Circuit case, where the court awarded plaintiffs statutory damages as well as substantial attorney’s fees.

In Range Road Music, Inc. et al. v. East Coast Foods, Inc. et al., 10-55691, 2012 WL 502510 (9th Cir. 2012), several music companies (“Music Companies”) who owned copyrights to certain songs and who were members of the American Society of Composers, Authors, and Publishers (“ASCAP”) sued East Coast Foods, Inc. and its principal shareholder and sole officer and director, Herbert Hudson, for copyright infringement arising out of musical performances of eight copyrighted works at one of East Coast’s locations. (ASCAP is a performing rights society that licenses the music of its members and collects royalties whenever that music is performed publicly). East Coast owned and operated the Roscoe’s House of Chicken and Waffles chain of restaurants in Southern California, including the Long Beach, California location. Shortly after the Long Beach location opened and for a period of seven years thereafter, ASCAP contacted East Coast to offer it a license to perform music by ASCAP members, but East Coast refused. As a result, ASCAP engaged Scott Greene, an independent investigator to visit the location and investigate whether copyright infringement was occurring at the venue. Greene visited Roscoe’s and conducted an investigation of the various musical compositions that were performed, and submitted his report to ASCAP, concluding that copyright infringement occurred with respect to eight songs owned by the Music Companies. 

After ASCAP confirmed that the Music Companies validly owned the registered copyrights to the eight songs that Greene had identified in his report, the Music Companies sued East Coast and Hudson for eight counts of copyright infringement, corresponding to the eight songs Greene heard publicly performed at Roscoe’s. Ultimately, the district court granted summary judgment in favor of the Music Companies and found defendants jointly and severally liable for $4,500 in statutory damages for each of the eight infringed works, for a total of $36,000. The court also awarded the Music Companies attorney’s fees and costs in the amount of $162,728.22.

The Copyright Act of 1976, 17 U.S.C. § 101 et. seq., provides copyright protection for “original works of authorship fixed in any tangible medium of expression.” Such protection is not extended to ideas or facts upon which the expression is based. Works of authorship include the following categories: (1) literary works; (2) musical works, including any accompanying words; (3) dramatic works, including any accompanying music; (4) pantomimes and choreographic works; (5) pictorial, graphic, and sculptural works; (6) motion pictures and other audiovisual works; (7) sound recordings; and (8) architectural works.

Under the Copyright Act, copyright owners have the exclusive right to, and to authorize others to: (1) reproduce the copyrighted work in copies; (2) prepare derivative works based upon the copyrighted work; (3) distribute copies of the copyrighted work to the public by sale or other transfer of ownership; (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, perform the copyrighted work publicly; (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, display the copyrighted work publicly; and (6) in the case of sound recordings, perform the copyrighted work publicly by means of a digital audio transmission. To ‘perform’ a work means to recite, render, play, dance, or act it, either directly or by means of any device or process.

Anyone who violates any of the exclusive rights of the copyright owner is an infringer of the copyright or rights of the author, as the case may be. To establish a prima facie case of copyright infringement, a plaintiff must show (1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original. The word “copying” is used as shorthand for infringing of any of the copyright owner’s six exclusive rights, one of which is the right to perform the copyrighted work publicly. An infringer of copyright is liable for the copyright owner’s actual damages and any additional profits of the infringer, or statutory damages of $750 to $30,000 (if the violation was committed willfully, the court may in its discretion increase the statutory damages award to $150,000). The court also has the discretion to allow the recovery of full costs by or against any party, including reasonable attorney’s fees to the prevailing party as part of the costs.

