In 2004, the Ninth circuit heard the case Metro-Goldwyn-Mayer Studios Inc. v. Grokster; an appeal from the District court’s granting of motions for summary judgment by Grokster and StreamCast Networks and finding that their products include substantial non-infringing uses and therefore, under the decision in Sony Corp v. Universal City Studios (more commonly known as Sony-Betamax), do not constitute contributory infringement.#160 #160

The Motion Picture Studios and Recording Companies, in petitioning the Supreme Court for review of the Ninth Circuit’s decision, argue that the Ninth Circuit misread the holding of the Sony-Betamax case.#160 They claim that the Ninth Circuit’s decision emptied all meaning from Sony-Betamax’s concept of “commercially significant noninfringing uses.”#160 Specifically, the petitioners claim that the court did not attempt to ascertain whether there is a substantial market for a#160 non-infringing use of Grokster’s or StreamCast’s services that could commercially support their advertisement-dependent business.#160 #160The petitioners claim that this case presents the issue expressly left open in Sony-Betamax; whether noninfringing uses can be “commercially significant” when the defendant’s business depends on infringing uses and is not sustainable without them.

The Sony-Betamax case found the 1984 US Supreme Court facing the question whether the betamax video tape recorder subjected its manufacturer, Sony Corp., to contributory copyright infringement.#160 The court acknowledged that uses of the video tape recorder include acts of copyright infringement. However at least some of the uses by the public were noninfringing, such as time shifting or copying public domain works that were broadcast over the air.#160 Based on these non-infringing uses, the court found that Sony could not be held liable for secondary copyright infringement.#160 In#160 doing so, the court set forth a new standard for determining secondary copyright infringement when it held that:#160 ” the sale of copying equipment, like the sale of other articles of commerce do not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes.#160 Indeed, it need merely be capable of substantial noninfringing uses.”

The Ninth Circuit’s decision in Grokster relied on its interpretation of Sony-Betamax as set forth in#160 A&M Records v. Napster.#160 Namely, if a defendant could show that its product was capable of substantial or commercially significant noninfringing uses, then constructive knowledge of the infringement could not be imputed and there would be liability for contributory copyright infringement.#160 Grokster was able to show that 10% of its use was for a non-infringing purpose.#160 The Ninth Circuit found that this usage was “substantial” and, therefore, Grokster could not be liable for contributory copyright infringement.

The Movie Studios and Recording Companies contend that the Ninth Circuit misread or misapplied the Sony-Betamax test. They point to the Seventh Circuit’s decision in In re Aimster Litigation which held that a court must assess a system’s actual and probable potential infringing uses, and then must balance the costs and benefits to accommodate the interests of copyright holders in preventing infringement while protecting the right of the public to use products specifically for noninfringing uses.#160 #160While acknowledging that the Aimster system was capable of at least five different types of noninfringing uses, the court noted that the controlling issue was the ratio of legitimate use to unlawful use.#160

The Ninth Circuit specifically rejected the approach taken by the Seventh Circuit in deciding Grokster, stating that the Seventh Circuit has read Sony-Betamax differently.#160 In petitioning the United States Supreme Court for review, the Movie Studios and Record Companies claim there is a split between the Seventh and Ninth Circuit, that the Ninth Circuit is incorrect in its analysis, and that the Court should adopt the Seventh Circuit’s balancing test.

Grokster and StreamCast argue that the Movie Studios and Record Companies have misread Aimster, and that it does not apply to this case.#160 They point out that the Aimster court found that Aimster had failed to introduce any evidence whatsoever that its technology was capable of noninfringing uses and therefore could not avail itself of the Sony-Betamax defense.#160 Also, they point out that the Seventh Circuit made it clear that evidence of either “present or prospective” noninfringing uses would satisfy the requirements of Sony-Betamax.

