Business and Technology Law

Following the lead of the federal courts, the California Judicial Council has proposed a set of amendments to the Code of Civil Procedure intended to deal with electronic discovery in California state courts. The proposal includes amendments to the Civil Discovery Act (Code of Civil Procedure § 2016.010 et seq.), the addition of two new sections to the Code of Civil Procedure, and amending two case management rules in the California Rules of Court. In putting forward the proposal, the Counsel noted that the federal rules and the ABA Civil Discovery Standards have been revised to take electronic discovery into account and recognized that similar uniform standards were needed in California state courts.

The proposed amendments include a broad definition of what constitutes electronic information for purposes of discovery, referencing information stored in an electronic medium that is related to technology having “electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.” “Electronically stored information” would be defined as “information that is stored in an electronic medium.”

CCP 2031.010 would be amended to specifically state that a party may obtain discovery of “electronically stored information,” provide for “copying, testing, or sampling” of that information in addition to the right to inspect. The proposal does not alter the time frames for discovery. CCP 2031.030 would be amendment to include a provision that the party seeking discovery “may specify the form in which each type of electronically stored information is to be produced.”

Unlike the federal rules, where a party seeking information must move to compel production of information that is purportedly inaccessible, the California proposal would require a party seeking to avoid production to move for a protective order on the grounds that the information is inaccessible or production would be unreasonably burdensome. Even if such a showing is made, the court may still order production “if the requesting party shows good cause.” If such good cause is shown, the court may make appropriate allocation of the expenses associated with the production.

The proposed amendments would also include a safe harbor provision for information that has been “lost, damaged, altered, or overwritten” due to the routine and good faith operation of an electronic information system. The amendment would prohibit the imposition of sanctions in such a situation “absent exceptional circumstances.”

A “meet and confer” requirement would also be added that applies whenever any party informs any other party in writing that discovery of electronically stored information is reasonably likely to be sought.

The Judicial Council’s proposal and its invitation to comment may be viewed here:
http://www.courtinfo.ca.gov/invitationstocomment/documents/w08-01.pdf

A recent opinion from the U.S. Court of Federal Claims highlights some of the difficulties that creative professionals may face when pursuing claims of copyright infringement against the federal government. Admittedly, though, it is doubtful that most such claimants would find themselves in the situation of pursuing such claims from a jail cell.

Robert James Walton v. The United States (opinion released January 23, 2008) involved the case of an individual (Walton) who, while serving a 17.5 years sentence at the U.S. Penitentiary at Leavenworth, Kansas, following his conviction on charges of bank robbery, performed professional graphic design services in the creation of several calendars under work detail for the federal government. (Prior to his incarceration, Walton received substantial graphic design training and had taught classes on the subject.) Following the creation of the calendars, Walton voiced concerns to prison officials regarding what he believed to be the government’s misappropriation of what he claimed to be his intellectual property rights in the calendars he created. Perhaps predictably, prison officials dismissed Walton’s concerns and informed him that all rights in the calendars belonged to the government (specifically, to UNICOR/Federal Prison Industries, Inc. (FPI), the non-appropriated fund instrumentality in charge of the work detail to which Walton was assigned). In response, Walton eventually filed suit against the federal government, alleging that FPI and the General Services Administration (GSA) infringed his copyrights in the calendars. Following several venue transfers as well as a stay to give the U.S. Copyright Office time to make a decision with regard to Walton’s application for registration of his copyrights, Federal Claims Court heard the U.S. government’s motion to dismiss and for summary judgment.

The government’s motion sought dismissal of Walton’s claims on essentially two grounds: (1) dismissal based on the court’s alleged lack of subject matter jurisdiction, because Walton’s failed to register his copyrights prior to filing suit; and (2) dismissal for Walton’s alleged failure to state a claim upon which relief can be granted, because Walton allegedly was an employee of the FPI and/or the federal government when he created the calendars.

The court did not grant the relief sought by the government for any of the reasons advanced in the government’s motion. With respect to the jurisdictional issue, the court held that Walton’s amended complaint, which Walton filed after he registered his copyrights in the calendars and while the alleged infringing activity was ongoing, served “…as a de facto supplemental complaint…analogous to a separate complaint distinct from the initial, November 21, 2001 complaint.” Thus, that jurisdictional issue could not serve as a basis for dismissal.

However, the court sua sponte raised a separate jurisdictional issue based on a statutory proviso to the federal government’s waiver of sovereign immunity in copyright infringement cases. 28 U.S.C. § 1498(b) reads as follows:

[W]henever the copyright in any work protected under the copyright laws of the United States shall be infringed by the United States, ... the exclusive action which may be brought for such infringement shall be an action by the copyright owner against the United States in the Court of Federal Claims ...: Provided, however, That this subsection shall not confer a right of action on any copyright owner ... with respect to any copyrighted work prepared by a person while in the employment or service of the United States, where the copyrighted work was prepared as a part of the official functions of the employee, or in the preparation of which Government time, material, or facilities were used....

