Business and Technology Law

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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