Business and Technology Law

Earlier this year, this blog introduced you to “copyright trolling,” a new business model for intellectual property lawyers. The copyright trolling concept is simple: search the Internet for instances where another website has used portions or all of your original work, sue the website operator for infringement demanding statutory damages completely out-of-line with any actual damages, rely on the website operator’s evaluation of the cost of settlement versus the cost of a protracted legal battle, and collect a settlement of a few thousand dollars for all your hard work. Oh yes, and to be successful as a copyright troll, the IP attorney must completely ignore other sections of the copyright statute pertaining to fair use—the legal concept that not all copying of copyrighted material constitutes infringement. Rinse and repeat.

Righthaven, a Las Vegas-based business with apparently only one client, is the law firm currently at the epicenter of this copyright trolling development. On behalf of Stephens Media, a media company that includes the Las Vegas Review-Journal, among other newspapers, Righthaven has sued upwards of 145 web site operators for copyright infringement, and has reportedly settled 20% of the suits so far. The Internet was awash in commentary about copyright trolling, with early speculation that the Electronic Freedom Foundation (“EFF”) would likely be interested in defending the rights of website operators. Though it took a few months, the EFF apparently has found an appropriate test case. On September 27, EFF filed an answer and counterclaim on behalf of the website Democratic Underground.

In the suit, the EFF argues that Righthaven is abusing copyright law to extract windfall settlements from website operators by filing nuisance lawsuits. In keeping with their defending-the-little-guy posture, EFF is seeking no damages in the case—they only want the court to rule that Democratic Underground has not infringed the copyrights of Stephens Media. Through this, the EFF hopes to set a precedent that would be invaluable to all bloggers and online media players, while destroying the copyright troll business model. Whether the court will agree with the EFF is hard to guess—but a decision in their favor could create the first opinion legally validating the unwritten rules of online blog behavior. Stay tuned.

Most of us have heard of patent trolls. Recently, we have seen the ascendance of the copyright troll. Trademark trolls, by contrast, probably shouldn’t even exist. After all, one of the principal concepts allowing a person to claim exclusive rights in a trademark is (supposed to be) that person’s actual use of the trademark in commerce, and actual use of IP is not something with which most trolls are supposed to be familiar. Trolls, the story goes, exist in shadowy recesses, ready to swing their quietly acquired IP clubs against the unwitting in the hopes of spilling a little windfall.

However, despite the oil-and-water prospects for a relationship between trademarks and trolling, Edge Games, Inc. and its founder, Dr. Tim Langdell, nevertheless have made a go at asserting claims against various players in computer gaming-related industries based on allegedly unauthorized use of the word “edge,” which forms the basis of several trademarks held by Edge and Langdell. Somewhat amusingly, though, in a recent opinion issued by the U.S. District Court for the Northern District of California, those attempts “flamed out” in spectacular fashion.

In this case, Edge filed suit against Electronic Arts (“EA” – a recognized heavyweight in the gaming industry), alleging that EA infringed its marks by releasing a game with the title “Mirror’s Edge” in 2008 and requesting that the court grant a preliminary injunction against EA’s use of the mark pending the outcome of the suit. In a colorfully illustrated opinion, the court denied the request, citing not only to the Edge’s failure to demonstrate a likelihood of confusion with regard to EA’s use of the MIRROR’S EDGE® mark, but also to what the court described as “numerous items of evidence that plaintiff willfully committed fraud against the USPTO in obtaining and/or maintaining registrations for many of the asserted “EDGE” marks, possibly warranting criminal penalties if the misrepresentations prove true.” Indeed, the evidence described in the opinion appears to indicate that Edge and Langdell repeatedly had submitted counterfeit use specimens and false information to the U.S. Patent and Trademark Office in order to secure and maintain the registrations upon which Edge had filed suit.

Overeager business owners seeking to secure trademark rights would do well to take a look at the opinion for its numerous examples of how not to be a trademark owner (to say nothing of trying to be a trademark troll). However, even where trademark fraud does not rise to the possibly criminal levels described in this opinion, it is important to keep in mind the fact that the Trademark Trial and Appeal Board takes a very hard line against irregularities in trademark applications and maintenance filings and routinely cancels whole registrations based on inaccuracies pertaining to only one class of goods or services within the scope of a registration. It is never a bad idea to have a knowledgeable attorney review those filings prior to submission.

