Business and Technology Law

A federal court has issued a reminder to business owners trying to protect their intellectual property – register your copyrights as soon as possible or lose access to the most effective remedies for fighting copyright infringement. A plaintiff suing for copyright infringement may be able to recover statutory damages up to $30,000.00 (and up to $150,000.00 if the infringement was willful) as well as attorney’s fees. In FM Industries, Inc. v. Citicorp Credit Services, Inc., 2008 WL 717792 (N.D. Ill. 2008), the United States District Court for the Northern District of Illinois made it clear that statutory damages and attorney’s fees are not available when the alleged infringement of a copyright began before the copyright registration became effective.

FMI claimed that it owned the copyright in The Ultimate Debt Collection and Networking Software (“TUCANS”), a computer program that organizes debt collection data. The software also has the ability to transmit data between a debt collector and its attorneys. In May of 2001, Citicorp Credit entered into a vendor services agreement with FMI that gave Citicorp Credit the right to use TUCAN, and the agreement required that Citicorp Credit’s attorneys sign the TUCANS licensing agreement. FMI claims that in 2005, after the licensing agreement expired, one of Citicorp Credit’s attorneys continued to access data using the TUCANS system.

On summary judgment, the court concluded that FMI could not recover statutory damages or attorney’s fees. The version of TUCANS at issue was first published in 2004, but the effective date of the copyright registration was April 4, 2007. Under 17 U.S.C. § 412, a plaintiff suing for infringement cannot recover statutory damages or attorney’s fees if the infringement preceded the effective date of the registration. Statutory damages and fees are also not available if the work was published before the infringement unless the plaintiff registered the work within three months of the first publication. Because the alleged infringement began two years before the registration and because FMI had not registered the copyright within three months of the first publication, those remedies were not available as a matter of law.

It is clear that prompt registration of a copyright is an absolutely prerequisite to recovering statutory damages or attorney’s fees. The availability of such remedies is an effective tool in any effort by a company to stop infringement of its copyrights. To avoid losing access to those remedies, business should put in a place a process of making certain that their copyrights are registered as soon as practical.

Businesses that are parties to arbitration agreements should review a recent decision by the Supreme Court of the United States where the Court held that parties to an arbitration agreement may not contract for expanded grounds of judicial review. In the 6-3 decision in Hall Street Associates, LLC v. Mattel, Inc., 2008 WL 762537 (U.S. 2008), the Court concluded that the grounds for judicial review established by the Federal Arbitration Act (“FAA”) are exclusive and cannot be varied by agreement.

The case arose out of a dispute over a commercial lease. The parties agreed to submit the issue to arbitration, and their agreement to arbitrate was entered as an order by a federal district court. The agreement provided, inter alia, that the arbitration award could be vacated, modified, or corrected by a court if the arbitrator’s findings were not supported by substantial evidence or if the arbitrator made erroneous conclusions of law.

The FAA establishes a limited basis on which an arbitrator’s award may be corrected, vacated, or modified by a court. The federal appellate courts had split on the question of whether the parties to an agreement may contract for expanded judicial review. After the arbitration, the district court vacated the award on the grounds that the arbitrator failed to follow the applicable law. The Ninth Circuit reversed, holding that the terms of the parties’ arbitration agreement with respect to judicial review were unenforceable.

In an opinion by Justice Souter, the Supreme Court held that the specific grounds set forth in the FAA are the only bases on which an arbitration award may be vacated, modified, or corrected. In particular, the court rejected the argument that because arbitration is a creature of contract, the parties should have the authority to establish the features of the arbitration proceeding, including how an award may be reviewed. Instead, the court found that the text of the FAA compelled a reading of the judicial review grounds as exclusive. According to the court, the text of the FAA establishes “a national policy favoring arbitration with just the limited review needed to maintain arbitration’s essential virtue of resolving disputes straightaway. Any other reading opens the door to the full-bore legal and evidentiary appeals that can render informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process.” The three dissenters disagreed, rejecting the majority’s narrow interpretation of the FAA.

