Business and Technology Law

President Obama was recently urged to sign a bill passed by the Senate on December 13, 2010, that seeks to educate US District Court judges on the intricacies of patent cases. The bill would send cases with one or more patent issues to judges who request to hear patent cases and would provide the judges with additional experience evaluating patent claims. The program would be instituted in the six U.S. District Courts that received the most patent and plant variety protection cases in the last year. Courts that adopt and implement local rules for patent cases also will be eligible for the program.

The bill is intended to provide judges an opportunity to develop their expertise and to better evaluate and understand patent cases. Patent law is a unique and complex area of the law unfamiliar to many experienced judges. President Obama has been urged to sign the bill into law to help thwart efforts of so-called “patent troll” plaintiffs, who typically file lawsuits against possible infringers of patents in which the plaintiffs have acquired ownership rights.

The law would remain effective for 10 years, and the Director of the Administrative Office of the United States Courts is to prepare a report of the pilot program approximately five years after the program begins. Companies with significant investments or dependencies in technology should keep an eye on how the participating courts handle patent claims, if the bill is signed. Implementation of this sort of program may have a positive effect on those companies’ legal exposure arising from third-party, patent-infringement claims.

A copy of the bill is available on the govtrack.us website.

Copyright registration is a necessary step for any owner of original content, but it is important to be vigilant when completing the application to the U.S. Copyright Office – inaccurate information on the application can lead to significant copyright enforcement obstacles.

In Shirokov v. Dunlap, Grubb & Weaver et al., a federal lawsuit recently filed in the U.S. District Court for the District of Massachusetts, the plaintiff alleged that he received a demand letter from a law firm representing a German movie studio. The letter accused the plaintiff of illegally downloading the studio’s film “Far Cry” and demanded that he pay damages for the infringement. However, according to the complaint, the studio’s law firm lied on a copyright application in stating that November 24, 2009 was the film’s publication date. According to the plaintiff, this was the date of the film's U.S. DVD release, but the film was released in Germany October 2, 2008, in U.S. theaters December 17, 2008, and on DVD in the Netherlands April 14, 2009. The plaintiff therefore argued that the studio should be barred from filing suit to recover damages for any infringement as a result of the statute-of-limitations and registration-period requirements provided in the Copyright Act.

Courts differ on when a copyright registration may be invalidated due to mistakes in the application, but intentional fraud typically will void the registration. The Copyright Act provides in section 410(b) that the Register of Copyrightsmust refuse registrationto anyclaim that is invalid. Section 411 prevents an applicant from obtaining remedies for copyright infringement if inaccurate information was included in the application and it was a) included on the application with knowledge that it was inaccurate and b) the inaccuracy of the information, if known, would have caused the Register of Copyrights to refuse registration. Finally, section 506(e) states that any person who knowingly makes a false representation of a material fact in the application for copyright registration, or in any written statement filed with the application, shall be fined not more than $2,500.

Including accurate information in a copyright application is vital. Content owners should consult with counsel if there are any questions regarding how to complete a copyright application or to enforce copyrights against infringers.

On December 14, 2010, in the case of MDY Industries v. Blizzard Entertainment, the Ninth Circuit emphasized an important point for online service providers and legal practitioners to keep in mind when drafting software end user license agreements. MDY Industries, maker of software program – “Glider” – that automatically plays Blizzard Entertainment’s popular World of Warcraft game, filed a declaratory judgment action against Blizzard to determine whether MDY’s program infringes any of Blizzard’s rights. The Ninth Circuit addressed, among other issues, whether Glider violates Blizzard’s copyrights.

The Court began its analysis by identifying the two types of provisions in licenses:

We refer to contractual terms that limit a license’s scope as “conditions,” the breach of which constitute copyright infringement. We refer to all other license terms as “covenants,” the breach of which is actionable only under contract law. To establish copyright infringement, then, Blizzard must demonstrate that the violated term... is a condition rather than a covenant.

The Court then determined that nothing in the license agreement conditioned Blizzard’s limited license grant on a player’s compliance with the terms that were breached.

The point is an important one. Without that standard, a software copyright holder could identify any disfavored conduct associated with the use of its software as copyright infringement by purporting to condition the license on the player’s abstention from the disfavored conduct. The Copyright Act does not contemplate such wide protection. Only when a license term is grounded in one of the exclusive rights protected by the Copyright Act may breach of a term lead to copyright infringement liability.

Software developers should carefully craft their license agreements to leverage all of their rights under the Copyright Act and should expect that only certain license terms, if violated, could lead to copyright infringement liability.

In a highly publicized case, SAP has been ordered to pay Oracle $1.3 billion for a SAP subsidiary’s theft of customer-support documents and software in an attempt to hijack Oracle’s customers. This is one of the largest amounts – if not the largest amount – ever awarded by a U.S. court for software copyright infringement. The U.S. District Court for the Northern District of California agreed that the value of the stolen intellectual property was vast and that the damages award was appropriate due to the vital importance of copyrights in the software industry. SAP had admitted liability, but it claimed that it should only pay for money it made from the 358 customers it gained with the stolen data.

Oracle’s complaint indicated that SAP swept vast amounts of Oracle software products and proprietary information onto SAP’s servers. The claims against SAP recited in the complaint included violations of the Federal Computer Fraud and Abuse Act and California Computer Data Access and Fraud Act, intentional and negligent interference with prospective economic advantage, unfair competition, and other civil claims.

