Business and Technology Law

The United States Court of Appeals for the Second Circuit has rejected an attempt to certify a class action by copyright holders for the unauthorized electronic reproduction of their works. In In re Literary Works in Electronic Databases Copyright Litigation, 2007 WL 4197413 (2d Cir. 2007), thousands of authors sued a number of large publishing companies, including the New York Times, West Publishing, for copyright infringement. The court, however, held that because the class included claims made by class members who had not registered their copyrights, the district court lacked subject matter jurisdiction to certify a class and enter a judgment.

The claims all arose from the unauthorized electronic reproduction of various written works. The class members were mainly freelance writers that contracted with publishers to author the works for publication in print media. The class members retained the copyrights in those works, and the vast majority of those copyrights were unregistered. The contracts between the authors and the publishers did not grant the publishers the right to electronically reproduce those works or license them for electronic reproduction by others. The publishers, however, did so, and four class actions were consolidated in the United States District Court for the Southern District of New York, with the plaintiffs contending that the unauthorized electronic reproduction of their works infringed their copyrights. A settlement was reached after lengthy negotiations, and the district court certified a class and approved the settlement.

The Court of Appeals vacated the order and judgment, holding that the district court did not have subject matter jurisdiction to approve a settlement or certify a class consisting of claims that arose from the infringement of unregistered copyrights. The court began its analysis by recognizing that the legal theory on which the claims were based was sound. In New York Times Co. v. Tasini, 533 U.S. 483, 488 (2001), the Supreme Court held that under section 201(c) of the Copyright Act, publishers are not permitted to reproduce freelance works electronically when they have not been specifically authorized to do so. But jurisdictional issues proved to be a barrier to pursuing the claims in a class action format.

The court noted that most of the claims of the class members arose from the infringement of unregistered copyrights. 17 U.S.C. § 411(a) states that “no action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title.” Previously, outside the class action context, the Second Circuit has held that registration is a jurisdictional requirement, and a district court lacks subject matter jurisdiction over infringement claims arising from unregistered copyrights. See Well-Made Toy Mfg. Corp. v. Goffa Int’l Corp., 354 F.3d 112, 115 (2d Cir. 2003); Morris v. Bus. Concepts, Inc., 259 F.3d 65, 72 (2d Cir. 2001). Other circuits have also reached the same conclusion, and the court held that section 411(a)’s registration requirement limits a district court’s jurisdiction over copyright claims. The court went on to conclude that the class action mechanism cannot be used to circumvent this jurisdictional requirement. Because every claim within a certified class must meet the registration requirement, the district court did not have jurisdiction to certify a class containing claims arising from thousands of unregistered copyrights. The court also rejected the plaintiffs’ contention that such claims could be included under a supplemental jurisdiction theory, finding that supplemental jurisdiction could not be exercised over jurisdictionally deficient federal claims. Judge Walker dissented from the opinion, arguing that in the wake of the Supreme Court’s decision in Eberhart v. United States, 546 U.S. 12 (2005), the requirement in section 411(a) was not a true jurisdictional bar to pursuing claims based on unregistered copyrights.

Full Opinion text: http://www.ca2.uscourts.gov:8080/isysnative/RDpcT3BpbnNcT1BOXDA1LTU5NDMtY3Zfb3BuLnBkZg==/05-5943-cv_opn.pdf#xml=http://www.ca2.uscourts.gov:8080/isysquery/irl368/12/hilite

Texas employers should review a recent decision by the Texas Supreme Court that will affect the resolution of wage claims made under the Texas Payday law. In a case of first impression, the Texas Supreme Court has held that a final adjudication of a wage claim by the Texas Workforce Commission denying the claim precludes the subsequent filing of a common law wage claim in state court. The decision in Igal v. Brightstar Information Technology Group, Inc., 2007 WL 4276545 (Tex. 2007), emphasizes for all companies with employees in Texas the importance of responding forcefully to wage claims made to the TWC, as a victory in that forum will not prevent an employee from later pursuing the same claim in court.

Igal was terminated by Brightstar and contended that under his employment agreement, he was entitled to a post-termination salary. 1989, the Texas Legislature amended the Texas Payday Law to provide for an administrative procedure under which a claimant could file a wage claim with the TWC. Accordingly, Igal filed a claim with the TWC, asserting a violation of his employment agreement and claiming unpaid wages. The TWC concluded that Igal’s claims failed on the merits and that it lacked jurisdiction because Igal filed his claim more than 180 days after his wages became due for payment. Instead of filing a motion for rehearing or seeking judicial review of the TWC’s decision, Igal sued Brightstar in a Texas state court for breach of contract and declaratory judgment. The trial court granted summary judgment for Brightstar, holding that res judicata barred Igal’s claims, and the Court of Appeals affirmed.

The Supreme Court agreed, concluding that “res judicata attaches to TWC’s final administrative decision.” Res judicata bars the relitigation of claims that have been finally adjudicated on the merits in a prior action. The court concluded that res judicata does apply to claims previously determined by an administrative agency. In deciding wage claims, “TWC acts in a judicial capacity.” Because the parties “had an adequate opportunity to litigate their claims through an adversarial process in which TWC finally decided disputed issues of fact,” res judicata applied.

The court rejected Igal’s contention that the TWC procedure was only intended to be an alternative, and not an exclusive, remedy. According to the court, agencies and courts may both “provide remedies for injuries actionable under the common law.” The Payday Law was intended to provide an alternate remedy to employees when it would be too difficult to pursue a traditional lawsuit. When an employee chooses this alternative, that employee cannot later relitigate the same claims in a court. The holding in Igal will therefore prevent employees who are unsuccessful in a TWC proceeding from pursuing the same claims against their employers in a Texas court.