The court, however, did not merely affirm the Ninth Circuit’s decision. Instead, the court noted that the arbitration agreement in this case was reduced to an order by the district court. The court remanded the case for an analysis of whether the agreement should “be treated as an exercise of the District Court’s authority to manage its cases” under the federal rules. This determination leaves open the possibility that parties might have the ability to modify the way an arbitration award will be reviewed by invoking a district court’s authority to manage its cases.

Full opinion text: http://www.supremecourtus.gov/opinions/07pdf/06-989.pdf

The Business Software Alliance (“BSA”), a trade association representing a number of software manufacturers, routinely updates its published member list list of members on its website. Staying current on the BSA's list of active members is important because the list indicates which software publishers may be included in a BSA-initiated software audit. The BSA generally provides in its initial notice letter to a business an enumerated list of the software publishers at issue in the matter. However, new publishers will become members of the BSA, and will be included in audits initiated by BSA members. Knowing which software publishers the BSA represents will help a business respond appropriately to a BSA audit.

Curently, Corel is listed as a BSA member. Corel publishes the widely-used software CorelDRAW Graphics Suite ® and the office productivity suite WordPerfect Office ®. EMC Corporation is a new addition to the BSA's list. EMC publishes the document management product ApplicationXtender and its web interface, WebXtender.

Siemens PLM (Product Lifecycle Management) recently acquired UGS Corporation, making both BSA members. Other new members include Synopsis, Inc., SAP, Quest Software, Inc., Parametric Technology Corporation (PTC), Monotype Imaging, and Quark Inc., producers of QuarkXpress ®.

Keeping an eye on the BSA member list will provide your business with visibility into what publishers would be implicated in a BSA audit. Counsel experienced with handling BSA matters can help your business manage its software licensing and avoid potential losses associated with a BSA investigation.

Viacom’s well-publicized court fight against YouTube and Google his given Judge Louis Stanton of the U.S. District Court for the Southern District of New York an opportunity – or, perhaps more accurately – a good reason to now repudiate one of his prior decisions that seemed to leave the door open for punitive damages in copyright infringement cases. In Blanch v. Koons (2004), though she was able to prove willful infringement on the part of the defendants, the plaintiff found herself unable to pursue a claim for statutory damages under the Copyright Act, because she had not registered the works at issue before the infringement occurred. Moreover, she could not pursue actual damages, because she had sustained none that she could prove. However, Judge Stanton gave the plaintiff leave to amend her complaint “so that [she] has a chance to prove malice and raise squarely the question whether punitive damages are available to her.” The court’s decision was based largely on suggestions from other courts that such damages might be available, but despite the fact that nowhere in its text does the Copyright Act purport to allow awards of punitive damages for proven infringement, willful or otherwise.

However, this month, Judge Stanton reconsidered his earlier ruling in light of Viacom’s claims against YouTube and Google that the ubiquitous video sharing service is liable for the unauthorized copying and distribution of Viacom’s copyrighted content. In the pending case, Viacom relied upon the court’s decision in Blanch to move for leave to amend its complaint to include a punitive damages claim (despite the availability to Viacom of the full array of ordinary copyright protections for the content alleged to have been infringed). Judge Stanton denied the motion and made clear in surprisingly blunt terms that, to the extent that the opinion in Blanch was good law, it had been roundly rejected by other courts and commentators. As the court here held: “It is time to extinguish the ignis fatuus held out by Blanch. Common-law punitive damages cannot be recovered under the Copyright Act.”

Businesses facing claims of copyright infringement clearly should take them very seriously indeed, as the damages explicitly allowed under the Copyright Act can be substantial, especially where it is possible to prove willful infringement. However, if it ever was a concern, the need to factor in potential punitive damages into an exposure estimate now seems (once again) to have no practical utility whatsoever. It will be interesting to watch the Viacom case as it progresses through the trial and (no doubt) appellate stages. With the implications of the case as weighty as they are, it is likely that this will not be the last time a court uses the case as a vehicle to explain or confirm existing law, or, conceivably, make new law based on the facts and arguments presented.

