By Adrienne Baker – Edited by Ian C. Wildgoose Brown
Schrock v. Learning Curve Int’l, No. 08-1296 (7th Cir. Sep. 9, 2009)
Opinion

On November 5, the Court of Appeals for the Seventh Circuit reversed and remanded a decision of the District Court for the Northern District of Illinois, which had ruled that copyright for a derivative work requires permission from the underlying copyright holder to be valid. The district court’s ruling was based on reasoning in Gracen v. Bradford Exchange, 698 F.2d 300 (7th Cir. 1983). The Seventh Circuit instead held that a valid copyright in a derivative work is created by “operation of law” and not by authority of the copyright owner in the underlying work, unless a contract dictates otherwise. Additionally, the court held that there is no heightened standard of originality for copyright protection in a derivative work.

The Exclusive Rights Blog provides an overview of the case. Rebecca Tushnet’s 43(B)log criticizes the circuit court for not explicitly overturning Gracen and asserts photographs of copyrighted material should not be treated as derivative works.

The dispute in Schrock concerned photographer Daniel Schrock’s copyright infringement allegation against Learning Curve Int’l and HIT Entertainment (HIT). HIT owns the copyright in the “Thomas & Friends” train characters. HIT licensed the right to create and distribute “Thomas & Friends” toys to Learning Curve. Learning Curve hired Schrock to take pictures of the toys for marketing purposes. Years later, the company ceased using Schrock’s professional services but continued to use his photographs in promotional materials. Schrock subsequently registered his photographs for copyright protection and sued Learning Curve and HIT for copyright infringement. The doctrinal issue in this case arose from the district court’s finding that Schrock’s photographs were derivative works, thereby triggering the requirement of permission from the underlying copyright holder under Gracen.

However, the Seventh Circuit held that the district court had misread Gracen. The Seventh Circuit admitted that the permission-to-copyright dicta in Gracen was incorrect because it contravenes the copyright protection requirements as provided in 17 U.S.C. §102(a) of the Copyright Act (“copyright protection subsists . . . in original works of authorship fixed in any tangible medium”). The court acknowledged that parties effectively may alter these rights through contract. Because the record did not include the contracts among Schrock, Learning Curve, and HIT, the court remanded to the district court for further proceedings.

The circuit court also clarified that the “substantially different from the underlying work” language in Gracen does not impose a high standard of originality for copyright protection in a derivative work, but rather reiterates the notion that derivative works must have a “nontrivial distinguishable variation” from the underlying work in order to be granted copyright protection. This requirement applies both to Schrock’s photographs (a derivative work of the toys) and Learning Curve’s promotional materials (a derivative work of the original photographs).

Schrock aligns copyright law in the Seventh Circuit with the requirements for copyright protection provided in the Copyright Act. However, the scope of the holding is uncertain as it is not possible to determine how the “nontrivial distinguishable variation” requirement for copyrightable derivative works will be applied to works outside the realm of photography.

Court Issues TRO Against Sales of Beatles Music “Simulation”

Ars Technica reports that on November 5, a Central District of California judge issued a temporary restraining order (TRO) against BlueBeat.com, a website offering 25-cent downloads and free streaming of thousands of copyrighted songs, most notably including the entire Beatles catalog. The order is part of a suit filed on November 3 by Capitol, EMI, Priority, and Virgin Records, claiming copyright infringement and various state law violations. In its ill-received opposition to the TRO, BlueBeat asserted in part that the sound recordings it sells were not copied from the originals, but instead were “independently developed” through a “psycho-acoustic simulation” process.

New York Files Suit Against Intel

New York Attorney General Andrew Cuomo filed an antitrust lawsuit against Intel on November 4, The New York Times and The Washington Post report. The complaint focuses on Intel’s relationships with Dell, Hewlett-Packard, and IBM, asserting that the company has used what amounts to coercion and bribery to ensure the use of its chips over those of its main competitor, Advanced Micro Devices. This is the second antitrust action taken against Intel in the U.S — the first, an FTC administrative complaint, was filed in 1998 and later settled. Since 2005, however, Intel has battled and lost antitrust disputes in the EU, Japan, and South Korea.