Full Opinion Text: http://www.supreme.courts.state.tx.us/historical/2007/dec/040931.pdf

The New York Court of Appeals has rejected the application of the “famous” or “well known” marks doctrine under New York law. Companies concerned about infringement of unregistered marks in New York state should be aware that claiming their mark is “famous” or “well-known” will not be sufficient to state a common law claim for unfair competition when a competitor uses the mark in New York. Instead, a business will have to demonstrate that in New York, there is actual good will attached to the name by New York residents.

ITC operates a five-star restaurant named Bukhara in New Delhi, India. According to the court, the restaurant “has attained some measure of renown among those with an avid interest in fine cuisine” and has been named as one of the 50 best restaurants in the world. ITC, however, has had little luck in capitalizing on the restaurant’s prestige. While it opened or franchised restaurants under the Bukhara name, most of those restaurants, including ones in the United States, have closed. ITC obtained a U.S. trademark in 1987 but has not operated a restaurant in the U.S. since 1997.

In 1999, some former employees of the New Delhi Bukhara restaurant opened the Bukhara Grill in Manhattan and later opened a second location. The Manhattan restaurant features many of the New Delhi restaurant’s signature dishes and replicates much of its décor. ITC filed suit in federal court against the Manhattan restaurant for trademark infringement, unfair competition, and false advertising under federal and New York law. The district court ruled that ITC could not pursue trademark or trade dress infringement claims because it had abandoned its mark and dress. The court also rejected ITC’s contention that it could nevertheless pursue claims under the “well known” or “famous” marks doctrine, a controversial and little-used doctrine that gives common law protection to marks that are famous or well-known. On appeal, the Second Circuit certified two questions to the New York Court of Appeals regarding the famous marks doctrine and the viability of ITC’s unfair competition claim.

In ITC Limited, v. Punchgini, Inc., 2007 WL 4334177 (N.Y. 2007), the Court of Appeals held that ITC could pursue a claim for unfair competition on a theory of misappropriation. Under New York law, a common law unfair competition claim may be based on palming off or misappropriation. New York, however, has not recognized the “famous” or “well-known” marks theory doctrine. The Court of Appeals explicitly stated that it was not recognizing this doctrine or any new theory of liability. Instead, New York recognizes a claim for unfair competition based on the idea that for certain kinds of businesses, goodwill attached to the name of the business has value and the name may not be misappropriated to compete unfairly against a party in New York. The court also recognized that such good will “can, and does, cross state and national boundary lines.”

To pursue a claim based on misappropriation of a famous foreign mark, a plaintiff must demonstrate that it does have goodwill associated with its mark in New York state. “At the very least, a plaintiff’s mark, when used in New York, must call to mind its goodwill. Otherwise, a plaintiff’s property right or commercial advantage based on the goodwill associated with its mark is not appropriated in this state when its unregistered mark is used here.” According to the court, at a minimum, consumers in New York must primarily associate the mark with the foreign plaintiff. In assessing whether such goodwill exists, a court should consider, among other things, public statements or advertising, direct evidence such as surveys, and evidence of actual overlap between customers of the New York defendant and the foreign plaintiff. ITC makes it plain that the fact that a “famous” foreign mark has been copied is not sufficient – the plaintiff must demonstrate that the mark has value in New York before a claim may proceed.

Full Opinion Text: http://www.nycourts.gov/ctapps/decisions/dec07/165opn07.pdf

Business and attorneys involved in California litigation may be affected by a recent ruling by the California Supreme Court regarding an attorney’s obligations when receiving inadvertently disclosed information that is protected by the attorney-client privilege or the work product doctrine. In Rico v. Mitsubishi Motors Corp., 2007 WL 4335934 (Cal. 2007), the court ruled that when an attorney inadvertently receives privileged documents in discovery, the attorney “may not read a document any more closely than is necessary to ascertain that it is privileged.” Once that determination is made, the attorney is obligated to notify opposing counsel and try to resolve the situation. To do more than that will invite disqualification.

The issue arose after a Mitsubishi Montero rolled over while being driven on a freeway. Plaintiff, who was injured in the accident, sued Mitsubishi and the California Department of Transportation. Mitsubishi’s representatives met with their lawyers and two designated defense experts to discuss litigation strategies and vulnerabilities. Defendant’s attorney took notes at the meeting and had the notes typed up and printed. The printed copy was not labeled “confidential” or “work product.” A few weeks later, defendants’ attorney deposed one of plaintiff’s expert witnesses. Plaintiff’s counsel was late to the deposition, and while waiting, defendant’s attorney left the room, leaving his briefcase, computer, and case file. According to the court, “somehow,” plaintiff’s attorney acquired the printout of the notes taken by defendant’s attorney during the earlier strategy session. A week after acquiring the notes, plaintiff’s attorney used them in a deposition of a defense expert, asking about the witness’s participation in the strategy session. Mitsubishi then moved to disqualify plaintiff’s counsel.

The Supreme Court agreed with the trial court and the court of appeal that the motion to disqualify was property granted. The court found that the notes, which discussed strategy and trial preparation and reflected counsel’s opinions, were protected as attorney work product. Accordingly, the notes were absolutely protected from disclosure.

The court then addressed an attorney’s duty upon receipt of attorney work product. When privileged documents – either work product or material subject to the attorney-client privilege – are received inadvertently, an attorney “should refrain from examining the materials any more than is essential to ascertain if the materials are privileged, and shall immediately notify the sender that he or she possesses material that appears to be privileged.” The parties may then either resolve the issue themselves or seek guidance from the court. This rule protects the right of an attorney to prepare for trial with the necessary degree of privacy and prevents opposing counsel from taking undue advantage of their adversary’s efforts. In this case, plaintiff’s counsel acknowledged that after reviewing the document for a few moments, he realized it contained work product. The court noted, however, that such an admission is not necessary to apply the rule.

