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Liability For Inducing Patent Infringement Arises Only With Proof Of Direct Infringement

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The U.S. Supreme Court held in Limelight Networks Inc. v. Akamai Technologies Inc., Case No. 12-786 (June 2, 2014) (available here) that a defendant can only be held liable for inducing infringement of a patent under 35 U. S. C. §271(b) when another is found to have directly infringed the patent under §271(a) or any other statutory provision.  The Court left open the issue of divided infringement, when one party does some steps in a method patent claim and another party does other steps in the claim, but it did comment on divided infringement ruling in Muniauction, Inc. v. Thomson Corp., 532 F. 3d 1318 (2008).

The facts highlight the patent inducement issue addressed by the Court.  Massachusetts Institute of Technology (MIT) owns the Patent No. 6,108,703 (‘703 patent) for a method of delivering electronic data using a “content delivery network,” or “CDN.” Akamai Technologies, Inc., is MIT’s exclusive licensee. Akamai maintains a system of geographically distributed servers. Akamai’s customers are “content providers” who need to serve-up large files, such as video and music files, to end-users.  Under contract, Akamai delivers web site content to individual Internet users. The ‘703 patent claims require that files on Akamai’s servers be tagged, stored and accessed by Internet users. By aggregating the data demands of multiple content providers with differing peak usage patterns and serving that content from multiple servers in multiple locations, as well as by delivering content from servers located in the same geographic area as the users who are attempting to access it, Akamai is able to increase the speed with which Internet users access the content of its customers’ web sites.

Limelight Networks, Inc., also operates a CDN and carries out several of the steps claimed in the ‘703 patent. But instead of tagging those components of its customers’ web sites that it intends to store on Limelight servers (a step included in the ‘703 patent), Limelight requires its customers to do their own tagging. Akamai claims that Limelight “provides instructions and offers technical assistance” to its customers regarding how to tag, 629 F. 3d 1311, 1321 (CA Fed. 2010).  “[T]he record is undisputed that Limelight does not tag the components to be stored on its servers.”

In 2008, the Federal Circuit decided Muniauction, Inc. v. Thomson Corp., 532 F. 3d 1318 (2008) wherein the court rejected a claim that the defendant’s method, involving bidding on financial instruments using a computer system, directly infringed the plaintiff’s patent. The defendant performed some of the steps of the patented method, and its customers, to whom the defendant gave access to its system along with instructions on the use of the system, performed the remaining steps.

The Federal Circuit court held that the defendant in Muniauction was not liable for direct infringement because Muniauction did not exercise control or direction over its customers’ performance of those steps of the patent that the defendant itself did not perform.

Although the jury found that Limelight infringed the ‘703 patent, the trial court granted Limelight’s motion for judgment as a matter of law (JMOL) based upon the Muniauction decision.  An initial Federal Circuit decision  affirmed the JMOL, explaining that a defendant that does not itself undertake all of a patent’s steps can be liable for direct infringement only “when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps.” 629 F. 3d, at 1320.  A subsequent en banc review by the Federal Circuit reversed the JMOL because the evidence could support Akamai’s case on a theory of induced infringement.   The en banc court did not revisit the issue of divided infringement.

Per the Supreme Court, “Our case law leaves no doubt that inducement liability may arise ‘if, but only if, [there is] … direct infringement.’ Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U. S 336, 341 (1961).” opn. pg. 5.

“A method patent claims a number of steps; under this Court’s case law, the patent is not infringed unless all the steps are carried out. See, e.g., Aro, supra, at 344 (a ‘patent covers only the totality of the elements in the claim and . . . no element, separately viewed, is within the grant’). This principle follows ineluctably from what a patent is: the conferral of rights in a particular claimed set of elements. ‘Each element contained in a patent claim is deemed material to defining the scope of the patented invention,’ Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520 U. S. 17, 29 (1997), and a patentee’s rights extend only to the claimed combination of elements, and no further.” opn. pg. 5.

“Assuming without deciding that the Federal Circuit’s holding in Muniauction is correct, there has simply been no infringement of the method in which respondents have staked out an interest, because the performance of all the patent’s steps is not attributable to any one person. And, as both the Federal Circuit and respondents admit, where there has been no direct infringement, there can be no inducement of infringement under §271(b).”  opn. pg. 6.

“In both Deepsouth Packing Co. v. Laitram Corp., 406 U. S. 518 (1972), and this case, the conduct that the defendant induced or contributed to would have been infringing if committed in altered circumstances: in Deepsouth if the machines had been assembled in the United States, see id., at 526, and in this case if performance of all of the claimed steps had been attributable to the same person.” opn. pg. 7.

“Muniauction (which, again, we assume to be correct) instructs that a method patent is not directly infringed and the patentee’s interest is thus not violated-unless a single actor can be held responsible for the performance of all steps of the patent. Because Limelight did not undertake all steps of the ‘703 patent and cannot otherwise be held responsible for all those steps, respondents’ rights have not been violated.”  opn. pg. 8.

“Finally, respondents, like the Federal Circuit, criticize our interpretation of §271(b) as permitting a would-be infringer to evade liability by dividing performance of a method patent’s steps with another whom the defendant neither directs nor controls. We acknowledge this concern. Any such anomaly, however, would result from the Federal Circuit’s interpretation of §271(a) in Muniauction. A desire to avoid Muniauction’s natural consequences does not justify fundamentally altering the rules of inducement liability.”  opn. pg. 10.

 

Supreme Court Lowers Bar For Prevailing Party In Patent Litigation To Collect Attorneys Fees

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The U.S. Supreme Court, in Octane Fitness LLC. v. Icon Health & Fitness Inc., case no. 12-1184 (Apr. 29, 2014) (available here), overturned a decade of Federal Circuit law by redefining when a case is exceptional under the Patent Act.  A prevailing party in patent litigation may obtain its attorneys fees if the “case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”  opn. pg. 7-8.

“Section 285 of the Patent Act authorizes a district court award attorney’s fees in patent litigation. It provides, in its entirety, that ‘[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.’ 35 U.S.C. §285. In Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F. 3d 1378, 1381 (2005), the United States Court of Appeals for the Federal Circuit held that ‘[a] case may be deemed exceptional’ under §285 only in two limited circumstances: ‘’when there has been some material inappropriate conduct,’ or when the litigation is both ‘’brought in subjective bad faith’ and ‘objectively baseless.’”   opn. pg. 1.

The trial court and later the Federal Circuit Court had determined that the accused infringer Octane, who won the infringement action below, could not show that (i) ICON’s patent infringement claim was objectively baseless or (ii) ICON had brought the action in subjective bad faith.

The Supreme Court found that the Federal Circuit had “abandoned” the “holistic, equitable approach” when it issued its Brooks Furniture decision.  In Brooks, the trial courts were to find material inappropriate conduct such as willful infringement, fraud or inequitable conduct.

The Supreme Court held “that an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”  opn. pg. 7-8.

As for the Federal Circuit’s concepts that exceptional case findings be based upon litigation which is objectively baseless and brought in subjective bad faith, the Supreme Court pointed to Noxell Corp. v. Firehouse No. 1 Bar -B-Que Restaurant, 771 F.2d 521 (CADC 1985).  In Noxell, the appeals court stated “we think it fair to assume that Congress did not intend rigidly to limit recovery of fees by a [Lanham Act] defendant to the rare case in which a court finds that the plaintiff ‘acted in bad faith, vexatiously, wantonly, or for oppressive reasons’ …. Something less than ‘bad faith,’ we believe, suffices to mark a case as ‘exceptional”‘.