Anti-Net Neutrality Bill Introduced in House

On October 30, Rep. Marsha Blackburn (R-TN) introduced a House bill that would ban the FCC from issuing “any regulations regarding the Internet,” PCMag.com reports. The bill came eight days after the FCC issued its proposed net neutrality rulemaking, and a week after Sen. John McCain introduced a similar bill in the Senate. Blackburn framed the bill as an effort to preserve the Internet as “the last truly open public marketplace”; supporters of FCC regulation counter that the proposed nondiscrimination rule is necessary to preserve that openness.

Gamer Appeals Ban from Sony’s Playstation 3 Network

On September 22, 2009, the United States District Court for the Northern District of California dismissed Erik Estavillo’s lawsuit against Sony. Fox40.com reports that Estavillo was banned from Sony’s Playstation 3 Network after allegedly uttering “racial and homophobic slurs to other online gamers.” Estavillo alleged that his freedom of expression was abridged, and likened Sony’s network to a company town. The district court dismissed Estavillo’s First Amendment claims, stating: “Sony’s Network is not similar to a company town. The Network does not serve a substantial portion of a municipality’s functions, but rather serves solely as a forum for people to interact subject to specific contractual terms.” Estavillo recently appealed the dismissal to the Ninth Circuit and has also filed a second lawsuit against Sony.

German Government Pledges to Protect Online Journalism in Germany with a “New Kind of Copyright”

On October 29, 2009, the New York Times reported that Germany’s governing coalition “has pledged to create a new kind of copyright to protect online journalism” with the goal of “level[ing] the playing field with Internet companies like Google.” German publishers fear that Google may be “exploiting their content to build lucrative businesses without sharing the rewards.” Google aggregates news from many news outlets on its Google News website; however, Google News operates in Europe without collecting any advertising revenue. Although “[d]etails of how the proposal would work have not been spelled out,” analysts believes that the new copyright scheme may allow online journalists to “claim royalties for the use of their content by Google or other online ‘aggregators’ of news.” In support of the new scheme, counsel for the German Newspaper Publishers Association argues that there is “no fundamental right to information for free on the Internet.”

United Kingdom to Crack Down on Online Piracy; Could Lead to Outright Disconnection of Pirates

On October 28, 2009, the BBC reported on new legislation that will come into force in the United Kingdom in April 2010. Although “the details of it would need to be hammered out at European level,” the legislation will impose bandwidth restriction on suspected pirates. If necessary, more restrictions will be introduced in the spring of 2011 that could completely disconnect the suspected pirates from the Internet. The legislation already faces challenge from ISP TalkTalk, which has created a “Don’t Disconnect Us” campaign and threatened litigation. Although the legislation is designed to protect the United Kingdom’s creative content industries, legislators emphasize that the long-term solution is for “the industry to educate users and to offer new and cheaper ways to download content.”

Facebook, Inc. v. Power Ventures, Inc.
By Gary Pong – Edited by Eric Engle

Facebook, Inc. v. Power Ventures, Inc., Case No. 08-cv-05780-JF (N.D. Cal. Oct. 22, 2009)
Order (Hosted by SPAM NOTES)

The United States District Court for the Northern District of California has granted a motion by Facebook to dismiss counter-claims and strike affirmative defenses in its ongoing case against Power Ventures (Power.com). In his order, United States District Judge Jeremy Fogel wrote that Power.com’s answer and counter-claim relied on legal conclusions which were not directly supported by factual allegations. Judge Fogel went on to note that antitrust claims, like those made by Power.com, “require a ‘higher degree of particularity in the pleadings.’” The order gives Power.com 30 days to amend its pleading.

TechCrunch provides an overview of the issues involved in this case. The Financial Times and Eric Goldman’s Technology & Marketing Law Blog comment on the decision.