The court also concluded that disqualification was an appropriate remedy. The damage caused by plaintiff’s counsel reading and using the document could not be mitigated. The court determined that plaintiff’s counsel “also acted unethically by making full use of the document.” Plaintiff’s counsel contended that his use of the document was proper because it showed that the experts were not being truthful. The court rejected this argument, making it clear that the contents of the document were entirely irrelevant to enforcing the rule regarding advertent disclosure. “Once the court determines that the writing is absolutely privileged, the inquiry ends. Courts do not make exceptions based on the contents of the writing.” The decision in Rico establishes a bright-line rule for dealing with inadvertent disclosure.

Full Opinion Text: http://www.courtinfo.ca.gov/opinions/documents/S123808.PDF

Websites have, in the past, relied primarily on textual or photographic elements to convey their messages. This fact has made it historically difficult for a business to support a claim that a competitor’s uncomfortably close emulation of its Internet content constituted trade dress infringement, in violation of U.S. trademark law under the Lanham Act. But that may be changing as the sophistication and importance of websites increases.

Modern websites are considerably more complex and content-rich than they were even five years ago. Those who frequent sites such as eBay® and Amazon.com® likely have come to associate those sites’ well-developed user interfaces with those companies to the same degree that shoppers at a Barnes & Noble® or Target® store would associate those stores’ design elements and merchandising practices with those businesses. Even sites without that degree of commercial traffic may enjoy great success in associating a successful web site design with a particular line of business. To the extent that a business can prove such an association, a handful of recent cases indicate that trademark law may provide the protections that some businesses need after all.

In Blue Nile, Inc. v. Ice.com, Inc., a 2007 case from the Western District of Washington, the trial court denied the defendant’s motion to dismiss the plaintiff’s claim that the defendant infringed its trade dress rights by copying the “overall look and feel” of the plaintiff’s well-known diamond-marketing site. While the court did not expressly sanction the use of trademark law to protect the “look and feel” of a website, it did nevertheless note that the theory deserved factual development in that case in order to assess its applicability. The court further noted that trademark law might provide the only basis for such claims, since more than one commentator has recognized that copyright law likely is insufficiently broad to cover a website’s overall format. In their briefing, the Blue Nile plaintiffs cited two earlier, unreported cases to support their arguments. In one, Peri Hall & Associates, Inc. v. Elliot Institute for Social Sciences Research, a 2006 case from the Western District of Missouri, the trial court granted the plaintiff’s request for a preliminary injunction prohibiting the defendant’s continued publication of a website that “copied the look and feel” of the plaintiff’s site and that further incorporated the plaintiff’s trademarks into the metatags for the site. In the other case cited by the Blue Nile plaintiff, Faegre & Benson LLP v. Purdy, a 2004 case from the District of Minnesota, the trial court there similarly granted that plaintiff’s request for a preliminary injunction based, in part, on the fact that the defendant there had published web page that featured “[plaintiff’s] nonfunctional trade dress… the appearance of which is confusingly similar to the trade dress of [plaintiff’s] web site” as well as the plaintiff’s trademarks.”

For many businesses facing infringement of their website content, it may be time and money well spent consulting with an attorney regarding the availability of a potential “cyber trade dress” claim such as those discussed in the Blue Nile opinion.

The Blue Nile opinion is reported at 478 F.Supp.2d 1240. The Peri Hall and Faegre & Benson opinions are available on Westlaw®, respectively, at 2006 WL 742912 and 2004 WL 167570.

2007 was an exciting and dynamic year for the software asset management industry. As we enter a new year, the software industry will continue to evolve. Here are my predictions for what will happen in 2008.

1. BSA expands its “no-fine” self-audit program
I will remember 2007 as the year that the BSA increased its reward program for “anti-piracy” leads to up to $1,000,000. With approximately fifty-five million dollars in global revenue showing on its most recent tax return, BSA will continue to be the most important software police organization in the world. Recently, BSA has created a new audit flavor, it’s a self-audit with a twist. Targets are asked to conduct an audit, provide invoices for software purchased as a result of the audit and the BSA agrees to close its file. I call this the “no-fine” self-audit because once the audit is conducted and materials produced to BSA, the file is in fact closed without protracted settlement negotiations over fines and other terms. I predict that the “no-fine” audit will be used with greater frequency 2008.

2. Microsoft Expands SAM Engagement Program
Microsoft’s SAM initiatives have replaced what used to be contractual audits. Under this program, Microsoft hires a consultant to assist the customer in conducting and audit that is the results of which are reported to Microsoft. As many clients continue to struggle to manage compliance with Microsoft licensing, Microsoft will continue to invest time and resources in various SAM initiatives. Although, I have been a critic of the certain aspects of Microsoft’s SAM Engagement, I think publishers like Microsoft that help customers deal with SAM challenges will be most successful in the long run. I think the number of variety of global SAM engagements will increase dramatically in 2008.

3. Adobe to Focus Attention on Fonts
In the recent weeks, we have started to see BSA audit letters specifically requesting audit information regarding installed fonts. Depending on the nature of your business, you may be receiving files that contain proprietary fonts licensed by your company vendors, clients, and partners when they send you documents. Frequently, these fonts wind up remaining on your computers systems creating a potential compliance issue. Adobe has an extensive portfolio of fonts that are used in its industry leading design products. I think that in 2008 the focus on font licensing compliance will continue.

4. Industry Consolidation Accelerates
As we continue to experience the economic ripple effects of the sub-prime meltdown, I think there will be an increased credit squeeze in 2008. As smaller publishers find it harder to borrow funds to fuel growth, continued industry consolidation should occur in 2008. These same economic factors may lead to increased acquisition and divestiture work for software asset managers in all industries.