In Range Road Music, Inc., the defendants argued, among other things, that the Music Companies’ evidence of copyright infringement was inadequate because neither Greene nor any other witness provided “substantial similarity” between the publicly performed compositions at Roscoe’s and the copyrighted works. The Ninth Circuit rejected this claim, holding that “substantial similarity” is not an element of a claim of copyright infringement. Rather, the Court held, “substantial similarity” is a doctrine that helps courts adjudicate whether copying of the “constituent elements of the work that are original” actually occurred when an allegedly infringing work appropriates elements of an original without reproducing it in toto. The court held that because the Music Companies had produced evidence that the public performances entailed direct copying of the copyrighted work, a showing of “substantial similarity” was irrelevant, as such a showing is only necessary to prove infringement “absent evidence of direct copying.” In this case, Greene had identified some songs which were played from a compact disc player and others from the compositions played by the live band. He had provided a declaration stating that the live band he saw perform at Roscoe’s introduced the songs they were playing by title. He further declared that he saw a disc jockey play four tracks from a CD of one of the copyright owners, the titles of which he obtained from the jewel case lying next to the CD player. Defendants did not contradict any of this evidence. As such, because both the tracks played from the compact disc player and the compositions played by the live band were “performed” as the term is defined in the Copyright Act, there was no genuine issue of material fact as to whether copyright infringement occurred at Roscoe’s, and the court awarded the Music Companies $4,500 in statutory damages for each of the eight infringed works, which, though within the range authorized by the Copyright Act, was nonetheless substantial.

The Ninth Circuit also affirmed the district court’s award of attorney’s fees and costs. The Copyright Act grants courts the authority to “award a reasonably attorney’s fee to the prevailing party as part of the costs.” The Ninth Circuit explained that in awarding attorney fees, district courts are given wide latitude to exercise equitable discretion. In this case, the Ninth Circuit found that the district court had applied the factors set forth in Entm’t Research Grp., Inc. v. Genesis Creative Grp., Inc., 122 F.3d 1211, 1229 (9^th Cir. 1997) (the degree of success obtained; frivolousness; motivation; the objective unreasonableness of the losing party’s factual and legal arguments; and the need, in particular circumstances, to advance considerations of compensation and deterrence), thoroughly considered both parties’ arguments, and articulated a reasoned explanation for its fee award. In upholding the district court’s award of attorneys’ fees, the Ninth Circuit concluded that the defendants “could have avoided liability by purchasing a valid license at any point during the seven years in which ASCAP importuned them to do so.” Defendants’ refusal and/or failure to purchase the license from ASCAP made them liable for a substantial attorney’s fees award ($162,728.22).

In light of this case, restaurants, bars, night clubs and similar establishments who play tracks from copyrighted music or allow compositions to be played by live bands should make sure to obtain a license from the copyright owner (or the group representing the owner), which in many cases is ASCAP. Otherwise, these businesses are at risk, not only of being sued for copyright infringement, but of being exposed to substantial statutory damages and significant attorney’s fees.  

By: Scott Plamondon

So many of us have become hopelessly addicted to our Blackberry smartphones and personal messaging devices that the devices are frequently referred to as “Crackberries.”  Seeking to capitalize on this addiction, beginning in December 2006, Defining Presence Marketing Group (“DPMG”) sought to register four trademarks covering various iterations of the phrase “Crackberry.”  Claiming their use was a parody of the ever popular Blackberry device, DPMG based their trademark registration on use of the Crackberry mark in connection with “Web-based marketing services, computer services, online chat rooms, and apparel.”  All four of the Crackberry marks were published for opposition in late 2007. 

Research in Motion (“RIM”), owner of the Blackberry trademark has been embroiled in patent litigation for most of the 21^st century and apparently has not had its fill of intellectual property-related litigation.  Not long after DPMG’s applications were published, RIM initiated opposition proceedings challenging all four of the Crackberry marks.  DPMG defended its applications by asserting that Crackberry was a parody of the Blackberry name, and as such would not cause confusion among consumers.  RIM disagreed, claiming that use of the Crackberry marks was likely to cause confusion and ultimately would cause dilution of the Blackberry trademark. 

Although successful, RIM’s multi-year opposition efforts to stop the Crackberry menace may prove to be pointless. RIM saw a 45% decline in sales last quarter as its Blackberry products continued to lose market share to iPhone and Android-based devices. Perhaps the stronger innovative efforts by Apple and Google will prove to be the ultimate cure for Blackberry addiction.