The court first held that everything after the word “Provided” in the above passage is jurisdictional in nature, and thus constitutes matters that a plaintiff must prove (or disprove) in order for copyright claims against the government to move forward. The court then addressed the substance of the proviso and Walton’s relationship with the federal government, and noted the “absurdity” of trying to apply traditional, common-law agency factors to determine whether a prison inmate is an “employee” of the government (thereby effectively denying the other basis of the government’s motion, though the rest of the court’s opinion rendered moot both of the issues raised by the government). However, the court went on to hold that, at the time he created the calendars, Walton was “in the…service of the United States…” and that in the preparation of the copyright works, “…Government time, material, [and] facilities were used…” Because of this, and in light of the court’s prior holding regarding the nature of the proviso, the court found that it lacked subject matter jurisdiction over Walton’s claims, which it therefore had no alternative but to dismiss.

Most individuals or businesses performing creative work for the federal government will never find themselves in the sort of situation that Mr. Walton faced. However, the Walton opinion serves as a reminder of certain protections that you can take to ensure that you will retain rights in the works that you create. First, it is important to make explicit in a written agreement with the government that all works under the agreement are to be created in the individual’s or business’ status as an independent contractor of the government and also that those works are not “works for hire,” in which the government would hold the copyright. Second, to the extent possible, it is advisable to avoid using any government resources in the creation of the works, because the Walton analysis seems to make clear that a person working “in the…service of the United States” still may bring a claim for copyright infringement as long as he or she did not use “…Government time, material, or facilities…” in the creation of the works. Finally, as is true for any creative work, it is always very important to register that work as soon as possible following its creation, in order to avoid any potential jurisdictional problems.

Washington Attorney General Rob McKenna filed a lawsuit against three California-based Internet affiliate advertisers in February, 2007 under that state’s Computer Spyware Act and Consumer Protection Act. One of the defendants settled in October. HoanVinh V. Nguyenphuoc, owner of FixWinReg, allegedly sent anonymous “Net Send” messages to consumers’ computers that simulated security warnings but were actually ads for registry-cleaner software.

The messages gave the computer users phony warnings regarding registry errors in the computer and informed the users that they needed to take immediate action to avoid data loss and corruption. The warnings encouraged users to proceed to a web site where they could download a free trial version of software that would scan the computer for registry errors. The software consistently identified ‘critical errors,’ and consumers were directed to buy the full version of the software to remove the errors.

The Washington Attorney General brought five lawsuits under the state’s Spyware Act. Under the terms of the settlement agreement Nguyenphoc agreed to pay attorneys’ fees in the amount of $25,000. If he fails to comply with any of the settlement terms, Nguyenphoc will be liable for an additional $75,000.

Texas Attorney General Greg Abbot brought similar claims against Sony BMG and the parties reached a settlement on December 26, 2006. The complaint, the first filed under Texas’ Consumer Protection Against Computer Spyware Act of 2005, alleged that Sony BMG surreptitiously installed spyware on compact music discs (CDs) that consumers inserted into their computers to play. The spyware had the ability to compromise the consumers’ computers.

Sony BMG settled with Texas one year after the suit was filed. Sony was required to publish claim forms on its Web site allowing consumers seeking restitution to receive up to $175 each to compensate them for the costs of repairing computers damaged by Sony BMG products. Even consumers without proof of out-of-pocket expenses were still eligible for $25. The settlement agreement also provided for other incentives for consumers damaged by Sony BMG’s products. Sony BMG also agreed not to manufacture or distribute CDs with DRM or other similar software, and that any existing CDs that contain DRM software must have a conspicuous warning alerting the consumer to the software allowing the user to decline the installation of any software.

If your business uses DRM software, you should seek counsel with the ability to advise you regarding your rights and responsibilities. Failure to comply with state consumer protection laws could lead to unnecessary and costly liability.

View the Texas petition here.

View the Texas settlement agreement here.
View the Washington complaint here.

View the Washington settlement here.

The Texas Supreme Court has recently issued a decision requiring appellate courts to liberally construe attempts by litigants to invoke appellate jurisdiction. Unlike the federal courts, which generally take a strict approach to jurisdictional issues, Texas companies and litigants should be aware that in the wake of Warwick Towers Council of Co-Owners v. Park Warwick, L.P. 2008 WL 204504 (Tex. 2008), appellate jurisdiction can be invoked even when there are errors or imperfections in the notice of appeal or related documents.

The dispute in this case arose out of a flood. The Warwick Towers, a condominium project, is located across the street from the Warwick Hotel in Houston. The hotel has a flood barrier system designed to prevent rainwater from entering the hotel’s basement. The condominium owners contended that during a severe storm in 2001, the hotel failed to use its flood barrier system, allowing rainwater to invade the condominium’s basement through an underground tunnel. The condominium’s insurer, St. Paul Fire & Marine, paid approximately $1 million as a result of the water damage. The condominium owners sued the hotel, alleging claims for negligence, nuisance, and trespass, and St. Paul asserted its subrogation rights in the lawsuit. The trial court granted summary judgment in favor of the hotel, dismissing the nuisance, trespass, and subrogation claims.

