Business and Technology Law

In choosing to file a lawsuit, a business should always contemplate the possibility that it might face a subsequent claim for malicious prosecution should the litigation not be successful. Similarly, a company that has been subjected to a meritless claim may consider suing a plaintiff and its counsel for malicious prosecution. Establishing a malicious prosecution claim has always been difficult, and a recent New Jersey decision may make it even more problematic to pursue such a claim against the attorneys who filed the suit on behalf of their client.

In Lobiondo v. Schwartz, 2007 WL 2188600 (N.J. App. 2007), a New Jersey appellate court detailed the standards and circumstances that would allow a plaintiff to sue an attorney for instituting litigation on behalf of a client. Lobiondo was an owner of a beach club directly across the street from Schwartz. Lobiondo was looking to increase the club’s size, but Schwartz opposed Lobiondo’s plans. She began to communicate her written objections to local officials and to the general community. Lobiondo reacted by hiring the law offices of Giordano, Halleran & Ciesla, P.C. (the “Giordano Firm”) to file a complaint against Schwartz for defamation, intentional infliction of emotional distress, and tortuous interference with business transactions. Schwartz thereafter counterclaimed alleging malicious abuse of process, malicious prosecution, and intentional infliction of emotional distress. The trial court dismissed all the claims made by Schwartz against the Giordano Firm.

In affirming that decision, the New Jersey Appellate Division focused much of its analysis on the Giordano Firm’s potential liability for malicious prosecution. The court referenced Restatement (Third) of the Law Governing Lawyers §57(2)(2000), which provides that “a lawyer representing a client in a civil proceeding . . . is not liable to a non-client for wrongful use of civil proceedings . . . if the lawyer has probable cause for acting or if the lawyer acts primarily to help the client obtain a proper adjudication of the client’s claim in that proceeding.” The Restatement, however, also indicates that a person may be held liable when that person acts without probable cause and primarily for a purpose other than securing a proper adjudication of the claim, if the proceedings have terminated in favor of the defendant.

The court attempted to balance the attorney’s obligation to zealously represent a client, the public interest of maintaining open access to courts, and the need to deter malicious pursuit of baseless claims. The court concluded that the Restatement properly dealt with all these concerns and that its standard should be applied to the lawyer’s actions and motives in pursuing the litigation. The court held that to establish a claim for malicious prosecution against an attorney, a plaintiff must prove that the attorney (a) knew the client’s claim was baseless and either (1) knew the client was pursuing litigation for an improper purpose that also furthered the attorney’s improper purpose or (2) litigated for the attorney’s own improper purposes. In other words, absent an attorney having his or her own “improper purpose” in pursuing a claim, an attorney cannot be held liable for the initiation, continuation, or procurement of litigation.

The court concluded that in conducting such an analysis, it is irrelevant if the client advises their attorney that they have their own improper purpose for bringing suit. Absent proof that the attorney has an illegitimate purpose in filing suit on behalf of a client, the attorney is not liable for malicious prosecution. The decision in Lobiondo will make it far more difficult to successfully pursue a malicious prosecution claim against an attorney.

The United States Court of Appeals for the Second Circuit has tightened its once-liberal policy with respect to oral arguments. The court has adopted Interim Local Rule 34, which limits the circumstances under which parties to an appeal will be entitled to oral argument. Interim Local Rule 0.29 also establishes a procedure under which certain types of immigration-related appeals are placed on a non-argument calendar. Because oral argument is no longer automatically available, parties can no longer count on being able to clarify points in oral argument. Businesses with appeals in the Second Circuit should make certain that every argument they intend to make to the court is included in the briefing.

Under the old rules, parties were generally entitled to oral argument, although the court could determine, on its own, to decide the case based on the briefs. Interim Rule 34 states that parties now must request oral argument within a specified time frame or the case will be decided on the papers. The court has invited the public to comment in writing on the new rule. Comments must be submitted by September 27, 2007.

Interim Rule 34 requires that in an appeal where all parties are represented by counsel, counsel for the parties must confer and file, within 14 days after the due date of the last brief, a joint statement indicating whether the parties seek oral argument or intend to submit the case for decision on the briefs. If only some of the parties want oral argument, the statement must identify those parties. If the statement is not filed within the specified time, the case will be decided on the briefs unless the court otherwise directs.

The court has created a form for the joint statement that is available on the court’s website. Parties are not required to indicate why oral argument would be helpful to the court, and the form does not provide any place for the parties to do so.

Even if the parties request oral argument, the court, on its own motion, may choose not to hear oral argument. If the court contemplates doing so, the parties will be given an opportunity to file a statement setting forth the reasons for hearing oral argument. Oral argument will be allowed unless all three judges on a panel agree that (1) “the appeal is frivolous,” (2) “the dispositive issue or set of issues has been recently authoritatively decided,” or (3) “the facts and legal arguments are adequately presented in the briefs and record, and the decisional process would not be significantly aided by oral argument.”

Interim Rule 34 does not apply to certain types of immigration cases that are automatically placed on the non-argument calendar under Interim Rule 0.29. This rule applies to appeals or petitions for review of the denial of: (1) “a claim for asylum under the Immigration and Nationality Act (“INA”),” (2) “a claim for withholding of removal under the INA,” (3) “a claim for withholding or deferral of removal under the Convention Against Torture (“CAT”),” or (4) “a motion to reopen or reconsider an order involving one of the claims listed above.” Cases on the non-argument calendar will be disposed of by a panel without oral argument unless the court chooses to transfer the case to the regular argument calendar.

Because arguments not made in the briefing may be waived, it is never a good idea to omit an argument from the briefs with the intent of raising it at oral argument. Overall, these new rules are another reminder that a lawyer should never think “I’ll just wait for the argument” to clean up the brief or to really flesh out the arguments you intend to make.

The court’s order adopting Interim Local Rule 34 and inviting public comment may be found here: http://www.ca2.uscourts.gov/Docs/News/localrule34final.pdf

In an important case for businesses concerned about potential liability for data security breaches, the United States Court of Appeals for the Seventh Circuit has held that plaintiffs who only sought damages for future credit monitoring and emotional distress did not suffer a “compensable damage” under Indiana law for negligence and breach of contract actions. While the decision in Pisciotta v. Old Nat. Bancorp, 2007 WL 2389770 (7th Cir. 2007), only applies directly to claims based on Indiana law, the court’s reasoning may be helpful in responding to similar claims in other states.