However, the primary argument made by Grokster and StreamCast is that finding the proper accommodation between new technology and copyright is a task best left for Congress.#160 They point out that the primacy of Congress in our federal intellectual property system was at the heart of Sony-Betamax:#160 “In a case like this, where Congress has not plainly marked out a course, we must be circumspect in construing the scope of rights created by a legislative enactment that never contemplated such a calculus of interests.”#160 They point out that Congress has not failed to adjust copyright laws when faced with new technologies, and that Congress has the resources and institutional ability to weigh the competing concerns of the technology and copyright industries, as well as the interests of society in general.

During the last legislative session, various Senators sponsored the Inducing Infringement of Copyright Act of 2004.#160 This act was in direct response to the Ninth Circuit’s decision in Grokster.#160 #160Senator Hatch, one of the Bill’s main sponsors, asserted that the Bill is supposed to be “technology-neutral,” focusing instead on the circumstances under which the technology is deployed.#160 Second, the Bill should provide copyright owners with the ability to bring causes of action against#160 P2P services that enable massive copyright infringement, but also be adaptable to new, unforeseen technological developments.#160 Third, the Bill should not unnecessarily chill technology innovators, through fear of liability.#160 Finally, the Bill should not preempt the decision in Sony-Betamax and related common law doctrines with regard to secondary liability for copyright infringement.

This Bill has been the subject of much debate and lobbying.#160 The U.S. Copyright Office was invited to mediate the conflicting opinions and positions, and as a result of these consultations, the Copyright Office proposed a different version of the Bill.#160 At the close of the 108th Congress, the Bill was still in the Senate’s Judiciary Committee.

In granting certiorari to Grokster, the United States Supreme Court has taken on a number of issues.#160 It could decide to address the claimed split between the Circuits with regard to the standard for contributory infringement liability; this is the approach favored by the American Intellectual Property Law Association.#160 However, even if the Supreme Court decides that substantial non-infringing uses must be probable (7th Circuit) rather than requiring that a device be capable of substantial noninfringing uses (9th Circuit), this would not necessarily mean a reversal of the Grokster decision.#160 (The evidence inferred ten percent (10%) of Grokster’s product’s use was for a noninfringing purpose.)#160 The Supreme Court could also defer to Congress.#160 After all, the Betamax test is judge-made law; the Court could find that expanding its scope from analogue to digital is too far to stretch.

By Scott Hervey

Real estate lawyers take heed.#160 Waiting in the tall grass of your client’s real estate development project may be a thorny copyright issue that could cost your client all of the profit it earned on the project, and would probably buy you a serious malpractice claim.

In the course of developing a real estate project, whether it is a residential community or a commercial project, a central component of the project is the architectural plan.#160 Unless the developer (and the developer’s counsel) are aware of how the Copyright laws affects what the developer can (and more importantly, can’t) do with the plan, the developer may find itself on the receiving end of a Copyright infringement lawsuit.#160 Why?#160 Because an architectural plan, as well as other architectural works, are protected under Copyright laws, and these laws govern who owns the plans and what can and can’t be done with the plan.

Scope of Protection Granted Architectural Works

In 1990, Congress enacted the Architectural Works Copyright Protection Act (the “Act”).#160 The Act increased the scope of protection architectural works are entitled to under United States Copyright laws.#160 The Act was passed in efforts to make United States Copyright laws more compatible with the Berne Convention For The Protection of Literary And Artistic Works.#160

According to a report prepared by the then Register of Copyrights, pre Act copyright laws provided adequate protection for architectural blueprints, plans, drawings and models.#160 However, the adequacy of protection under Berne Convention standards for the constructed design of architectural structures was in doubt.#160 Although the Act, when it was in Bill form, was intended to address this perceived gap, the legislative history provides us with insight into the intended scope of protection accorded to architectural works, including blueprints and plans.

The Act amended the definition section of the Copyright Act (17 USC 101) by adding the following definition of “architectural works:”

An ”architectural work” is the design of a building as embodied in any tangible medium of expression, including a building, architectural plans, or drawings. The work includes the overall form as well as the arrangement and composition of spaces and elements in the design, but does not include individual standard features.

