By Ian B. Brooks – Edited by Alissa Del Riego
United States v. Kilbride, No. 07-10528 (9th Cir. Oct. 28, 2009)
Opinion

The Ninth Circuit has affirmed the District Court for the District of Arizona, which had convicted and sentenced defendants Jeffery Kilbride and James Schaffer of transporting obscene materials for sale.

The Ninth Circuit held that a national community standard “must be applied in regulating obscene speech on the Internet, including obscenity disseminated via email.” United States v. Kilbride, No. 07-10528 at 14492 (9th Cir. Oct. 28, 2009).  Defendant Internet spammers Kilbride and Schaffer had appealed their convictions for interstate transportation for sale of obscene material in violation of 18 U.S.C. §§ 1462 and 1465. Judge Fletcher of the 9th Circuit examined the opinions of the fragmented Justices in the Supreme Court’s opinion in Ashcroft v. ACLU for guidance in reaching his conclusion that a national community standard would not pose the constitutional concerns that a local community standard would. Ashcroft v. ACLU, 535 U.S. 564 (2002)

Eric Goldman provides an overview of the case. Orin Kerr, of The Volokh Conspiracy, criticizes the Ninth Circuit’s reasoning in the case. Kerr argues that the Ninth Circuit should have followed the precedent set in Miller v. California, 413 U.S. 15 (1973), wherein local “contemporary community standards” were applied.

Although the Ninth Circuit agreed with the defendants’ assertion that the district court erred in its jury instruction on the obscenity community standard, the court found that it was not a plain error and did not require reversal. The court reached its holding based on  Ashcroft, which found the Child Online Protection Act (COPA) unconstitutional because it was based partly on community standards to identify material that was harmful to children.

Defendants Kilbride and Schaffer operated a spamming business through Ganymede Marketing, a Mauritian company with servers operating in the Netherlands. Two images from the defendants’ sexually explicit emails lead to the obscenity charges. Kilbride and Schaffer were sentenced to 78 and 63 months respectively. On appeal, defendants challenged the District Court’s application of a contemporary community standard to email communications under Hamling v. United States, 418 U.S. 87 (1974), because it would subject the defendants to the least tolerant community standard in the country. The government challenged defendants’ argument by citing a prior case in the district, United States v. Dhingra, 371 F.3d 557 (9th Cir. 2004), in which the Ninth Circuit did not foreclose a local community standard where a crime occurred over the Internet. The Ninth Circuit distinguished Dhingra noting that it does not apply to a federal law that regulates speech.

Rather than applying Hamling, the Ninth Circuit followed Ashcroft. The Ashcroft case addressed the constitutionality of the COPA, which regulated material harmful to minors. The opinion of the Court in Ashcroft did not find it significant that Internet communications were not focused to a particular area and rejected the national community standard approach. The Ninth Circuit reasoned that the view of the Court was contrary to defendants’ argument but noted that the opinion was not joined by a majority of the court.The Ninth Circuit found support for its conclusion that a national obscenity standard should be applied by examining the multiple concurrences and dissent of the other Justices in Ashcroft. Judge Fletcher noted that six Justices raised constitutional concerns over the application of a local community standard for defining obscenity in Internet cases.

This case represents a departure from the local community standard that had been applied following Miller and goes against the reasoning of the opinion of the Court in Ashcroft, but applies what some believe to be the practical reasoning necessary for balancing Internet communications, free speech, and obscenity concerns. Looking forward, OneNewsNow provides a brief opinion on how the Ninth Circuit’s decision may impact defenses raised by attorneys.

By Abby Lauer – Edited by Alissa Del Riego
Siracusano v. Matrixx Initiatives, Inc., No. 06-15677 (9th Cir. Oct. 28, 2009)
Opinion

The Ninth Circuit has unanimously reversed the U.S. District Court for the District of Arizona’s holding, which had dismissed a class action claim against Zicam manufacturer Matrixx for the complaint’s failure to adequately allege a violation of the Private Securities Litigation Reform Act of 1995 (“PSLRA”).

In an opinion written by Tashima, J., the Ninth Circuit held that the District Court improperly relied on a statistical significance standard to determine that the plaintiffs’ complaint did not allege “a material misrepresentation or omission of fact.” Siracusano v. Matrixx Initiative, Inc., No. 06-15677 at 18 (9th Cir. Oct. 28, 2009). Instead of determining materiality as a matter of law, the district court should have allowed the jury to conduct a “fact-specific inquiry.” Siracusano v. Matrixx Initiative, Inc., No. 06-15677 at 20 (9th Cir. Oct. 28, 2009). In addition, the Ninth Circuit held that the lower court erred in dismissing plaintiffs’ complaint for failure to allege scienter on the part of Matrixx executives. The court reasoned that the inference that Matrixx executives knew about the possible link between Zicam and anosmia (loss of smell) before issuing allegedly misleading statements is at least as likely as any plausible opposing inference.

Phoenix’s East Valley Tribune provides an overview of the case. For further discussion of the opinion and pleading standard precedents, see The D & O Diary. For more information about homeopathic remedies, including Zicam, see this recent Washington Post article.