Software auditors almost always try to find ways to maximize the number of allegedly infringing software “copies” at issue in an audit engagement. It is typical for the Business Software Alliance (BSA), the Software & Information Industry Association (SIIA), and other software publishers to demand that their small-to-medium-sized business targets disclose all installations of relevant software products on all of the computers owned by the target, which number the auditors then use in determining how much money they are going to demand in settlement to keep the matter from going to court. This is perhaps unsurprising behavior by the auditors, because it clearly gives them more leverage during settlement negotiations. However, according to more than one federal court, it may not be a correct interpretation of federal law.

In FM Industries, Inc. v. Citicorp Credit Services, Inc., the United States District Court for the Northern District of Illinois determined the existence and extent of infringement of a software program by a business whose license to use the program had expired. In the case, the business at issue claimed that it its use was non-infringing because it initially installed the software with the consent of the publisher. The court rejected this argument, holding that “a user reproduces a program stored in his computer's hard drive merely by launching that program, thereby causing the computer to copy it to Random Access Memory.” The court also cited to a Ninth Circuit opinion in the case of MAI Systems Corp. v. Peak Computer, Inc., where the court there stated:

The district court's grant of summary judgment on MAI's claims of copyright infringement reflects its conclusion that a “copying” for purposes of copyright law occurs when a computer program is transferred from a permanent storage device to a computer's RAM. This conclusion is consistent with its finding, in granting the preliminary injunction, that: “the loading of copyrighted computer software from a storage medium (hard disk, floppy disk, or read only memory) into the memory of a central processing unit (“CPU”) causes a copy to be made. In the absence of ownership of the copyright or express permission by license, such acts constitute copyright infringement.” We find that this conclusion is supported by the record and by the law.

These opinions are at odds with the standard tactics employed by the BSA, the SIIA, Autodesk, and other software auditors. For example, when presented with information that a design firm has repurposed a CAD workstation to a reception desk or, in a perhaps more stark example, decommissioned the machine to a storage closet, the BSA would argue that any design or CAD software remaining on the machine’s hard drive remains relevant for audit purposes, and they would use any such installations as factors in calculating a settlement demand. However, according to the FM Industries and MAI Systems opinions, this methodology is flawed. A correct damages model would not count as “copying” the mere presence of copyrighted software on a hard drive. The relevant inquiry is whether that software is being used by loading it into a computer’s RAM.

When faced with a software audit demand from the BSA, the SIIA, or any other software publisher or industry representative, before disclosing any information regarding the software in use in your business’ computer network, it is important to consult with counsel to determine what is and what may not be within the scope of the audit.

A Western District of New York Magistrate Judge recently recommended that claims filed by the owners of several copyrighted songs (allegedly performed without their permission) should be dismissed as a result of the plaintiffs’ membership in the American Society of Composers, Authors and Publishers (“ASCAP”). In ruling on a number of pre-trial matters, the Judge independently raised the issue of the plaintiffs’ standing to sue based on ASCAP membership agreements they had attached to a motion for summary judgment. Those agreements included the following provisions:

1. "[Plaintiff] grants to [ASCAP] for the term hereof, the right to license non-dramatic public performances ... of each musical work .... The rights hereby granted shall include:
(a) All the rights and remedies for enforcing the copyrights or copyrights of such musical works ... as well as the right to sue under such copyrights in the name of [ASCAP] and/or in the name of [plaintiff] and/or others, to the end that [ASCAP] may effectively protect and be assured of all the rights hereby granted.
* * *
3. [ASCAP] agrees, during the term hereof ... to hold and apply all royalties, profits, benefits and advantages arising from the exploitation of the rights assigned to it by its several members, including [plaintiff], to the uses and purposes as provided in its Articles of Association.
4. [Plaintiff] hereby irrevocably, during the term hereof, authorize, empowers and vests in [ASCAP] the right ... to prevent the infringement thereof, to litigate, collect and receipt for damages arising from infringement ... and to release, compromise, or refer to arbitration any actions, in the same manner and to the same extent ... as [plaintiff] might or could do, had this instrument not been made.
5. [Plaintiff] hereby makes, constitutes and appoints [ASCAP] or its successor [plaintiff's] true and lawful attorney ... to do all acts, take all proceedings ... proper or expedient to restrain infringements and recover damages".
6. [Plaintiff] agrees from time to time, to execute, acknowledge and deliver to [ASCAP], such assurances ... as [ASCAP] may deem necessary or expedient to enable it to ... enjoy ..., in its own name or otherwise, all rights and remedies aforesaid."

