Business and Technology Law

The Business Software Alliance (“BSA”), a trade association representing a number of software publishers, is launching a new campaign to attract would-be informants to its reward program. The BSA’s new Know it / Report it / Reward it campaign will attempt to attract a larger number of informants through a coordinated effort involving online advertisements, radio advertisements, research reports, and other tools.

The program continues the BSA’s practice of offering rewards of up to one million dollars for qualifying reports of software piracy. Individuals allegedly possessing knowledge about a business’ software compliance practices report information to the BSA which may become the basis of a legal engagement.

Issuance of a Software Policy can also provide the education and training employees need to help the business maintain compliance. Management should clearly delineate the company’s software asset philosophy and process to ensure compliance across the organization. Companies that receive audit letters from the BSA should contact experienced counsel for assistance.

View the BSA press release here.

A recent opinion written by Judge Richard Posner for the 7th Circuit highlights the importance of carefully considering some of the risks of loss for plaintiffs in proceeding with a copyright infringement lawsuit.

In Eagle Services Corp. v. H2O Industrial Services, Inc., the plaintiff, Eagle, filed suit after several of its employees, who left to form H2O, used copies of Eagle’s safety manual in operations at the new business. The manual in question consisted largely, if not entirely, of quotations from OSHA regulations, making the scope of the copyright limited to the compilation as a whole. Instead of pursuing an award of statutory damages under the Copyright Act, Eagle argued that it should be awarded all the profits that H2O made in its business before it created its own manual, because, according to Eagle, without a manual H2O could not have provided any services in its industry without violating OSHA regulations. Though the trial court allowed Eagle to present its case to the jury, at the close of its evidence, H2O moved for judgment in its favor as a matter of law, which the court granted, based on Eagle’s failure to prove that OSHA requires the companies it regulates to maintain a safety manual. However, the trial court refused to award H2O, as the prevailing party, its reasonable attorney’s fees on the ground that the suit was not frivolous and had not been filed in bad faith. H2O appealed the denial of attorney’s fees.

The 7th Circuit reversed the trial court’s decision. In his opinion, Judge Posner noted that the suit “could not have been brought in good faith,” because Eagle never had any reasonable basis to believe that the state would have shut down H2O’s operations for want of a safety manual, especially in light of the fact that, even if a manual were required, the applicable regulations would have given H2O an opportunity to procure one. Judge Posner further noted, colorfully:

So we have a suit brought almost certainly in bad faith, a frivolous suit, a suit against a newer and probably smaller and weaker firm. Under any standard we know for shifting attorney's fees from a losing plaintiff to a winning defendant, H2O (and the individuals joined as defendants along with it) would be entitled to an award of attorney's fees.

Judge Posner also noted that in copyright cases, prevailing defendants are not required to prove that the plaintiffs’ suit was frivolous in order to prove their entitlement to an award of attorney’s fees. According to Judge Posner, if there is any asymmetry in the analysis regarding whether to award attorney’s fees in copyright cases, that asymmetry actually tips in favor of prevailing defendants:

The successful assertion of a copyright confirms the plaintiff's possession of an exclusive, and sometimes very valuable, right, and thus gives it an incentive to spend heavily on litigation. In contrast, a successful defense against a copyright claim, when it throws the copyrighted work into the public domain, benefits all users of the public domain, not just the defendant; he obtains no exclusive right and so his incentive to spend on defense is reduced and he may be forced into an unfavorable settlement.

Though H2O’s success in this case did not result in the enlargement of the public domain, that fact did not rebut the basic presumption affirmed by Judge Posner that, in most cases, awards of attorney’s fees to prevailing parties are presumed to be appropriate.

This case serves as a useful reminder to businesses considering whether to file suit over infringement of its copyrighted works. The costs of federal litigation are always high, and a loss at trial could mean that the plaintiff would be out not only its own attorney’s fees, but also those of its adversary.

It is natural for the owner of a trademark want to seek some sort of redress when another person or entity uses that mark in the URL or the content of a web site, especially when that site competes with or criticizes the owner. However, relief from such use may be unavailable under the Lanham Act when it is not possible to show commercial intent behind the use, and a recent 10th Circuit opinion suggests that the standard to prove commercial intent may be higher than some would expect.