5. Autodesk Stays Aggressive
In addition to participating in audits conducting by the SIIA and BSA Autodesk maintains its own “anti-piracy” program implemented exclusively by Donahue Gallagher & Woods law firm. While other publishers search for kinder and gentler enforcement strategies, I predict that Autodesk will continue to be aggressive in its approach to enforcement working through the pre-eminent anti-piracy attorneys to implement its heavy-handed strategy.

6. End-Users Benefit from Soft Economy
If the economy weakens and revenue pressure on software publishers increases, end-users will enjoy greater negotiating and bargaining power. The smartest companies will negotiate aggressively with the software industry to secure favorable pricing and licensing terms custom tailored to their business needs. In my experience, senior management at software publishers are more likely to make licensing and pricing concessions when there is a new transaction and considerable cash on the table. A soft economy will force publishers to make concessions to end-users in 2008.

7. Resellers Expand Asset Management Services
To stay competitive, software resellers have had to offer value added tools and services to assist their customers with managing the hardware and software assets they sell. The smartest resellers are learning that the more asset management tools and services they can provide the greater wallet share they will enjoy for hardware, software, and services. Dell’s purchase of ASAP Software and Insight’s purchase of Software Spectrum have started a trend that will continue in 2008.

8. Third-Party Commercial Access Licenses Go Mainstream
In 2007 Microsoft greatly expanded its reseller network for its Service Provider License Agreement Program. This program provides commercial access licenses to Microsoft technology. Traditional client access licenses (CAL) are for internal use and access only. If you provide direct or indirect access to third parties including your customers, vendors, and business partners you should consider whether you need SPLA licensing. In 2008, third party access licensing will become increasingly important under Microsoft SPLA as well as other major publishers licenses.

Robert J. Scott is the managing partner of Scott & Scott, LLP. rjscott@scottandscottllp.com

Despite the opposition posed by consumer advocacy and privacy groups, the Federal Trade Commission recently voted to close its investigation of Google’s proposed acquisition of DoubleClick. Opponents argued that combination of Google and DoubleClick’s data could be exploited and used to invade consumers’ privacy. The FTC considered the issue for more than a year, conducting public hearings and reviewing millions of pages of documents.

In reaching its decision, the FTC determined that the proposed transaction was not likely to harm competition or injure consumers. The FTC concluded that it did not have jurisdiction to block an acquisition for reasons not related to antitrust violations. It also determined that regulating the privacy requirements of only one company would likely harm competition, rather than encourage it.

To review the text of the FTC’s decision, click here: http://www.ftc.gov/os/caselist/0710170/071220statement.pdf

A recent decision by the Ninth Circuit will affect the ability of companies seeking to recover for trademark infringement and counterfeiting to also be awarded their attorney’s fees. In K&N Engineering, Inc. v. Bulat, 2007 WL 4394416 (9th Cir. 2007), the court held that when a business chooses an award of statutory damages under the federal trademark laws instead of seeking actual damages, attorney’s fees cannot be recovered. This decision will certainly impact strategy decisions that will be made by parties involved in trademark litigation.

K&N Engineering designs, manufactures, and distributes aftermarket automotive air filters and related products. The company’s stylized logo, which is the basis for two of K&N’s registered trademarks, appears on decals included with many of K&N’s products. K&N also separately distributes such decals to enthusiasts through an internet promotion. K&N became aware that Bulat was selling unauthorized decals bearing the K&N logo on eBay. K&N filed suit in federal court alleging trademark infringement, counterfeiting, and dilution, as well as related state-law claims. In addition, K&N sought statutory damages under 15 U.S.C. § 1117(c). The district court granted K&N’s motion for summary judgment and awarded $20,000.00 in statutory damages and $100,000.00 in attorney’s fees. Bulat appealed and argued, inter alia, that K&N’s election to receive statutory damages under 15 U.S.C. § 1117(c) precluded an award of attorney’s fees.

The Ninth Circuit agreed. The court concluded that section 1117 as a whole “lays out an integrated scheme for plaintiffs in trademark infringement actions to recover damages and attorney’s fees.” Fees are available under section 1117(a) only in “exceptional cases,” where the court finds that the defendant acted maliciously, fraudulently, deliberately, or willfully. Section 1117(b), in contrast, provides for treble damages plus attorney’s fees in every case involving counterfeiting, absent extenuating circumstances. A plaintiff may also choose to forego actual damages and seek statutory damages under section 1117(c), which makes no provision for attorney’s fees. The court held that by electing to recover statutory damages, K&N gave up any right to seek an award of attorney’s fees because there was no statutory basis for making such an award.

Full opinion text: http://www.ca9.uscourts.gov/ca9/newopinions.nsf/B738956BCCBADFC7882573B4008114C6/$file/0655393.pdf?openelement

A recent decision from the Ninth Circuit clarifies the circumstances under which a company may be held liable for contributory copyright infringement. In Perfect 10, Inc. v. Amazon.com, Inc., 2007 WL 4225819 (9th Cir. 2007), Perfect 10, a website selling copyrighted images of nude celebrities, sued Google and other entities for copyright infringement. Perfect 10 alleged, among other claims, that Google should be held secondarily liable for copyright infringement by other websites that display Perfect 10’s copyrighted images.

Google’s search functionality allows Internet users to search for images based on textual search strings and to then view search results in the form of scaled-down images (“thumbnails”). The user can select an image by clicking on it, at which point Google transfers the user to a page divided into two parts, or frames. The top frame displays a thumbnail as it is stored on Google’s servers. The court concluded that such storage falls within the Copyright Act’s definition of Fair Use. The bottom frame, however, displays Perfect 10’s copyrighted images exactly as they appear on third-party websites that have infringed Perfect 10’s copyright by illegally displaying the images. Google did not dispute that such display by third-party websites constituted copyright infringement.