The Judge stated that the effect of the above provisions was to strip the plaintiffs of their standing to sue under Article III of the U.S. Constitution. Under the Judge’s interpretation of the agreements, the plaintiffs assigned exclusively to ASCAP all rights to seek remedies for infringement of the covered works. Therefore, according to the Judge’s recommendation, none of the plaintiffs was unable to show that his “individual need requires the remedy for which he asks…that he stands to profit in some personal interest…and that he personally would benefit in a tangible way from the court's intervention." (internal quotes and citations omitted)

Many software publishers, including Microsoft, Adobe and Autodesk, are members in industry trade groups such as the Business Software Alliance (“BSA”) and the Software & Information Industry Association (“SIIA”), which typically operate under powers of attorney from the publishers to target small-to-medium-sized businesses with allegations of software copyright infringement. In the event of litigation arising from such allegations, filed either directly by the publishers or by the BSA or SIIA, it would be a good idea to carefully review all relevant membership documents to determine the scope of authority under which the named plaintiff has filed the action. It will also be interesting to watch the New York litigation to see if the Magistrate Judge’s recommendation is adopted by the District Court and upheld on appeal, if any.

Data brokers Reed Elsevier and Seisint have agreed to conduct biennial audits of its data protection procedures for 20 years as part of a settlement with the FTC. Businesses that find themselves under the FTC's scrutiny and choose to settle data privacy allegations may have to eventually assume the expense of conducting costly audits for as long as 20 years.

Reed Elsevier, via its LexisNexis data broker business, and Seisint gather information about millions of consumers, including names, current and prior addresses, dates of birth, drivers’ license numbers and Social Security Numbers. The companies relied on user IDs and passwords to control customer access to consumer information in their databases.

The FTC alleged that Reed Elsevier and Seisint failed, among other things, to:
• Make Seisint user credentials hard to guess;
• Suspend credentials after a certain number unsuccessful log-in attempts;
• Require Seisint customers to encrypt or protect credentials, search queries or search results in transit between customer computers and Seisint Web sites;
• Verify that new user credentials were created by customers rather than identity thieves;
• Prevent users from sharing credentials;
• Adequately assess the vulnerability of Seisint’s Web applications and computer network to commonly known attacks; and
• Implement simple, low-cost, and readily available defenses to such attacks.

Identity thieves allegedly exploited these security failures and obtained access to the sensitive information of at least 316,000 consumers from Accurint databases. The identity thieves used the information to create and activate new credit cards with which they made fraudulent purchases. Reed Elsevier acquired Seisint in late 2004, and the breaches continued for at least nine months afterward, during which time Reed Elsevier controlled Seisint’s practices.

For the next 20 years, auditors will be required to certify that the companies’ security programs meet or exceed the requirements of the FTC’s orders and are operating with sufficient effectiveness to provide reasonable assurance that the security of consumers’ personal information is being protected. The Reed Elsevier and Seisint settlements also contain bookkeeping and record keeping provisions to allow the FTC to monitor compliance with its orders.
View the compliant here.
View the settlement agreement here.

A recent opinion from the Southern District of California highlights the difficulties that a trademark owner can face when seeking summary judgment on a claim that a defendant infringed its design trademarks. HIT Entertainment, Inc., et al., v. National Discount Costume Co., Inc., et al., (“NDC”) stems from a case filed in the mid-1990s against NDC, a manufacturer and distributor of costumes. The plaintiffs then and in the current litigation alleged, in part, that NDC had engaged in the creation and sale of costumes based on their trademarked designs in certain children’s characters, such as Barney the Dinosaur. (In the current litigation, additional plaintiffs allege that NDC more recently infringed trademarked designs in Bob the Builder and Thomas the Tank Engine.) Though the parties to the older case settled out of court and stipulated to a permanent injunction, the current plaintiffs’ investigation revealed that NDC continued to make and distribute costumes based on Barney and the other characters. The plaintiffs sought and obtained a preliminary injunction and contempt sanctions against the defendants in the amount of $29,689.75, and they then moved for summary judgment on their claims of trademark and copyright infringement.