Power.com is a service that aggregates various social networking sites so that users can access them all via Power.com. The service promotes to users that they can have “all [their] friends in just one place.” Power.com had allowed users to integrate their Facebook accounts into the service until Facebook filed suit on December 30, 2008. In its complaint (hosted and discussed by the New York Times), Facebook alleges, among other things, that Power.com had violated Facebook’s terms of use, infringed upon Facebook’s copyright and trademark, and violated the Digital Millennium Copyright Act (”DMCA”).

In response, Power.com filed a motion to dismiss (hosted by and discussed by SPAM NOTES) that was subsequently denied. It then filed an answer and counter-claim (hosted by Power.com and discussed by SPAM NOTES) against Facebook. In the counter-claim, Power.com alleges that Facebook engaged in monopolistic and anti-competitive behavior by placing restraints on Power.com’s ability to manipulate users’ Facebook data even when their consent was given. The present order by Judge Fogel gives Power.com 30 days to support its claims against Facebook with facts.

Whether or not Power.com ultimately prevails may have far-reaching effects on social networking sites and the personal data they amass, since one of Facebook’s greatest assets is the personal information it has collected on its over 300 million users. Facebook has an undeniable interest in keeping this information from potential competitors such as Power.com. In such an environment, it may be difficult for a new competitor to reach critical mass and to obtain enough users for the network effect to take hold. At the same time, users are very concerned about their privacy and Facebook has faced vocal criticism in the past whenever it instituted policies that users felt were threatening (e.g. Facebook Beacon). It would be even more difficult for Facebook to protect its users’ privacy if the data was shared with third-parties. With this in mind, it may not be hyperbole to say that the outcome of this case could affect a population the size of America.

In re: In the Matter of the Application of Cellco Partnership d/b/a Verizon Wireless, Case Nos. 09-cv-07074 & 41 Civ. 1395 (S.D.N.Y. Oct. 14, 2009)
Opinion (Hosted by EFF)

The Southern District of New York has ruled that cell phone ringtones do not constitute a public performance, and thus mobile phone carriers do not need to pay performance royalties under the Section 110(4) of the Copyright Act.  The court also dismissed the argument that cell phone carriers publicly perform when they reproduce and download a ringtone to a phone.

United States District Judge Denise Cote dismissed the music industry argument that a ringtone is like a concert hall when it begins ringing/playing in public, instead determining that playing music in public, when done without any commercial purpose, does not infringe copyright.   In so holding, the court ruled that cell phone users are not liable for royalty payments and that carriers are not secondarily liable.  Judge Cote reasoned that the exemption Section 110(4) applies because cell phones announce phone calls and are not sources of commercial public entertainment.

Ars Technica and Wired.com provide an overview of the case.  Both EFF and CDT applaud the decision as a major win for consumers and fair use.

The American Society of Composers, Authors and Publishers (“ASCAP”), which collects royalty payments for public performances of songs, argued that the wireless cellular companies engage in public performance of musical works when they download ringtones to customers’ phones, and should be directly and secondarily liable when customers play ringtones on their telephones.  It requested additional royalties for these performances under Copyright law.  In a different strategy from the RIAA’s lawsuit campaign against individual users, the ASCAP instead went after AT&T and Verizon for revenues above those already paid for download rights.

The court reasoned that downloading a ringtone to a customer’s cellular telephone does not “transmit” a performance of the work to the public because only one subscriber is capable of receiving the transmission and it is not made available to the larger public.

ASCAP also argued that cellular companies engaged in a public performance of copyrighted musical works when ringtones play in public on customers’ cellular telephones.  The court ruled, however, that the cellular companies do not “recite, render, play, dance, or act [the ringtone] either directly or by means of any device,” and thus do not “perform” the music, as that term is defined in the Copyright Act.

The court held that secondary liability depends upon a finding of direct or primary infringement, and that Verizon “has shown that the cellular telephone user is not liable for copyright infringement even when the telephone rings in a public setting.”  Moreover, the court reasoned that without a commercial purpose in the playing of the ringtone, the public performance exemption in 110(4) applies.