Plaintiffs brought the original action in April 2004, alleging that Matrixx had information of a possible causal connection between Zicam use and anosmia but failed to disclose this risk and instead issued false and misleading statements to consumers.

The Ninth Circuit held that plaintiffs’ complaint satisfied the heightened pleading standards of past Supreme Court cases Twombly and Tellabs and thus should have survived a motion to dismiss. In its holding on the materiality issue, the court examined allegations in the complaint to consider whether information regarding a possible link between Zicam and anosmia was information a reasonable investor might consider significant. The court found that the allegations were sufficient to satisfy the pleading requirement under the PSLRA and held that the issue of whether Matrixx’s misrepresentations were material should be left for a jury to decide. On the issue of scienter, the court emphasized that Matrixx was aware of at least 14 complaints linking Zicam to anosmia at the time it stated that a causal connection between the two was “completely unfounded and misleading.” The court also found a strong indication that high-level Matrixx executives knew that the company was being sued in a product liability action on the issue of anosmia when they released the allegedly misleading statements. Viewing the complaint as a whole, the court held that the inferences of scienter drawn by the plaintiffs’ complaint were sufficiently strong for it to survive a motion to dismiss.

The decision is the latest in a series of setbacks for Matrixx. Following a warning from the FDA last June that Zicam products could cause anosmia, the company voluntarily withdrew two forms of the drug. Matrixx continues to maintain that anosmia is caused by the cold virus, which Zicam is designed to treat, and not by the drug itself.

The case will now return to the District Court for further proceedings. Whether or not the plaintiffs eventually prevail at trial may have substantial implications for Matrixx, which relied on Zicam Cold Remedy products for about 70 percent of its total sales at the time the action was initially filed.

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.”

Nokia Sues Apple for Patent Infringement Related to iPhone

On October 22, Nokia filed a suit against Apple in Delaware federal court, alleging that the iPhone infringes patents held by Nokia. The New York Times reports that the specific patents deal with the GSM and UMTS wireless standards utilized by the iPhone for voice and data communication, both of which were developed in part by Nokia. The Wall Street Journal notes that the suit might be a strategic response to the iPhone’s increasing momentum in Europe and Asia. Nokia could gain a two-percent royalty on each iPhone sold if the suit succeeds.

Tennessee Couple Is Entitled to Unmask Anonymous Blogger

On October 8, a Tennessee state court held in Swartz v. Does that a couple is entitled to know the identity of the individual who posted critical statements about them in an online blog. Ars Technica notes that the blogger’s claim to protection under Section 230 of the Communications Decency Act likely failed because the blog induced readers to spy on the Swartzes and report back on the blog. The Citizen Media Law Project points out that the legal standard used by the judge in this case was “highly protective of anonymous online speech,” but that the Swartzes provided “sufficient evidence in support of their claims of wrongdoing to outweigh the anonymous blogger’s right to anonymity.”

Charges against Craigslist for their “Adult Services” section dismissed by Illinois District Court
By Ye (Helen) He – Edited by Eric Engle

Dart v. Craigslist, Inc., No. 09 C 1385 (N.D. Ill. Oct. 20, 2009)
Opinion

The United States District Court for the Northern District of Illinois held, on Craigslist’s motion for judgment on the pleadings, that Craigslist is not liable for the content posted by its viewers. The court cited Section 230(c) of the Communications Decency Act, concluding that Craigslist, as an Internet classified ads service provider, is immune to civil liability for third party content. The court found Craigslist analogous to an ISP or phone service provider and thus not liable for users’ content and conduct, as opposed to, as plaintiff contended, a newspaper or magazine which may be held liable for its ads.

Bloomberg.com and Eric Goldman’s Technology & Marketing Law Blog summarize the case.

Plaintiff Tomas Dart, the Sheriff of Cook County Illinois, alleges that Craigslist is facilitating prostitution through their erotic (now “adult”) services section, and thus constitutes a public nuisance. Plaintiff sought money damages and to enjoin Craigslist from hosting its adult services section (Compl. P 1; id. at P 27.) Dart claims that Craigslist violated Illinois statute by arranging “meetings of persons for purposes of prostitution and directs them to a place for the purpose of prostitution.” As evidence, Dart cites “The Polaris Project,” an advocacy group against human trafficking, stating that “Craigslist is the single largest source for prostitution, including child exploitation, in the country.”

Craigslist argued that U.S.C. Section 230(c) absolves them of any liability. According to Section 230(c), “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Section 230(e) of the further states that, “No cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section.” Craigslist also points out that before posting ads on its website, users must first agree to its Terms of Use. Furthermore, prior to entering the adult services section, users must agree to flag any content that violates Craigslist’s Terms of Use.

In addressing Dart’s allegations, the court reasoned that even if Craigslist were found to violate the Illinois statute, Section 230(e) of the act would control. Furthermore, the court found Dart’s interpretation of “arrange” and “direct” to “strain the ordinary meaning of the terms.” The court reasoned that since it was the users who choose to post such content, even against Craigslist’s express Terms of Use, Craigslist in no way induced anyone to create, post or search for illegal content.