In its opinion, the court granted that part of the plaintiffs’ motion regarding claims that the defendants were liable for infringing the plaintiffs’ word trademarks in the names of the characters at issue. However, the fact-intensive nature of the infringement inquiry with regard to trademarked designs led the court to deny that part of the plaintiffs’ motion. While the plaintiffs attached evidence regarding the strength of the marks at issue; the similarity between the allegedly infringing costumes and the marks; and the defendants’ intent to allege the marks, the court noted that no compelling evidence was presented regarding the proximity of the costumes to the products and services sold under the marks; the presence of any actual confusion in the marketplace; any similarity in the marketing channels used for the allegedly competing products; the degree of care likely to be exercised by potential purchasers; or the likelihood of expansion of the relevant product lines. Courts typically look to all of the above factors in determining whether there is a likelihood of confusion sufficient to support a claim of infringement. In the absence of compelling evidence regarding so many of the factors, the court deferred to the Ninth Circuit’s admonishment that “district courts should grant summary judgment motions regarding the likelihood of confusion sparingly, as careful assessment of the pertinent factors that go into determining likelihood of confusion usually requires a full record.”

Trademark litigation can be littered with potential pitfalls for parties on wither side of the aisle. It is important to consider all of the factors relevant to an infringement inquiry, both when making the decision to file a claim and when making strategic decision during the course of the lawsuit.

The California Supreme Court has given additional protections to manufacturers faced with products liability suits. Following the lead of other state and federal courts, California courts will now apply the “sophisticated user” doctrine. Under this doctrine, a manufacturer cannot be held liable when it fails to warn specialists about a product’s dangers when those dangers should be well known to such sophisticated users.

William Johnson is a certified HVAC technician who had received extensive training in the field of air conditioning repair. In particular, he had been certified by the EPA to work on large commercial air conditioning systems. Johnson filed suit against American Standard, air conditioner manufacturers, and various chemical manufacturers and suppliers after he developed pulmonary fibrosis. Johnson contended that the disease resulted from his exposure to phosgene gas. Large air conditioning systems commonly use R-22, a hydrochlorofluorocarbon refrigerant that, when exposed to light or flame, can decompose into phosgene gas. Johnson claimed that while maintaining and repairing air conditioning systems, he brazed refrigerant lines and was thereby exposed to phosgene gas. The trial court granted summary judgment in favor of the manufacturer, and the court of appeal affirmed, holding that the manufacturer did not have a duty to warn a sophisticated user like Johnson of such dangers which were well known in the industry.

In Johnson v. American Standard, Inc., 179 P.3d 905 (Cal. 2008), the California Supreme Court agreed. The court adopted the sophisticated user doctrine, concluding that normally, there is no duty to warn professionals about commonly known hazards. This doctrine is an exception to the general duty a manufacturer has to warn consumers about potential risks and dangers. According to the court, “just as a manufacturer need not warn ordinary consumers about generally known dangers, a manufacturer need not warn members of a trade or profession (sophisticated users) about dangers generally known to that trade or profession.” In reaching this determination, the court cited decisions by other state courts, as well as federal cases, adopting the doctrine. The court also mad eit plain that the sophisticated user doctrine applies equally in strict liability and negligent failure to warn cases.

The court also rejected Johnson’s contention that even though he received training and held certifications, he did not remember hearing or reading about the dangers of phosgene. According to the court, “even if a user was truly unaware of a product’s hazards, that fact is irrelevant if the danger was objectively obvious.” The decision in American Standard will certainly make it more difficult for sophisticated consumers to hold manufacturers liable under a failure to warn theory.

Full opinion text: http://www.courtinfo.ca.gov/opinions/documents/S139184.PDF

New York businesses should review a recent decision by the Court of Appeals expanding the scope of liability under New York Labor Law section 240(1). In Sanatass v. Consolidated Investing Company, Inc., 2008 WL 1817261 (N.Y. 2008), a divided court held that a property owner is liable for a Labor Law section 240(1) violation even when a tenant of the building contracted for the work without the owner’s knowledge.