The case arose out of a data security breach involving a banking website. Defendant Old National Bancorp (“ONB”) operates a marketing website on which “individuals seeking banking services can complete online applications for accounts, loans and other ONB banking services.” Depending on the service requested, applications required submission of the customer or potential customer’s personal information, such as their name, address, social security number, driver’s license, date of birth, mother’s maiden name, and credit card or other financial account numbers. The web hosting facility notified ONB that there had been a security breach, and ONB in turn notified its customers and potential customers.

Plaintiffs filed a class action against ONB alleging that “by failing to protect [their] personal confidential information [ONB] caused Plaintiffs and other similarly situated past and present customers to suffer substantial potential economic damages and emotional distress and worry that third parties will use [the plaintiffs’] confidential personal information to cause them economic harm, or sell their confidential information to others who will in turn cause them economic harm.”

The plaintiffs asserted that they had been damaged because they “have incurred expenses in order to prevent their confidential personal information from being used and will continue to incur expenses in the future.” Further, the plaintiffs requested compensation “for all economic and emotional damages suffered as a result of [ONB’s] acts which were negligent in breach of implied contract or in breach of contract,” and “any and all other legal and/or equitable relief to which Plaintiffs . . . are entitled including establishing an economic monitoring procedure . . ..”

The Seventh Circuit, applying Indiana law, affirmed a trial court’s entry of judgment on the pleadings pursuant to Rule 12(c), holding that as a matter of law, the plaintiffs failed to assert any compensable damages. The appellate court acknowledged that many other courts have found that federal courts lack jurisdiction because a plaintiff whose data has been compromised, but not yet misused, has not suffered an injury-in-fact sufficient to confer Article III standing. The court, however, agreed with the notion that the injury-in-fact requirement can be satisfied by only a threat of future harm or by an act which harms the plaintiff by only increasing the risk of future harm that the plaintiff would have otherwise faced, absent the defendant’s actions.

The court was presented with the question of whether Indiana would compensate victims for potential future damage in the form of credit monitoring to guard against identity theft that might occur as a result of a data security breach. The Seventh Circuit found no Indiana precedent with respect to the issue. Because Indiana did not yet have any data privacy statutes, the court was forced to predict how the Indiana Supreme Court may have ruled.

In its analysis, the court compared the plaintiff’s situation to that of a toxic tort plaintiff seeking damages for fear of future injury. Noting that Indiana courts had not recognized a claim for the cost of future medical monitoring, the court also considered other state cases regarding the issues raised in this case.

The court recognized that the Indiana legislature did enact a statue applicable to database security breaches sometime after the plaintiffs’ causes of action arose. Although this statute could not be applied to this case, the Seventh Circuit considered it as indicative of Indiana public policy on the question of data breaches. The new Indiana privacy statute only imposes a duty to disclose a breach and did not create a private right of action to enforce it. According to the court, the statute does not create a duty to compensate affected individuals for inconvenience or potential harm to credit that might follow a breach. The court concluded that the narrowness of the statute, combined with other Indiana authority regarding future harm, suggested that Indiana law would not recognize the costs of credit monitoring as “compensable damages.” Ultimately, the court declined to adopt a “substantive innovation . . . to invent what would be a truly novel tort claim,” and affirmed the trial court’s dismissal of claims against ONB. The Seventh Circuit’s struggle with the issues raised in Pisciotta is likely to be repeated in the future as other courts deal with the novel issues raised by data security breaches.

See the full opinion here: http://www.ca7.uscourts.gov/tmp/680M5MZZ.pdf

Late Friday, the U.S. House passed, by a 220 to 175 margin, significant reforms to the nation’s patent laws. Those who have been paying attention to this issue already know that recent Congressional activity regarding patent reform has been moving forward at a pace that has been uncharacteristically steady, considering past attempts to enact changes to U.S. patent law. The passage of the House bill on Friday follows approval by the Senate Judiciary Committee in July of its own set of largely similar reforms. The full Senate has yet to vote on its own bill, though, and differences between the two bills of course will need to be dealt with before final legislation can be approved and sent to the President for signing.

The Washington Post reports that the spokesman for Senate Majority Leader Harry Reid predicts that a Senate vote may be forthcoming within a couple weeks. However, the Bush Administration, while generally expressing agreement with proposed patent reforms, also has expressed its concern with some proposals, most notably those involving damages in patent lawsuits. It will be very interesting in coming weeks to see whether and to what extent the House and Senate can agree on a set of reforms that meet with the President’s approval.

I recently posted a blog regarding the Canadian PIPEDA. A decision from a Canadian Federal court discussing PIPEDA and its jurisdiction was recently brought to my attention and deserves mention here. Lawson v. Accusearch Inc., 2007 FC 125 (CanLII).

Philippa Lawson is a Canadian citizen and executive director of the Canadian Internet Policy and Public Interest Clinic at the University of Ottawa’s Faculty of Law. Ms. Lawson filed a complaint with the Canadian Privacy Commissioner regarding an American company that allegedly violated the Canadian PIPEDA. She alleged that although based in the United States, Abika.com violated PIPEDA in a number of respects.

After a preliminary investigation, the Privacy Commissioner determined that PIPEDA did not grant her jurisdiction over Akiba.com, or its parent company Accusearch, Inc. Ms. Lawson thereafter reformulated her complaint to account for this denial of jurisdiction. The Canadian Federal court analyzed PIPEDA to determine whether Parliament vested the Privacy Commissioner with “authority to investigate complaints levied against foreign organizations which collect, use and sell the personal information of Canadians.”

Although the court agreed with the Commissioner that “PIPEDA gives no indication that Parliament intended to legislate extraterritorially,” the court ultimately concluded that the “Commissioner does not lose her power to investigate because she can neither subpoena the organization nor enter its premises in Wyoming.” The court did not provide any guidance as to the nature or scope of the Commissioner’s investigatory authority.

Therefore, it is not clear to what extent a company with no physical location and no assets in Canada could be successfully investigated by the Canadian Office of the Privacy Commissioner.

You can read the full opinion here.