The ruling is a win for consumers because it expands the public performance right and preserves the ability of consumers to make private uses of the music they legally purchase.  It also expands a 2007 ruling that likewise concluded that a download is not a public performance.

By Ian C. Wildgoose Brown – Edited by Stephanie Weiner

Moberg v. 33T LLC, Civil No. 08-625(NLH)(JS) (D. Del. Oct. 6, 2009).
Opinion

On October 6, the United States Court for the District of Delaware ruled in a case of first impression that a photograph posted to the Internet from a foreign server is not a “United States work” within the meaning of section 411 of the Copyright Act, and thus need not be registered in the U.S. in order to bring suit for infringement. 17 U.S.C § 411(a). Håkan Moberg, a Sweden-based photographer, brought a copyright infringement action against 33T, LLC, a Delaware corporation, and Cedric and Erwan Leygues, France-based website operators, for unauthorized use of photographs he had displayed on a German website in 2004.  The court denied the defendants’ motion to dismiss, allowing the photographer to go forward with his suit without having to first register his copyright in the United States.

Loeb & Loeb LLP provides an overview of the case. Ex©lusive Rights suggests that the outcome was largely inconsequential. But CyberLaw Currents sees the case as significant for international copyright law.

The defendants asserted that, by posting material to the Internet from a German server, the plaintiff effectively had published the material simultaneously in the U.S. and in Germany.  This would have rendered the work subject to the requirement of § 411(a) that any domestic copyright must be registered with the Copyright Office before any infringement action may be brought regarding that work.  Declining to decide generally whether online posting constitutes “publication,” the court instead held that posting material on a foreign-based Internet site does not make it a “United States work,” despite the fact that it is simultaneously viewable in the United States, and accordingly it is exempt from the Act’s requirements.  In other words, the plaintiff’s photographs were not published simultaneously in the U.S. regardless of whether the German website was considered to have published them or not.

The court reasoned that accepting the defendants’ argument would “overextend and pervert” U.S. copyright law and would be contrary to the goals of the Berne Convention for the Protection of Literary and Artistic Works of reducing barriers to enforcing copyright of foreign works under U.S. law and promoting uniformity in international copyright law. The court additionally found that the Copyright Act’s exclusion of non-U.S. works from the registration formalities signaled a legislative desire to facilitate protection of copyright holders’ copyrighted material in the U.S.  The result of requiring registration of non-U.S. works, the court worried, would be to allow unlimited infringement within the U.S., because “the majority of foreign works are never registered in America.”

The court also found that the plaintiffs had not properly served the defendants with process, but gave the parties 45 days to amend service. Furthermore, the court ordered a 45 day limited “jurisdictional discovery” period to determine whether the defendants’ websites specifically targeted Delaware citizens for purposes of establishing jurisdiction.

Vernor v. Autodesk, Inc., No. C07-1189RAJ (W.D. Wash., Sept. 30, 2009)
Opinion

On September 30, the United States District Court for the Western District of Washington granted, in part, Vernor’s motion for summary judgment against Autodesk.After Autodesk became aware of Vernor’s attempts to sell copies of its copyrighted software, AutoCAD, on eBay, it invoked the takedown provisions of the Digital Millennium Copyright Act, causing Vernor to be barred from selling anything on eBay for a month. Vernor sued, seeking, among other remedies, declaratory judgment that these sales were not in violation of copyright. In granting summary judgment for Vernor, the Court held that a customer who had acquired AutoCAD packages pursuant to Autodesk’s software license agreement (”License”) became an owner of the physical copies of the software with the right to resell the AutoCAD packages under the first sale doctrine (17 USC § 109(a)).

The Court also accepted that the owner was protected from claims of contributory copyright infringement by 17 USC § 117. The Court had previously considered very similar issues in the context of Autodesk’s earlier motion to dismiss. See Vernor v. Autodesk, Inc., 555 F. Supp. 2d 1164 (W.D. Wash. 2008)).