By: Jeffrey Pietsch

Naked licensing is not as fun as the name suggests. Rather it can mark the end of a trademark owner’s exclusive right to their trademark. Naked licensing occurs when the trademark owner fails to exercise adequate quality control over the licensee.  This usually occurs when a trademark owner grants a third party the right to use a trademark with little or no restrictions.  Naked licensing could also occur when a trademark owner fails to enforce quality control provisions in the license agreement.  The failure of the trademark owner to control the use of its trademark by third parties may result in the trademark ceasing to represent the quality of the product or service the consumer has come to expect.   The Ninth Circuit stated that such licensing is “inherently deceptive and constitutes the abandonment of any rights to the trademark by the licensor.” 

In one such case before the Ninth Circuit, a licensee sought declaratory relief against a trademark owner on the grounds that the trademark owner abandoned its rights in the trademark by granting naked licenses to others.  The trademark in question, FREECYCLE, was owned by The Freecycle Network (“TFN”) and used by TFN to identify TFN’s services known as “freecycling.”  Freecycling is the practice of giving an unwanted item to another so that it can continue to be used as intended.

Two years later, for reasons unknown to the court, TFN ordered FS to cease and desist from using TFN’s trademarks.  FS refused to comply and filed a declaratory judgment action against TFN alleging noninfringement of TFN trademarks based on a naked licensing defense.  FS argued that TFN abandoned its rights to use the TFN marks because it engaged in naked licensing when it granted FS the unrestricted and unmonitored right to use the trademark.

In order to determine if TFN granted FS a naked license, the Ninth Circuit looked at three elements:  (1) did TFN have the right to control the use of the trademarks, (2) did TFN exercise actual control over FS’s activities related to the trademarks, and (3) did TFN reasonably rely on FS to maintain quality control on the goods and services.

The court first determined whether TFN had the right to control the use of its trademarks as licensed to FS.  As previously mentioned, TFN granted FS the right to use TFN’s trademarks in an email communication.  There was no express written agreement restricting or monitoring the quality of the goods or services produced using TFN trademarks.  Even the admonition to FS to not use the marks for commercial purposes was silent on TFN’s ability to monitor or inspect the use of the trademarks.  Because of this, the court found that TFN had no express contractual right to control the quality of the goods or services produced by FS using TFN’s trademarks.

Despite the fact that TFN lacked an express contractual right to control quality, the court examined whether TFN maintained actual control over its trademarks.  If TFN maintained actual control, then FS’s naked license defense would not survive.  TFN argued that it did maintain actual control because its member groups abided by TFN’s quality standards, including its rules and guidelines regarding freecycling activities.  The court, however, found that such rules and guidelines were not rigid but very flexible.  Additionally, the standards were not uniformly applied and did not adequately control the quality of the goods or services provided by TFN member groups. 

Finally, TFN argued that even if it did not exercise actual control, it justifiably relied on it members groups’ quality control measures.  The court noted that it had previously found that where a “close working relationship” was established, a licensor could rely on the licensee to control the quality of the goods or services.  In these cases, however, the relationship between the parties is significantly close and intimate.  TFN and FS did not enjoy such a close and intimate working relationship and TFN could not reasonably rely on FS’s quality control standards.

The court found that TFN (1) did not retain express contractual rights to control the quality of the goods, (2) did not have actual control of FS’s quality control measures, and (3) was unreasonable in relying on FS’s quality control measures.  Because of these reasons, the court held that TFN engaged in naked licensing thereby abandoning its trademarks. 

This case is a cautionary tale to trademark owners who license their marks.  The trademark owner must maintain its ability to control the quality control measures in connection with the products and/or services utilizing the licensed marks.  In TFN’s case, a written license agreement with express provisions providing TFN with inspection and quality control rights would likely have saved TFN’s marks, especially if TFN were to take reasonable measures to police its trademarks. 