Section 512 of the Digital Millennium Copyright Act (DMCA) gives providers of online content “safe harbor” from liability for copyright-infringing material stored on their web domains by third parties. In most cases, however, the shield provided by Section 512 is used as a sword by copyright owners, who are able to send “DMCA takedown notices” to content providers in order to force those providers to remove infringing content. Regardless of whether your business is on the sending or receiving end of such a notice, it is important to be aware of the requirements that the notice must satisfy in order for it to carry legal weight.

While Section 512 contains other liability-limiting provisions applicable to other types of service providers, the part of the act that most associate with “safe harbor” requires that a takedown notice contain:

A physical or electronic signature of a person authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.

Identification of the copyrighted work claimed to have been infringed, or, if multiple copyrighted works at a single online site are covered by a single notification, a representative list of such works at that site.

Identification of the material that is claimed to be infringing or to be the subject of infringing activity and that is to be removed or access to which is to be disabled, and information reasonably sufficient to permit the service provider to locate the material.

Information reasonably sufficient to permit the service provider to contact the complaining party, such as an address, telephone number, and, if available, an electronic mail address at which the complaining party may be contacted.

A statement that the complaining party has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.

A statement that the information in the notification is accurate, and under penalty of perjury, that the complaining party is authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.

A notice that does not substantially comply with all of the above requirements is not effective to give a content service provider notice that infringing material is present on their domain.

Although most of the requirements are straightforward, a person sending a notice should pay special attention to the second and third elements, especially in light of the fact that the notice must be signed by a responsible person under penalty of perjury. A sloppy description of the copyrighted material and/or a sloppy description of the content alleged to infringe that copyright, or transmission of a purported takedown notice that does not fall within the scope of the protections afforded under the Copyright Act, could result in an inference that there was no good faith basis for the takedown requested under the notice. A separate subpart of Section 512 provides that a “knowing,” “material” misrepresentation that online content is infringing could result in liability for damages, costs and attorney’s fees to the alleged infringer, the content service provider, or both. For example, in the case of Online Policy Group v. Diebold, Inc., 337 F.Supp.2d 1195, (N.D.Cal. 2004), Diebold sent a takedown notice to the Internet service provider for two college students, who had published on their web site, in an effort to draw critical attention to voting machines manufactured by Diebold, internal e-mails exchanged among Diebold employees. In its opinion, the court found that Diebold had violated Section 512, holding:

No reasonable copyright holder could have believed that the portions of the email archive discussing possible technical problems with Diebold's voting machines were protected by copyright, and there is no genuine issue of fact that Diebold knew-and indeed that it specifically intended-that its letters…would result in prevention of publication of that content.

Diebold eventually agreed to a settlement in which it paid the plaintiffs $125,000 in damages and fees.

These issues are receiving renewed attention in the wake of news regarding notice sent by the Science Fiction and Fantasy Writers of America (SFWA) to Scribd.com, a site allowing users to upload and share text files. The SFWA’s notice apparently included material – such as a schoolteacher’s bibliography for students – that could not reasonably be argued as infringing any copyright. (The SFWA has since issued a statement regarding the flaws in its notice and suspended the committee that was responsible for sending the notice.) It remains to be seen whether any legal liability will flow from the incident, but it should serve as a reminder to anyone dealing with either end of a takedown notice that it pays to be aware of just what the DMCA does – and does not – allow.

Massachusetts recently became the 39th state to enact a data breach notification law. The law was approved by the governor on August 2, 2007.

There is a question regarding when the law becomes effective. Although many legal reviewers have indicated that the law becomes effective on February 3, 2008, the deferred effective date applies only to section 17, the provision that applies to the destruction of records. There is no specifically enumerated effective date for section 16, the section containing the requirements related to breach notification. Because there is no effective date for section 16, the default effective date for the section is October 31, 2007.

The law applies to any person, corporation, association, partnership, other legal entity or governmental organization that maintains or stores data that includes personal information about a Massachusetts resident. Personal information is defined as a resident’s first and last name, or first initial and last name in combination with any one or more of the following:

• Social Security number;


• driver's license number or state-issued identification card number; or


• financial account number, or credit or debit card number, with or without any required security code, access code, personal identification number or password, that would permit access to a resident’s financial account; provided, however, that “Personal information” shall not include information that is lawfully obtained from publicly available information, or from federal, state or local government records lawfully made available to the general public.

A person or agency that only stored or maintained the data must give notice to the owner or licensor of the data as soon as practicable and without unreasonable delay when the person or agency knows or has reason to know about the breach, or when the person or agency knows or has reason to know that the data was used by an unauthorized person or for an unauthorized purpose. The person or agency must also cooperate fully with the owner or licensor except that the agency or person does not have to divulge confidential business information or trade secrets.

A person or agency that owned or licensed the data must provide notice to the attorney general, the director of consumer affairs, and the resident. The director of consumer affairs must identify any relevant credit reporting or state agencies and forward to the notifying person or agency the names of the credit reporting and state agency. The person or agency must then provide notice to the consumer credit or state agency on behalf of the affected individuals.

The Massachusetts law contains similar exclusions that allow notice to be delayed if a law enforcement agency determines that complying with the notice requirements will impede a criminal investigation. The law enforcement agency must notify the attorney general in writing for this exemption to apply.

The Massachusetts attorney general may bring an action against a person or otherwise to remedy violations of this law, and for other relief that may be appropriate.

Because there are so many variants in the state breach notification laws, companies that have security incidents should work with experienced counsel to carefully review the data breach laws in the relevant states to determine whether notification is required under the circumstances.

When faced with a foreign lawsuit, it is rarely good advice to suggest that a company simply ignore the proceedings and allow the plaintiff to receive an award by default in the hope that any resulting judgment might not be enforceable. A recent decision in the Seventh Circuit highlights the dangers that might arise if a business presumes that a judgment in a foreign jurisdiction might not be enforceable.