The court began its analysis with several underlying rules regarding secondary copyright infringement. Initially, contributory liability for copyright infringement may be predicated on:

1. Actively encouraging (or inducing) infringement through specific acts, or
2. Distributing a product distributees use to infringe copyrights, if the product is not capable of substantial non-infringing uses.

The court concluded that Google could be liable under the first prong. Noting that an element of intent is required for contributory infringement and that tort law imputes to a tortfeasor the intention to cause the natural and probable consequences of his conduct, the court reasoned that an actor may be contributorily liable for intentionally encouraging direct infringement if the actor knowingly takes steps that are substantially certain to result in direct infringement.

The court reasoned that a computer system operator can be held contributorily liable if it has actual knowledge that specific infringing material is available using its system and can take simple measures to prevent further damage to copyrighted works, yet continues to provide access to infringing works. The court then ruled that Google could be contributorily liable if it had knowledge that infringing Perfect 10 images were available using its search engine and it could have, but did not, take simple measures to prevent future damage to Perfect 10’s copyrighted content.

That Google’s search engine is also useful for searching and displaying noninfringing content did not sufficiently detract from the effect its world-wide service has on copyrighted and infringing content. The court remanded the issue of Google’s knowledge of the infringing content back to the district court for factual determinations.

If your business is in any way connected to potentially infringing activity, it is important to consider the legal ramifications of your connection to the activities at issue. Knowledge of infringing activity may be a basis for liability if your business had the opportunity to remedy or prevent the infringing conduct but failed to take action.

View the full opinion here.

Businesses located outside New York that retain attorneys in the state to perform legal services should review a recent decision from the New York Court of Appeals establishing that having an attorney-client relationship with a New York attorney can subject the business to personal jurisdiction in a New York court. This result can occur even if the attorney does not represent the company in a New York court and the company never actually sends any of its representatives to New York. The state’s highest court ruled in Fischbarg v. Doucet, 2007 WL 4438979 (N.Y. 2007), by establishing a continuing attorney-client relationship with a New York attorney, a business necessarily purposefully avails itself of the benefits and protections of New York’s laws and is subject to jurisdiction in that state.

Doucet, a California resident, placed a call to Fischbarg, a New York attorney, to discuss a potential copyright-infringement lawsuit Doucet was interested in filing against an Oregon corporation. Doucet then sent a letter to Fischbarg confirming that he had agreed to take on the case for a one-third contingency fee. Along with the letter, Doucet sent Fischbarg documents related to the potential litigation. Doucet then entered into a retainer agreement with Fischbarg via telephone. The Oregon company beat Doucet to the punch, filing suit against her and her business in the federal district court in Oregon. Fischbarg represented Doucet in that litigation, although he never actually appeared in court or otherwise travelled to Oregon. Instead, Fischbarg appeared at depositions and hearings via telephone from New York. Doucet repeatedly communicated with Fischbarg via e-mail, fax, and telephone, though she never went to New York.

The relationship between Doucet and Fischbarg soured, and Fischbarg resigned as Doucet’s attorney. Fischbarg then asked the Oregon federal court for an order awarding him fees for services rendered prior to his resignation, but the court denied the motion, concluding that it lacked personal and subject matter jurisdiction over the fee dispute. After the Oregon litigation was settled, Fischbarg filed suit against Doucet in New York state court seeking damages for unjust enrichment and breach of contract. Both the trial court and the appellate division ruled that the New York courts had jurisdiction over Doucet.

The Court of Appeals also held that the New York courts properly exercised jurisdiction over Doucet. The court rejected Doucet’s contention that because she never physically set foot in New York, she had not purposefully availed herself of the state’s protections and laws. Under New York law, jurisdiction is proper even though the defendant never enters the state as long as “the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted.” While limited contacts may not be sufficient to establish jurisdiction, this case involved Doucet’s “purposeful attempt to establish an attorney-client relationship via calls, faxes, and e-mails” that were protected into the state over many months. The court focused on the quality of Doucet’s contacts with New York, noting in particular that the regular communications between Doucet and Fischbarg involved the creation of a continuing relationship with a New York attorney. By doing so, Doucet projected herself “into our state’s legal services market . . . invoking the benefits and protections of our laws relating to the attorney-client relationship.” The court held that this ongoing, substantial professional relationship was sufficient to support long-arm jurisdiction. Businesses contemplating hiring attorneys in New York should therefore be aware that they may be haled into court in New York should an issue arise.

Business with pending Texas litigation should be aware of a recent decision by the Texas Supreme Court clarifying when a trial court loses plenary power to order a new trial. In In re Brookshire Grocery Company,2008 WL 53702 (Tex. 2008), the court held that an amended motion for new trial does not extend a trial court’s plenary power to grant a new trial unless it has been filed before any prior motion for new trial was overruled and it is filed within 30 days of judgment. In its 5 to 4 decision, the court rejected the contention that meeting either of those conditions was sufficient to extend the trial court’s plenary power.

The issue arose in a tort action filed by Goss against Brookshire where the jury returned a verdict in favor of Goss. Before the judgment was signed, Brookshire filed a motion for judgment notwithstanding the verdict that also requested a new trial in the alternative. The trial court signed the judgment on December 9, 2004 and on December 10, 2004, the trial court entered an order denying the motion. Twenty-nine days after the judgment was signed, Brookshire filed a second motion for new trial that again argued that the court’s charge was erroneous and that there was insufficient evidence to support the verdict. The lower court granted the motion on February 1, 2005 despite Goss’s contention that the trial court’s plenary power had expired. Goss filed a petition for writ of mandamus in the court of appeals, and the court of appeals ordered the trial court to vacate its order. Brookshire then sought mandamus relief in the Supreme Court, asking to have the order granting a new trial reinstated.