Lastly, the Supreme Court lowered the evidentiary standard to find exceptional case.  “[W]e reject the Federal Circuit’s requirement that patent litigants establish their entitlement to fees under §285 by ‘clear and convincing evidence,’ Brooks Furniture, 393 F. 3d, at 1382.  Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one.”

As a practice note, counsel for patent owners and accused infringers should be wary of the new, lower standard for attorneys fees.

Copyrightability and Fair Use of the Google Android Operating System – Oracle v Google

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In a lengthy decision covering historical computer copyright case law, the Court of Appeals for the Federal Circuit ruled on the copyright dispute over the Android smart phone operating system in Oracle America Inc. v. Google Inc., Fed. Cir. Case No. 2013-1021 (May 9, 2014) (available here).  The Court reversed the district court’s decision on the non-copyrightability of the Java code used by Google and remanded the matter for a new trial on the issue of fair use.

The copyright dispute involved 37 packages of computer source code. “The parties have often referred to these groups of computer programs, individually or collectively, as ‘application programming interfaces,’ or API packages, but it is their content, not their name, that matters.  Many software developers use the Java language, as well as Oracle’s API packages, to write applications (commonly referred to as ‘apps’) for desktop and laptop computers, tablets, smartphones, and other devices.”  opn. pg. 4.  Oracle alleged that Google’s Android mobile operating system infringed Oracle’s patents and copyrights.  The Federal Circuit handled the appeal due to the presence of a patent infringement claim but the appeal involved copyright infringement.  The Federal Circuit was therefore obliged to apply Ninth Circuit copyright law. The jury had found that Google did not infringe Oracle’s patents.

The parties agreed that the jury would decide infringement, fair use, and whether any copying was de minimis and the district judge would decide copyrightability and Google’s equitable defenses.  The jury found that Google infringed Oracle’s copyrights in the 37 Java packages and a specific computer routine called ‘rangeCheck,’ but returned a noninfringement verdict as to eight decompiled security files. The jury deadlocked on Google’s fair use defense.  After the trial, the district court granted Oracle’s motion for judgment as a matter of law (JMOL) and found that: (1) Google admitted to copying the eight files; and (2) no reasonable jury could find that the copying was de minimis.  Shortly thereafter, the district court issued its decision on copyrightability, finding that the replicated elements of the 37 API packages—including the declaring code and the structure, sequence, and organization—were not subject to copyright protection.

Oracle’s Java platform includes the Java development kit (JDK), javac compiler, tools and utilities, runtime programs, class libraries (API packages), and the Java virtual machine.  These packages, which are the application programming interfaces a issue in this appeal, allow programmers to use the prewritten code to build certain functions into their own programs, rather than write their own code to perform those functions from scratch. They are shortcuts.  Oracle offers three different licenses: a free, open source General Public License (users must contribute back innovations to the public), a specification license and a commercial license (for use of the entire code and to keep the code secret).  Oracle and Google could not agree on a license because Google wanted a ‘write once, run anywhere’ operating system. Google wanted other programmers to write apps for the Google Java-based smart phone.

“To achieve this ‘write once, run everywhere’ result, Google copied the declaring source code from the 37 Java API packages verbatim, inserting that code into parts of its Android software. In doing so, Google copied the elaborately organized taxonomy of all the names of methods, classes, interfaces, and packages — the ‘overall system of organized names—covering 37 packages, with over six hundred classes, with over six thousand methods.’” opn. pg. 10 – 11.

“Although [Google] acknowledged that the overall structure of Oracle’s API packages is creative, original, and resembles a taxonomy, the district court found that it is nevertheless a command structure, a system or method of operation — a long hierarchy of over six thousand commands to carry out pre-assigned functions — that is not entitled to copyright protection under Section 102(b) of the Copyright Act. In reaching this conclusion, the court emphasized that, [o]f the 166 Java packages, 129 were not violated in any way. And, of the 37 Java API packages at issue, ‘97 percent of the Android lines were new from Google and the remaining three percent were freely replicable under the merger and names doctrines. On these grounds, the court dismissed Oracle’s copyright claims, concluding that the particular elements replicated by Google were free for all to use under the Copyright Act.”  opn. pg. 14 (quotations and record citations omitted).

Per the Federal Circuit, “It is undisputed that Google copied 7,000 lines of declaring code and generally replicated the overall structure, sequence, and organization of Oracle’s 37 Java API packages.”  opn. pg. 15.

The Copyright Act provides protection to original works of authorship fixed in any tangible medium of expression, including literary works. 17 U.S.C. § 102(a). It is undisputed that computer programs —  defined in the Copyright Act as “a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result,” 17 U.S.C. § 101 — can be subject to copyright protection as literary works. See Atari Games Corp. v. Nintendo of Am., Inc., 975 F.2d 832, 838 (Fed. Cir. 1992).

Copyright protection extends only to the expression of an idea — not to the underlying idea itself. Mazer v. Stein, 347 U.S. 201, 217 (1954).  The idea/expression dichotomy traces back to the Supreme Court’s decision in Baker v. Selden, 101 U.S. 99, 101 (1879).

“It is well established that copyright protection can extend to both literal and non-literal elements of a computer program. … The non-literal components of a computer program include,
among other things, the program’s sequence, structure, and organization, as well as the program’s user interface.” opn. pg. 20.

“Although the parties agree that Oracle’s API packages meet the originality requirement under Section 102(a), they disagree as to the proper interpretation and application of Section 102(b). For its part, Google suggests that there is a two-step copyrightability analysis, wherein Section 102(a) grants copyright protection to original works, while Section 102(b) takes it away if the work has a functional component. To the contrary, however, Congress emphasized that Section 102(b) ‘in no way enlarges or contracts the scope of copyright protection’ and that its ‘purpose is to restate . . . that the basic dichotomy between expression and idea remains unchanged.’ Feist,
499 U.S. at 356″ opn. pg 22.

The Federal Circuit adopted the abstraction-filtration-comparison test.  “In the abstraction step, the court first breaks down the allegedly infringed program into its constituent structural parts. In the filtration step, the court sifts out all non-protectable material, including ideas and expression that is necessarily incidental to those ideas. In the final step, the court compares the remaining creative expression with the allegedly infringing program.”  opn. pg. 23 – 24 (quotes omitted).

“In all circuits, it is clear that the first step is part of the copyrightability analysis and that the third is an infringement question. It is at the second step of this analysis where the circuits are in less accord.”  opn pg. 24

“In the Ninth Circuit, while questions regarding originality are considered questions of copyrightability, concepts of merger and scenes a faire are affirmative defenses to claims of infringement. Ets-Hokin, 225 F.3d at 1082; Satava v. Lowry, 323 F.3d 805, 810 n.3 (9th Cir.
2003)” opn. pg. 25.

“Under the merger doctrine, a court will not protect a copyrighted work from infringement if the idea contained therein can be expressed in only one way. Satava v. Lowry, 323 F.3d 805, 812 n.5 (9th Cir. 2003).”

“First, we agree that merger cannot bar copyright protection for any lines of declaring source code unless Sun/Oracle had only one way, or a limited number of ways, to write them. See Satava, 323 F.3d at 812 n.5 (‘Under the merger doctrine, courts will not protect a copyrighted work from infringement if the idea underlying the copyrighted work can be expressed in only one way, lest there be a monopoly on the underlying idea.’). The evidence showed that Oracle had ‘unlimited options as to the selection and arrangement of the 7000 lines Google copied.’ Appellant Br. 50.”