The Spamhaus Project, a British non-profit company that maintains a spammer blacklist, was sued in Illinois state court by e360 Insight. e360 Insight claimed that after it was listed as a spammer by Spamhaus, it lost several customers and suppliers. Spamhaus removed the case to federal district court and filed an answer. Spamhaus believed that the Illinois court did not have jurisdiction over it, claiming that it could only be sued in a British court. A month after filing its answer, Spamhaus, in open court, moved to withdraw its answer, and the court granted the motion. The district court entered a default judgment in favor of e360 Insight, awarded $11.7 million in damages, and ordered Spamhaus to cease its operations in the United States if it did not pay the award. The court also instructed the Internet Corporation for Assigned Names and Numbers (ICANN), an international organization that oversees the distribution of IP addresses and domain names, to suspend the spamhaus.org domain. While ICANN claimed it did not have the power to suspend the domain, it did advise Spamhaus’ hosting company to do so.

Although Spamhaus admitted that it normally ignored foreign lawsuits, the attack on its Internet domain definitely got the company’s attention. After its domain was threatened, Spamhaus filed an appeal.

In e360 Insight v. The Spamhaus Project, 2007 WL 2445016 (7th Cir. 2007), the United States Court of Appeals for the Seventh Circuit affirmed the validity of the default judgment. The court rejected Spamhaus’ contention that the district court did not have the authority to enter a default judgment without inquiring into the factual basis for personal jurisdiction and effective service. The Seventh Circuit had previously refused to impose any such requirement on district courts, and it rejected Spamhaus’ argument that a special rule should be applied in cases involving a foreign defendant, internet-based defendant. While recognizing that such a rule might be justified where a defendant had not made an appearance, the court noted that Spamhaus had appeared but chose to withdraw its answer and allow a default to be taken. The court saw no reason “to require the district to raise sua sponte affirmative defenses, which may, of course, be waived or forfeited, on behalf of an appearing part who elects not to pursue those defenses for itself.” In upholding the default, the court was not persuaded that Spamhaus should be allowed to “escape the consequences of” its decision not to participate in the litigation.

Nevertheless, the court did give Spamhaus a second chance with respect to the damages and the injunction. The court concluded that the evidence relied on by the district court was conclusory and insufficient to support the damages awarded. The award was vacated and remanded “for a more extensive inquiry into the damages to which e360 is entitled.” With respect to the injunction, the court found that the entry of default was not a sufficient basis, by itself, for entering a permanent injunction against Spamhaus. Instead, the court remanded the case and directed the district court to assess the well-established elements necessary to support an award of injunctive relief. The court also concluded that the injunctive relief as crafted by the district court was overly broad.

While Spamhaus will have another opportunity to persuade the district court regarding damages and injunctive relief, it still faces potential liability based on the default judgment. The Spamhaus situation serves as a reminder that when faced with a foreign lawsuit, instead of ignoring the suit as a matter of course, a better strategy would be to consult with legal counsel in both jurisdictions and formulate an approach that minimizes risks without jeopardizing a party’s legal position.

A recent federal district court opinion makes it clear that a claim for infringement of an unregistered derivative work does not give rise to federal subject matter jurisdiction under the Copyright Act. The decision in Dalton-Harris Homes, Inc. v. Williams, 2007 WL 2461892 (D. Ariz. 2007), highlights the importance of registering a work that a business hopes to protect. While derivative works are generally entitled to copyright protection, if a derivative work is not itself registered, federal court jurisdiction cannot be invoked based on infringement of the derivative work alone.

The factual scenario in the case was a bit convoluted. Dalton-Ross Homes accused Williams of infringing a copyright it holds on architectural floor plans for houses. Another homebuilding company developed the “VDM Plan,” a floor plan for single-family homes, and registered it with the U.S. Copyright Office. Dalton-Ross licensed the VDM Plan from the original owner. Dalton-Ross later entered into a contract with Link for construction of a residential home, and the draftsman who prepared the plans for the Link home used the original VDM Plan as a base. There was a dispute about whether when Dalton-Ross built a home for the Conways, the draftsman also used the VDM Plan or based his plans on the Link home plans. In January of 2005, Williams hired the same draftsman to prepare plans for a home. The plans for the Williams home were based largely on the Conway home plans. Dalton-Harris alleged that because the Conway plans were derivative of the VDM plan, either directly or through use of the Link home plans, it had a cause of action for infringement under the Copyright Act.

Dalton-Harris claimed that it had a copyrightable interest because the Conway home plans were derivative of the VDM plan. A work is considered derivative if it incorporates in some form a portion of a copyrighted work. A party that reproduces a derivative work without authorization of the pre-existing work’s owner violates that owner’s copyright.

The United States District Court for the District of Arizona held that Dalton-Harris had no right to assert a claim for violation of the Copyright Act in federal court under these circumstances. Dalton-Harris’ infringement claim was premised on Williams copying the Conway home plans, an unregistered derivative of the VDM Plan. The court concluded that the registration of the VDM Plan had no bearing on whether Dalton-Harris could pursue a claim in federal court. Under section 411(A) of the Copyright Act, no infringement action may be brought until preregistration or registration of the copyright has been made. Citing this requirement, the court held that registration is a jurisdictional prerequisite to the right of a holder to enforce a copyright in federal court. Accordingly, separate registration of a derivative work is a prerequisite to bringing an action for infringement of the derivative work.

The court did note that copying an unregistered derivative may give rise to liability based on infringement of the underlying original work that has been registered. Dalton-Harris, however, was unable to demonstrate that in copying the Conway home plans, Williams also copied protectable elements of the registered VDM Plan.

The decision in Dalton-Harris demonstrates that registration of a claim on an original work does not create subject matter jurisdiction with respect to a suit for infringement of the original’s unregistered derivative. Accordingly, if a company intends to protect its interest in a derivative work, it will be necessary to also register the derivative work.

Last month, in United States of America v. Kendra D’Andrea and Willie Jordan, 2007 WL 2076472 (D. Mass. 2007), the United States District Court for the District of Massachusetts declared that internet users have no reasonable expectation of privacy in materials and content stored on a password protected web-site. In a criminal case with background facts too disturbing to detail, the Court expressly denied the Defendants’ claims that the password-protected website was exclusively theirs. The case raises concerns for business and individuals with respect to the privacy of information stored on the internet.