The Supreme Court held that the trial court did not have plenary jurisdiction to grant the motion for new trial. Under Texas Rule of Civil Procedure 329b, a motion for new trial must be filed within 30 days after the judgment is signed. Amended motions may be filed without leave of court if they are filed (1) before any prior motion has been overruled and (2) within 30 days after the judgment was signed. A trial court’s plenary power to grant a new trial expires 30 days after all timely-filed motions for new trial are overruled. In this case, the court had to determine whether Brookshire’s second motion for new trial, which was filed within 30 days of judgment but after a prior motion had been overruled, was timely-filed for purposes of extending the trial court’s plenary power.

The court concluded that the only timely- filed motion for purposes of the rule was Brookshire’s first motion for new trial, meaning the trial court’s plenary power expired on January 10, 2005, 30 days after the court overruled that first motion. In reaching this determination, the court interpreted Rule 329b(b) to provide that amended motions may be filed when two conditions are met – no preceding motions have been overruled and it is within 30 days of judgment. A motion that does not meet both conditions need not be considered by the trial court and, more importantly, does not extend the trial court’s plenary power. Even if the trial court granted leave to file an amended motion, the trial court’s plenary power cannot be extended unless both conditions are met.

Full Opinion Text: http://www.supreme.courts.state.tx.us/historical/2008/jan/050300.htm

The American copyright registration system, currently an entirely paper-based operation, is on the verge of going electronic, and Scott & Scott, LLP has been selected to be part of that revolution. The United States Copyright Office is testing a new on-line web-based copyright registration system. Called “eCO,” for “electronic Copyright Office,” the system is currently in beta testing on the Copyright Office’s website. As a participant in the beta-testing program, Scott & Scott, LLP will be able to register copyrights electronically for a reduced fee of $35 for electronic filings.

The system may only be used for basic registration claims for literary works, visual arts works, performing arts works, and sound recordings. The system will allow registrants to submit applications, deposit copies, and fees electronically. According to the notice published by the Copyright Office, “in addition to reducing processing time lags and operational costs in the long term, eCO will provide for a streamlined application experience for users.” The Copyright Office intends, at a later date, to expand the system to cover additional registration claim types and services. According to the website, the expanded system will cover “serials, group registrations, vessel hull designs, mask works, renewals, and corrections and amplifications of existing registrations.”

Scott & Scott LLP, already a leader in protecting its clients’ intellectual property assets, intends to offer on-line registration as part of its intellectual property services. The system will allow the firm to register copyrights more quickly and efficiently, saving clients both time and money.

The eCO system may be accessed at the following website: http://www.copyright.gov/eco/beta-announce.html

The FTC recently announced its first settlement regarding FACTA document disposal rule, 16 C.F.R. 682, which requires any company collecting consumer information for a business purpose to dispose of that information in a way that prevents unauthorized access and misuse of the data.

American United Mortgage Company agreed to pay a $50,000 penalty in response to the FTC’s accusations that it failed to do the following:

1. Implement reasonable policies and procedures requiring the proper disposal of consumers’ personal information, including consumer reports;
2. Take reasonable actions in disposing of such information;
3. Identify reasonably foreseeable internal and external risks to consumer information;
4. Develop, implement, or maintain a comprehensive written information security program; and
5. Provide its customers a privacy notice describing its information collection and sharing practices with respect to affiliated and non-affiliated third parties, as required by the FTC’s Privacy Rule.

The complaint alleged that American United collected personal information about consumers, including Social Security numbers, bank and credit card account numbers, income and credit histories, and consumer reports and that American United failed to dispose of the personal information in accordance with the FACTA provisions regulating document disposal. American United documents containing consumers’ personal information were found in and around a dumpster near its office that was unsecured and easily accessible to the public. Many such documents, some in open trash bags, were found in February 2006.

In addition to the $50,000 payment, the settlement requires American United to obtain an independent, third-party audit to ensure that its security program meets the standards of the order. The audit must be completed every two years for the next 10 years. The settlement also enjoins American United from any further FACTA violations.

If your business collects sensitive consumer information, you should seek counsel for advice regarding FACTA and its state counterparts. FACTA violations could lead to unnecessary expense of time and resources. Properly preparing your business could help prevent subsequent losses.

View the FTC Press Release here.

View the complaint here.

View the FACTA Disposal rule here.

The BSA and SIIA are not the only organizations pursuing business for software copyright infringement. Though it is a member of both the BSA and SIIA, Autodesk, which manufactures the popular design software AutoCAD, often pursues audit targets on its own.

The audits begin much like those instituted by the BSA or SIIA. The target of Autodesk’s audit will receive a letter from a law firm representing Autodesk demanding the business’ cooperation in disclosing the number Autodesk installations on its network and the number of Autodesk licenses it owns, including serial numbers. The law firm will assert it has received information that indicates the business may have more installations of Autodesk software than it is licensed to use. The letter will go on to describe the various penalties associated with copyright infringement and it may threaten the business with civil litigation.

Targets who receive such letters should treat the matter very seriously. It is important to know your legal rights and protect your legal position before responding to a request for information from a software publisher who is trying to conduct an audit. Additionally, many companies who prepare their own responses to Autodesk without the benefit of counsel and before conducting a thorough investigation often receive an unexpectedly high settlement offer from Autodesk.

In many cases, Autodesk demands a settlement payment calculated as the MSRP of the allegedly unauthorized products installed on the business’ network multiplied by three. The multiplier, Autodesk argues, is the penalty for using unauthorized software and is assessed in lieu of proceeding with formal judicial resolution. The use of multipliers as an approximation of damages is a hotly contested issue.

When responding to Autodesk audit requests, companies should work with experienced counsel to thoroughly investigate the software usage on their computers, protect themselves by requesting agreement from Autodesk regarding the use of the materials that will be produced in the audit, and negotiate a resolution geared toward ensuring future compliance.