The House Report on the Copyright Amendments Act of 1990 (which includes the Act) (the “Report”) provides a section by section analysis and discussion of the Act.#160 In discussing the definition of architectural works, the Report identifies the elements of a protected architectural work.#160 The Report states that “protection does not extend to individual standard features, such as common windows, doors and other stable building components.”#160 The Report makes clear, however, that the provision is not intended to “exclude from copyright protection any individual feature that reflects the architect’s creativity.”

Commenting on the meaning of “arrangement and composition of spaces and elements in the design” the Report noted that this phrase recognizes that creativity in architecture frequently takes the form of selection, coordination or arrangement of unprotectable elements into an original, protectible whole, and that a architect may incorporate new, protectible elements into standard features that might not otherwise be protectable and create an original, protectible whole.

The Report sets out a two step analysis to be engaged in when determining the scope of protectability for an architectural work.#160

First, an architectural work should be examined to determine whether there are original design elements present, including overall shape and interior architecture.#160 If such design elements are present, a second step is reached to examine whether the design elements are functionally required.#160 If the design elements are not functionally required, the work is protectible without regard to physical or conceptual separability.

Protection would be denied for the functionally determined elements, but would be available for the nonfunctional elements.#160 The Report states that courts must be free to decide the level and scope of protection, and evidence that there is more than one method of obtaining a given functional result may be considered in evaluating the scope of protection.#160 The Report notes that the Act incorporates the general standards of originality applicable for all other copyrightable subject matter, and the determination of infringement is to be made according to the same standard applicable to all other forms of protected mater.

How Issues of Infringement Can Arise and How to Avoid Them

Poor planning and a lack of understanding can lead to a developer finding itself in hot water with regard to architectural plans.#160 Just because a developer paid an architect to come up with drawings does not mean that the developer can do whatever it wants with the drawings.#160 Granted, case law has held that in certain circumstances the developer may have an implied license to perform the acts that are the subject of the infringement suit.#160 However, defending an infringement claim can be quite expensive. Preventing the situation from arising will be much easier on the pocketbook.

Anytime your client is working with an architect, make sure that there is an engagement letter in place and it is clear on exactly what can and can’t be done with plans or other drawings created by the architect.#160 #160Also, make sure that the engagement letter is crystal clear on exactly who owns the plans.#160 I have seen engagement letter from architects that state that the architect is the owner of the copyright in the plan and that any contributions by the developer to the plan is a work made for hire and made on the architect’s behalf.#160 As long as the developer understands the implication of these provisions, major problems can be avoided.#160 Representing developers, I would rather have my client own the rights to its contributions.#160 I can just imagine the horror a developer would experience upon finding out that the architect he worked with in developing a completely unique floor plan is now selling the plans to all the other major builders in the area.

Developers can find themselves facing copyright infringement issues if they change architects mid project and continue to use the drawings created by the first architect.#160 To preserve the right to do this, the developer should make sure that this right is specifically reserved in the engagement letter.#160 Usually most reasonable architects will allow the developer this right in exchange for being indemnified against any claims related to work performed by the new architect.

Some engagement letters I have seen from architects allow a developer to freely reuse a plan or other drawing without having to pay a reuse fee as long as it is being used for the same development.#160 If a developer wishes to reuse a drawing for multiple developments, the developer should bring that up as soon as possible and make sure that it finds its way into the engagement letter.

The real estate developer and his counsel should give serious consideration of how to incorporate the requirements of the Copyright laws into the company’s best practices.#160 While hand shake deals are still commonplace in the real estate and construction industries, they just won’t cut as far as the Copyright laws are concerned.

Scott Hervey was quoted in a May 1, 2003 story in Wired news about the Courts crack down on illegal music traders.  Scott was quoted as saying "The RIAA has no choice but to go after individuals" and that  "[the RIAA is] going to have to sue users and instill fear in the users."

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