The case began when an inside informant called the Department of Social Services child-abuse hotline and reported that an 8 year old girl was being sexually abused by her mother and the mother’s live-in boyfriend. The caller also notified the DSS that photos of the sexual abuse had been taken with a cellular phone and posted on a website. The caller provided the DSS with the password, log-in name, and telephone number used by the defendants, as well as the defendants’ address. The informant caller was a former girlfriend of the live-in boyfriend, who claimed that the defendants provided her with the website information, login, and password. A senior DSS administrator accessed the website, downloaded the images, and notified the police, who in turn obtained a warrant. Upon the search of the residence, the police arrested the mother and found a mobile camera-phone.

Defendants moved to suppress the downloaded images, the evidence seized from their residence, and any incriminating statements made by the defendants (although made after Miranda rights were read). They alleged that the DSS violated their Fourth Amendment rights by accessing the website and downloading the images. Because the images were critical to the clerk-magistrate’s finding of probable cause, the Defendants argued that the fruits of the search of the residence as well as one defendant’s subsequent confessions should be suppressed as fruit of the poisonous tree.

The court rejected Defendants’ assertions the DSS violated their Fourth Amendment rights. Noting that the information had come from a private party, the court quoted United States v. Jacobsen, 466 U.S. 109, 117 (1980), for the proposition that “[w]here a private party, acting on his or her own, searches a closed container, a subsequent warrantless search of the same container by government officials does not further burden the owner’s already frustrated expectation of privacy.” The court also cited the recent decision in Warshak v. United States, 490 F.3d 455 (6th Cir. 2007), noting that this case fell into the “assumption of the risk” exception identified in Warshak, where any expectation of privacy was unreasonable given that Defendants shared website access information with the caller. In a footnote, the court also made it clear that the result would not have changed if the caller had hacked her way into the website, rather than being voluntarily provided the website access information, stating that the state would not be held responsible for the caller’s actions In another footnote, the court noted that a warrant permitting seizure of “cameras,” “computer storage devices,” and “computer accessory” encompasses the modern camera-equipped cellular telephone.

In sum, the decision indicates that a password does not always protect the content of a webpage from disclosure.

The power of Congress to change American copyright law has recently come under scrutiny in the federal courts. Companies owning copyrighted materials should note that the United States Court of Appeals for the Tenth Circuit’s decision in Golan v. Gonzalez, 2007 WL 2547974 (10th Cir. 2007), reaffirmed the authority of Congress to extend the lifespan of copyright protection. In addition, businesses or individuals making use of works currently in the public domain should be aware that the Golan decision calls into question an attempt by Congress to extend copyright protection to foreign works previously in the public domain. .

Several artists, performers, and educators challenged two acts of Congress – the Copyright Term Extension Act (“CTEA”) and section 514 of the Uruguay Round Agreements Act (“URAA”). Both of these acts changed American copyright law. Under the CTEA, Congress extended the duration of existing and future copyrights from life-plus-50-years to life-plus-70-years. Section 514 of the URAA implemented Article 18 of the Berne Convention for the Protection of Literary and Artistic Works, which requires member countries to afford the same copyright protection to foreign authors as they provide to their own authors. In particular, complying with Article 18 would require the copyrighting of some foreign works that are currently in the public domain.

The court rejected the plaintiffs’ challenge to the CTEA. Under the Copyright Clause of the Constitution, Congress may “promote the Progress of Science and useful Arts, by securing for limited Times to Authors . . . the exclusive Right to their Writings.” In Eldred v. Ashcroft, 537 U.S. 186 (2003), the Supreme Court upheld the CTEA, holding that Congress had acted within its authority by changing the copyright duration. Eldred did not directly address the validity of the life-plus-70-years timespan, and the plaintiffs contended that this timespan violated the “limited Times” prescription in the Copyright Clause because the Framers of the Constitution would have viewed such a timespan as “effectively perpetual.” The court concluded that the duration of copyrights was left up to Congress and could not be challenged in court.

With respect to the URAA, the court reached a different conclusion. The Court did acknowledge that Congress had the power to change American copyright law as long as it acted rationally, concluding that it was rational to comply with the Berne Convention, which secured copyright protection for American works in other countries. But by copyrighting works that were previously in the public domain, section 514 did implicate the First Amendment. Unlike the CTEA, which only extended the protection given to already-copyright works or new works, section 514 would alter the traditional contours of copyright protection by copyrighting works that were previously in the public domain. The court focused on what it described as the “copyright sequence.” According to the court, “until § 514, every statutory scheme preserved the same sequence. A work progressed from 1) creation; 2) to copyright; 3) to the public domain.” Section 514, however, changed this because “the copyright sequence no longer necessarily ends with the public domain; indeed, it may begin there.” This alteration of the copyright sequence, combined with the bedrock principle that no one may copyright a work in the public domain, raises significant First Amendment issues.

The court noted that the First Amendment protects the rights of the plaintiffs and the public “to unrestrained artistic use” of works in the public domain. By removing works from the public domain, section 514 interferes with those rights. The court stated that “by withdrawing works from the public domain, § 514 leaves scholars, artists, and the public with less access to works than they had before the Act.” The court remanded the case to the district court with instructions to analyze section 514 under traditional First Amendment principles, including making a determination regarding whether the restrictions on free expression embodied in section 514 were content-based or content-neutral.

Full Opinion
Text: http://www.ca10.uscourts.gov/opinions/05/05-1259.pdf

The Federal Elections Commission (“FEC”) has announced that it resolved two complaints addressing the issue of whether Internet blog activity is subject to FEC regulation. On September 4, 2007, the FEC found that such blogging activity is exempt from regulation under the media or volunteer exemption. Now, political bloggers can breathe a little easier knowing that they might escape FEC regulation under these exemptions.

Media activity was pronounced exempt from federal campaign finance in 1974. Then in 2006, the FEC clarified that this media exemption extends to online media, stating that “costs incurred in covering or carrying a news story, commentary, or editorial by any broadcasting station… website, newspaper… or other periodical publication, including any Internet or electronic publication” are not a contribution or expenditure unless the facility is owned by a political party, committee, or candidate.

In the first matter, the Commission determined that the respondent operator of the DailyKos website, Kos Media, did not violate the Federal Election Campaign Act. The website allegedly charges a fee to place advertising on its website and provides a “gift of free advertising and candidate media services” by posting blog entries that support candidates. The subject of the complaint facing the website was for a Failure to Register as a Political Committee. Upon review, the commission found that the this website falls within the media exception, and that therefore, the activity on the website does not constitute a contribution or expenditure that would trigger political committee status, meaning that the website did not violate federal campaign finance law.