In Utah Lighthouse Ministry (UTLM) v. Foundation for Apologetic Information and Research (FAIR), the plaintiff, UTLM, filed suit against FAIR based on a web site published by FAIR’s vice president and webmaster, a co-defendant, which parodied the content of UTLM’s site. UTLM is an organization that publishes critiques of the Mormon Church. FAIR, on the other hand, is a volunteer organization that responds to such critiques.

The description in the opinion indicates that the parody site bore many similarities to the UTLM site:

The design elements are similar, including the image of a lighthouse with black and white barbershop stripes. However, the words “Destroy, Mislead, and Deceive” are written across the stripes on the Wyatt website. Prominent text on the Wyatt website consists of a slight modification of the language located in the same position on the UTLM website. For example, the UTLM website states: “Welcome to the Official Website of the Utah Lighthouse Ministry, founded by Jerald and Sandra Tanner.” In comparison, the Wyatt website states: “Welcome to an official website about the Utah Lighthouse Ministry, which was founded by Jerald and Sandra Tanner.” (emphasis added.) The Wyatt website does not have any kind of disclaimer that it is not associated with UTLM.

The opinion also indicates that FAIR’s webmaster, through his company, also registered ten domain names, which were “combinations of ‘Utah Lighthouse Ministry,’ ‘Sandra Tanner,’ ‘Gerald Tanner,’ ‘Jerald Tanner,’ and ‘.com’ and ‘.org.’” UTLM alleged that FAIR’s parody site and its webmaster’s registration of the domain names at issue constituted trademark infringement, unfair competition, and cybersquatting. The trial court disagreed with UTLM and granted the defendants’ motion for summary judgment as to all UTLM claims. UTLM then appealed the trial court’s decision to the 10th Circuit.

In upholding the trial court’s grant of summary judgment, the 10th Circuit relied, in large part, on the fact that UTLM was able to prove no commercial intent behind the parody site or FAIR’s webmaster’s registration of the domain names. FAIR’s webmaster neither promoted nor sold any products or services at the parody site. UTLM argued that the parody site linked to FAIR’s web site, where FAIR sold books, some of which also were available through the UTLM site. However, the Court found that any connection between the parody site and the commercial activities at the FAIR site was too attenuated to support a finding of commercial intent. In reaching that conclusion, which was the 10th Circuit’s first time to analyze an argument for commercial intent based on this type of fact pattern, the Court cited to a 9th Circuit opinion in which no commercial intent was found where a parody site linked to another site operated by the same defendant, which in turn linked to a newsgroup containing advertisements for the plaintiff’s competitors. Though the “distance” between the parody site in this case and the FAIR site’s commercial activities was not as great as in the 9th Circuit case, the 10th Circuit held that the trial court had used an analysis similar to that employed by the 9th Circuit, which it believed to be appropriate.

UTLM also argued that the parody site interfered with “the ability of users to reach the goods and services offered on the UTLM website.” The 10th Circuit disagreed, stating:

In our view, the defendant in a trademark infringement and unfair competition case must use the mark in connection with the goods or services of a competing producer, not merely to make a comment on the trademark owner's goods or services. The Lanham Act addresses the specific problem of consumer confusion about the source of goods and services created by the unauthorized use of trademarks. Unless there is a competing good or service labeled or associated with the plaintiff's trademark, the concerns of the Lanham Act are not invoked. (quotations omitted)

UTLM raised a third argument regarding the general commercial nature of the Internet, but this too was denied by the Court. The Court also found that there was no likelihood of confusion between the sites at issue, especially in light of the fact that the defendants’ site was a parody site, and that UTLM had failed to prove any bad faith intent by FAIR or its webmaster to profit on the domain names that had been registered, thereby supporting the denial of UTLM’s cybersquatting claims.

Especially for businesses in the 10th Circuit, this case appears to present a significant challenge for claims of Internet-based trademark infringement where commercial intent is difficult to prove. Business considering lawsuits based on such claims should consult closely with counsel to determine whether the costs of litigation are worth the risk of loss.

The Naked Cowboy (a/k/a Robert Burck), a New York icon, is usually in the news for his well-known antics as a street performer. But the Naked Cowboy recently made some trademark law in a battle with Mars, Inc. and its Blue M & M. In Burck v. Mars, Inc., 2008 WL 2485524 (S.D.N.Y. 2008), the court recognized Burck’s trademark rights in the name and likeness of “The Naked Cowboy” but also allowed Mars to raise a defense of parody even though the parody was being used in part for advertising purposes.