“The scenes a faire doctrine, which is related to the merger doctrine, operates to bar certain otherwise creative expression from copyright protection. Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435, 1444 (9th Cir. 1994). It provides that ‘expressive elements of a work of authorship are not entitled to protection against infringement if they are standard, stock, or common to a topic, or if they necessarily follow from a common theme or setting.’ Mitel, 124 F.3d at 1374. Under this doctrine, ‘when certain commonplace expressions are indispensable and naturally associated with the treatment of a given idea, those expressions are treated like ideas and therefore [are] not protected by copyright.’ Swirsky v. Carey, 376 F.3d 841, 850 (9th Cir. 2004). In the computer context, ‘the scene a faire doctrine denies protection to program elements that are dictated by external factors such as ‘the mechanical specifications of the computer on which a particular program is intended to run’ or ‘widely accepted programming practices within the computer industry.’‘ Softel, 118 F.3d at 963 (citation omitted).”  opn pg. 35.

“Like merger, the focus of the scenes a faire doctrine is on the circumstances presented to the creator, not the copier. See Mitel, 124 F.3d at 1375 (finding error to the extent the trial court discussed ‘whether external factors such as market forces and efficiency considerations justified Iqtel’s copying of the command codes’). The court’s analytical focus must be upon the external factors that dictated Sun’s selection of classes, methods, and code—not upon what Google encountered at the time it chose to copy those groupings and that code.”  opn. pg. 37.

“[T]he trial court was correct to conclude that the scenes a faire doctrine does not affect the copyrightability of either the declaring code in, or the SSO [sequence, organization and structure] of, the Java API packages at issue.”  opn pg. 37.

“The district court found that the SSO [sequence, organization and structure] of the Java API packages is creative and original, but nevertheless held that it is a ‘system or method of operation . . . and, therefore, cannot be copyrighted’ under 17 U.S.C. § 102(b). Copyrightability Decision, 872 F. Supp. 2d at 976-77. In reaching this conclusion, the district court seems to have relied upon language contained in a First Circuit decision: Lotus Development Corp. v. Borland International, Inc., 49 F.3d 807 (1st Cir. 1995), aff’d without opinion by equally divided court, 516 U.S. 233 (1996).  In Lotus, it was undisputed that the defendant copied the menu command hierarchy and interface from Lotus 1- 2-3, a computer spreadsheet program ‘that enables users to perform accounting functions electronically on a computer.’ 49 F.3d at 809. The menu command hierarchy referred to a series of commands—such as ‘Copy,’ ‘Print,’ and ‘Quit’—which were arranged into more than 50 menus and submenus.”  opn. pg. 37 – 38.

“More importantly, however, the Ninth Circuit has not adopted the court’s ‘method of operation’ reasoning in Lotus, and we conclude that it is inconsistent with binding precedent. Specifically, we find that Lotus is inconsistent with Ninth Circuit case law recognizing that the structure, sequence, and organization of a computer program is eligible for copyright protection where it
qualifies as an expression of an idea, rather than the idea itself.”  opn. pg. 39 – 40.

“While it does not appear that the Ninth Circuit has addressed the precise issue, we conclude that a set of commands to instruct a computer to carry out desired operations may contain expression that is eligible for copyright protection.”  opn. pg. 42-43.

“Given the court’s findings that the SSO is original and creative, and that the declaring code could have been written and organized in any number of ways and still have achieved the same functions, we conclude that Section 102(b) does not bar the packages from copyright protection just because they also perform functions.” opn. pg. 45.

As for Google’s arguments that it does not infringe because the Google code’s interoperability with other Java apps, those arguments are directed to Google’s fair use analysis.  Interoperability is ‘irrelevant’ to the copyrightability analysis.  opn. pg. 45.  The district court concluded that Google took only what was necessary to achieve interoperability, and relied primarily on two Ninth Circuit decisions: Sega Enterprises v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992), and Sony Computer Entertainment, Inc. v. Connectix, Corp., 203 F.3d 596 (9th Cir. 2000).  “As noted, both cases were focused on fair use, not copyrightability.  In Sega, for example, the only question was whether Accolade’s intermediate copying was fair use. The court never addressed the question of whether Sega’s software code, which had functional elements, also contained separable creative expression entitled to protection. Likewise, although the court in Sony determined that Sony’s computer program had functional elements, it never addressed whether it also had expressive elements. Sega and Sony are also factually distinguishable because the defendants in those cases made intermediate copies to understand the functional aspects of the copyrighted works and then created new products. See Sony, 203 F.3d at 606-07; Sega, 977 F.2d at 1522-23.”  opn. pg. 47.

The jury was hung on the issue of whether Google’s use of the code was fair use and the district court refused to order a new trial. “‘Section 107 requires a case-by-case determination whether a particular use is fair, and the statute notes four nonexclusive factors to be considered.’ Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 549 (1985). Those factors are: (1) ‘the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;’ (2) ‘the nature of the copyrighted work;’ (3) ‘the amount and substantiality of the portion used in relation to the copyrighted work as a whole;’ and (4) ‘the effect of the use upon the potential market for or value of the copyrighted work.’ 17 U.S.C. § 107. The Supreme Court has explained that all of the statutory factors ‘are to be explored, and the results weighed together, in light of the purpose[] of copyright,’ which is ‘[t]o promote the Progress of Science and useful Arts.’ Campbell, 510 U.S. at 578, 575 (internal citations omitted).”  opn. pg. 53 – 54.

A use is transformative if it adds something new, with a further purpose or different character, altering the first with new expression, meaning or message.  “A work is not transformative where the user ‘makes no alteration to the expressive content or message of the original work.” opn. pg. 57.

The Federal Circuit remanded the case back to the district court on the fair use question and requested a new trial. “First, although it is undisputed that Google’s use of the API packages is commercial, the parties disagree on whether its use is ‘transformative.’ Google argues that it is, because it wrote its own implementing code, created its own virtual machine, and incorporated the packages into a smartphone platform. For its part, Oracle maintains that Google’s use is not transformative because: (1) ‘[t]he same code in Android . . . enables programmers to invoke the same pre-programmed functions in exactly the same way;’ and (2) Google’s use of the declaring code and packages does not serve a different function from Java. Appellant Reply Br. 47. While Google overstates what activities can be deemed transformative under a correct application of the law, we cannot say that there are no material facts in dispute on the question of whether Google’s use is ‘transformative,’ even under a correct reading of the law. As such, we are unable to resolve this issue on appeal.”  opn. pg. 60.

Copyright Plaintiffs Recovery Limited To Three Years – U.S. Supreme Court

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The U.S. Supreme Court has capped all copyright infringement damages by limiting those damages to a three year period prior to the filing of suit.  Petrella v. Metro-Goldwyn-Mayer, Inc., case no. 12-1315 (May 19, 2014) (available here).  Moreover, the doctrine of estoppel may bar all claims entirely.

“The Copyright Act provides that ‘[n]o civil action shall be maintained under the [Act] unless it is commenced within three years after the claim accrued.’ 17 U. S. C. §507(b). This case presents the question whether the equitable defense of laches (unreasonable, prejudicial delay in commencing suit) may bar relief on a copyright infringement claim brought within §507(b)’s three-year limitations period. Section 507(b), it is undisputed, bars relief of any kind for conduct occurring prior to the three year limitations period. To the extent that an infringement suit seeks relief solely for conduct occurring within the limitations period, however, courts are not at liberty to jettison Congress’ judgment on the timeliness of suit. Laches, we hold, cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window.”  opn. pg. 1.

A claim accrues when a plaintiff has a complete and present cause of action. Bay Area Laundry and Dry Cleaning Pension Trust Fund v. Ferbar Corp. of Cal., 522 U. S. 192, 201 (1997).  “In other words, the limitations period generally begins to run at the point when ‘the plaintiff can file suit and obtain relief.’ A copyright claim thus arises or ‘accrue[s]’ when an infringing act occurs.”