In the second case, the complainant (a political candidate) asserted that the respondent failed to report expenditures, coordinated these expenses with the candidate’s opponent in the race, and fraudulently represented campaign authority in violation of 2 U.S.C. § 441h. The respondent leased space on a computer server to create a “blog” which advocated the defeat of Representative Mary Bono in the November 2006 election. The commission determined that the respondent did not make unreported expenditures by engaging in this activity. The FEC also rejected allegations that the party coordinated these expenditures with the complainant’s opponent, finding that no in-kind contributions to the opponent’s campaign resulted from the respondent’s blogging activity. Lastly, the FEC found that the respondent did not fraudulently misrepresent himself.

FEC Decision: http://www.fec.gov/press/press2007/20070904murs.shtml

Companies concerned about being haled into court on the basis of internet contacts should review the recent Texas appellate court decision in Novamerican Steel, Inc. v. Delta Brands, Inc. 2007 WL 2325835 (Tex. App. – Dallas 2007, n.p.h.) In Novamerican, the Dallas Court of Appeals indicated that informational websites generally are not a sufficient basis for establishing personal jurisdiction.

DBI, a Texas company, sold a heavy gauge rotary shear to NTS, which is incorporated in Delaware. NTS is owned by Novamerican, a Canadian corporation. Neither NTS nor Novamerican had offices or employees in Texas, and neither company directly advertised or distributed marketing materials in Texas. The companies, however, did maintain a company Internet website. DBI filed a lawsuit in Texas state court claiming that NTS and Novamerican unlawfully used its design for the rotary shear and misappropriated its trade secrets. NTS and Novamerican filed a special appearance, challenging the Texas court’s jurisdiction. The trial court concluded that it did have personal jurisdiction.

The Dallas Court of Appeals reversed, holding that a Texas court not exercise personal jurisdiction over NTS or Novamerican. The court first recognized that there was no specific jurisdiction because the factual basis for DBI’s claims was not sufficiently connected to the contacts NTS and Novamerican did have with Texas.

The court also rejected DBI’s claim that a Texas court had general jurisdiction over the defendants. General jurisdiction is present when a defendant’s contacts in a form are continuous and systematic, such that the forum may exercise personal jurisdiction even if the cause of action did not arise from or relate to the activities conducted within the forum. DBI contended that NTS and Novamerican had continues and systematic contacts with Texas based, in part, on their internet website.

The court concluded that the defendants’ website was “passive” under the sliding scale-test used by Texas courts when assessing whether a website is sufficient to support the exercise of general jurisdiction over a defendant. The court explained this sliding–scale analysis as follows:

“At one end of the scale are websites clearly used for transacting business over the Internet, such as entering into contracts and knowing and repeated transmission of files of information, which may be sufficient to establish minimum contacts with a state. On the other end of the spectrum are ‘passive’ websites that are used only for advertising over the Internet and are not sufficient to establish minimum contacts even though they are accessible to residents of a particular state. In the middle are ‘interactive’ websites that allow the ‘exchange’ of information between a potential customer and a host computer. Jurisdiction in cases involving interactive websites is determined by the degree of interaction. Texas courts have used this test in determining whether an internet site is sufficient to support the exercise of general jurisdiction over a defendant.”

In this case, defendants’ website was a basic informational site listing facts about Novamerican and its subsidiaries. The website had a “contact us” page containing addresses, phone numbers, and a web-based submission form. The court noted, however, that customers did not use the website to purchase products from the defendants. Accordingly, the website was insufficiently interactive to confer general jurisdiction. In addition, the court found that a a corporate officer’s comment regarding the potential for selling products in Texas was not evidence that the defendants actually transacted business over the Internet for purposes of establishing general jurisdiction. Consistent with Novamerican, Businesses concerned about internet jurisdiction should recognize that courts will focus on the level of website interactivity in determining when an internet presence becomes a basis for exercising personal jurisdiction.

Computer glitches are commonplace in the corporate world, but courts apparently have little sympathy for the victims of such incidents when it comes to e-discovery. In PSEG Power New York, Inc. v. Alberici Constructors, Inc., 2007 WL 2687670 (N.D.N.Y. 2007), the United States District Court for the Northern District of New York held that despite the burdensome cost, one respondent that was hit with electronic software malfunctions nonetheless had to re-produce electronic emails with their corresponding attachments. Businesses should be conscious of the fact that technology flaws are unlikely to be a valid excuse for not producing e-discovery information.

The issue arose in a multi-million dollar contractual dispute between PSEG Power New York and Alberici Constructors. PSEG sued Alberici alleging improperly performed work and failure to complete other obligations on the contract. Alberici filed a mechanic’s lien against PSEG and then filed an answer with 2 counter-suits and 14 affirmative defenses. Both companies sought electronic e-mail communications and documentary evidence in their discovery requests. PSEG claimed that while compiling the e-mails, a technical glitch occurred whereby numerous emails were “divorced” from their attachments. PSEG asserted that the “vendor’s software was not compatible with the HTML format in which PSEG had provided its documents and that this incompatibility had resulted in the parent child link between the emails and attachments being broken.” The raw data was not lost, and PSEG did produce a hardcopy of more than 211,000 pages of documents.

Over the next several months, the parties attempted to find a way to resolve the detachment problem. PSEG created a spreadsheet it claimed Alberici could use to match up the hardcopies with e-mails, but this apparently did not work. The parties also attempted to use “metadata” associated with the e-mails and attachments as a means of “remarrying” the attachments with the e-mails, but this was unsuccessful.

PSEG contended that the estimated cost of retrieving the emails and their attachments, based on its vendor proposal, would be $206,000. After conferring with its own consultant, Alberici alleged that the cost of retrieval would be less than $40,000. Neither party was willing to bear the costs, whatever the estimate. The court then addressed three issues: “(1) is Alberici entitled to receive the emails with the related attachments together as opposed to their current state of separation, lacking coordinated identification with each other; (2) although PSEG has provided these emails and attachments in hard copy albeit not ‘married,’ is PSEG obligated to provide these documents in their original format; and (3) if re-production is required, which party bears the cost of production?”

