Business and Technology Law

The U.S government continues to take strong measures against persons accused of illegally making copyrighted material available on the Internet. In a recent example, a Texas resident named Bryan McCarthy was arrested for criminal copyright infringement following an investigation by the Department of Homeland Security’s Immigration and Customs Enforcement division, and he now faces five years in jail for posting streaming copyrighted videos of live sporting events on his web site. McCarthy operated www.channelsurfing.net – a domain name that was seized by the government – which did not directly host any content itself, but which instead embedded content from other sites. Prosecutors allege McCarthy sold advertising on his web site and profited from the copyrighted material, earning approximately $90,000.00.

Some critics claim that such charges do not comport with U.S. legal requirements that some kind of “copying” must occur in order to support a claim for copyright infringement. (It appears that no videos were hosted directly from any computers owned or controlled by Mr. McCarthy.) Additionally, some argue the seizure of domain names under such circumstances has questionable legal support and could implicate free speech rights if the associated sites are not directly distributing copyrighted material.

Web site owners engaging in posting or embedding material that may be copyrighted must be vigilant in preventing the use of their sites for illegal activity. If in doubt about the use of copyrighted materials, it is advisable to seek legal counsel.

Many businesses with strong and successful web presences find themselves in the position of having to determine how to respond to the unauthorized use of their web content by others. In fact, it is not uncommon for a web content owner to wake up one morning to find essentially its entire website – which may be the principal vehicle for all of its marketing and customer-outreach efforts – to have been copied nearly verbatim by a competitor. In some cases, the competitor in question may not even know of the infringement, having relied on a website-development vendor to create the site. However, regardless of the cause, it is critical for the original owner to have a plan to address such activity.

A successful outcome for this kind of matter matters typically depends on a content owner’s compliance with the following three commandments:

1. Know what copyrightable content you own. Knowing what you created may be easy to determine in many (though not all) cases, but knowing what is copyrightable may not always be so clear. A website typically consists of a compilation of different kinds of materials (e.g., text, photography, artwork, streaming media), some of which the site owner may have created and some of which may have been created by others. In addition, certain kinds of content (such as lists of addresses or tables of statistics) may not be eligible for copyright protection, regardless of their source. The U.S. Copyright Office has provided guidance on the basics of copyright protection in a circular available here.
2. Register your copyrights. Copyright registration is a prerequisite to seeking remedies for infringement in federal court, and untimely registrations may result in the inability to secure statutory damages under U.S. copyright law. The availability of statutory damages may control a decision regarding litigation in a matter, because the alternative is to present proof of a claimant’s actual damages, which may be difficult or impossible to calculate accurately. Fortunately, copyright registration is relatively easy and inexpensive. More information from the Copyright Office is available here.
3. Tread carefully in enforcement efforts. It is important to pursue true infringers aggressively, because in some cases, failure to enforce a copyright may result in the inability to remedy the infringements. However, overreach in enforcement efforts can result in wasted legal expenses and, worse, exposure to legal liability for inappropriate claims. Certain provisions of U.S. copyright law (such as, for example, the website-takedown-notice provisions in Section 512 of the Digital Millennium Copyright Act) even make statutory damages available for individuals or businesses that suffer business interruption or other injuries as a result of an inappropriate DMCA notice letter. Effective protection of copyrights almost always involves a holistic process and nuanced analysis of the issues faced by content owners. The assistance of knowledgeable counsel often is critical, especially when it comes time to enforce your rights.

Businesses are beginning to fully realize the immense marketing power of Facebook and other social media platforms. Users of these sites often log on daily to share personal information, pictures and videos, and informal product reviews and endorsements, presenting businesses with tremendous opportunities to engage and communicate directly with their customers. However, brand managers need to understand the dangers presented by this kind of communication and user-generated content. Users can infringe on the intellectual property rights of organizations, potentially reaching millions of users and diluting brands with the click of a button. Monitoring and protecting trademark rights on social media sites such as Facebook is a critical element in every brand management strategy.

Trademark infringement on Facebook can arise in several ways. First, Facebook allows users to select “vanity URLs,” which are words appended to the end of the www.facebook.com URL (for instance: www.facebook.com/your.company.name). A company seeking to develop their own Facebook presence for the first time may find that another unauthorized user is squatting on the company’s vanity URL using the company’s trademark. Also, unauthorized users might use a company’s trademarked logo or slogan in violation of the company’s intellectual property rights. Finally, a company may find that a Facebook App is misappropriating the company’s trademark by creating a Facebook application that purports to be sponsored or developed by the company itself.

So what does a company do when they discover its mark is being infringed? Unlike copyright, which provides for a specific procedure to address infringement of copyrighted material on the Internet (see our other post on the Digital Millennium Copyright Act (“DMCA”)), trademark law has no such scheme to address online infringement. However, Facebook has set up an internal procedure that essentially mimics the take down notices required by the DMCA. Using Facebook’s Notice of Intellectual Property Infringement (non-Copyright Claim) form, brand owners can notify Facebook of most alleged infringing activity occurring on the site. Facebook then will review the request and will remove or disable access to the content should they find that there is evidence of infringement. However, in the case of infringement in an App, Facebook takes no responsibility since Apps are hosted on the developer’s sites and not within the Facebook servers. In these situations, the trademark owner must contact the developer directly to engage in traditional trademark dispute procedures.