A selection of briefs and relevant court documents are available here. The Technology & Marketing Law Blog provides a useful overview and analysis of the case. The outcome was heralded as pro-consumer by the Electronic Frontier Foundation, but Blog Nauseum suggests that the decision is not much of a win for consumers.

In holding as it did, the Court rejected Autodesk’s argument that it merely licensed the AutoCAD packages and remained the owner of the copies of the copyrighted material contained therein. The decision turned on the specific wording of the License and the resolution of two conflicting lines of precedent.

The AutoCAD packages in question were first transferred from Autodesk to Cardwell/Thomas Associates (“CTA”), an architecture firm, pursuant to the License. CTA then transferred the packages to Vernor in a sale of office equipment.  Vernor subsequently attempted to resell the AutoCAD packages on eBay, prompting Autodesk to invoke the “takedown” procedure. Vernor was barred from selling anything on eBay for a month. There was no suggestion that Vernor had used the software himself.

The Court’s determination turned on whether or not Autodesk had transferred ownership of the AutoCAD packages to CTA. If ownership was transferred, CTA and Vernor had first sale rights. The crucial question was therefore whether the terms of the Autodesk License transferred ownership of the software copies included in the AutoCAD packages to CTA, or whether CTA was a mere licensee.

The Court characterized the License as a “hodgepodge of terms” that could support both transfer of ownership and mere license. The fact it was designated a “license” was not determinative. Autodesk expressly retained title to the “Software and accompanying materials” but had no right to regain possession. The use and further transfer of the software was severely restricted. However, Licensees paid a single up-front price, consistent with ownership. Whether these terms were sufficient to transfer ownership required the Court to resolve conflicting precedents.

In United States v. Wise, 550 F.2d 1180 (9th Cir. 1977), an agreement that reserved all rights and title in the copyright holder was found to transfer ownership of the copy when coupled with upfront payment and the “rest of the language” of the agreement, in particular, the fact that the copyright holder had no right to regain possession.

On the other hand, a trio of cases referred to as the “MAI trio” characterized agreements transferring possession of software as mere licenses (MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1995); Wall Data Inc. v. L.A. County Sheriff’s Dep’t, 447 F.3d 769 (9th Cir. 2006)).

The Court refused to select between precedents on the basis of policy, commenting that courts, unlike Congress, are not suited to render judgments on policy. Rather, the Court applied the principle that it must follow the oldest precedent among conflicting opinions from three-judge Ninth Circuit panels. Accordingly, the case fell to be decided for Vernor on the basis of Wise.

Vernor is one of a number of cases to consider first sale rights in the software context. Because this controversial issue was resolved on the basis of a technical rule of precedent, this decision is unlikely to be the end of the matter. Autodesk may appeal, and the Ninth Circuit is currently hearing several cases raising similar issues (see Electronic Frontier Foundation’s commentary). In the meantime, we can expect that attorneys for software developers will be reviewing the language of their clients’ “licenses” to strengthen the claim that ownership of the copy does not pass to the consumer.

ISPs Found Liable for Websites’ Trademark and Copyright Infringement

Computerworld and Ars Technica report that on August 28, a federal jury handed down a $32.4 million judgment against two ISPs that hosted websites selling counterfeit Louis Vuitton products. Louis Vuitton successfully argued on a theory of contributory infringement, overcoming the ISPs’ claims of immunity under the Digital Millennium Copyright Act’s “safe harbor” provisions. Evidence that the ISPs had received and failed to respond to notices of the illegal activity from Louis Vuitton was key to the case.

EU to Investigate Oracle/Sun Deal

On September 3, the European Union’s antitrust regulators announced plans for a formal investigation of Oracle’s planned buyout of Sun Microsystems, The Washington Post reports. The investigation will center on the competitive consequences of “the world’s biggest proprietary database company . . . tak[ing] over the world’s leading open-source database company.” The European Commission will come to a ruling on the deal by January 19; the U.S. Department of Justice has already approved it.