The court acknowledge that this case was brought in 2005, before the e-discovery amendments to the rules became effective. and “[p]rior to December 1, 2006, parties were required to produce records as they are kept in the usual course of business or organize and label them to correspond with the categories in the request, as evidence that nothing has changed materially as to electronic discovery.” The court concluded that the 3000 emails and attachments had not been produced in accordance with that requirement. According to the court, there is no excuse for producing emails and attachments “in a jumbled, disorganized fashion.” After weighing several factors, including its determination that Alberici established good cause for requiring reproduction of the e-mails in their original form, the court found that the potential for discovery in this case outweighed the cost and burden of reproduction. The court also placed the burden of cost for the reproduction on PSEG, “whatever that [cost] may be,” but gave PSEG several options for meeting the obligation. Nonetheless, PSEG must re-produce the emails with their corresponding attachments, and bear the burden of cost.

Full opinion at http://www.nylawyer.com/adgifs/decisions/092007treece.pdf

International Corporations take note. Last week, the ABA Journal reported that the second-highest court in the European Union issued a ruling denying the extension of the attorney-client privilege to communications between companies and their in-house counsel. This judgment of the Court of First Instance, dated September 17, 2007, can be found here: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62003A0125:EN:HTML.

The facts in this case arise out of a 2003 investigation by the Commission of the European Communities into the affairs of Akzo Nobel Chemicals, Ltd, Akcros Chemicals Ltd, and their respective subsidiaries (“Azko”) based on a regulation aimed at seeking evidence of possible anti-competitive practices. During the investigation, the Commission officials obtained a number of documents that Azko declared were protected by the Legal Professional Privilege (“LPP”). The principle behind LPP is similar to that of the United States’ protections of attorney-client privilege. However, the LPP is subject to different discovery rules and procedures in such a regulatory investigation. These procedures and requirements are also laid out in the 33 page court decision.

Most of the court’s opinion discussed the procedures the Commission must adhere to in order to obtain potentially privileged documents and what constitutes a privileged document. The decision reviewed multiple sets of documents with multiple standards for inspection of their content. It was found that the Commission “infringed” upon the procedure for protection of the LPP in reviewing a group of the documents.

The remainder of the decision dealt with the actual issue of how the LPP applied to in-house attorneys in communications with their employer companies. The assertion of the LPP particular to Akzo’s in-house attorney arose in 2 documents concerning e-mail correspondence between the General Manager of Akcros Chemicals and an attorney in Azko’s legal department. Turning to case law, the court stated that the protection accorded to the LPP under Community Law, in the application of the Anti-Competition regulation at issue, only applies to the extent that the lawyer is independent and not bound to his client by a relationship of employment. It further reasoned that the “independent” lawyer concept is based on a belief in the lawyer’s role as “collaborating in the administration of justice by the courts and as being required to provide, in full independence, and in the overriding interests of the administration of justice, such legal assistance as the client needs.” This idea excludes communications with in-house attorneys, who are deemed to be legal advisers bound to their clients by a relationship of employment, from protection under LPP.

From this, the Court of First Instance determined that for the LPP to apply, the legal advice must have been provided “in full independence,” meaning it was “provided by a lawyer who, structurally, hierarchically and functionally, is a third party in relation to the undertaking receiving that advice.” Because the in-house attorney was believed to be bound to Akzo Nobel, the LPP did not protect the documents at issue from disclosure.
In justifying its, the Court of First Instance made a comparative examination of the application of privilege law in other Member states, and determined that it is inconsistent. It appears that an exception to applying the LPP to in-house counsel may have existed when the attorney was bound by ethical-licensing requirements and subject to review before a board. Azko argued that their in-house attorney was licensed and subject to the obligation of independence and compliance with the Netherlands’ Bar rules. Nonetheless, the Court of First instance still rejected the claim that the LPP protected the communications. It also observed that that a large number of Member States exclude in-house lawyers from LPP protection, and in fact some Member States refuse to allow in-house lawyers to be admitted to the Bar of Law Society. This denial of admittance into the bar appeared to be an indicator to the court that in-house attorneys are not independent and exclusive from the direction of their corporate employers. The court went on to further clarify that “even in countries which do permit this [admission] possibility, the fact that in-house lawyers are admitted to a Bar of Law Society and are subject to professional ethical rules does not always mean that the communications with such persons are protected under LPP.”

A recent appellate decision in Illinois addresses the situations in which state copyright provisions may be preempted by the federal copyright laws. The decision serves as a reminder to businesses facing copyright issues that state laws purporting to protect intellectual property may, in reality, be unenforceable because they are preempted by federal law.

Paul Williams allegedly visited a Cook County laundromat and attempted to sell CDs and DVDs from a suitcase to patrons. A laundromat attendant activated a panic button and alerted the police. After approximately 10 minutes of surveillance, the police reported that they observed 2 transactions where Williams and an individual exchanged money for what appeared to be CDs. The police discovered that Williams had between 250 to 300 CDs and DVDs perceived to be fake. At trial, an expert identified exhibits showing CDs and DVDs Williams had in his possession. There was also testimony at trial that Williams was in possession of a DVD titled “The Passion of Christ” (at the time the movie was still in theatres), and CDs by rap artists such as Too Short, Ja Rule, and various tracks from Ludacris and R. Kelly. Williams was convicted on two counts of unlawful use of recorded sounds or images, and two counts of unlawful use of identified sound or audio visual recordings, both violations of Illinois Criminal Code Statues.

In Illinois v. Williams, 2007 WL 2597661 (Ill. App. 2007), the Appellate Court of Illinois, First District, reversed on one count based on preemption but affirmed the second count, concluding that it was not preempted by federal law.

At issue were sections 16-7 and 16-8 of the Illinois Criminal Code. Section 16-7, entitled “Unlawful use of recorded sounds or images,” states in part that

“(a) a person commits unlawful use of recorded sounds or images when he

1. intentionally, knowingly or recklessly transfers or causes to be transferred without the consent of he owner, any sounds or images recorded on any sound or audio visual recording with the purpose of selling or causing to be sold, or using or causing to be used for profit the article to which such sounds or recordings of sound are transferred.
2. Intentionally, knowingly or recklessly sells, offers for sale, advertises for sale, uses or causes to be used for profit any such article described in subsection 17-7(a)(1) without consent of the owner.”