The U.S. District Court for the Southern District of New York described Burck as follows: “a ‘street entertainer’ who performs in New York City’s Times Square as The Naked Cowboy, wearing only a white cowboy hat, cowboy boots, and underpants, and carrying a guitar strategically placed to give the illusion of nudity.” Burck owns registered U.S. trademarks in the Naked Cowboy name and likeness. Starting in April 2007, Mars began running an animated cartoon advertisement on two oversized video billboards in Times Square featuring a blue M & M dressed “exactly like The Naked Cowboy, wearing only a white cowboy hat, cowboy boots, and underpants, and carrying a guitar.” The court illustrated these facts with the following picture:

Burck sued Mars for compensatory and punitive damages asserting violations of New York’s right to publicity laws and trademark infringement. The court dismissed Burck’s right to privacy claim but held that Burck could proceed with his false endorsement claim under the Lanham Act because consumers might mistakenly conclude that the Blue M & M advertisements were endorsements of Mars’ products by Burck. The court, however, denied Burck’s motion to strike Mars’ affirmative defense of parody. According to the court, parody is a form of fair use that is protected under the First Amendment. This protection applies even where the parody is used in part for advertising purposes. Specifically, the court held that “because a parody may be of a hybrid nature, combining artistic expression and commercial promotion, it is valid to plead a parody defense even where the parody is used in part for advertising purposes.” The dispute between the Naked Cowboy and the Blue M & M will therefore continue.

The Eleventh Circuit has held that a digital reproduction of a copyrighted image may, under certain circumstances, be a privileged revision of the work that does not violate the creator’s copyright. In an en banc decision, the sharply divided court in Greenberg v. National Geographic Society, 2008 WL 2571333 (11th Cir. 2008) (en banc), rejected a claim by a photographer that a digital reproduction of his work that had previously appeared in print did not, in and of itself, constitute infringement where the digital reproduction merely reproduced the original print version.

Jerry Greenberg is a freelance photographer who had some of his photographs published in four issues of the National Geographic Magazine. For decades, the National Geographic Society has been reproducing its back issues in bound volumes, microfiche, and microfilm. In 1997, National Geographic produced “The Complete National Geographic,” a thirty-disc CD-ROM set containing every monthly issue of the magazine since 1888. The CD-ROMS contained each magazine as it was originally published, reproducing each page. The CD-ROMS also included a short opening montage and a program that allowed users to search, zoom into particular pages, and print.

Greenberg sued National Geographic, alleging that it infringed his copyrights by reproducing the print magazine issues that included his photographs. The district court granted summary judgment in favor of National Geographic, holding that because the CD-ROMS constituted a revision of the print issues of the magazine, the reproduction was privileged under 17 U.S.C. section 201(c) of the Copyright Act and therefore did not constitute infringement. A panel of the Eleventh Circuit disagreed and reversed that decision. After a second appeal, the Eleventh Circuit granted rehearing en banc to address the question of whether National Geographic’s use of the photographs was a privileged revision.

By a 7-5 majority vote, the Eleventh Circuit held that National Geographic’s reproduction of Greenberg’s photographs was privileged under section 201(c). Section 201(c) provides that ”copyright in each separate contribution to a collective work is distinct from copyright in the collective work as a whole, and vests initially in the author of the contribution. In the absence of an express transfer of the copyright or of any rights under it, the owner of copyright in the collective work is presumed to have acquired only the privilege of reproducing and distributing the contribution as part of that particular collective work, any revision of that collective work, and any later collective work in the same series.” A magazine is considered to be such a collective work. According to the court, section 201(c) is intended primarily to prevent publishers from revising the contribution of the author or including it in a new anthology or an entirely different magazine or other collective work without the author’s consent.