A trademark is the most valuable asset owned by many businesses. The design, features, source code, or formulation of a product or service may change regularly and even predictably. Without a concise representation of the source, history or reputation of that product or service, such changes would make it immeasurably difficult, if not impossible, for a business to maintain demand. Businesses with particularly successful products or services spend considerable amounts of time, effort and money establishing and protecting their associated trademarks, and for good reason. Business owners who fail to pay sufficient attention to the protection of their companies’ marks face a number of what should be unacceptable risks, including the inability to register or use those marks at a future date, the dilution of the market’s recognition of their products or services, and, in some cases, legal fees and penalties arising from trademark claims made against them by other businesses. It is therefore important for all business owners to have an understanding of several basic principles of trademark law, including registration with the U.S. Patent & Trademark Office (USPTO), what constitutes improper use, and what remedies are available for infringement.

A trademark, or “mark,” is any word, phrase or symbol used by a business to let potential customers know who makes a certain product or who offers a certain service. (There is an increasingly archaic distinction made for marks that specifically designate services rather than products. Such marks are often labeled “service marks,” but this term is less frequently used today, and there is no meaningful distinction in the U.S. between the law’s treatment of marks for products and marks for services.)

In the U.S., a business may register its lawfully owned or used marks by submitting an application to the USPTO. Registration is not free: there is an application fee, and many businesses would benefit from the services of a knowledgeable trademark attorney in securing the registration and monitoring the use of any registered marks. In addition, in order for the registration to remain valid, a mark’s owner must file an affidavit of continuing use during the fifth year of registration and must submit a fee and application for renewal prior to the statutory expiration of the registration, which occurs at the end of ten years following registration or prior renewal.

However, for most businesses the benefits of registration far exceed the costs. Owners of unregistered marks are not wholly without recourse in the event of perceived infringement, but their options are significantly limited. Most importantly, owners of registered marks have the ability to file lawsuits in federal court for trademark infringement under the Lanham Act, the U.S. federal law pertaining to trademark protection. Owners of unregistered marks also may resort to federal litigation, but they typically face more difficult burdens of proof and less extensive remedies for proven infringement (e.g., treble damages are available only for infringement of registered marks). In addition, a valid certificate of registration from the USPTO carries with it a number of important evidentiary advantages, including: a presumption that the registered mark is valid, a presumption that the owner of the registration owns the mark, a presumption that the owner of the registration has the exclusive right to use the mark in commerce, and a presumption that the mark is not confusingly similar to any other registered mark. For all of these and several other important reasons (some of which are described here), a business owner with an existing, unregistered mark or a mark intended for future use should not hesitate to speak with an attorney regarding registration.

In the latest chapter of the ongoing Qualcomm litigation, a federal judge has levied more than $8 million dollars in sanctions and referred attorney’s representing Qualcomm to the State Bar of California for e-discovery abuses. The sanctions are the culmination of a discovery dispute where, according to the court, counsel for Qualcomm tried to fend off allegations of noncompliance with the discovery rules by claiming that the client kept counsel “in the dark” about the existence of more than 200,000 pages of critical e-mails and electronic documents that were not produced in discovery.

The issues arose in a lawsuit between Qualcomm and Broadcom over sever patents dealing with the transmission of video data under the H.264 standard. In its August 6, 2007 decision, the United States District Court for the Southern District of California held that both of Qualcomm’s patents were unenforceable due to waiver based on Qualcomm’s conduct before the Joint Video Team (“JVT”), the standards-setting body that created the H.264 video standard. According to the court, the waiver issue turned on information about Qualcomm’s participation with the JVT that Qualcomm had originally not disclosed. The court found that Qualcomm had concealed “over two hundred thousand pages of emails and electronic documents that were finally produced four months after trial containing direct evidence that multiple representatives of Qualcomm participated in the JVT from the beginning, and that multiple Qualcomm witnesses knew of this participation even as they testified to the contrary at deposition and trial.”

The court issued an order to show cause regarding why sanctions should not be imposed against Qualcomm’s attorneys. After receiving submissions and hearing argument, the court granted in part and denied in part Broadcom’s motion for sanctions against Qualcomm. In its order, the court concluded “that Qualcomm intentionally withheld tens of thousands of decisive documents from its opponents in an effort to win this case and gain a strategy business advantage over Broadcom.” With respect to Qualcomm’s lawyers, the court stated that “Qualcomm could not have achieved this goal without some type of assistance or deliberate ignorance from its retained attorneys. Accordingly, the Court concludes it must sanction both Qualcomm and some of its retained attorneys.”

The court rejected the notion that the experienced attorneys representing Qualcomm were entirely misled by Qualcomm’s attempts to hide documents and were therefore not culpable. “It is inconceivable that these talented, well-educated, and experienced lawyers failed to discover through their interactions with Qualcomm any facts or issues that caused (or should have caused) them to question the sufficiency of Qualcomm’s document search and production.” In concluding that the lawyers bore some responsibility, the court found that in all likelihood, “one or more of the retained lawyers chose not to look in the correct locations for the correct documents, to accept the unsubstantiated assurances of an important client that its search and production were inadequate, not to press Qualcomm employees for the truth, and/or to encourage employees to provide the information (or lack of information) that Qualcomm needed to assert its non-participation argument and to succeed in this lawsuit.”

The court specifically identified the lawyers it held responsible and declined to sanction others who did not significantly participate in the discovery violations or acted reasonably. The court imposed $8,568,633.24 in sanctions against Qualcomm referred the sanctioned attorneys to the State Bar of California “for an appropriate investigation and possible imposition of sanctions.” The sanctioned attorneys were ordered to forward a copy of the court’s order to the state bar and directed them to participate in a comprehensive “Case Review and Enforcement of Discovery Obligations” program.

The saga of the Qualcomm case highlights the need for counsel to investigate the existence of responsive electronic information and not accept at face value a client’s representations regarding what is and is not available.