Williams contended that the federal Copyright Act expressly preempts Illinois’ regulation of the conduct with which he was charged him and that his convictions are therefore null at void. The court construed section 301(a) of the Copyright Act as requiring the preemption of state claims when two conditions were present – “(1) the works at issue are fixed in tangible form and fall within the ‘subject matter of copyright’ . . . and (2) the legal or equitable rights granted under the state law are equivalent to the exclusive rights set forth in section 106 of the Act.” Because the recordings at issue were unquestionably fixed in tangible form, the first subject matter prong was met. In evaluating the equivalency prong, the court applied what it described as the “extra element test,” which asks whether the state law requires an additional element that is qualitatively different from those necessary for copyright infringement. In evaluating section 16-7(a)(2), the court acknowledged that this section does require a criminal mental state, which is not within the general scope of copyright, but concluded that requiring a criminal mental state for conviction does not qualify as an “extra element.” The court concluded that because section 16-7, which criminalized the sale of any sound recording without the consent of the owner, did not include any extra element beyond what was required to violate the federal law, it was preempted by the federal Copyright Act.

With respect to section 16-8, the court reached a different conclusion. In prosecuting an offender under section 16-8, the state was required to prove that the defendant was dealing in “unidentified” CDs – that is, recordings that did not include the name and address of the actual manufacturer or that listed a manufacturer that was not the true manufacturer of the recording. This critical element was not part of section 106 of the Copyright Act. Because section 16-8 incorporated an “extra element” beyond those encompassed in the federal law, it was not preempted.

“Freedom is not given. It is our right at birth. But then there are moments in History where it must be taken.” – President John Quincy Adams from the movie Amistad, DreamWorks SKG Studios.

In 1997, author Barbara Chase-Riboud filed a $10 million lawsuit and injunction against director Steven Spielberg and his Hollywood production company, DreamWorks SKG (“DreamWorks”), for copyright infringement. See Chase-Riboud v. Dreamworks Inc., 987 F.Supp. 1222 (C.D. Cal. 1997). The film, Amistad, is based upon a historical event. In 1839, Singe-Pieh staged a slave rebellion on board the Spanish slave ship, La Amistad. The ship was eventually intercepted by the United States Navy and towed the ship to New Haven, Connecticut, where the slaves stood trial. President John Quincy Adams argued on behalf of the salves before the United States Supreme Court.

Steven Spielberg claims his movie was based upon the nonfiction book, “Black Mutiny” by William Owens, to which Debbie Allen bought the rights. The screen play was written by David Franzoi and Academy Award winner Steve Zaillan. Ms. Chase-Riboud claims that the movie was based upon her novel, “Echo of the Lions” published by William Morrow in 1989. Chase-Riboud further claims the film contains far too many similarities to her novel which she previously submitted to Spielberg’s Amblin Entertainment. Defendant DreamWorks argued that the suit was without merit because the film was based upon historical fact and is therefore not subject to copyright protection.

The issue of copyright protection for creative works based upon history is becoming a concern for the motion picture industry. This combination of history and Hollywood embellishment is commonly referred to as “historical fiction”. For the purpose of this discussion, historical fiction is defined as an original creative work based upon historical fact. At what point does the writer create a protectable expression from historical fact? Asked another way, “At what point does copyright law protect the expression of an idea without allowing monopolistic ownership of the factual historical event itself?” This is not intended to be an exhaustive analysis of substantial similarity concerning competing works, but rather as a focused discussion on the judicial application of the doctrine of scenes à faire.

The United States Constitution expressly grants Congress the power to grant copyright protection “to promote the progress of science and useful arts.” “The Congress shall have power… to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the executive Right to their respective Writings and Discoveries.” The primary purpose of copyright law is to stimulate creativity for the public good. However, copyright law does not protect an idea, but rather the original expression of the idea. This doctrine appeases two opposing rationales: (1) it compensates individuals for their creative labor; (2) yet provides society the benefit of subsequent individual interpretation regarding the same subject matter.

The scenes à faire doctrine states that if the copyright holder’s expression is a scene that naturally results from a common idea, then subsequent expressions of the same scene does not constitute copyright infringement. The scenes à faire doctrine is a judicial creation of law and equity. This doctrine reasons that there are some scenes that must be included in a given context because identical situations call for identical scenes. Additionally, there are certain stock scenes, or clichés, which naturally develop from a genre of a given idea.

American jurisprudence was introduced to the doctrine of scenes à faire in the landmark case, Cain v. Universal Pictures Co., Inc., 47 F.Supp. 1013 (S.D. Cal. 1942). In Cain, the author filed a copyright infringement action claiming that the motion picture, “When Tomorrow Comes”, copied a church sequence described in his novel “Serenade.” The church sequence involved two lovers who spent the night in a choir loft in order to seek shelter from a storm. The plaintiff cited similar events such as playing the piano, prayer and hunger. The United States District Court for the Southern District of California held that similarities and incidental details which are necessary to the environment or setting of an action are not material of which copyrightable originality conflicts. Therefore, although scenes of a creative work may be substantially similar, there are some stock scenes that do not receive copyright protection. For example, a western movie will almost always involve cowboys wearing a six shooter, riding a horse and walking into a town saloon. Similarly, the western saloon will almost always have swinging doors, a bar with a large mirror and whiskey. “All of those elements are necessary to telling any story set in western times basically. As so the court filters out those scenes à faire, things that are required to the telling of that story.”

“Plots and themes are what ideas are made of, but dialogue, mood, pace and sequence are the very essence of expression.” Jason v. Fonda, 698 F.2d 966 (9th Cir. 1982). Hence it is this essence of expression that may receive copyright protection. However, historical facts may not receive copyright protection because they are not the original works of the author. The doctrine of scenes à faire ensures that history belongs to the public domain. “The distinction is one between creation and discovery: the first person to find and report a particular fact has not created the fact; he or she has merely discovered its existence.” Feist Publications, Inc. v. Rural Telephone Service, 499 U.S. 340, 111 S.CT. 1282, 113 L.Ed.2d 358 (1991).

In the case of Amistad, Federal District Judge Collins defined scenes à faire as “incidents, characters or setting which are as a practical matter indispensable, or at least standard, in the treatment of a given t