Greenberg claimed that the CD-ROMS constituted an entirely new collective work, such that section 201(c) did not apply. The court, however, concluded that the digital reproduction of the magazines was nothing more than a revision of the collective work. The court noted that the Supreme Court had previously recognized that reproducing a magazine on microfilm was privileged under section 201(c). By analogy, a digital reproduction is similarly privileged. The court rejected the notion that adding a computer program that allowed users to search and access individual pages somehow altered the collective works, concluding that “the revision of a magazine by reproducing it in its original context in a new ‘distinct form’ – i.e., a digital version – is not a difference that would undo a publisher's privilege under § 201(c).” The dissenters strongly disagreed with the majority’s conclusion, concluding that the CD-ROMS did constitute a new collective work to which the privilege of section 201(c) did not apply.

http://www.ca11.uscourts.gov/opinions/ops/200516964.ENB.pdf

A recent federal court decision highlights the difficulties that may arise when a personal name becomes a trademark that identifies a business’s products. In particular, difficult issues can come up after the right to use the name is sold. In JA Apparel Corp. v. Abboud, 2008 WL 2329533 (S.D.N.Y. 2008), the court rejected an attempt by a trademark’s namesake to invoke the fair use doctrine as a basis for continuing to use his personal name to promote products he had designed.

In 1987, fashion designer Joseph Abboud launched his first menswear line under the “Joseph Abboud” label. At this time, he also registered his personal name “Joseph Abboud” as a trademark with the U.S. Patent and Trademark Office. In 1988, Abboud entered into a joint venture with another company to manufacture, market, and sell various products under the Joseph Abboud label. The joint venture was named JA Apparel, and during the joint venture, Abboud licensed the “Joseph Abboud” trademark to JA Apparel. In 2000, Abboud signed an agreement under which he conveyed all trademarks and licenses, including the mark “Joseph Abboud” to JA Apparel. Abboud also signed a noncompete agreement that was to run until 2007. Several disputes subsequently arose between Abboud and the owners of JA Apparel. In the Spring of 2005, Abboud left the business. A few weeks after the noncompete agreement expired, JA Apparel learned that Abboud intended to debut a new menswear collection under the name of “jaz” and intended to promote the new label with taglines such as “a new composition by designer Joseph Abboud” and “by the award-winning designer Joseph Abboud.”

JA Apparel filed suit against Abboud to prevent him from using his name in connection with goods and services. The court described the issue presented as follows: “whether and how an individual, whose name and reputation have become clearly identified with a business and line of products, and which serve as its trademarks, can continue to use his name after he sells the business, its trademarks, and his name, for a considerable amount of money.” Abboud contended that his use of his own name constituted fair use under the Lanham Act. The court, however, disagreed. While the court acknowledged that Abboud was not seeking to use his name as a tradename, the court concluded that Abboud’s use of his name did more than describe the products being sold – the name was being used to promote the products. Indeed, at trial, Abboud acknowledged that he wanted consumers to know that “jaz” was his brand.

The court also disagreed with Abboud’s contention that consumers would not be confused by his proposed use of his personal name to refer to himself as the designer of the “jaz” product line. According to the court, advertising the “jaz” menswear collection as being designed by Joseph Abboud would result in a likelihood of confusion with JA Apparel’s trademarks. The court noted the close proximity of the goods and services at issue, the strength of the marks, and at least some instances of actual confusion that had been identified at trial. The court issued a permanent injunction preventing Abboud from using his personal name to promote products.

A federal court recently issued an opinion indicating that, at least for U.S. residents, public, third-party-hosted and Internet-based e-mail may be the virtual world’s equivalent of a Swiss bank account for personal information. In In re Subpoena Duces Tecum to AOL, LLC, the U.S. District Court for the Eastern District of Virginia considered a subpoena issued by lawyers for State Farm to AOL, requesting copies of e-mails from the accounts of two non-party witnesses in litigation pending in a different jurisdiction. The Virginia magistrate judge granted the witnesses’ motion to quash the subpoena, and in its opinion, the court upheld the magistrate’s decision, citing the U.S. Electronic Communications Privacy Act (ECPA).

Among other things, the ECPA prohibits providers of “electronic communication services” from “knowingly [divulging] to any person or entity the contents of a communication while in electronic storage by that service.” The ECPA also includes a number of exceptions, most notably including several directed to governmental and law enforcement authorities. State Farm argued that the terms of one exception were broad enough to include within their scope court orders issued pursuant to discovery requests in civil litigation, but the district court, citing to prior precedent, disagreed and allowed the magistrate’s order to stand.