Citation: Qualcomm, Inc. v. Broadcom Corporation, No. 05-CV-1958-B(BLM), 2008 WL 66932 (S.D. Cal. Jan. 7, 2008).

Website owners may spend countless hours getting their content just right and then leave themselves vulnerable to having that content used by others without authorization. A business or individual that wants to protect the substantial investment made in a website should consider spending a little money to gain a lot of protection by having the website copyrighted. The benefits of registration far out way the minimal cost.

The federal courts have given computer programs the same copyright status as literary works. And copyright law recognizes that the contents of a website may be copyrighted. According to the Copyright Office, “the original authorship appearing on a website may be protected by copyright. This includes writings, artwork, photographs, and other forms of authorship protected by copyright.” In addition to registering the text of your website, you should consider registering the copyrights for individual images if you own them.

Perhaps the most important reason for promptly copyrighting your website is that a copyright registration may allow you to recover statutory damages and attorneys. But this must be done quickly. When you register your website within three months after publishing it or before an infringement occurs, you can seek both statutory damages and attorney's fees in lawsuit against an infringer. If the website has not been timely registered, you will be limited to recovering any actual damages that you could establish as well as a portion of the infringer’s profits that were proved to derive from the infringement. It is often very difficult, if not impossible, for a copyright owner to prove actual damages. If you have registered your website, however, you would be entitled to damages set by statute, ranging from $750 to $30,000 as determined by the court, even where you are unable to prove actual damages. And if you can demonstrate that the infringement was willful, a court may award up to $150,000 in statutory damages for each violation.

Prompt registration also makes you eligible to recover attorney’s fees in an infringement lawsuit. You cannot recover attorney’s fees for a copyright infringement unless you registered your website within three months of first publication. Given the potential costs of litigation, making the infringer pay for the lawsuit can be very significant.

If you want to sue someone for infringing on the contents of your website, a failure to have registered will, at the very least, delay the process. Because having a registered copyright is a prerequisite to filing suit in federal court, you would have to wait until a registration certificate had issued before filing suit. Given the current workload at the Copyright office, it would in all likelihood take four months or more after your application is filed because a Certificate of Registration was issued and you could proceed to federal court.

Registration also definitively establishes the fact of the copyright on the public record. In addition, if you register your work within five years of its publication, it is considered to be prima facie evidence in court establishing (1) the validity of your website copyright and (2) the facts as stated in your Certificate of Registration issued by the Copyright Office.

Registration may also be beneficial if you’re hoping to avoid litigation. When an infringement is discovered, the usual procedure is to send a “cease and desist” letter identifying the infringement and demanding that the infringer stop using your content. If you can include the fact of a federal copyright registration in that letter, along with a notice that the infringement may result in an award of statutory damages and attorney’s fees, it is far more likely that the “cease and desist” letter will convince the infringer to stop using your content before it becomes necessary to file suit.

If the content of your website changes regularly, you should establish a procedure for regularly registering the website. Because registration for a published work is retroactive to the publication date if the application is filed within three months after the work is first published, the most complete protection can be obtained by register a copyright at least once every three months.

It should be noted that a domain name is not protected by copyright law. The Internet Corporation for Assigned Names and Numbers (ICANN), a nonprofit organization that has assumed the responsibility for domain name system management, administers the assignation of domain names through accredited registers.

A trademark is the most valuable asset owned by many businesses. The design, features, source code, or formulation of a product or service may change regularly and even predictably. Without a concise representation of the source, history or reputation of that product or service – as distilled to the mark used to brand it – such changes would make it immeasurably difficult, if not impossible, for a business to maintain demand. Businesses with particularly successful products or services spend considerable amounts of time, effort and money establishing and protecting their associated trademarks, and for good reason. Business owners who fail to pay sufficient attention to the protection of their companies’ marks face a number of what should be unacceptable risks, including the inability to register or use those marks at a future date, the dilution of the market’s recognition of their products or services, and, in some cases, legal fees and penalties arising from trademark claims made against them by other businesses. It is therefore important for all business owners to have an understanding of several basic principles of trademark law, including registration with the U.S. Patent & Trademark Office (USPTO), what constitutes improper use, and what remedies are available for infringement.

After an application for trademark registration is filed, it is assigned to an examining attorney at the USPTO for review. That examining attorney is under an obligation to approve the mark for registration on the USPTO’s “principal register” of trademarks unless it meets one of several disqualifying criteria. For many businesses, most of these criteria are not usually difficult to avoid, including the following:

- The mark “consists of or comprises immoral, deceptive, or scandalous matter.”
- The mark disparages, brings into contempt or disrepute, or falsely suggests a connection with other persons, institutions, beliefs or national symbols.
- Consists of or comprising the name, portrait or signature of a living person without that person’s consent or of any deceased U.S. President during the life and without the consent of that President’s spouse.

However, other criteria can present more of a challenge. These include the following requirements:

-The proposed mark must not be so similar to an already-registered mark that it would cause confusion, mistake or deception as to the origin of the product or service associated with the proposed mark.
- The proposed mark must not be “merely descriptive or deceptively misdescriptive” of the product or service with which it is associated.
- The proposed mark must not be “primarily merely a surname.”

A search of the USPTO’s records can yield a surprising number of existing and pending trademarks that may be similar to a mark a business wants to register and protect. In addition, it is not uncommon for a business to want to register a mark that either is in whole or that contains elements descriptive of associated products or services. While many such descriptive marks may not be eligible for registration on the principal register, if, through a business’ continuous and exclusive use, those marks have acquired “secondary meaning” and become distinctive of the business’ goods or services, a business may be able to secure registration with sufficient supporting documentation. In these cases especially, a knowledgeable trademark attorney can provide valuable assistance to help reduce the risk of delay or denial in applying for registration.