After the condominium owners settled the negligence claim, St. Paul filed a notice of appeal in its insured’s name. The notice did not mention St. Paul by name, but in the docketing statement filed pursuant to Texas Rule of Appellate Procedure 32.1 on the same day as the notice of appeal, the appellant was identified as ‘Warwick Towers Council of Co-Owners by and through St. Paul Fire & Marine Insurance Company.” All other appellate documents filed in the case were similarly styled. After the case was briefed and argued, the Court of Appeals issued an opinion holding that the merits of the appeal were immaterial because St. Paul had not named itself as the appellant in the notice of appeal.

The Supreme Court disagreed. According to the court, under Texas law, “the factor which determines whether jurisdiction has been conferred on the appellate court is not the form or substance of the bond, certificate, or affidavit, but whether the instrument was filed in a bona fide attempt to invoke appellate court jurisdiction.” An appellate court must also allow a party to amend or refile an instrument when the appellant has timely filed a document in a bona fide attempt to invoke appellate jurisdiction. By timely filing a notice of appeal in the name of its insured and by identifying its interest in the docketing statement, “St. Paul made a bona fide attempt to appeal . . ..” The court of appeals erred when it did not allow St. Paul an opportunity to amend the notice of appeal and not reaching the merits of the case.

In many software audits, the auditing entity like the Business Software Alliance or the Software & Information Industry Association requires a dated proof of purchase to demonstrate when a license for a software product was acquired. However, in audits initiated by Autodesk, the serial number can play a crucial role in demonstrating ownership.

Autodesk products are typically upgraded frequently and Autodesk usually issues a new, unique serial number with each purchase. When responding to an Autodesk audit, the business that owns Autodesk products may elect to provide the serial numbers in lieu of the invoices. It is important to provide serial numbers for the versions of the products that are installed and in use as of the date of Autodesk’s letter. For instance, if a company upgraded a copy of AutoCAD ® 2000i to AutoCAD ® 2004, the company should not provide both serial numbers to Autodesk in response to the audit request.

It is also important to realize that Autodesk licenses are generally non-transferrable without Autodesk’s written permission. If an audited company is planning to produce a serial number for a product that was not obtained from an authorized Autodesk reseller, there is a strong likelihood that the company will not get credit for the license.

If you have been audited by Autodesk, please seek advice from experienced counsel before responding. For more information, please visit www.scottandscottllp.com.

Companies are often confronted with the question of whether they should register a trademark or service mark with the United States Patent and Trademark Office or simply register their mark with a state. State registration is usually less expensive, but state law also provides less protection to a mark.

Under the Lanham Act, a person who obtains a federal registration that predates another person’s use of the same (or a confusingly similar) mark has superior rights to use the registered mark throughout the United States. This is true regardless of whether the person has been granted a state registration or was the first person to use the mark in the state. When there is a conflict between a federal registration and a state registration, thanks to the Supremacy Clause, the federal registration usually wins. For instance, a prior federal mark takes priority over a subsequently registered, or “junior,” state mark. Under trademark law, a federal registrant has a nationwide right to a mark if they have a federal registration and show a likelihood of entry into an area where a local junior user exists. The junior user may continue to use the mark in the state for as long as the federal registrant remains outside the market area. But once the federal registrant shows a likelihood of entry, the junior user must cease use of the mark. A federal registration is constructive notice that the registrant has the right to use the mark throughout the entire country (even if the registrant is not using it in a specific geographic area) and can prevent others from using the same or similar mark anywhere in the U.S.

An exception to this exists when the state mark was registered prior to the federal registration. If the state mark was in use before the date of first use of the federally registered mark, the prior state user may have some rights to use the mark, but those rights would be limited to a certain geographical area, usually the state where the mark has been registered and used. A state registration may also be helpful as a means of establishing prior use of a mark. State registrations can serve as evidence for a prior user to help establish rights to the mark in those states where such a registration was obtained.

Businesses often make the mistake of assuming that once they acquire a federally registered trademark, they are protected. But having a federally registered trademark does not automatically protect the mark. The use of a trademark has to be “policed” – that is, the trademark owner is obligated to locate and investigate unauthorized uses of the mark. By not doing so, the owner risks losing the mark altogether.

Trademark law places the burden of policing a mark on the owner. While a trademark owner need not pursue every infringing use of its trademark, the owner must pursue infringers to the extent necessary to ensure that the mark does not lose its distinctiveness and does not become diluted by widespread use. From a business standpoint, widespread use of the same or similar marks adversely affects the perception of consumers. When consumers lose the sense that certain goods or services connected with a mark all come from the same source, the mark can become generic or be considered to have been abandoned.