This case and others indicate that one consequence of the ECPA has been to provide an incentive to opt, whenever feasible, for third-party hosted e-mail, rather than privately hosted e-mail, which is not included within the scope of the ECPA’s protections. Potentially restrictive terms of service and third-party account control may outweigh other considerations, but where it is important, for whatever reason, to avoid discovery of electronic communications through legal discovery, publicly hosted e-mail appears to include certain advantages.

Trade negotiators from some of the world’s wealthiest industrialized nations are in the process of negotiating a pact that could lead to the establishment of a new kind of international IP rights enforcement. The U.S. is a leading proponent of the Anti-Counterfeiting Trade Agreement (“ACTA”), which would aim to establish international standards and legal frameworks for the protection and enforcement of IP rights and, if early information is to be believed, would entail surprising new legal reforms. Late last month, a “Discussion Paper on a Possible Anti-Counterfeiting Trade Agreement” was leaked to the operators of the Wikileaks.org web site. Although there are not many details, if the paper accurately depicts the agreement, the proposed deal points include:

• “[criminal penalties for] significant willful infringements without motivation for financial gain to such an extent as to prejudicially affect the copyright owner” (likely having the effect of chilling the activities of some non-profit media sites like Wikileaks.org)
• “ex officio authority for customs authorities to suspend import, export and trans-shipment of suspected [IP rights] infringing goods” and “[border] measures to ensure the seizure and destruction of [IP rights] infringing goods” (potentially giving customs officials the authority to inspect media content (e.g., music, software) for authenticity)
• “[civil] authority to order ex parte searches and other preliminary measures” (notwithstanding the constitutional objections, making the term “IP Police” more descriptive than may be comfortable)

To the extent that the trade negotiators working on the pact allow information from their proceedings to be made public (which seems somewhat unlikely), it will be very interesting to see the form that the final agreement takes by the time it is drafted and signed. It will also be very interesting to see how well it plays in the U.S., where some of the stronger measures of the recent “PRO-IP” copyright reforms had to be eliminated before the House passed the legislation on to the Senate.

The working paper remains available on the Wikileaks.org site here.

In a record settlement, ValueClick recently agreed to pay the Federal Trade Commission (“FTC”) $2.9 million to settle claims that ValueClick violated federal law and used deceptive advertising. The FTC alleged that ValueClick failed to protect consumer information and misled consumers with advertising that did not clearly disclose the cost of products.

ValueClick, through its wholly owned subsidiary, E-Babylon, sold printer ink and printer accessories through a variety of websites that utilized an on-line credit and debit card payment processing system. Consumers purchasing products on these websites were required to provide personal information including name, address, phone number, credit card number, and credit card expiration date. The website also required consumers to provide the three-digit credit card verification code ("CVV2 code") printed on the back of credit cards. CVV2 codes are particularly sensitive because they are intended to protect consumers against fraudulent internet and telephone purchases in which a sales associate can not physically verify that the card belongs to the card-holder. If stolen, possession of the CVV2 code in conjunction with the consumer's personal information would make it easy for information thieves to make fraudulent purchases with stolen information.

The FTC also alleged that ValueClick and its subsidiaries distributed or caused to be distributed privacy policies that claimed to protect consumers' personal information by encrypting data collected for the purpose of delivering products and services to consumers. The privacy policies claimed to use "industry standard" security measures to protect consumers' personal information. ValueClick and its subsidiaries used either no or limited encryption in its database systems. One of the defendant's systems used a simple alphabetic substitution system that was not consistent with industry standards.

Furthermore, the E-Babylon sites were subject to Structured Query Language (SQL) injection attacks. In SQL injection attacks, the attacker manipulates the address in the internet browser's address bar to gain access to information in the database supporting the website. These databases contained consumers' personal information and credit card information. The FTC alleged that SQL attacks were a well-known and well-publicized form of hacking and that solutions were both available and inexpensive.

In addition to the monetary penalties, ValueClick agreed to clearly disclose in its ads and web pages that consumers must spend money to qualify for “free” merchandise. Additionally, ValueClick and its subsidiaries must refrain from making misrepresentations about the use of encryption to protect consumers’ data. Finally, ValueClick agreed to independent third-party assessments of its programs for 20 years.