A recent 9th Circuit ruling overrules a series of trial court results from the U.S. District Court for the Western District of Washington and reiterates the dangers of buying and selling software on eBay and other resale websites. Typically, the “first-sale doctrine” provides that the exclusive right of distribution granted to the owner of a copyrighted work extends only to the first sale of the work. Once the work has been sold, the new owner may resell the work without fear of copyright infringement. In addition, the “essential-step” defense provides that the owner of a copy of software does not infringe copyrights if the new copy is created as an essential step in using the software on a computer (for example, when copying software to a computer’s memory). However, in Vernor v. Autodesk Inc., 2010 WL 3516435 (9th Cir. Sept. 10, 2010), the court ruled that the first-sale doctrine and essential-step defense do not apply to software that is merely licensed rather than sold.

Timothy Vernor bought Autodesk software from Caldwell/Thomas & Associates, an architecture firm, and resold it on eBay. The license agreement Caldwell/Thomas received from Autodesk when it originally purchased the software included a number of restrictions regarding the nature of the transaction and the software’s use. The license agreement, most importantly, provided that Autodesk was merely licensing the software to Caldwell/Thomas and that the software was not being sold. The license agreement also restricted Caldwell/Thomas’ ability to transfer the software to a third party. The agreement contained additional restrictions regarding how Caldwell/Thomas may use the software.

Vernor claimed he was entitled to resell the software under the first-sale doctrine once Caldwell/Thomas acquired it from Autodesk. While the Washington trial court agreed, the Ninth Circuit stated that the first sale doctrine does not apply to a person who possesses a copy of a copyrighted work without owning it, such as a licensee. After reviewing the software license agreement between Autodesk and Caldwell/Thomas, the court determined that Caldwell/Thomas was a licensee and that it was not allowed to resell the software to Vernor. Vernor did not receive title when he purchased the software from Caldwell/Thomas and he could not pass ownership to subsequent purchasers.

Vernor also claimed the essential-step defense would permit his customers to install the software. In response, the Ninth Circuit provided a three-part analysis for determining whether a software user is a licensee or owner for purposes of applying the essential-step defense : 1) whether the copyright owner specifies that a user is granted a license; 2)whether the copyright owner significantly restricts the user's ability to transfer the software; and 3)whether the copyright owner imposes notable use restrictions. Because the Autodesk license agreement grants only a license, restricts users’ ability to transfer the software, and restricts the user’s use of the software, the court concluded that Caldwell/Thomas was a licensee and that neither it, nor Vernor, or his customers, was able to utilize the essential-step defense.

If you suspect software you plan to purchase may not be authorized and would not be protected under the first sale doctrine or the essential-step test, you should consult counsel experienced in advising clients regarding software licensing issues.

Social networking web sites have become an emerging conduit for small companies to recruit and conduct business. However, while some companies find this to be a successful means to expand business opportunities, others, such as Mark One Financial, have discovered that use of social networking for some purposes carries risks. Mark One attempted to collect debt from a Florida individual who had fallen behind on auto payments by contacting her friends and family members on Facebook. It is now facing a lawsuit for abuse and harassing attempts to collect debt, including a request for an injunction against using Facebook as a means to contact its clients.

This is one of the few cases to date in which a court has been asked to block a business from using a social networking site to communicate to consumers or their friends or family members. However, based on the broad reach of such sites in modern society – and on the wealth of personal information that some users publish on those sites, either intentionally or unwittingly – we expect to see an increasing number of such cases in the future. Business owners take care in communicating with and soliciting business from consumers social networking sites.

However, it also is important for consumers to protect their privacy on such sites in order to prevent unwanted communications from businesses or potential legal entanglements. District Attorneys’ offices routinely check sites such as Facebook or MySpace after arresting or charging a person with a crime in order to investigate his or her background, with prosecutors using the information, pictures, videos, and friend lists as means to gain information about the person arrested. Other attorneys also use the networking sites in order to glean information about opposing parties and witnesses in family law and civil litigation matters.

If in doubt about how to protect privacy or to legally conduct business using social networking, contact an experienced attorney to assist in navigating any potential pitfalls.