By Audrey A. Millemann

In patent litigation, the district court has discretion to award attorneys’ fees to the prevailing party if it finds the case exceptional.  35 U.S.C. §285.  In MarcTec, LLC v. Johnson & Johnson and Cordis Corporation, 664 F.3d 907 (Fed. Cir. 2012), the Federal Circuit affirmed a district court’s award of expert witness fees in addition to attorneys’ fees under section 285. 

The patents in suit covered a surgical device that included a polymer bonded by heat to an implant.  The inventor, an orthopedic surgeon, obtained his patents by arguing to the Patent and Trademark Office that his claims did not cover stents and by amending his claims to require heat-bonding. The inventor assigned his patents to his own company, MarcTec. 

In 2007, MarcTec sued Cordis for infringement of its two patents.  In its Markman order, the district court construed the claims to require heat-bonding and to exclude stents. 

Cordis moved for summary judgment of noninfringement on the grounds that the Cypher stent did not utilize heat-bonding and was a stent.  MarcTec contended that the Cypher stent did have a polymer that was bonded by heat and provided an expert who testified that if the polymer was sprayed at the speed of sound, heat would be generated.  MarcTec also argued that the Cypher stent was not a stent and that prosecution history estoppel did not apply because of the doctrine of claim differentiation. 

The district court granted Cordis’ motion.  The court found that the evidence was undisputed that no heat was used in making the Cypher stent.  The court held that the expert that MarcTec’s expert provided an “untested and untestable theory that is neither reliable nor relevant to the issues at hand,” and excluded the expert as inadmissible under Daubert.  The district court also held that stents had been disclaimed during the prosecution of the patents and that the Cypher stent was a stent.

MarcTec appealed the district court’s decision granting summary judgment to the Federal Circuit Court of Appeals.  The appellate court affirmed the district court’s decision. 

Cordis then moved for its attorneys’ fees and expert’s fees under section 285.  Cordis argued that the case was exceptional because MarcTec misrepresented the law of claim construction, mischaracterized the claim construction decision, and offered “junk science,” and that the suit was frivolous and had been filed in bad faith. 

The district court granted Cordis’ motion and awarded Cordis $3.9 million in attorneys’ fees and $810,000 in expert witness fees.

MarcTec appealed, arguing that the district court had applied the wrong test for an exceptional case and had abused its discretion in awarding the expert fees.  The Federal Circuit affirmed on both grounds. 

The Court of Appeals held that a case may be exceptional if “there has been ‘willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Federal Rule of Civil Procedure 11, or like infractions.’”  When a prevailing defendant seeks a finding of an exceptional case, a court may consider how close the case was, the pre-filing investigation, and litigation conduct, including the plaintiff’s prolonging the litigation in bad faith.  If there is no misconduct in obtaining the patent or in the litigation, in order to be found exceptional, there must be subjective bad faith in filing the suit and the suit must be objectively baseless.  In other words, the case “must have no objective foundation, and the plaintiff must actually know this.”  In this case, the court held that the case was exceptional under either test.  First, MarcTec filed a baseless suit in bad faith and pursued it with no evidence of infringement.  Second, MarcTec committed vexatious and unjustified conduct in the litigation, prolonging the case and causing Cordis to incur unnecessary fees.

The appellate court specifically found that MarcTec’s infringement case was objectively baseless and that MarcTec subjectively knew it.  Thus, the suit was pursued in bad faith.  The court relied on MarcTec’s knowledge of the specification and the prosecution history, which required heat-bonding and disclaimed stents, to conclude that MarcTec’s position in claim construction had no evidentiary support and that its conduct in continuing the litigation after claim construction was in bad faith.

The appellate court further held that litigation misconduct alone can support a finding of an exceptional case.  The factors relied upon by the court included MarcTec’s misrepresentations in the law of claim construction and the use of expert testimony that failed to meet the standard for reliability.  The court noted that not every case in which an expert is disqualified under Daubert is an exceptional case, but that this case was egregious. 

Lastly, the court held that the award of fees was reasonable, based on MarcTec’s “vexatious conduct and bad faith [which] increased the cost of litigation.”