However, the Copyright Act defines multiple, different violations (for example, sale, copying and distribution are all separate violations).  Under the separate-accrual rule “when a defendant commits successive violations, the statute of limitations runs separately from each violation. Each time an infringing work is reproduced or distributed, the infringer commits a new wrong. Each wrong gives rise to a discrete ‘claim’ that ‘accrue[s]’ at the time the wrong occurs.6 In short, each infringing act starts a new limitations period. See Stone v. Williams, 970 F. 2d 1043, 1049 (CA2 1992) (‘Each act of infringement is a distinct harm giving rise to an independent claim for relief.’).” opn. pg. 5.

When a defendant engages in a series of discrete infringing acts, the copyright holder’s suit will be timely under §507(b) with respect to the more recent acts of infringement.

“[A] successful plaintiff can gain retrospective relief only three years back from the time of suit. No recovery may be had for infringement in earlier years. Profits made in those years remain the defendant’s to keep.” opn. pg. 11.

Further, “[a]lthough registration is ‘permissive,’ both the certificate and the original work must be on file with the Copyright Office before a copyright owner can sue for infringement.” opn. pg. 18.

As for excessive delays by the copyright owner, estoppel may bar relief.  “The defendant [] may retain the return on investment shown to be attributable to its own enterprise, as distinct from the value created by the infringed work. See Sheldon v. Metro-Goldwyn Pictures Corp., 309 U. S. 390, 402, 407 (1940) (equitably apportioning profits to account for independent contributions of infringing defendant).” opn. pg. 11.  “[W]hen a copyright owner engages in intentionally misleading representations concerning his abstention from suit, and the alleged infringer detrimentally relies on the copyright owner’s deception, the doctrine of estoppel may bar the copyright owner’s claims completely, eliminating all potential remedies.”  opn. pg. 19.

Looseleaf Booklet With Sheets of Photographs Showing Sculpture is Sufficient to Register Copyright

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The Seventh Circuit Court of Appeals concluded that loose photographs of a sculpture, stuck in a book, were sufficient to be classified as a copyrightable “collection.” Neri v. Monroe, et al., Case No. 12-3204 (7th Cir. August 12, 2013) (available here).  Plaintiff Quincy Neri designed a glass sculpture called “Mendota Reflection,” which was installed in the ceiling of Linda Hughes’s condominium by Architectural Building Arts (“ABA”).  The ABA is owned by Defendant Melinda Monroe.  Leslie Sager designed the lighting.  Hughes gave Eric Ferguson permission to take photographs of the project.  ABA and Monroe posted copies of the sculpture photos on its website and used the photos in its newsletter. Sager posted copies of the sculpture photos on her website and Ferguson posted the photos on his Flickr webpage.  Neri sued, arguing that they violated her copyright in the sculpture.  A magistrate judge dismissed the case, finding that Neri lacked a copyright registration and the sculpture.  In the Copyright Office, Neri had submitted a collection of photographs of her unpublished works, including the sculpture, for registration.  Neri received a copyright registration but the lower court concluded that the application was defective and therefore the copyright certificate was invalid.  Neri appealed.  The Seventh Circuit vacated the dismissal.

A collection of unpublished works is defined, under the Copyright Office regulations, when each copyrightable work is self-contained and a number of works are combined into a single unpublished “collection.”  “For these purposes, a combination of such elements shall be considered a ‘collection’ if: (1) The elements are assembled in an orderly form; (2) The combined elements bear a single title identifying the collection as a whole; (3) The copyright claimant in all of the elements, and in the collection as a whole, is the same; and (4) All of the elements are by the same author, or, if they are by different authors, at least one of the authors has contributed copyrightable authorship to each element. Registration of an unpublished ‘collection’ extends to each copyrightable element in the collection and to the authorship, if any, involved in selecting and assembling the collection.” 37 C.F.R. §202.3(b)(4)(i)(B).

Neri clearly met three of the requirements: the collection had a single title; she claimed a copyright in each sculpture and in the collection as a whole; and she was the only author.  However, the magistrate judge found that Neri’s submission was not in an “orderly form.”  Neri’s submission was a book of photographs of several sculptures, and some loose photographs.  The sculpture subject tot he lawsuit was among the loose photos.  Thus, the magistrate judge concluded that the submission was not orderly and was not a collection of unpublished works entitled to copyright registration.

The Seventh Circuit tried to review Neri’s submission (the copyright deposit) but it was not in the record.  Thus, the magistrate judge had come to his conclusion based on deposition testimony.  Neri had described her submission the same way as the magistrate judge did, but also argued later that a photo of the sculpture was in the book.  “The problem may be terminological; Neri may have used the title ‘Mendota Reflection’ for more than one sculpture. But it is hard to understand how a court could conclude that a given submission is not ‘in an orderly form’ when the submission cannot be examined.”  Neri, Slip Op. P. 4.

Even though Neri’s deposit copyright deposit material submission was not in the record, she did have the copyright certificate.  Thus, Defendants had to show why the court should disregard the registration.  If the appeals court followed the magistrate judge’s line of reasoning, only a single bound book is an “orderly” way to present photographs of sculptures, and if the sculpture is in the book then the registration is valid. However, the Seventh Circuit did not see why only a single document could be considered orderly. The Copyright Register found Neri’s submission to be adequate and a district court should not find otherwise without a compelling reason.  Further, the magistrate judge did not rely on any legal authority to show how much order was required in a collection submission.

“Since the ‘orderly form’ requirement implements a statute allowing the [Copyright] Register to require ‘other information’, the key question must be whether the submission is organized well enough to permit users and courts to pin down the ‘information’ on which copyright enforcement depends.”  Neri, Slip Op. P. 5.  Thus, as long as the loose photographs were labeled in some way so that each work was readily identifiable, then Neri’s submissions should be considered orderly.

“Any organization that enables a court to associate a work underlying the suit with a work covered by a registration ought to do the trick. If a booklet (or PDF file) with page numbers is orderly enough—as the magistrate judge thought—a sequence of loose but numbered or named photographs should be enough too.”  Neri, Slip Op. P. 6.  However, if Neri did not submit photos of the sculpture, then the copyright registration does not support this lawsuit.

Defendants also argued that Neri was not the author of the sculpture: Fritz Schomburg is a glass-blower (a gaffer) who made the glass elements of the sculpture, but Neri only made the molten glass available as Schomburg needed it.  Defendants’ argument was that a change in form from drawings to glass creates intellectual property rights.  This is the same argument as saying that a typesetter owns the copyright to a book because the author did not type it personally.  Neri created the sculpture by designing it, choosing the glass, picking out the shapes and colors, etc.  As a result, the Seventh Circuit vacated the dismissal of Neri’s suit and remanded it for further proceedings.

User Comments On A Public Interest Website Do Not Violate Website’s User Agreement

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The Appeals Court for the Fourth District Court of Appeals in California affirmed the special motion to strike a plaintiff’s complaint for being barred under the anti-SLAAP statute.  Hupp v. Freedom Communications, Inc., Case No. #-57390 (Cal. 4th DCA, November 7, 2013) (available here).  Plaintiff Paul Hupp sued Defendant Freedom Communications, Inc., dba The Orange County Register (“the Register”), alleging breach of the Register’s user agreement with Hupp when the Register failed to remove comments on its website regarding Hupp.  The Register filed a special motion to strike (anti-SLAPP) and the lower court granted the motion to strike Hupp’s complaint.  Hupp appealed, arguing that his lawsuit is a standard breach of contract action not subject to an anti-SLAPP motion.