Companies and individuals with copyrighted materials should make certain to register their copyrights with the U.S. Copyright Office as soon as practical after the material has been published. If an application for registration is not made within three months of publication, the copyright owner will lose the right to recover statutory damages and attorney’s fees. The recent decision in Thomas M. Gilbert Architects, P.C. v. Accent Builders and Decelopers, LLC, 2008 WL 2329709 (E.D. Va. 2008), demonstrates the wisdom of promptly registering a copyright.

Thomas M. Gilbert Architects, P.C., an architecture firm in Richmond, Virginia filed suit against Accent Builders, a developer of townhome projects. Gilbert authored plans for the townhome project and registered those plans with the U.S. Copyright Office on August 16, 2007. The Certificate of Registration lists July 17, 2003 as the date of first publication of the plans. In November of 2007, Gilbert sued Accent claiming that Accent had infringed on Gilbert’s copyrights by copying and modifying the plans, distributing copies of the modified plans to subcontractors, and using the modified plans to construct additional townhomes. In its complaint, Gilbert sought statutory damages.

The court granted summary judgment in favor of Accent on Gilbert’s claim for statutory damages. Under the Copyright Act, the owner of a copyright may seek two types of damages – (1) actual damages and infringement profits or (2) statutory damages. But statutory damages are not available to every owner of a copyright. Specifically, under 17 U.S.C. § 412(2), statutory damages may not be awarded for any infringement that began after the first publication of a work and before the effective date of its registration unless the work is registered within three months of its initial publication.

Even if acts of infringement occur after the work is registered, the result is the same. For purposes of section 412, infringement commences “when the first act in a series of acts constituting continuing infringement occurs.” The court noted that Accent began infringing Gilbert’s copyrights before May 2006, and Gilbert did not register its copyrights under August of 2007. Accordingly, Gilbert was barred as a matter of law from seeking statutory damages. It should be noted that section 412 also applies to an award of attorney’s fees under 17 U.S.C. § 505, although the court in Gilbert did not rule out an award of fees on that grounds.

The Supreme Court of New Jersey recently became one of the first courts in the nation to determine that Internet users have a Constitutional right to privacy under Article I of the New Jersey Constitution. Because of the ruling, a grand jury warrant will be required before law enforcement officials can access personal information about the Internet users.

The Court considered the issue after Shirley Reid was charged with second-degree theft for allegedly hacking into her employer’s computer system from her home computer. When her employer asked Comcast for the identity of the person who accessed the employer’s computer network, Comcast refused to do so without a subpoena. Investigators then obtained a municipal court subpoena and served it on Comcast. Comcast complied with the subpoena and identified Reid as the person who accessed the employer’s network.

A New Jersey superior court suppressed the evidence based on the fact that investigators did not obtain a grand jury subpoena. A state appellate court agreed, and the Cape May County Prosecutor’s Office appealed to the New Jersey Supreme Court, which unanimously upheld the decision. The Prosecutor’s Office has indicated that it intends to continue pursuing the case by requesting the appropriate grand jury subpoena.

Although the United States Supreme Court concluded that there is no federal Constitutional right to privacy on the Internet, the New Jersey law will take precedent in New Jersey cases involving Internet privacy.

The judge in MySpace Inc. v. Wallace, et al, CV-07-1929-ABC-AGR (C.D. Cal. May 12, 2008) entered a default judgment against Sanford Wallace and Walter Rines for violations of the CAN-SPAM Act and ordered the defendants to pay MySpace over $230 million in statutory damages. The CAN-SPAM Act regulates the transmission of commercial email and various activities related to commercial email, such as prohibiting the use of false, misleading, or deceptive information, prohibiting the use of automated “bots” to create multiple email accounts, and requiring certain contact information in commercial electronic mail messages.

MySpace, a social networking site, allows individuals to create unique user profiles containing personal and private information and to share their profile information with others. The networking site allows users to send each other messages within the MySpace network and to post comments on each other’s profile pages.

MySpace alleged that Wallace and Rines created over 11,000 false profiles by circumventing MySpace’s security measures designed to prevent such actions. MySpace further asserted that Wallace and Rines sent nearly 400,000 commercial messages and posted 890,000 comments from 320,000 profiles defendants “hijacked” by luring users to a website designed to look like a MySpace page. The phony MySpace page then solicited MySpace users’ account credentials which defendants Wallace and Rines used to hijack user profiles and send messages.