This case is both a reminder and a warning.  It is a reminder that, although most patent litigators believe an award of attorneys’ fees is not common, those awards are made and are affirmed on appeal and may include an award of expert fees as well.  The case is a warning because the risk of an adverse award is present for both the plaintiff and the defendant, such that all parties should carefully consider the positions they assert in litigation.

Article by Scott Plamondon, Esq.

Weintraub Genshlea Chediak Tobin & Tobin

It only took four days, but four days was enough time for New York City fashion designer Joseph Mbeh to file an application with the United States Patent and Trademark Office seeking to register a trademark for “Blue Ivy Carter NYC.” Not coincidentally, “Blue Ivy” is the name chosen by Beyoncé and Jay-Z for the daughter born to them on January 9, 2012. The application is still pending before the United States Patent and Trademark Office, and alleges that Mbeh first used this mark “at least as early as January 9, 2012.”

Similarly, as you may recall, it was nearly a year ago when Governor Sarah Palin filed a trademark application seeking registration of her own name. Although Ms. Palin’s application was the topic of many jokes on late night television programming, as will undoubtedly be the case regarding the “Blue Ivy” mark as well, you may be surprised to learn that the Trademark Act of 1946 contains specific provisions allowing a person to obtain a trademark covering their name. Chapter 1300 of the Trademark Manual of Examining Procedure (“TMEP”) defines the criteria which, if met, permit a person to successfully obtain a trademark covering their name. Not unlike other trademark applications, the application must cover a mark which identifies the goods or services associated with that mark, and must function as an indication as to the source of those goods or services while distinguishing them from others. As a result, any person may seek registration of their name, provided they can demonstrate that their name is so distinctive that the public immediately thinks of them when the name is heard. 

Because changing your name to Beezow Doo-Doo Zopittybop-Bop-Bop is impractical for most of us, those with less unusual monikers must use their name in commerce until the mere mention of their name causes a person to immediately identify that name with them. While this condition likely already exists for people like Sarah Palin who seek registration of their name, it may be much more difficult for the “John Jones” and “Steve Smiths” of the world.

Blue Ivy is probably a sufficiently distinct name capable of supporting a trademark registration. Beyond its distinctive qualities as a name, the fact that Blue Ivy’s parents are (apparently) superstars makes it seem likely that Ms. Blue Ivy could successfully prosecute an application for trademark registration of her name (assuming she was old enough to sign the application). In the event, however, there proves to be myriad individuals whose parents have blessed them with the name “Blue Ivy,” causing the name to lose the required level of distinctiveness to satisfy the Patent and Trademark Office, Ms. Blue Ivy may also be successful in trademarking her name if she follows in the footsteps of her famous parents, such that her name acquires the requisite distinctive qualities by becoming synonymous with her person. In the meantime, we can add this to the list of questions for expecting parents to ponder when selecting a name of their new bundle of joy.

In late December, the Ninth Circuit revisited the “safe harbor” provisions of the Digital Millennium Copyright Act (“DMCA”) in the case UMG Recordings, Inc. v. Veoh Networks, Inc., 101 U.S.P.Q.2D (BNA) 1001. Veoh is a web service that allows users to view videos uploaded by other users.   Veoh was sued for copyright infringement by UMG, one of the world’s largest music and music publishing companies. 

Before a user can upload and share a video, on Veoh’s site, he/she must agree to Veoh’s publisher terms and conditions and terms of use, both of which bar the user from uploading any videos that infringe on another’s copyrights. Also immediately prior to uploading a video, a message appears on Veoh’s website warning the user not to upload infringing videos. 

In September 2007, UMG sued Veoh for copyright infringement claiming it did not do enough to prevent the infringement of its copyright materials. UMG moved for partial summary judgment claiming that Veoh was not entitled to protection under the DMCA’s “safe harbor” provision but the District Court denied this motion. Veoh then moved for summary judgment on the basis that it satisfied the remaining requirements of the safe harbor provisions and the lower court granted its motion. UMG appealed to the Ninth Circuit and argued that Veoh had not met its burden of showing that it qualified for immunity under the safe harbor provisions.