In March 2012, the Register published an article on its website concerning public safety pensions in Orange County, California.  Many readers, including Hupp, posted comments on the article.  A large portion of the comments were between Hupp and Defendant Mike Bishop.  The Register argued that Hupp complained to the author of the article about five postings by Bishop and demanded that they be removed.  Hupp argued that the Register violated its user agreement by making public comments and failing to remove the comments about Hupp.  He argued that the comments invaded his right of privacy, harassed him, and were harmful to him.  The Register’s User Agreement states that interactive areas of the Register’s website are provided to the users as a way for users to express their opinions and share ideas and information.  The User Agreement also stated that users who used the interactive areas, and that the Register reserved the right, but undertakes no duty, to review, edit, move, or delete any user generated content in its sole discretion.

The Register filed an anti-SLAAP motion under Code of Civil Procedure Section 425.16, which authorizes such a motion “against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue . . . .”  Code of Civil Procedure Section 425.16(b)(1).  The statute is meant to be construed broadly, and the anti-SLAAP motion must be granted unless a plaintiff can show that there is a probability for plaintiff to prevail on the claim.  A SLAAP lawsuit is a civil lawsuit aimed to bring an economic advantage to the plaintiff over the defendant, not a lawsuit brought to vindicate a legally cognizable right of the plaintiff.  “While Hupp’s complaint does not generally fit the above description of a typical SLAPP suit, it is subject to an anti-SLAPP motion if it fits within the statutory definition, which includes having the purpose of punishing the Register for exercising its free speech rights. Hupp’s appeal on this point provides only two sentences of argument and does not address the issues presented by the trial court’s decision.”  Hupp, Slip Op. P. 5.

The Court first had to determine whether the Register made the required showing that Hupp’s complaint arose from a protected activity.  If so, then the Court would consider whether Hupp had demonstrated a probability of prevailing on his claim.  The Register argued that its actions arise from acts in furtherance of its free speech rights.  The Register argued that its maintenance of the website, which publishes public interest articles and allows user comments, facilitates free speech, and allows for the exchange of ideas and opinions.  The California Supreme Court has held that publicly available websites are public forums for purposes of anti-SLAAP motions.  Barrett v. Rosenthal, 40 Cal.4th 33, 41, fn. 4, (2006).  The comments between Hupp and Bishop began as a conversation about the pension article posted on the Register’s website.  However, Bishop then asked Hupp if he was a vexatious litigant, stating that he had searched for Hupp on Google, and that Hupp was the subject of discussion on other websites.  To support this, the Register submitted to the Court an appendix of 145 pages of lawsuit related documents concerning Hupp.  The Register argued that the subject of vexatious litigants is an issue of public  interest.  The Court concluded that the Register’s actions were in furtherance of its free speech rights.  “Maintaining a forum for discussion of issues of public interest is a quintessential way to facilitate rights, and the Register has no liability for doing so.”  Hupp, Slip Op. P. 8.

The Court extended this holding to find that Hupp had not shown any probability of prevailing in this action.  Hupp had failed to present any argument on the issue, and thus his lawsuit is barred.  As a result, the Court affirmed the lower court’s granting of the Register’s anti-SLAAP motion.

Hupp then argued that there was an issue with document service.  Hupp filed his complaint on March 22, 2012 and the Register was served on July 2, 2012.  The Register had 30 days to respond, and on July 24, 2012, it filed an ex parte motion for an extension in order to file its anti-SLAAP motion.  The motion was granted, and Hupp acknowledged receipt of the order on July, 30, 2012.  On August 31, 2012, the Register filed the anti-SLAAP motion, the hearing was set for September 28, 2012, and on September 13, 2012 the process server filed an amended proof of service stating that the original had inadvertent incorrect information, and that service was completed by leaving copies of the documents with the security guard at the front gate of Hupp’s residential community.  This is a permissible means of service in California.  Hupp filed a declaration by the secuirty guard, who stated that he turned the process server away and did not receive any documents.  Hupp filed his motion to strike the anti-SLAAP motion on September 24, 2012 for improper service, however he acknowledged receipt of the Register’s motion on September 13, 2012.  Counsel for the Register moved for a continuance, which was granted, and the anti-SLAAP motion was heard on October 18, 2012.  The lower court granted the anti-SLAAP motion.  The Court concluded that Hupp had admitted to receiving the Register’s motion on September 13, 2012, and therefore he had 34 days before the rescheduled hearing on October 18, and had actual notice of the action in time to defend against the anti-SLAAP motion.  As a result, the Register complied with all service requirements.

The Court affirmed the lower court’s order granting the Register’s anti-SLAAP motion to strike Hupp’s complaint.

Trademark Infringement, Likelihood Of Confusion and Concurrent Use Not Properly Summary Judgment For 100 Year Hotel Name

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The First Circuit Court of Appeals vacated a summary judgment order, finding that there were genuine issues of material fact regarding the likelihood of confusion for two hotels using similar marks.  Dorpan S.L. v. Hotel Meliá, Inc., Case No. 12-1679 (1st Cir. August 28, 2013) (available here).  Dorpan S.L. (“Dorpan”) and Hotel Meliá, Inc. (“HMI”) are Puerto Rican hotels.  Dorpan sued HMI in a trademark infringement case over the use of the mark “Meliá.”  The lower court found in favor of Dorpan on a summary judgment ruling, holding that with the exception of the city where HMI’s hotel was located, Dorpan had exclusive use of the Meliá mark throughout Puerto Rico.  HMI appealed.  On appeal, the First Circuit concluded that the two hotels could not co-exist and both use “Meliá” without creating confusion.  As a result, the First Circuit vacated the summary judgment in favor of Dorpan and remanded the case for further proceedings.

HMI operated the Hotel Meliá for over 100 years in Puerto Rico but never federally registered the mark with the United States Patent and Trademark Office (“USPTO”).  Dorpan has several federally registered trademarks using the name “Meliá” since the late 1990s.  In 2007, Dorpan opened a hotel called “Gran Meliá” in the city near HMI’s hotel.  Dorpan filed a petition with the Puerto Rico Department of State to register the mark “Gran Meliá,” and HMI filed an opposition expressing concern for confusion and citing to HMI’s common law rights to the Meliá mark.  Dorpan withdrew the request to register, but continued to use the Gran Meliá mark in connection with its Puerto Rico hotel.  In 2008, HMI filed a complaint against Dorpan’s parent company, asserting that HMI was the senior user of the Meliá mark and therefore had the sole right to use it in connection with hotels and restaurants throughout Puerto Rico.  Dorpan then filed a complaint against HMI seeking a declaration that under the Lanham Act, Dorpan had the right to use the Meliá mark throughout Puerto Rico and that HMI only had the right to use the mark in the city where its hotel was located.

The two cases were consolidated, Dorpan moved for summary judgment, and the lower court granted it.  While the lower court did note that the two hotels’ names were very similar, and that there was evidence of confusion, it placed the most emphasis on the fact that neither HMI nor Dorpan had accused each other of attempting to profit from the good-will of the other.  In addition, the lower court noted that the hotels were in different geographic areas, HMI’s 100 year use was strictly limited to its use in Puerto Rico, and thus “frozen” to that area, while Dorpan’s Meliá marks were used internationally.  Thus, the lower court concluded that HMI could use the Meliá mark in the city where its hotel was located, but that Dorpan could use the mark throughout the rest of Puerto Rico and the United States.  HMI appealed, arguing that the lower court erred in treating HMI as the junior user of the Meliá mark.