The court found that Wallace and Rines violated the CAN-SPAM Act and assessed damages as follows:

- $157,390,200 against Wallace and $233,777,500 against Rines, for violations of the CAN-SPAM Act ($157,390,200 in joint and several liability and an additional $63,387,300 against Rines).

- Statutory damages in the amount of $1,500,000 against both defendants for violations of California’s anti-phishing statute, Cal. Bus. & Prof. Code § 22948.2.

- Attorneys’ fees in the amount of $4,709,140.00, as calculated pursuant to the formula prescribed by Local Rule 55-3 ($5,600 plus 2% of the amount over $100,000); plus costs of suit.

By an overwhelming majority of 410-11, the U.S. House recently passed the Prioritizing Resources and Organization for Intellectual Property Act of 2007 (PRO-IP Act). The legislation has been controversial among many legal experts and consumer groups for proposing significant and, according to many, unnecessary changes to existing copyright law. The PRO-IP Act proposes new governmental powers and bureaucracies – including a “copyright czar” – with the stated goal of combating copyright infringement. The PRO-IP Act also provides for criminal and civil forfeiture of property used to commit copyright infringement, and it would allow courts in copyright litigation to order the seizure of property containing records documenting acts of infringement.

However, perhaps the most controversial aspect of the legislation was removed prior to passage. As introduced in the House, the PRO-IP Act would have provided as follows:

A copyright owner is entitled to recover statutory damages for each copyrighted work sued upon that is found to be infringed. The court may make either one or multiple awards of statutory damages with respect to infringement of a compilation, or of works that were lawfully included in a compilation, or a derivative work and any preexisting works upon which it is based. In making a decision on the awarding of such damages, the court may consider any facts it finds relevant relating to the infringed works and the infringing conduct, including whether the infringed works are distinct works having independent economic value.

That change would have comprised a substantial departure from the analysis used to calculate statutory damages for copyright infringement. Currently (and, ostensibly, for the foreseeable future), the Copyright Act expressly provides that compilations are to be considered “one work” for the purpose of calculating statutory damages for their infringement.

Industry groups had been strongly in favor of the legislation as it was originally drafted, because its passage would have increased the amount of copyright damages awards. The fact that the statutory damages language was stripped from the bill prior to passage is compelling evidence (to the extent that any was needed) that it was never the intent of Congress to allow for heightened damages awards for unauthorized copying of compilations, even when the constituent parts of those compilations are independently copyrighted and capable of “leading their own copyright life” apart from any suite in which they are included.

The Texas Supreme Court has indicated that a party’s conduct in removing a case from state to federal court and later attempting to transfer the case to a multidistrict litigation panel did not constitute a waiver of its right to arbitration. With its decision in In re Citigroup Global Markets, Inc., 2008 WL 2069835 (Tex. 2008), the court continues to explore the question of what constitutes a waiver of arbitration rights. The decision in Citigroup appears to allow a party additional leeway to pursue some litigation options before endangering its arbitration rights.

Robert and Natalie Nickell had investment accounts with Citigroup and signed agreements to arbitrate any disputes concerning or arising from the accounts. The Nickells claim they lost more than $4 million invested in WorldCom, Inc. based on research reports prepared by a Citigroup analyst. The Nickells filed suit against Citigroup in Texas state court. Citigroup immediately removed the case to federal court on the ground that it related to WorldCom’s bankruptcy proceedings. While the Nickells moved to remand, Citigroup asked to have the case transferred to a federal multidistrict litigation court in New York that was managing similar WorldCom-related suits against Citigroup. Citigroup also asked to stay proceedings in the federal court pending a resolution of the issue by the multidistrict panel. In seeking a stay, Citigroup specifically reserved its defense that the Nickells were obligated to arbitrate their claims. In the multidistrict panel, the Nickells again moved to remand and Citigroup did not oppose the motion.

After this seven-month process, the case returned to Texas state court. Citigroup filed an answer and moved to compel arbitration. The trial court denied the motion, and the court of appeals denied Citigroup’s petition for writ of mandamus on the ground that Citigroup had expressly waived arbitration by making statements in its motions to transfer suggesting that it was doing so for the purpose of litigating, not arbitrating.