Consolidated owned a commercial building in Manhattan, and C2 Media subleased the 11th floor of the building. Under the lease, C2 Media was required to get the landlord’s written consent for any repairs and renovations. In January of 2000, C2 Media hired Sanatass to install a commercial air conditioning unit on their floor. C2 Media did not notify Consolidated about the work. While he was installing the air conditioning unit, one of the manual lifts fails causing the unit to drop, nearly crushing Sanatass.

Sanatass then sued Consolidated alleging violations of Labor Law 240(1) and 241(6). Consolidated successfully moved for summary judgment, and the Appellate Division affirmed, holding that Consolidated could not be held liable because the installation was performed without its consent and in violation of the lease.

The Court of Appeals disagreed. The court first determined that the installation of an air conditioner constituted an “alteration” within the scope of section 240(1), and that Sanatass sustained injuries “as a result of an elevation-related hazard – a falling object.” The Court then rejected Consolidated’s contention that it could not be held liable given that C2 Media breached the lease by not obtaining Consolidated’s permission before hiring a contractor to perform the alterations. Recognizing that the purpose of section 240(1) was to protect workers, the Court noted that section 240(1) imposes strict liability that “is nondelegable and that an owner is liable for a violation of the section even though the job was performed by an independent contractor over which it exercised no supervision or control.” For instance, out-of-possession owners have been held liable under section 240(1).

The Court concluded that Consolidated similarly could not avoid liability by contending that it was not an “owner” for purposes of the statute by relying on its lack of knowledge of Sanatass’ work. In sum, the Court refused to create “a lack-of-notice exception to owner liability.” Instead, the court held that “the owner’s lack of notice or control over the work is not conclusive – this is precisely what is meant by absolute or strict liability in this context.” In reaching this conclusion, the Court distinguished its decision in Abbatiello v. Lancaster Studio Assoc., 3 N.Y.3d 46 (2004). In Abbatiello, a cable repair technician was injured while accessing a junction box on the exterior of a building. The court in Abbatiello refused hold the owner liable because the plaintiff was only on the property by virtue of the Public Service Law to repair the cable system, meaning there was no nexus between the owner and the plaintiff. In contrast, Sanatass was employed by C2 Media to perform work in Consolidated’s building, and “as between the owner and the worker, section 240(1) clearly places the burden on the owner should a violation of the statute proximately cause injury.” In the wake of Sanatass, an owner cannot insulate itself from liability under Labor Law 240(1) by requiring its tenants to give notice of any repairs or alterations.

Full Opinion Text: http://www.nycourts.gov/ctapps/decisions/apr08/60opn08.pdf

Inventors and researchers often enter into agreements with other parties to develop, patent, and commercially exploit their inventions. But does such an agreement create a fiduciary relationship or is it nothing more than a simple contractual relationship? The answer to this question is critical – if there is a fiduciary relationship, a breach of that relationship gives rise to a tort claim and a potential recovery of punitive damages. But if the relationship is merely contractual, punitive damages would not be available. In City of Hope National Medical Center v. Genentech, Inc., 2008 WL 1820916 (Cal. 2008), the California Supreme Court held that such an arrangement should be “treated like an ordinary contractual agreement, a breach of which supports only contract and not punitive damages.” In so holding, the Court invalidated a $200 million punitive damages award that City of Hope had won at trial.

The case arose from a scientific discovery by two scientists employed by City of Hope. The scientists developed a groundbreaking process of genetically engineering human proteins that enabled the production of large quantities of various medicines. Genentech sent a proposal to City of Hope to provide funding for further development, and the parties entered into an agreement under which Genentech would provide funding, use the results in the manufacture of medicines, and secure and hold patents as they emerged. In 1999, City of Hope sued Genentech for breach of fiduciary duty and breach of contract. The jury found that Genentech had breached its fiduciary duty to City of Hope, acted with fraud and malice, and also breached the contract. The judgment awarded City of Hope $300,164,030 in compensatory damages and $200 million in punitive damages. The Court of Appeals affirmed.

The Supreme Court noted that the case was very complex, with “25,567 pages of reporter’s transcript plus 12,267 pages of clerk’s transcript and . . . 18 friend-of-the-court briefs.” The court affirmed the part of the judgment awarding City of Hope $300,164,030 in damages for Genentech’s breach of contract. But because the relationship did not give rise to a breach of fiduciary duty claim, the court set aside the punitive damages award. Generally, a contract between two parties, without more, does not create a fiduciary relationship. In this case, the contract between Genentech and City of Hope was between two sophisticated parties advised by counsel.