The First Circuit noted that avoiding confusion is the focal point of trademark protection.  While the Lanham Act provides federal protection against trademark infringement, the individual states also offer trademark protection either by registering the mark with the state or by using the mark in that state.  In other words, a senior user of a mark who does not register its mark, retains rights in its geographic area of use.  HMI argued it had the exclusive right to the Meliá mark in Puerto Rico under Puerto Rico law, while Dorpan argued it had the exclusive right to use the mark in Puerto Rico under federal law.

Dorpan’s federally registered Meliá mark is incontestible under the Lanham Act, giving Dorpan the presumption of exclusive use.  However, HMI was not seeking to cancel, contest, or challenge Dorpan’s registration.  HMI claimed that it was the undisputed senior user of the mark in Puerto Rico and therefore Dorpan’s rights under federal law are limited by HMI’s common law Puerto Rico rights (supported by 100 years of use), which HMI acquired before Dorpan’s mark become incontestible.  HMI’s argument is supported by the Lanham Act, which limits the incontestible right of a federal trademark holder “to the extent, if any, to which the use of a mark registered on the principal register infringes a valid right acquired under the law of any State or Territory by use of a mark or trade name continuing from a date prior to the date of registration under this chapter of such registered mark.” 15 U.S.C. § 1065.  Thus, Dorpan’s federal rights are limited by any rights HMI acquired under Puerto Rico law before Dorpan’s mark became incontestible.

“The senior unregistered user of a mark in Puerto Rico does not automatically acquire a Commonwealth-wide right to use the mark. Rather, the senior unregistered user is entitled to exclusive use of the mark in the area where ‘he currently do[es] business.’” Dorpan, S.L., Slip Op. P. 14.  Thus, HMI is entitled to the exclusive use of the Meliá mark is based on where HMI’s hotel is located.   If Dorpan’s use of a similar Meliá mark near where HMI uses its Meliá mark creates a likelihood of confusion, then HMI’s trade area protect extends at least as far as where Dorpan’s hotel is located and Dorpan’s use infringes on HMI’s rights.  Conversely, if Dorpan’s mark does not create a likelihood of confusion with HMI’s mark, then HMI’s trade area is smaller and Dorpan is not infringing on HMI’s rights.  Therefore, the First Circuit had to determine whether Dorpan’s use of the Meliá mark in Puerto Rico created a likelihood of customer confusion.

The most common type of confusion is “ordinary” or “forward” confusion, which occurs when a weaker junior user attempts to use the senior user’s goodwill and brand loyalty to boost its own brand.  The second type is “reverse confusion,” where a senior unregistered user is overwhelmed by a more powerful junior user, causing the senior user to lose its brand and goodwill.  There are eight factors that the First Circuit looks at in determining whether there is a likelihood of confusion: “(1) the similarity of the marks; (2) the similarity of the goods (or, in a service mark case, the services); (3) the relationship between the parties’ channels of trade; (4) the juxtaposition of their advertising; (5) the classes of prospective purchasers; (6) the evidence of actual confusion; (7) the defendant’s intent in adopting its allegedly infringing mark; and (8) the strength of the plaintiff’s mark.”  Int’l Ass’n of Machinists & Aerospace Workers, AFL-CIO v. Winship Green Nursing Ctr., 103 F.3d 196, 201 (1st Cir. 1996).  These are known as the Pignons factors.

The First Circuit applied the Pignons factors to the case.  First, the First Circuit examined the similarity of the marks.  HMI’s “Hotel Meliá” and Dorpan’s “Gran Meliá” are essentially identical in terms of trademark because they both have “Meliá” as their most salient word.  Second, HMI and Dorpan both use their marks to operate large, full-service hotels in Puerto Rico.  Third, the hotels advertise and solicit customers in similar ways, such as attending trade shows, working with travel agents, advertising to consumers, and accepting bookings on Internet website like Orbitz.  Fourth, HMI had presented evidence that consumers were confused between the two hotels.  Fifth, there was no evidence that Dorpan used “Meliá” in order to cause market confusion or to exploit HMI’s reputation and goodwill.  Sixth, “the parties have developed relatively little evidence from which a factfinder could draw inferences about the relative strength of the marks and their tendency to create confusion.”  Dorpan, S.L., Slip Op. P. 25.  In balancing these factors, the First Circuit noted that, with the exception of Dorpan’s intentions, the rest of the factors weighed in favor of HMI’s claims of confusion.

The First Circuit then explained the errors in the lower court’s analysis.  First, the lower court did not give enough wight to the evidence of actual confusion.  Second, even if HMI had not presented evidence of actual confusion, the similarity of the marks, services, customers, and advertising were enough to create a reasonable inference of a substantial likelihood of confusion.  Third, the lower court placed too much emphasis on its conclusion that Dorpan did not act in bad faith.  Fourth, the lower court’s focus on the physical locations of the hotels was irrelevant.  Lastly, the lower court erred in taking the narrow view of confusion when considering the strength of the marks.  As such, the First Circuit vacated the lower court’s summary judgment in favor of Dorpan and remanded the case back to the lower court for further proceedings.

Articles Copied Without Authorization In Patent Applications Is Copyright Fair Use

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A Magistrate Judge for the District Court of Minnesota recommended that the District Court grant a defendant’s motion for summary judgment, finding that the defendant was entitled to fair use protection under the Copyright Act for using portions of scientific articles in patent applications.  American Institute of Physics, et al. v. Schwegman Lundberg & Woessner, P.A., et al., Case No. 12-528 (RHK/JJK) (D. Minn., July 30, 2013) (available here).  Plaintiffs American Institute of Physics (“AIP”) produce and distribute scientific journals containing scholarly articles.  Defendant Schwegman Lundberg & Woessner, P.A. (“Schwegman”) is a law firm specializing in prosecuting patent applications.  Schwegman copied 18 of AIP’s articles from the United States Patent and Trademark Office (“USPTO”) and other sources.  AIP sued, alleging copyright infringement asserting that Schwegman’s downloading, storing, making internal copies of, and distributing AIP articles by email constituted infringement.  Schwegman and the USPTO argued that its copying of the articles constituted fair use under the Copyright Act and moved for summary judgment.  The District Court requested a report and recommendation from the Magistrate Judge.  The Judge concluded that Schwegman established its fair use defense and recommended that the District Court grant Schwegman’s motion for summary judgment.

The Judge began by stating that Schwegman’s use of the articles was directly connected to Schwegman’s practice as a patent prosecution law firm.  Thus, the patent application process and the USPTO requirements are relevant.  The USPTO requires a patent application to disclose all known information that may affect the patentability of an invention, which is known as “prior art.”  If a patent application is filed along with a disclosure statement, that lists the prior art, that statement must include a copy of each publication.  “Thus, when a patent applicant files a disclosure statement, the USPTO’s regulations require the applicant to submit copies of publications, in whole or in part, that are material to the applicant’s claims of patentability for her inventions.”  American Institute of Physics, Slip Op. P. 7.  Schwegman provided copies of the articles to the USPTO in order to comply with this duty to disclose the prior art.

Next, the Judge considered the intended audience for the articles.  AIP publishes its articles to inform their readers, which include academics, researchers, and the general public.  Thus, AIP argues that patent attorneys and investors should be within AIP’s target audience.  AIP had issued nine licenses to various law firms to allow these firms to copy AIP’s articles.  Schwegman argued that the academic journals were a two-way market: authors submit their articles in hopes of being published, and readers benefit from the content.  Schwegman’s expert witness, economist Dr. Jean-Pierre Dubé, testified that patent attorneys read these articles for a different purpose than AIP’s target audience; patent attorneys read the articles to determine whether they should be disclosed as prior art.  As such, Schwegman argued, patent attorneys are not within the target audience.