Authors Voice Privacy Concerns in Objection to Google Settlement

A group of authors and publishers filed an objection to the proposed settlement between The Authors’ Guild and Google Book Search (GBS), the Electronic Frontier Foundation (EFF) reported on September 8. A fairness hearing regarding the settlement is set for next month. In the objection, prepared by EFF, the ACLU, and the Samuelson Clinic at UC Berkeley School of Law, the authors assert that GBS’s collection of personally identifiable information regarding users’ habits will having a chilling effect on readership. Limited information retention and strict disclosure standards are among the authors’ specific demands.

Microsoft, Yahoo, Amazon Join Opposition to Google Settlement

The New York Times reports that Microsoft, Yahoo, and Amazon have joined library associations, nonprofits, and individuals in opposing the Google Books settlement in The Authors Guild v. Google. The settlement, which would allow Google to provide digital versions of millions of books, still requires court approval and remains the subject of a Department of Justice antitrust investigation. The opposition group, tentatively called the Open Book Alliance, will argue to the Department of Justice that the settlement agreement is anticompetitive.

Internet Law Group Brings Suit Against Unidentified Hackers

“John Doe” suits brought against unidentified Eastern European hackers may offer a glimpse of the hackers’ targets and techniques through subpoenas against defrauded banks. However, the banks may challenge the subpoenas in order to protect customer privacy. Unspam Technologies, a group that recently filed suit against bank hackers in the Eastern District of Virginia, hopes to improve bank security and potentially identify the hackers. The New York Times outlines the stakes and key players in the case, Project Honey Pot v. Does.

Mozilla Versus Microsoft in EU Browser Investigation

Ryan Paul at Ars Technica criticizes Mozilla’s complaints regarding Microsoft’s Internet Explorer bundling and default-setting practices. Paul not only argues that many of Mozilla’s complaints “lack substance,” but also claims that the European Union has no business intervening to encourage competition because Mozilla’s Firefox browser has a 22 percent market share “amidst an increasingly competitive browser market.” In contrast, Mitchell Baker of Mozilla argues that the Firefox browser is at a disadvantage because Internet Explorer has a “uniquely privileged position on Windows installations.”

WTO Finds China’s Media Laws Violate International Trade Laws

On August 12, Ars Technica and the New York Times reported that the World Trade Organization ruled against China in a complaint by the United States regarding China’s limitation on imports of songs, movies, and books. The Chinese laws constituting trade violations require that many forms of imported media must be distributed by a single, state-owned company. The laws also limit foreign ownership of Chinese media companies and allow domestic companies to bypass trade censors. Ron Kirk, the US trade representative at the WTO conference in Geneva, said that the “decision promises to level the playing field for American companies working to distribute high-quality entertainment products in China so that legitimate American products can get to market and beat out the pirates.”

Hollywood Group Secures Preliminary Injunction against DVD Copying Software

On August 11, U.S. District Court Judge Marilyn Patel issued a preliminary injunction against RealNetworks, barring the company from selling its RealDVD copying software until a jury can decide the issue, CNET News reports. She stated that RealNetworks cannot use fair use as a defense under the Digital Millennium Copyright Act or the company’s license with the DVD Copy Control Association, but noted that “[i]t may well be fair use for an individual consumer to store a backup copy of a personally owned DVD on that individual’s computer.” While the decision is seen as a major victory for the Motion Picture Association of America, the Electronic Frontier Foundations views it as a setback for innovators and consumers.

David Kappos Sworn in as New Director of USPTO

Patently-O reports that on August 13, David Kappos was sworn as Director of the United States Patent and Trademark Office. Kappos addressed USPTO employees at the ceremony, pledging to work on “reducing the backlog of unexamined patent applications, cutting pendency dramatically, working off the mounting appeals backlog, [and] improving re-exam processing.” He also projected his goals to secure more stable financial backing or the USPTO, hoping there will be no need to utilize the Office’s new authority to use trademark funds to pay for patent operations. A video of Kappos’s swearing in ceremony is available on the blog Anticipate This!