The Supreme Court disagreed. According to the court, “Citigroup never opposed arbitration, nor did it expressly waive its arbitration rights.” The statements in its moving papers “were required by statute to justify transfer to the MDL court.” The court disagreed that Citigroup’s attempts to transfer the case to the multidistrict panel were necessarily inconsistent with seeking arbitration, noting that “arbitration is possible for consolidated actions as well as individual ones.” Therefore, Citigroup’s actions in seeking to transfer the case did not indicate that it had abandoned arbitration. The court also concluded that Citigroup had not impliedly waived arbitration. While Citigroup’s actions in requesting transfer to the multidistrict panel were factors to be considered in a totality-of-the-circumstances analysis the court had announced in Perry Homes v. Cull, 2008 WL 1922978 (Tex. 2008), those actions were not determinative. Citigroup’s litigation conduct “was limited to jurisdictional transfers, not the merits.” Citigroup had not engaged in any discovery or filed any motions related to the merits before it sought arbitration. Because Citigroup had not waived its right to arbitration, the court granted its petition for writ of mandamus and directed the trial court to compel arbitration.

Full opinion text: http://www.supreme.courts.state.tx.us/historical/2008/may/060886.pdf

It’s never a good idea for a business or individual accused of copyright infringement to simply ignore the allegations, hoping they’ll go away. This is particularly true when the copyright holder files a lawsuit seeking damages, as the defendant in Broadcast Music, Inc. v. Spring Mount Area Bavarian Resort, LTD., 2008 WL 2152060 (E.D. Pa. 2008), recently learned. Indeed, a failure to respond to allegations of copyright infringement may result in a finding that the infringement was willful, leading to a larger damages award.

BMI is a collection of music recording companies, licensing companies, and affiliated artists that own the copyrights to various popular songs. Spring Mount operates Crazy Carol’s Sports Bar located in Schwenksville, Pennsylvania. BMI alleged that Crazy Carol’s performs, or causes to be performed, songs whose copyrights are owned by BMI. Between August 2005 and May 2007, BMI sent numerous “cease and desist” letters to Spring Mount demanding that Spring Mount honor BMI’s copyrights and also placed nearly fifty telephone calls to Crazy Carol’s in an attempt to address the issue. BMI finally sent a representative to Crazy Carol’s to determine whether it was continuing to violate the copyrights. During a four-hour period, the representative documented extensive violations of the copyrights. Had Crazy Carol’s entered into a typical licensing agreement with BMI, licensing fees owed from August 2005 would have totaled approximately $10,000.00.

Crazy Carol’s neither responded nor ceased the activity, and BMI filed suit against Spring Mount and an individual officer of Spring Mount for copyright infringement. BMI sought statutory damages, injunctive relief, costs, and attorney’s fees. Defendants did not answer the complaint or otherwise appear, and the clerk entered a default against Defendants. BMI then moved for default judgment, seeking statutory damages in the amount of $2,000.00 for each of eight violations, an injunction prohibiting further copyright infringement by Defendants, and more than $5,000.00 in attorney’s fees and costs.

Because Defendants had not responded, the court accepted BMI’s allegations as true and found that Defendants were liable for eight instances of copyright infringement. The court also found that “Defendants’ default and their decision not to defend against these allegations are grounds for concluding that their actions were willful.” The court noted that this finding was also supported by evidence indicating that Defendants continued to infringe on the copyrights months after being notified. According to the court, “Plaintiffs provided Defendants with clear and unambiguous notice that they were infringing Plaintiff’s copyrights, and Defendants nonetheless persisted in their unlicensed use.” Defendants’ “intransigence prior to the initiation of this litigation,” coupled with their refusal to appear, “indicate a conscious decision to ignore this problem in the hope that it will simply go away.”

That decision proved costly to Defendants. Under the Copyright Act, a court may increase the award of statutory damages up to $150,000.00 when it finds the infringement was committed willfully. The court concluded that the requested award of $2000.00 per infringement, although higher than the minimum statutory damages amount of $750.00, was just and appropriate under the circumstances. Similarly, the court found that it was appropriate to award attorney’s fees and costs and also allow interest on the damages, costs, and fees “as a further incentive to Defendants to promptly and finally resolve this matter.”

The result in Broadcast Music is a clear reminder that it is rarely a good idea to ignore a copyright infringement allegation because the refusal to respond to an allegation may be used as evidence that infringement was willful, resulting in a higher damages award.