Schwegman obtained 11 of the 18 articles by downloading them from the USPTO’s website.  The remaining 7 articles were obtained different ways, such as from an email attachment or a university website.  Schwegman kept copies of the articles on its electronic file management system.  This system allows the attorneys at Schwegman to access documents stored on the firm’s server.  The system does not place restrictions on who can see the articles, or how the articles can be used, but it does not allow people to search the text of the articles.  AIP argued that this electronic file management system is essentially an electronic library.

Schwegman moved for summary judgment, arguing that its use of AIP’s articles was fair use. There are four non-exclusive factors for courts to consider when analyzing a fair use defense: “(1) The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) The nature of the copyrighted work; (3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) The effect of the use upon the potential market for or value of the copyrighted work.” 17 U.S.C. § 107.

First, the purpose and character of Schwegman’s use of the articles was to comply with the legal requirement to provide prior art to the USPTO.  Schwegman provided a copy of each article and cited to each article in each of its patent applications.  Thus, Schwegman’s use was different than AIP’s use.  Even though Schwegman’s use of the articles was not transformative, because the articles were copied and not changed, the first factor still weighs in favor of Schwegman.  “[R]eproduction of an original without any change can still qualify as a fair use when the use’s purpose and character differs from the object of the original, such as photocopying for use in a classroom.” American Institute of Physics, Slip Op. Pp.  24-25.  Thus, the first factor weighs in favor of Schwegman.

Second, the Judge considered the last factor of the effect on the potential market for the articles, because it is related to the first factor involving the purpose and character of the use.  If Schwegman’s use of the articles does not usurp the market for the articles, then the fourth factor weighs in favor of fair use.  “[AIP] present[ed] no evidence that the patent lawyers’ use of the scientific Articles to meet their obligations to disclose prior art to the PTO adversely affects the traditional target market for these Articles, i.e., academics, physical scientists and researchers, engineers, educators, students, and members of the general public who want to read peer-reviewed scholarly, highly specialized articles about the physical sciences and other scientific disciplines.”  American Institute of Physics, Slip Op. P. 31.  Further, AIP presented no evidence to counter Dr. Dubé’s testimony that Schwegman was outside of AIP’s target market.  The only evidence AIP presented was that it lost revenues from patent attorneys who did not pay the licensing fee to obtain copies of the articles.  “But this is not the sort of negative effect on the market that weighs heavily against a finding of fair use. If it were, then the market factor would always weigh in favor of the copyright holder and render the analysis of this factor meaningless.”  American Institute of Physics, Slip Op. P. 32.  Therefore, the fourth factor weighs in favor of Schwegman.

Third, the nature of the articles was considered.  Generally, a “creative” work receives more copyright protection.  The Judge concluded that the nature of AIP’s articles weighs slightly in favor of Schwegman because the articles “are factual or informational,” primarily communicating very technical information about the results of scientific research.

Fourth, the Judge examined the amount and substantiality of the articles used by Schwegman.  Copying a work in its entirety does not prevent a defendant from claiming fair use protection.  The amount of the copying is related to how the copying furthered the purpose and character of the use.  Schwegman copied the articles in their entirety.  However, this copying was necessary for Schwegman’s purpose to disclose prior art on patent applications.  This purpose was different than AIP’s purpose in publishing the articles.  Thus, “Schwegman’s copying is consistent with the purpose and character of Schwegman’s new and different use of the Articles,” and therefore weighs in favor of fair use.  American Institute of Physics, Slip Op. P. 38.

AIP also argued that a finding of fair use was inappropriate because Schwegman did not have an authorized or licensed copy of the articles.  The Court found no legal authority supports this contention.  Further, there was no evidence presented that Schwegman acted in bad faith in copying the articles.  As such, the Judge concluded that Schwegman was entitled to the fair use defense.

Location Of Copyright Owner Insufficient For Personal Jurisdiction Over Defendants

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The Second Circuit Court of Appeals held that a plaintiff’s economic losses were not enough to establish personal jurisdiction under New York’s long-arm statute.  Troma Entertainment, Inc. v. Centennial Pictures, Inc., et al., Case No. 12-1883-cv (2d Cir. September 6, 2013) (available here).  Troma Entertainment sued Defendants for copyright infringement under the Copyright Act and several New York state law claims.  Troma alleged that the lower court had personal jurisdiction over the Defendants under New York’s long-arm statute section 302(a)(3)(ii), which allows for personal jurisdiction over a defendant when the allegedly tortious conduct causes injury to a person or property within New York.  The lower court concluded that Troma had not shown an in-state injury and dismissed the case against Defendants-appellees Lance H. Robbins and King Brett Lauter.  Troma appealed.  On appeal, the Second Circuit affirmed, finding no personal jurisdiction.

Troma is a New York-based company that produces and distributes “controlled budget motion pictures,” such as the two spoof films titled “Citizen Toxie, Toxic Avenger Part IV,” created by Troma, and “Poultrygeist: Night of the Chicken Dead,” which Troma owns distribution rights (“the Movies”).  In 2009, Troma authorized defendant-appellee Robbins to represent Troma in negotiating a license to distribute the rights to the Movies with a German distributor.  The authorization was supposed to lapse after 30 days if no agreement was reached.  Troma believed that Robbins was unable to negotiate a deal at the end of the 30 days.  However, Robbins had conspired with co-defendant-appellee King Brett Lauter (“Lauter”) to enter into a distribution agreement with a German distribution company called Intravest Beteiligungs GMBH (“Intravest”).  Troma alleged that Robbins and Lauter falsely told Intravest they owned the rights to the Movies; purchased copies of the movies from Amazon.com and delivered the copies to Intravest; and kept the proceeds of the agreement without telling Troma.  However, none of these actions took place in New York.

In 2010, Troma discovered that Intravest was broadcasting the Movies in Germany, and in 2011 Troma sued.  Robbins and Lauter moved to dismiss for lack of personal jurisdiction.  The lower court held that the New York long-arm statute did not allow the court to exercise personal jurisdiction over Robbins and Lauter because Troma did not show that Robbins’s and Lauter’s actions caused injury in New York.  Troma had the opportunity to transfer the case to California, where personal jurisdiction over the defendants could have been exercised (because Robbins and Lauter allegedly created their plan in California), but declined the transfer.  As such, the lower court dismissed Troma’s case.

The Second Circuit had to determine whether the lower court was correct in holding that it could not exercise personal jurisdiction over Robbins and Lauter.  Troma argued that personal jurisdiction existed under section 302(a)(3)(ii), which confers personal jurisdiction over one who “commits a tortious act without the state causing injury to person or property within the state . . . if he . . . expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.”  N.Y. C.P.L.R. § 302(a)(3)(ii).  Thus, the issue was whether Robbins’s and Lauter’s actions caused such injury in New York.  Troma argued that their actions did cause such injury, because the actions resulted in a loss of sales and generalized harm to Troma’s exclusive distribution rights over the Movies.  However, the fact that Troma is a New York corporation is insufficient on its own to confer personal jurisdiction over Robbins and Lauter.