In any case, it is advisable for companies to understand how their trademark rights are being infringed before making use of either method to address an alleged infringement. Further, even if a business uses Facebook’s built-in claim form to report trademark infringement, it still may make sense to contact the infringer directly in some cases in order to prevent future infringing conduct.

On March 15, 2011, the White House released its White Paper on Intellectual Property Enforcement Legislative Recommendations, outlining a number of proposals for preventing IP-rights violations and for empowering the U.S. government to more effectively enforce copyrights and trademarks, including new punishments proposed for violations.

The 20-page paper (a copy of which is available here) includes suggestions such as legislative action to include unlicensed streaming of content over the Internet within the scope of “distribution”-based copyright violations, which are felonies under federal law. The white paper also suggests extending government wiretapping authority to criminal copyright and trademark cases.

Copyright infringement matters are pursued most commonly in civil court for damages brought by copyright holders. However, the federal government increasingly is taking efforts to pursue and prosecute criminal copyright violations. These efforts have led to arrests and prosecutions, recently including a Houston man, Bryan McCarthy, who was accused of criminal copyright infringement for streaming live video feeds of sporting events on his web site. If convicted, McCarthy faces up to 5 years in jail. Extending the government’s authority for wiretapping of phone lines and web sites would grant the government more control over web content and could facilitate domain-name seizures.

However, some critics warn that excessive government authority to wiretap and seize web sites may lead to a chilling effect on first amendment rights, and a slippery slope to abuse of power. It will be interesting to see the extent to which Congress takes action on the suggestions in the white paper.

Businesses often use famous creative works as source material for new marketing campaigns, construction projects or other investments. The Mona Lisa might serve as the subject of a new ad campaign for an printer manufacturer, or a cartoon character may be used to promote a new family-themed restaurant. However, while the payoff from such investments may be worth the price of entry (often in the form of licensing agreements with the owners of the pre-existing works), businesses that fail to exercise due diligence prior to incurring new costs can find themselves in the position of seeing their money wasted and their bottom lines exposed to legal liability.

For example, in a lawsuit filed on February 16, 2011, the Board of Regents of the University of Texas alleged that an Austin-area car wash business’ replica of the iconic UT tower constitutes an infringement of UT’s rights in three trademarks consisting of various depictions of the tower. (A copy of the complaint, with pictures, is available here.) The car wash owner reportedly spent approximately $3 million designing and building his 60-foot replica of the famous 300-foot tower, but he apparently did not expect that undertaking would implicate intellectual property rights held by UT.

The lesson to be learned here is that trademark disputes can arise from unexpected sources. High-value projects incorporating pre-existing works in any form need to be accompanied by some measure of due diligence regarding third-party rights. In this case, UT’s likelihood-of-confusion claims seem to be somewhat misplaced, in light of the fact that it is doubtful the defendant is offering educational services at the car wash, and it will be interesting to see if the university amends its complaint to emphasize a trademark-dilution theory of liability. However, before sinking $3 million on any high-visibility investment for PR purposes, a business owner needs to be prepared to include an appropriate legal review at a very early stage in the process to help ensure that an aggrieved IP owner does not come knocking after the project is complete.

In 2010, music-sharing website Limewire shut down amid allegations that it facilitated copyright infringement. Subsequently, a lawsuit brought by more than 30 music publishers was filed and settled under confidential terms. However, Limewire is still facing a lawsuit brought by 13 record companies, including Atlantic, Elektra, Interscope, Motown, Sony BMG, Virgin, and Warner Brothers, which is set for trial in May. (Music publishers and recording companies are able to pursue separate copyright-infringement claims based on the fact that they hold different rights -- the copyright in the composition for the former and the copyright in the actual sound recording for the latter.)

Limewire was designed to allow free file-sharing among its members, and the record labels have claimed more than $1 billion in damages as a result of those activities. In a summary judgment ruling last May, the company was found to have induced copyright infringement and unfair competition. However, discovery pertaining to the plaintiffs’ damages is ongoing, and Limewire is seeking to prove that the labels’ damages claims are inaccurate and exaggerated.

File-sharing sites have been heavily scrutinized for posting copyrighted content, and many have faced copyright-infringement claims. Owners of web sites whose users engage in file-sharing need to be aware of their potential for exposure to copyright-related claims and should take steps to prevent illegal distribution of copyrighted or pirated materials using their services.

Last month, California Representative Jackie Speier introduced H.R. 654, the so-called Do Not Track Me Online bill, to Congress. The bill is the first response to the Federal Trade Commission’s December 2010 request for the establishment of a Do Not Track registry for online users that would be similar to the Do Not Call registry for telemarketing calls established in 2003. The Do Not Track Me Online bill calls for the FTC to establish regulations requiring covered entities (defined as companies engaging in interstate commerce that collect or store online data), to allow customers to opt out of online tracking. The bill provides for monetary penalties for violations of the bill, not to exceed $5 million for a related series of events.