It is important to police a mark to avoid losing the protection given under the law. “If a ‘trademark’ symbol is used as a generic name of a product or service, it ceases to function to identify a single source of that generic thing . . . . Sometimes a mark becomes abandoned to generic usage as a result of the trademark owner’s failure to police the mark, so that widespread usage by competitors leads to a generic usage among the relevant public, who see many sellers using the same word or designator.” Thomas McCarthy, McCarthy On Trademarks And Unfair Competition § 17:8 (2007).

Even an incontestable mark may be lost: “Indeed, an incontestable mark may be deemed abandoned when the registrant licenses the mark and fails to police the license. See Warner Bros. Inc. v. Gay Toys, Inc., 724 F.2d 327, 334 (2d Cir.1983).” A defendant bears a “high burden of proof” to show abandonment through failure to police. Warner Bros., Inc. v. Gay Toys, Inc., 724 F.2d 327, 334 (2d Cir.1983). The law is clear that “a trademark owner’s failure to pursue potential infringers does not in and of itself establish that the mark has lost its significance as an indicator of origin.” Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1070, 1080 (5th Cir.1997) (citations omitted). Where, however, a party can show that widespread use of similar designs has resulted in a “loss of trade significance,” the defense of abandonment is made out. See id.

The importance of policing a mark cannot be overstressed. It makes no business sense to go to the time and trouble of developing a brand and having it registered, only to have it lost when others use the same mark without consequences.

In addition to the words or logos accompanying a product or service, the physical structure and/or packaging of a product or the distinctive locations where a service is offered also can serve as powerful mechanisms to identify and differentiate the product or service in the marketplace. The shape of a Coca Cola® bottle or the seven vertical slots in the front grill of a Jeep® or the red and white color scheme of a Target® store all serve the same essential functions for their associated brands as do the names of those brands. In light of this, protection of such “trade dress” can be one of the most important parts of many business’ intellectual property enforcement initiatives.

As with trademarks, practical trade dress protection begins with registration. In order to be eligible for the protections that registration provides, trade dress first must satisfy the same basic, initial test as trademarks – that is, does the dress primarily serve to identify or distinguish associated goods or services in the marketplace? The important part of that question to keep in mind especially when considering trade dress is the word primarily.

Most trade dress serves – or originally served – some other purpose. A Coca Cola® bottle holds liquid. The slots in a Jeep® grill allow air to pass to the engine compartment. A Target® store houses merchandise and store operations. However, over time the designs of these items have become more important as indicia of the associated brands than as functional packages or structures. It is at the point where the design of a product becomes primarily non-functional that its eligibility for trademark registration and strong protections begins.

There is a long history of business disputes being waged in and out of court over the question of where on the primary purpose spectrum a product design falls. Most recently, we have seen high-profile disputes involving Louis Vuitton® purses as well as a contentious battle between Jeep® and Hummer® over the protectability of that famous grill. Many businesses would do well to consult with counsel in the establishment of a strong trade dress registration, monitoring, and enforcement program to protect their distinctive designs.

The rock band The Romantics filed a lawsuit on November 20, 2007 against the producers of the video game Guitar Hero alleging, among other claims, violation of right of publicity, and moved for preliminary injunction preventing the manufacture, distribution, sale, or marketing of the game during the pendency of the civil action. The plaintiffs claimed that a substantial number of ordinarily prudent consumers of Guitar Hero have been, or are likely to be in the future, confused, deceived, or mistaken about whether the plaintiffs sponsored or endorsed the game.

Judge Nancy G. Edmunds of the Eastern District of Michigan recently ruled that the band was not likely to prevail in its cause of action because the game producers have a valid synchronization license to use the song. Furthermore, there is no evidence that players of the video game would think The Romantics were endorsing or sponsoring the game. The judge also determined that if the plaintiffs do win any of their claims, monetary damages will be sufficient compensation.

Guitar Hero includes the band’s popular song “What I Like About You” in its catalog of songs. The video game permits players to play along with musical compositions by utilizing a mechanical guitar with buttons to simulate guitar play. Defendants obtained a valid nonexclusive synchronization license from the owner of the copyright in The Romantics’ song. A synchronization license, in the context of a video game, permits the game producers to make a new recording of the song and to use that recording in synchronization with visual images in the video game to enable game play. In accordance with this license, defendants recorded a new version of the song which was incorporated, or synchronized, into Guitar Hero.

The court concluded that issuing the injunction would cause irreparable harm to the defendants, who have successfully negotiated with numerous artists to develop video game versions of songs. The version of The Romantics’ song in the game is conspicuously identified with the phrase “as made famous by The Romantics,” alerting players that the song on the game is not the version recorded by The Romantics. Judge Edmunds also determined that the defendants did not use The Romantics’ song in its advertising or marketing materials used to promote the game and defendants did not include The Romantics’ name nor the names of the individual plaintiffs in the product packaging.