The court rejected the notion that an agreement to develop, patent, and market an invention automatically gave rise to a fiduciary relationship, stating that “a fiduciary relationship is not necessarily created simply when one party, in exchange for royalty payments, entrusts a secret invention to another party to develop, patent, and market the eventual product.” In addition, while the secrecy of the information entrusted by one party to another may be a factor, “it does not compel the imposition of fiduciary duties by operation of law.” Accordingly, the trial court erred by instructing the jury that a fiduciary relationship necessarily arises “when a party, in return for royalties, entrusts a secret idea to another to develop, patent, and commercially develop.” Because City of Hope’s legal theory for the creation of a fiduciary relationship was invalid, the court reversed the award of tort damages against Genentech. Businesses should study this decision before deciding to entrust a new invention to another party for development.

Full Opinion Text: http://www.courtinfo.ca.gov/opinions/documents/S129463.PDF

Perfect 10 – the publisher of adult photographs that lost its appeal to hold Google liable for copyright infringement by linking to and displaying thumbnails of unauthorized copies of its copyrighted images – has won the support of the MPAA, the RIAA, and several other industry groups in a separate effort to hold Visa and other financial services businesses liable for enabling copyright infringement.

The various industry groups recently filed an amicus curiae brief with the U.S. Supreme Court in support of Perfect 10’s petition for review of the 9th Circuit’s refusal to reverse the trial court’s dismissal of its claims against the defendant businesses. In this litigation, Perfect 10 has argued that the credit card companies facilitated infringement of its copyrighted content by providing payment processing services to various businesses that copy and distribute that content for profit. However, the 9th Circuit dismissed all of Perfect 10’s claims in July 2007, characterizing those claims as “radical new theories of liability.” In its opinion, the Court held that the fact “that Defendants have the power to undermine the commercial viability of infringement does not demonstrate that the Defendants materially contribute to that infringement.” In their brief, the amici counter that it is the 9th Circuit’s opinion that “dramatically changes the secondary liability standards that courts have applied for decades, and it does so in ways that threaten the effectiveness of secondary liability as a means to combat Internet piracy.”

Though it seems an unlikely result, if the Supreme Court does grant Perfect 10’s petition for review, the effects of its opinion on the matter could be very far-reaching and could further inform interpretation of the 9th Circuit’s earlier ruling on Perfect 10’s claims against Google.

The District Court of Oregon recently ordered a group of record companies to pay an accused file-sharer's attorneys’ fees in the amount of $300,000 for defending her suit over a two-year period. Plaintiffs Atlantic Recording Corp., Priority Records LLC, Capitol Records Inc., UMG Recordings Inc., and BMG Music accused Tanya Andersen of sharing more than 1,000 music files from her computer via the peer-to-per file sharing network Kazaa in 2005.

The plaintiffs were unable to locate sufficient evidence to convince the court that the Defendant infringed any copyrights and attempted to depose Andersen's 10-year-old daughter. Eventually, the record companies stipulated to a dismissal of the case with prejudice. Andersen thereafter moved to recover attorney's fees.

The record companies disputed Andersen's status as “prevailing party.” The Copyright Act allows the court to award reasonable attorney's fees to the prevailing party in a copyright action. The court stated that awarding fees under this provision is a matter of the court's discretion, but that it is to be applied in an evenhanded manner. In other words, prevailing plaintiffs and prevailing defendants are to be treated alike.

Although Plaintiff record companies argued that fees may not be awarded to a prevailing party unless there is a material alteration of the legal relationship of the parties as demonstrated by an enforceable judgment on the merits or a court-ordered consent decree, the court refused to apply such a strict analysis. Instead, the court reviewed the underlying social policy of the Copyright Act to determine how the purposes of the Act would best be served given the specific facts and relevant considerations.

The court ultimately concluded that the policy underlying the Copyright Act was best served by awarding Anderson the $300,000 she incurred in defending the copyright infringement suit.