The Ninth Circuit began by looking at the history that prompted congress to enact the DMCA. The Ninth Circuit recognized “although congress was aware that the services provided by companies like Veoh are capable of being misused to facilitate copyright infringement, it was loathed to permit the specter of liability to chill innovation that could also serve substantially socially beneficial functions.” To that extent, congress created four safe harbors to preclude a service provider from being held for monetary liability for copyright infringement.

In general, to avail itself of a safe harbor protection, a service provider must show: (1) it did not have actual knowledge of the infringing material on its system; (2) if it did not have actual knowledge, it was also unaware of facts or circumstances from which the infringing activity to would be apparent; or (3) that upon obtaining such knowledge or awareness it acts expeditiously to remove or disable the materials. A service provider must also show that it does not receive a financial benefit directly attributable to the infringing activity and that upon notification, it expeditiously removed the offending material.

UMG argued that Veoh did not engage merely in “storage” to avail itself of the safe harbor provision. The Ninth Circuit began by determining whether the automatic functions performed by Veoh in processing a video uploaded to its site fell within the DMCA’s meaning of “by reason of the storage at the direction of a user.”   UMG argued that the automatic process employed by Veoh to make the video accessible took the case outside the safe harbor provisions since Veoh was not merely “storing” the material at the user’s direction.  The Ninth Circuit rejected this argument finding that UMG’s reading of the statute was too narrow. The Court looked at the legislative intent to find that the safe harbor provisions were drafted to “encompass the access-facilitating processes that automatically occur when a user uploads a video to Veoh.”    The Ninth Circuit reasoned that UMG was arguing that the safe harbor provision should only be limited to web hosts, but that had congress wanted such a limitation, it could have drafted the DMA to be restricted as such.

UMG also argued that Veoh had actual knowledge of the infringing activity or was aware of facts and circumstances by which it should have known. The Ninth Circuit likewise rejected this argument. First, it found that it was undisputed that UMG never notified Veoh of specific material that it claimed to be infringing. UMG argued instead that because Veoh was aware that there was other infringing material on its website that it should have been aware that UMG’s copyright material would likewise be present.   The Ninth Circuit rejected this claim, however, finding that there were many music videos that could legally be on the website. Further, if the mere presence of some infringing material on a website was sufficient to put a service provider on notice that other material might be infringing, it would render the safe harbor provisions “a dead letter.” Instead, the Ninth Circuit found that the DMCA requires “specific knowledge of particular infringing activity” given that this fosters congress’s intent to encourage cooperation between copyright holders and service providers in dealing with infringement on the internet. This is also consistent with congress’s decision to enact a notice and take down protocol encouraging copyright holders to identify specific infringing material to service providers. The Ninth Circuit refused UMG’s request to “alter” this statutory language and found that Veoh had taken sufficient actions to prevent infringing material from appearing on its website.

Finally, UMG argued that Veoh was not entitled to judgment because it did receive a financial benefit directly attributable to the infringing activity. Specifically, UMG argued that Veoh had the right and ability to control infringing activity and thus could not take advantage of the safe harbor protection. The Ninth Circuit rejected this argument finding that Veoh only had the necessary right and ability to control infringing activity once it had been notified of such activity. The Ninth Circuit found that merely knowing that a website can host infringing material did not satisfy the specific knowledge requirement to impose liability.   Thus, the Ninth Circuit held that “the ‘right and ability to control’ under section 512(c) [of the DMCA] requires control over specific infringing activity the provider knows about” and “a service provider’s general right and ability to remove materials from its services is alone insufficient.”

The Ninth Circuit’s decision in UMG Recordings provides further clarification about the safe harbor provisions of the DMCA. Service providers are encouraged to be proactive in identifying and removing infringing material upon receipt of notice that such materials exist. Such policies can help shield a service provider from liability under the DMCA’s safe harbor provisions.

James Kachmar is a shareholder in Weintraub Genshlea Chediak Tobin & Tobin’s litigation section. He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes. For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com.