The court applied a four-factor test to evaluate the plaintiffs request for an injunction:

1) whether plaintiffs have shown a strong or substantial likelihood of success on the merits;
2) whether plaintiffs have demonstrated irreparable injury;
3) whether the issuance of a preliminary injunction would cause substantial harm to others; and
4) whether the public interest is served by the issuance of an injunction.

The court found that the plaintiffs failed to state a claim for violation of their right of publicity because Michigan has never recognized a right of publicity in the sound of a voice, even if distinctive, nor has it recognized a right of publicity for a combination of voices. Additionally, not all of the plaintiffs performed on the original master recording of the song, and the lead singer on the original recording is not party to the suit. The court concluded that substantial issues regarding plaintiffs' standing to assert a right of publicity claim even if one were to exist.

The Court also applied a First Amendment analysis and determined that the Guitar Hero is an expressive artistic work entitled to First Amendment protection because the game contains significant transformative elements and is not likely to interfere with the economic interest protected by the right of publicity. Furthermore, plaintiffs’ state law claim is preempted by the Copyright Act. Finally, sections 106 and 114(b) of the Copyright Act permit the owner of a copyright in a musical composition to license others to make specified commercial uses of the composition. This expressly allows third parties such as defendants to make a sound-alike recording of a song.

In 2007, Silicon Image filed a lawsuit against Analogix alleging, inter alia, that Analogix infringed Silicon Image’s copyright when it purportedly gained unlawful access to Silicon Image’s semiconductor software. Silicon Image also claimed that Analogix misappropriated Silicon Image’s proprietary register maps, and that Analogix encouraged existing and prospective customers to modify Silicon Image’s software for use that was outside the scope of Silicon Image’s software license agreements.

Although the United States District Court for the Northern District of California found that Silicon Image demonstrated a likelihood of success on its claim of misappropriation, the refused to grant a preliminary injunction. The judge expedited the trial to April 8, the judge scheduled an expedited trial for April 8.

The judge noted that Silicon Image may difficulty demonstrating that it protected its trade secrets. Companies that are trying to protect trade secrets and other intellectual property need to ensure that they are adequately policing their marks. Failure to properly protect intellectual property could jeopardize a company’s ability to seek recovery for infringement.

Once a business has successfully registered a trademark, that mark must also be managed and maintained. One of the best ways to protect a valuable mark is to have it declared incontestable by the USPTO. After a mark has been registered for at least five years, the mark owner may file a declaration under section 15 of the Act. This declaration will state that the mark has been registered for five years and has been continually used by the owner during that five year period. After this declaration is filed, the mark automatically becomes “incontestable.”

A declaration of incontestability offers many advantages to the trademark owners. When a trademark becomes incontestable, a third party may no longer challenge certain things about the registration. For instance, a third party may no longer claim that the mark was improperly registered or challenge the ownership of the mark. With an incontestable mark, a third party loses the affirmative defense that the mark is merely descriptive of the goods or services. In litigation over an incontestable mark, a defendant may not oppose a request for injunctive relief even if the mark has not yet been used in a particular geographical area.

But even an incontestable mark is still open to some challenges. An incontestable mark may still be attacked on the grounds of abandonment, functionality, genericness, or fraud. Accordingly, careful policing of the mark is still necessary, even after it has become “incontestable.”

If your business is interested in registering its trademarks outside the United States, you should consider using the international registration system available under the Madrid Protocol. This system offers the opportunity to file one application through the USPTO, pay one set of fees to the USPTO (in U.S. Dollars), and have the mark registered in any of the other countries that have signed the Protocol without having to file separate applications in each of the countries.

The system of international registration of marks is governed by two treaties, the Madrid Agreement and the Madrid Protocol. More than 70 countries have become part of the Madrid Protocol system, and the United States became a member of the Madrid Protocol in 2003. A full list of Protocol members may be found here: http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=8

For an American company, a Madrid Protocol application must be based on an application or a pre-existing registration on file with the USPTO. An international application is filed with the USPTO and forwarded to the International Bureau of the World Intellectual Property Office (“WIPO”) in Geneva, Switzerland. After verifying the basic filing requirements, WIPO will enter the mark in its international trademark register and send copies of the application to the trademark offices in the Madrid Protocol-member countries designated in the international application. Each of the designated countries will have up to 18 months in which to approve or refuse the request for registration, applying their own national standards for whether the mark may be registered. For instance, a pre-existing mark in a country may result in a denial of the request. As with any trademark application, it is therefore wise to conduct a full-scale search for existing marks and applications that may conflict with the one you are trying to register.

If the registration requirements have been met, WIPO will publish your mark in its International Gazette and will issue an international registration that covers the designated countries. The registration is renewable for 10-year terms and can also be extended to other countries by filing another application.

A registration through the Madrid Protocol system provides the same level of protection as a mark obtained directly through a country’s national trademark registration office. By using the system and filing one application through the USPTO, a business can save considerable time and money. Unless a conflict arises, it will not be necessary to consult with local counsel in each of the countries. Assignments, name changes, and renewals may also be handled through a single filing.