Troma’s argument rested mainly on the New York Court of Appeals’ decision in Penguin Group (USA), Inc. v. American Buddha (“Penguin II”), 16 N.Y. 3d 295 (2011).  In Penguin II, plaintiff Penguin Group alleged that defendant American Buddha infringed its copyrights of several books by uploading copies of the books to its Internet website free of charge.  On appeal, the Second Circuit certified a question to the New York Court of Appeals: “In copyright infringement cases, is the situs of injury for purposes of determining long-arm jurisdiction under N.Y. C.P.L.R. § 302(a)(3)(ii) the location of the infringing action or the residence or location of the principal place of business of the copyright holder?”  Id. at 34.  The Court of Appeals accepted the question but narrowed it to the specific situation of when a copyright infringement case involves the uploading of a copyrighted printed literary work onto the Internet.  The Court of Appeals held that the situs of injury was where the copyright owner was located.  The Court of Appeal’s decision rested on two factors.  “The first was the nature of the alleged infringement, viz., the uploading and making available of Penguin Group’s copyrighted works by means of the Internet. . . The second factor upon which the Court of Appeals rested its decision was ‘the unique bundle of rights granted to copyright owners.’” Troma, Slip Op. Pp. 10-11.

The holding in Penguin II is too narrow to control to Troma’s case.  While Penguin II dealt with a copyright infringement injury that was virtually impossible to localize (uploading and making available of copyrighted materials, free of charge, to anyone with access to the Internet), Troma does not allege any conduct that does not have a centralized locality.  Thus, the Second Circuit concluded that Troma’s case was a traditional commercial tort case in which the place where Troma’s business was lost of threatened influences the jurisdictional analysis.  Troma offered no evidence as to how New York would be such an influence.  “Troma is left, then, to rely on the Court of Appeals’ endorsement of the theory that out-of-state infringement may harm the bundle of rights held by a New York-based copyright owner in New York.”  Troma, Slip Op. P. 13.  However, this is only a theory of injury.  There is nothing in the Penguin II decision that would allow Troma to bypass the obligation to allege facts showing a direct New York-based injury.  Troma’s allegations of generalized harm to its distribution right were too speculative to support a finding of New York-based injury.  Instead, Troma’s alleged injury is simply economic losses, which are insufficient for personal jurisdiction.  As a result, the Second Circuit affirmed the dismissal of Troma’s case.

For Criminal Copyright Infringement You Must Know That Act Is Unlawful

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The Ninth Circuit Court of Appeals in a criminal copyright infringement case found that “willfully” under the Copyright Act required actual knowledge of the illegality of the act, and to “knowingly” traffic counterfeit labels required knowledge that the labels were counterfeit.  U.S. v. Liu, Case No. 10-10613 (9th Cir. October 1, 2013) (available here).  Defendant Liu appealed his criminal conviction for copyright infringement and trafficking in counterfeit labels.  Liu’s company, Super DVD, commercially copied CDs and DVDs without permission from the copyright holders.  The Appeals Court vacated Liu’s convictions and remanded, finding that the lower court had improperly instructed the jury.

The issue was whether Liu acted “willfully” and “knowingly.”  “We hold that the term ‘willfully’ requires the government to prove that a defendant knew he was acting illegally rather than simply that he knew he was making copies. Similarly, to ‘knowingly’ traffic in counterfeit labels requires knowledge that the labels were counterfeit.” Liu, Slip Op. P. 3.  Liu’s commercial replication of the CDs and DVDs is different than an individual “burning” recorded content onto a blank CD or DVD.  Liu would take pre-recorded discs that had their content stamped onto them, which requires a molding machine and a stamper.  The creation of a CD stamper is called “mastering.”

In 2003, federal agents executed a search warrant on Liu’s Super DVD warehouse.  The search resulted in the discovery of thousands of unauthorized DVDs and CDs.  Liu testified that Super DVD did manufacture copies of the movie “Crouching Tiger, Hidden Dragon” for a company called R&E Trading.  R&E had given Super DVD a stamper with the name “Tiger” on it, and it was only later that Liu realized R&E did not have the rights to duplicate the movie.  He denied knowledge and involvement in replicating the other works found in the warehouse.  Liu was charged with and convicted on three counts of criminal copyright infringement under 17 U.S.C. § 506(a)(1)(A) and 18 U.S.C. § 2319(b)(1), and one count of trafficking in counterfeit labels under 18 U.S.C. § 2318(a).  He was sentenced to four years in prison and three years of supervised release.

Liu requested a jury instruction mimicking the language of 17 U.S.C. § 506(a)(2), that “[e]vidence of reproduction or distribution of a copyrighted work, by itself, shall not be sufficient to establish willful infringement of a copyright.”  17 U.S.C. § 506(a)(2).  This language was not included in the government’s proposed jury instruction, although the government informed the lower court that it had no problem with Liu’s requested jury instruction.  The night before closing arguments, the lower court emailed out a draft of the jury instructions.  The next morning, the court stated that it made some unsubstantial changes to the jury instructions.  However, the Ninth Circuit determined that the changes were substantive.  For example, the court added a definition of the term “knowingly.”  The lower court defined “knowingly” as follows: “An act is done ‘knowingly’ if the Defendant is aware of the act and does not act through ignorance, mistake or accident. The government is not required to prove that the defendant knew that his act was unlawful. You may consider evidence of the Defendant’s words, acts, or omissions, along with all the other evidence, in deciding whether the defendant acted knowingly.”  Liu, Slip Op. P. 9.  The lower court did not allow objections to the jury instructions.

The Ninth Circuit noted that the term “willfully” is ambiguous.  “To infringe willfully could simply mean to intentionally commit the act that constitutes infringement. Alternatively, it could mean that the defendant must act with a bad purpose or evil motive in the sense that there was an intentional violation of a known legal duty.”  Liu, Slip Op. P. 12 (internal citations omitted).  Liu was charged with criminal copyright infringement, and therefore, the Ninth Circuit determined, “willful” infringement required the government to prove that Liu acted with knowledge that his conduct was illegal.  In other words, “willfully” infringing on a copyright under the Copyright Act § 506(a) means “voluntary, intentional violation of a known legal duty.” Cheek v. United States, 498 U.S. 192, 201 (1991) (internal quotation marks omitted).  The Ninth Circuit supported its reasoning by stating that in order to infringe a copyright, one must actually copy the protected work.  Thus, if willfulness under § 506(a) was met by an intent to copy, there would be no difference between criminal and civil copyright liability in most cases.

In this case, the parties agreed to include a jury instruction that evidence of a reproduction of a copyrighted work was not, by itself, sufficient to establish willfulness.  However, the lower court failed to include this language.  The lower court defined willful infringement but omitted the knowledge component, thereby instructing the jury to use the civil liability standard for copyright infringement and not the criminal liability standard.  The Ninth Circuit concluded that this error was not harmless.  Liu’s state of mind was critical to his criminal convictions.  As a result, the Ninth Circuit vacated Liu’s convictions and sentence for criminal copyright infringement, and remanded them to the lower court.

Liu also challenged the jury instructions on the count for trafficking in counterfeit labels, which required that Liu acted “knowingly.”  “Like ‘willfully,’ the word ‘knowingly’ is susceptible to more than one meaning in this context. It could mean either that the defendant knew that he was trafficking or that he knew that the labels were counterfeit. We hold that ‘knowingly’ in this context means the latter, and thus the government must prove that Liu knew the labels were counterfeit.”  Liu, Slip Op. P. 21.  The lower court’s jury instruction included a statement that instructed the jury that the government did not have to prove that Liu knew his act was unlawful.  Instead, the lower court instructed the jury that Liu only needed to know that he trafficked the counterfeit labels.  “This instruction was at best ambiguous as to whether Liu needed to know that the labels were counterfeit or merely needed to know that he trafficked in labels that later turned out to be counterfeit—a strict liability standard.”  Liu, Slip Op. P. 24.  As a result, the lower court’s error was not harmless.  The Ninth Circuit vacated and remanded Liu’s conviction and sentence for trafficking in counterfeit labels.