The Do Not Track Me Online bill would require covered entities to comply with the requests of consumers not to track their online movements via tracking cookies and other technologies, and also to provide reports to the agency regarding data-collection methodology and data-sharing activities. The bill also leaves open options for the FTC to modify its rules to include other requirements, specifically including a provision to force covered entities to provide consumers with means to access the consumers online activity data stored by the covered entity.

These regulatory requirements would not apply to companies that: 1) store online activity information on less than 15,000 people; 2) collect online activity information from less than 10,000 consumers in a year; 3) do not collect sensitive information from consumers; and 4) do not use online activity information to analyze online behavior as the company’s primary business. Although this is the preliminary draft and likely will undergo significant changes before it gets to the floor for a vote, the power and reach of the bill lies in the “sensitive information” element to the exclusion above. The bill defines sensitive information as information related to the health, race, religious, sexual orientation, financial accounts, geolocation, or personal identifiers of the consumer, though it allows the FTC room to modify this definition. The FTC could broaden the scope of covered entities to include those that collect other personally identifying information—a move that would increase the rule’s scope to require any company that collects sensitive information, regardless of its size, to be forced to comply with these regulations.

Businesses often rely on the talents of creative independent contractors when developing original works like software, marketing media, and product documentation, to name a few examples.

Many business owners believe – mistakenly – that the fact they paid for the contractors to develop the creative works in question means their companies own those works. Other business owners hit a little closer to the mark and believe – still, though, mistakenly – that their companies always will own the works as long as they identify them as being “made for hire” in their agreements with the contractors. However, both sets of owners run the risk of failing to perfect their rights in those works, leading to the possibility of disputes and costly, unexpected licensing arrangements down the road.

U.S. copyright law does not treat independent contractors like employees, whose works generally are held to be the property of the employing companies. In order to secure its copyrights, a business needs to take two important steps in written agreements with its developers:

1. Identify the works in question as “works made for hire,” and (more importantly)
2. Specify that the developers assign any rights they may have in those works to the company.

Step 2 is critical, because many kinds of creative works do not qualify for work-for-hire treatment under U.S. law. The copyright act specifies that works made for hire must be specially ordered or commissioned and must fall into one of the following categories:

• a contribution to a collective work,
• a part of a motion picture or other audiovisual work,
• a translation,
• a supplementary work (defined as being a published addendum that introduces, explains or assists in the use of an earlier work prepared by a different author),
• a compilation,
• an instructional text,
• a test,
• answer material for a test, or
• an atlas

A wide variety of works – notably including many kinds of computer programs – do not fall within the scope of those categories, making an express assignment a vital element in the developer or project agreement. However, a full assignment also can be a source of friction in negotiations, and businesses dealing with savvy contractors should expect in many cases to pay a premium to own those works at the end of the relationship.

In difficult cases, businesses are well advised to seek the assistance of counsel.

In December of 2010, Facebook relaxed the rules on creating and implementing promotions designed to drive user “Likes” to company Pages. It did so in part due to the marketing industry’s recognition that the value for each Like to a company Facebook page can be calculated in real dollars. For example, Sycapse, a social media management company, conducted a study that calculated the average value of a Facebook Like to be over $70 of extra spending by each user on the company’s goods or services. To capitalize on this interest in the platform, Facebook eased the process to set up a promotion from a technical perspective and no longer requires companies to obtain specific approval from Facebook for each promotion run on its platform. Despite this lowered bar to entry, companies and social media managers should take note that although Facebook relaxed its internal rules, each promotion still should be evaluated carefully in light of various state and federal laws that may be implicated when running this type of promotion.

Each state has specific laws governing contests and sweepstakes targeting its citizens. For instance, promotions that target children may have a different set of requirements under state law than the same promotion that targets only adults—and these requirements may vary from state to state. However, as a general rule, all promotions must be accompanied by clear contest rules that are available to any individual prior to entering the contest. Companies therefore must follow those rules to the letter when conducting contests and selecting winners. If a contest rule is drafted in a way that violates state law, or if the company deviates from its own rules, then the company may expose itself to significant liability.

In addition, it is critical to be mindful of intellectual property rights of others who may be either directly or indirectly involved in the promotion. While most consulting firms that develop Facebook promotions are careful to obtain the required licenses or releases for the images or logos used in the promotion, few smaller companies take the time to ensure compliance with intellectual property laws. For example, a company might contract with an independent graphic developer to create a fantastic splash page for a Facebook promotion that includes copyrighted images of the giveaway item. If the promotion is published prior to obtaining permission to use those images (likely from the company that manufactures the product being given away), then the promoting company likely will be in violation of federal copyright law and could find itself subject to a copyright-damages award. Statutory damages under U.S. copyright law can be as much as $30,000 per work found to be infringed (and up to $150,000 per work found to be infringed willfully).

These are but two examples of the way Facebook promotions can expose a company to legal liability if not carefully considered. Before any promotion is undertaken on Facebook, a company should consult with an experienced attorney to draft contest rules, review promotion materials, and monitor contest implementation to ensure compliance with state and federal law.