Depending on the status of your mark, direct registration in other countries may still be the best method for international registrations. After conducting a thorough search of international databases and considering your particular business needs and goals, a trademark attorney will be able to recommend whether direct registration is still the preferred option. But when considering international registration, your business should at least look into the opportunity presented by the Madrid Protocol system to streamline the process for expanding protection for your mark around the world.

Generally, it can take at least four months to receive a certificate of copyright registration from the U.S. Copyright Office. The time to process an application varies, depending on the workload of the office and the complexity of a particular application. But there may be times when your business can’t wait that long. For instance, if litigation over a copyright is imminent and you have not yet registered it, your ability to file suit in federal court and seek all available damages and remedies will depend on when the certificate of registration issues.

There are methods available to shorten the amount of time between the filing of an application for registration and the issuance of a certificate by the Copyright Office. The simplest and cheapest method is to use the new e-Copyright service now being tested. Scott & Scott, LLP is a member of the Copyright Offices’ beta testing program for electronic filing of copyright applications. By using the on-line filing system, copyright applications may be filed with a reduced fee of $35 per application (versus $45 for mailed applications). Our experience indicates that by using electronic filing, we can usually reduce the time it takes to receive a registration to approximately one month after the application is submitted. As with any beta testing program however, there are no guarantees.

If you need your registration certificate as soon as possible, the Copyright Officer offers a “special handling” program for expedited registration. Under the “special handing” program, the Copyright Office promises to process the claim, when possible, within 5 working days. “Special handling” is expensive and is only available in certain circumstances. Instead of the normal $45 (or $35 electronic) application fee, an expedited application must be accompanied by a $685 fee. According to the Copyright Office, special handling is granted only in specific circumstances: (1) pending or prospective litigation, (2) matters involving customs, or (3) contract or publishing deadlines that necessitate the expedited issuance of a certificate. When filing an application for expedited service, the application must be accompanied by a letter stating why there is a need for special handing, and that need must full within the three categories recognized by the Copyright Office. The application must also include signed declaration certifying that the information in the request for special handing is correct. Requests for expedited service must be sent to a special address. More information regarding “special handling” may be found here: http://www.copyright.gov/circs/circ10.pdf.

New York practitioners should review a recent decision by a sharply divided Court of Appeals establishing that members of limited liability companies may bring derivative suits on behalf of their LLCs. The majority of the court reached this conclusion even though New York law provides no explicit authorization of such suits. Describing the majority’s decision as “unique in the annals of the Court of Appeals,” the dissenters accused the majority of deliberately defying the Legislature, stating that “never before has a majority of the Court read into a statute provisions or policy choices that the enacting Legislature unquestionably considered and rejected.”

In Tzolis v. Wolff, 2008 WL 382345 (N.Y. 2008), the plaintiffs owned 25% of Pennington Property Co. LLC, which owns a Manhattan apartment building. According to the plaintiffs, those in control of the LLC arranged to lease and sell the apartment building for sums that were below market value, improperly assigned a lease, and benefited personally from the sale. The plaintiffs brought their lawsuit “individually and in the right and on behalf of” the LLC and sought to declare the sale void and terminate the lease. The trial court dismissed the action, holding that New York law did not permit derivative suits on behalf of LLCs. The Appellate Division reversed, concluding that derivative actions were available, and certified the issue to the Court of Appeals.

The Court of Appeals affirmed, holding that derivative suits may be brought by members of a New York LLC. The New York Limited Liability Company law, which was enacted in 1994, does not include any reference to derivative actions. Nevertheless, the court held “this omission does not imply such suits are prohibited.” The court noted that derivative suits have been part of the state’s corporate law since 1832 and that this cause of action was created by case law and not by statute. The rule that derivative suits could be brought on behalf of corporations was eventually. Other derivative causes of action have also been recognized in the absence of statutory authority. For instance, the Second Circuit recognized that members of a limited liability partnership were able to pursue such a claim before the partnership law was amended to recognize such suits.

In addressing whether derivative suits should be available to members of an LLC, the court relied on the long-recognized principle that “when fiduciaries are faithless to their trust, the victims must not be left wholly without a remedy.” Citing decisions from the 18th and 19th century involving corporations, the court stated that “to hold that there is no remedy when corporate fiduciaries use corporate assets to enrich themselves was unacceptable in 1742 and in 1832, and it is still unacceptable today.” According to the court, “the Legislature obviously did not intend to give corporate fiduciaries a license to steal.” Noting that derivative suits had been a recognized remedy for corporate malfeasance for more than two centuries, the court concluded that “to abolish them in the LLC context would be a radical step.”