The court’s holding is wise and conservative; to rule otherwise would blatantly disregard the plain meaning of the Communications Decency Act, and invite a slew of litigation. The court does note, however, that the act does not protect online content hosts from all civil liability, warning that Craigslist could be held liable for its own content or if its system were truly designed to encourage or cause the unlawful behavior. Given Craigslist’s existing precautions, it seems this message is directed at the public rather that to Craigslist itself.

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 Kassity Liu – Edited by Stephanie Weiner

Clark v. State, No. 43C01-0705-FA-127 (Ind. Oct. 15, 2009).
Opinion

On October 15, the Supreme Court of Indiana affirmed a murder conviction and sentence, rejecting the defendant’s claims on appeal, including an argument that the trial court improperly admitted as character evidence an entry he made online on his MySpace page.  The defendant claimed the admission was in violation of the Indiana Rules of Evidence.

Internet Cases and the WSJ Law Blog provide an overview of the case. Evidence Prof Blog criticizes the court’s reasoning on the MySpace entry issue, noting that the evidence was likely admitted in violation of Indiana Rule of Evidence 404(a), not considered by the court.

The trial jury found Ian J. Clark guilty of murdering his then fiancée’s two-year-old daughter.    Matara Muchowicz left her two-year-old daughter with Clark on May 25, 2007; she returned home from work to find her daughter severely beaten and not breathing. Clark was taken into custody, proclaiming to a detective that he would “beat this” because it was “only a C felony.” The jury recommended a life sentence without the possibility of parole.

On appeal, Clark argued that the trial court had erred by admitting into evidence a posting he had made on his MySpace page. Clark claimed that the posting was improper under Indiana Rule of Evidence 404(b), which provides that evidence from other “crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith.”  The Supreme Court concluded that the evidence was properly admitted.  The court found that Rule 404(b) was not implicated because the evidence was of Clark’s own statements rather than his prior actions. Furthermore, the court found that the State had used the posting to rebut Clark’s defense that he was acting recklessly, not intentionally, the day he had killed the two-year-old girl. Clark, by making his character a central issue at trial, had invited the State to use his own words to disprove his defense.  The Court further found the MySpace entry to be probative evidence of Clark’s character and state of mind, particularly when considered in conjunction with Clark’s statements to his arresting officers.

The court also rejected as unfounded Clark’s claim that the prosecution had committed misconduct in questioning him about his involvement with a gang, as well as his claim that fundamental errors during the trial court proceedings required reversal.  The court determined that none of the alleged errors constituted a fundamental error, or “an error that makes a fair trial impossible or constitutes clearly blatant violations of basic and elementary principles of due process presenting an undeniable and substantial potential for harm.”

Clark is one of several recent cases to consider the admissibility of MySpace entries in criminal trials,  with courts reaching differing outcomes based on various grounds.  The issue seems likely to continue to arise in the future – the National Law Journal notes that law enforcement authorities have increasingly sought to introduce such evidence in recent years, and that courts have tended to admit it.

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.

Freedom of Speech Prevails in UK Thanks to Twitter

On October 12, the UK-based newspaper The Guardian reported it was unable to report on a question asked of a minister during Parliamentary proceedings due to “legal obstacles, which cannot be identified.” Political bloggers and tweeters quickly responded, reporting the question was related to the oil-trading company Trafigura, which is under investigation for allegedly dumping toxic waste in the Ivory Coast. Within hours, Trafigura rose to the top of the Twitter “trending topics.” The resulting publicity led the company to relax the terms of its court-ordered gag rule. On October 13, the Guardian reported the details of Trafigura’s “super-injunction,” a gag order so broad that it prevented the newspaper from revealing the injunction’s existence.

Copyright Treaty a Secret, Unless You’ve Got Connections

The next round of negotiations for the multinational Anti-Counterfeiting Trade Agreement (ACTA) is scheduled to run November 4 through November 6 in Korea, but the United States Trade Representative is being coy about its contents. Wired reports that although the language of the treaty is classified, forty-two individuals from the private sector are allowed access to its contents under a nondisclosure agreement. Their names, including both industry and public interest organization representatives, were revealed after Knowledge Ecology International requested the information under the Freedom of Information Act.

Winner of Patent Suit Against Microsoft Sues Internet Giants

Eolas, an internet technology company that won a patent-infringement suit against Microsoft in 2003, is now taking action against the rest of the high-tech world. Ars Technica and CNET reported on October 6 that Eolas, which holds two patents related to web browser plug-in technology, is suing twenty-three other companies for infringement in the U.S. District Court for the Eastern District of Texas. After withstanding Microsoft’s legal challenges to its patent in the 2003 case, Eolas is looking to repeat its success against the likes of Apple, Amazon, Google, Yahoo, and YouTube. However, a Supreme Court decision in the upcoming case Bilski v. Doll may reduce Eolas’ chances at court if software patents are weakened.