Three of the justices dissented, however, stating that the majority’s decision was, itself, “radical.” The dissenters claimed that the Legislature, having full knowledge of general corporate law, obviously choose to omit any reference to derivative suits from the act establishing limited liability companies. Indeed, the dissenters cited to the legislative history, which indicates the Legislature intentionally deleted provisions regarding derivative suits from the law. In the dissent, Judge Susan Phillips Read stated that “the majority has effectively rewritten the law to add a right that the Legislature deliberately chose to omit. . .for a Court that prides itself on resisting any temptation to usurp legislative prerogative, the outcome of this appeal is curious.” Unless the Legislature changes the law, in the wake of Tzolis, LLC members will be able to pursue derivative lawsuits.

Full Decision Text: http://www.nycourts.gov/ctapps/decisions/feb08/5opn08.pdf

Raelyn Campbell bought a new laptop in 2006 from Best Buy for $800. She says she was also persuaded to purchase the $300 protection program. When her laptop needed repairs in 2007, she dropped it off at her local Best Buy. Best Buy apparently fabricated status updates each time Ms. Campbell called. Ultimately, Ms. Campbell learned that her laptop and all of its contents were lost.

Best Buy never explained what happened to the computer, but offered to give Ms. Campbell a $900 gift card for her trouble. Ms. Campbell rejected the offer and requested $2,100 in compensation. When she received no response, Ms. Campbell reported Best Buy to her local Attorney General’s office, and received a slightly higher offer. Ms. Campbell’s laptop contained thousands of dollars of music, and more importantly her private personal information, and her tax returns. Ms. Campbell never received a notice from Best Buy that her personal information may have been compromised.

Although Ms. Campbell realizes that it is unlikely she will recover millions of dollars for her lost laptop, she hopes she can get more information about what happened to her personal information.

In determining the degree to which a trademark is entitled to protection against infringement, one of the factors that a court will consider is the strength of the mark. In making this determination, a court typically will consider where along a spectrum of distinctiveness a trademark falls. The strength values within that spectrum sometimes are described as follows:

(1) GENERIC marks (e.g. “Cola” – these merely describe the class of goods or services into which a particular product or service falls and generally receive no protection);

(2) DESCRIPTIVE marks (e.g., “Fizzy Cola” – these generally receive protection only if, through continuous use, they have come to be clearly associated with distinct products or services in the marketplace);

(3) SUGGESTIVE marks (e.g., “Satisfaction Cola” – these require the customer to use some imagination to determine the product’s nature);

(4) ARBITRARY marks (e.g., “Royal Crown Cola®” – these use common words that do not have anything to do with the product); and

(5) FANCIFUL marks (e.g., “Pepsi Cola®” – these use names or words more or less invented in order to market the product and receive the strongest protection).

Thus, the more successful a business is in showing that its mark is arbitrary or fanciful, the more likely it is to receive strong protection for that mark.

A recent case from the Northern District of California provides a colorful illustration of this analysis. In Palantir Technologies Inc. v. Palantir.net, Inc., at issue, essentially, was the use of the mark PALANTIR. Tolkien fans may recall that, in The Lord of the Rings, the palantir were a set of magical stones, any one of which could be used to see events occurring near any of the other stones.

Palantir.net, Inc. (“Palantir.net”) is a national provider of Internet site design and software development services. It began providing services under the “Palantir” name in 1996, acquired the “palantir.net” domain name in 1997, and obtained trademark registration for its mark on January 31, 2006. In early 2007, Palantir.net became aware that Palantir Technologies Inc. (“PTI”) also was offering software development services under the “Palantir” name and that it had begun using Google’s AdWords service to obtain sponsored search engine results. PTI was created in 2004 and first started offering products under the “Palantir” name in late 2005. In response, Palantir.net sent a cease and desist letter to PTI and attempted to engage PTI in talks regarding the matter. However, PTI subsequently filed a declaratory judgment action seeking a ruling that it was not infringing Palantir.net's mark. Palantir.net then filed counterclaims and sought a preliminary injunction to restrict PTI’s use of the mark during the pendency of the lawsuit.

In ruling on Palantir.net’s injunction request, the court had to determine whether Palantir.net was able to demonstrate a likelihood of success on the merits with regard to its claims that there was a likelihood of confusion between the marks at issue. Because many of the factors involved in the likelihood of confusion analysis in this case were fairly straightforward (e.g., the marks were similar, were applied to similar products or services, and used similar marketing channels, among others), the court’s decision hinged in large measure on the strength of the word “palantir” as a trademark. In its motion, Palantir.net perhaps inadvertently described its mark as merely suggestive, a claim that PTI nevertheless disputed by arguing that the mark was part of a crowded field of similar marks.

The court disagreed with PTI’s crowded field argument (finding that there was little or no substantial evidence to support the claim), and it effectively gave Palantir.net the benefit of a doubt in stating:

Accepting Palantir.net's original assertion that its mark is suggestive, it is at the far end of the suggestive spectrum, very near to arbitrary or fanciful, and thus is of at least moderate strength. It requires a mental leap to go from Palantir.net's mark to its services; indeed, it requires a detailed knowledge of The Lord of the Rings and a precipitous climb from The Lord of the Rings to Palantir.net's services. “The more imagination required, the stronger the mark is.” Thus, Palantir.net's mark is strong enough to deserve trademark protection.

(citation omitted)

Thus, the opinion supports the unsurprising proposition that a legally fanciful mark may be found within the pages of fantasy literature. When assessing the strength of a mark and the viability of a strong IP enforcement regime, it is important to consider all factors that may support registration and potential future claims of infringement by others.

In Applied Information Sciences Corp. v. eBay Inc., 511 F.3d 966 (9th Cir. 2007), the Ninth Circuit affirmed a district court decision awarding summary judgment to defendant eBay, Inc. (“eBay”) in a trademark infringement action brought by Applied Information Sciences Corp (“AIS”). AIS secured a trademark in 1998 for the phrase “SmartSearch” for use on “computer software and instruction manuals sold together which allow the user to retrieve information from on-line services via phone line in the fields of agriculture and nutrition, books, chemistry, computers and electronics, education, law, medicine and bio-sciences, news, science and technology, social sciences and humanities.”

In 2000, eBay, an online auction website, used the phrase “Smart Search” in a link on its homepage that took users to a separate page with advanced search options. AIS alleged that eBay’s use of the term “Smarty Search” violated AIS’ trademark. The United States District Court for the Central District of California disagreed and granted summary judgment in favor of eBay. AIS appealed.

In order to prevail on its claim of trademark infringement, AIS was required to show that it has a valid, protectable trademark and that eBay's use of the mark is likely to cause confusion. The Ninth Circuit determined that the district incorrectly ruled that AIS lacked a protectable interest because eBay's use of SmartSearch fell outside the scope of goods and services on AIS's registration.

Notwithstanding the district court’s faulty analysis, the Ninth Circuit affirmed the summary judgment because AIS failed to produce any admissible evidence to show a likelihood of confusion, or address any of the factors required for a likelihood of confusion analysis.

If your business is involved in a trademark infringement dispute or you would like secure a trademark to protect your intellectual property, you should seek counsel with the ability to guide you through the trademark registration and defense process.

The Business Software Alliance (BSA) recently announced that it entered into a settlement agreement with a small-to-medium-sized motor sports dealer and equipment supplier in Greenville, South Carolina, regarding the dealer’s alleged use of unlicensed, Adobe and Microsoft software. The BSA said that under the settlement, the targeted dealer, which apparently owns only 40 to 50 computers, was required to make a settlement payment of slightly more than $72,000.00 and also to agree “to delete all unlicensed copies of software installed on its computers, acquire any necessary replacement licenses and commit to implementing stronger software license management practices.” There was no statement from the dealer included in the press release, a copy of which is available here. There is also a brief article regarding the matter from a local media outlet here.

Businesses that endure software audits initiated by the BSA or by the Software & Information Industry Association (SIIA), often come to the unpleasant realization toward the end of the ordeal that, in addition to the settlement payment, the costs of investigation and diversion of resources, and the legal fees already incurred on the path to reaching a settlement agreement, the auditing entity often demands that it be allowed to publicize the matter in a press release such as the one described above. In the vast majority of cases, the negative value to the business of such publicity is proportionally far greater than any positive value derived from the auditing entity. Nevertheless, the BSA and SIIA both typically demand that businesses pay a high premium to keep the existence of or details regarding an audit settlement from public attention. Businesses that fail to account and plan for such a premium at the outset of an audit engagement may be faced with the grim prospect toward the end of the matter of having to accept terms that include costly negative publicity that, especially in some tech-related industries, can be very damaging to a business’ reputation.

It is important to keep confidentiality in mind at the outset of the software audit process and, after a preliminary exposure estimate is calculated, to determine whether the cost of the bad press that audits often entail will be greater than the price to include confidentiality terms in an eventual settlement agreement. In cases where that price is too high, there may be less-expensive alternatives to explore at settlement, such as inclusion of terms that give the business the right to review and contribute to a press release prior to publication or terms that allow the auditing entity the right to publish the existence of the settlement, but not the details. A knowledgeable software audit attorney can provide valuable assistance in considering these and other options to mitigate the lingering effects of a BSA or SIIA software audit.

In 2008, the Centers for Medicare & Medicaid Services (CMS) announced that it entered into a contract with a PricewaterhouseCoopers to audit covered entities and ensure compliance with the HIPAA security standards. According to CMS, the initial round of audits will be directed at the hundreds of companies about which it has received complaints.

Although CMS has the authority to enforce the HIPAA security standards, for the last several years it has been focused on outreach and education rather than enforcement. This year, that focus will change, and CMS will audit 10-20 hospitals over the next 9 months. CMS indicates that it will not publish the names of the entities it audits.

If you are a covered entity under HIPAA, and you have not conducted an internal review of your HIPAA security policy and enforcement, you should consider consulting experienced counsel to guide you through the process.