The facts in the complaint indicate a systematic attack on Oracle’s systems in which thousands of documents and programs appear to have been stolen. It also appears that SAP did little to conceal its activities. While the legal issues involved in the case were not particularly novel or complex, this ruling could have a significant effect on the software industry. In a world where it is becoming increasingly important for different vendors’ products to work together, having two players of Oracle’s and SAP’s size embroiled in a contentious and ongoing feud could spell trouble for businesses using their products.

Lamebook.com, the Facebook.com parody website, has filed a declaratory judgment action in the U.S. District Court for the Western District of Texas in Austin. Lamebook, founded in April 2009, defines itself as a, “fun humor blog that allows us to all share and marvel at the funny, ridiculous, and outright crazy posts that can be found on your favorite social networking site.” The Lamebook logo appears to borrow heavily from Facebook’s blue and white logo with a lower case and sans-serif font.

Facebook sent letters to Lamebook claiming the parody website was diluting Facebook’s trademark and that Lamebook must stop using the word “Lamebook” because it contains the word “book.” Counsel for the websites attempted on two occasions to resolve the issues over the phone but were unable to reach a resolution. Facebook’s letters continued to demand that Lamebook cease and desist using the Lamebook mark and indicated that the parody site must comply or face legal action.

Lamebook’s declaratory judgment action claims that Lamebook does not offer social networking services and does not compete with Facebook. Lamebook requests that the court make a declaration of non-infringement of the Facebook mark, a declaration of non-dilution of the Facebook mark, and a declaration that the Lamebook mark is protected by the first amendment of the United States Constitution.

Trademark disputes such as these often involve difficult questions regarding the scope of a trademark owner’s rights and the applicability of certain defenses that may be available to alleged infringers. If you have received one or more cease and desist letters, or, conversely, if you believe your trademark or other intellectual property rights are being infringed, you should contact counsel experienced in enforcing and protecting those rights.

Entering into a Microsoft Enterprise or Select agreement can be an effective way for companies with large and predictable software needs to reduce IT costs. However, Enterprise and Select agreements may include restrictions on an affiliate’s ability to use software licensed under those agreements. Additionally, the flow of documents over the course of a Microsoft agreement relationship may create confusion regarding the current terms of the agreements and may end up steering a company in the wrong direction relative to its software asset management objectives.

Most Enterprise and Select agreements contain specific provisions determining whether the signing company’s affiliates also may use the software licensed to that signing company. If the affiliates are not specifically included in the agreement , then a significant amount of software intended for use by the affiliate may be out of the affiliate’s legal reach. Additionally, even if some affiliates are included at the outset, it is common for a Microsoft licensing agreement to exclude affiliates that are acquired after the agreement is signed. If such a provision is in place, only the affiliates owned by the signing company at the time the agreement is signed may use the software.

If you renew a Microsoft agreement relationship that is based on a history of prior agreements, you should review the current agreement to confirm that it is consistent with prior terms. Getting lost in the document soup of many years’ worth of agreements potentially can be damaging for a company that does not track its license agreements with precision.

Before you sign a Microsoft Enterprise or Select agreement, you should work with an independent, knowledgeable licensing consultant or attorney experienced in evaluating Microsoft agreements and advising companies on whether those agreements fit with the business’ objectives.

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.

The Texas Attorney General’s Office is investigating whether Google violated antitrust laws with its search rank methods. The inquiry reportedly focuses on whether and to what extent Google manipulates search results to place certain links closer to the top of the results list in order to stifle competition. A good search result ranking often translates into instant commercial success for many businesses while a lower ranking may contribute to a business’ failure.

Texas Attorney General Greg Abbott reportedly has asked Google for information regarding several companies in the online shopping, comparison shopping, and e-commerce space. The companies previously filed regulatory complaints or lawsuits against Google. Google closely guards its search algorithms and indicates it strives to recommend Web sites most likely to satisfy the needs of each user's request. On its Public Policy Blog, Google identified each of the three companies at issue and provided more information about its history with the companies.

This may be one of the first broad antitrust reviews of Google’s search and advertising practices in the U.S. The investigation likely will be closely watched by search-engine optimization professionals, because the impact of an adverse finding concerning Google’s business practices could have far-reaching impacts on how businesses use the search engine giant and how they work to improve their search rankings in order to promote products and services.

In Advertise.com, Inc. v. AOL Advertising, Inc., 2010 WL 3001980 (9th Cir. 2010), the Court of Appeals for the Ninth Circuit partially reversed a trial court decision granting AOL an injunction against Advertise.com. In August 2009, AOL – which owns the mark ADVERTISING.COM – filed a complaint and motion for a preliminary injunction against Advertise.com alleging that Advertise.com had infringed AOL's trademark rights. Advertise.com appealed the trial court's decision to grant the preliminary injunction, but it did not contest that part of the preliminary injunction that enjoined it from using any design mark that was confusingly similar to AOL's stylized marks.

On appeal, the Ninth Circuit concluded the ADVERTISING.COM mark was generic . Generic terms are those that refer to the genus of which the particular product or service is a species, i.e., the name of the product or service itself. To determine whether a term is generic, a court determines whether consumers understand the word to refer only to a particular producer's goods or whether the consumer understands the word to refer to the goods themselves. On the other hand, a mark that is descriptive describes the qualities or characteristics of a product. Generic terms cannot be valid marks subject to trademark protection, whereas a descriptive mark can be valid and protectable if it has acquired secondary meaning.

The Ninth Circuit first examined the component parts of ADVERTISING.COM and determined ADVERTISING and .COM were both generic terms. Merging the terms together yielded a generic term as well. The court indicated that AOL accurately could describe itself as an “advertising.com” or “advertising dot-com.” AOL’s references to cases in which a seemingly generic URL mark was ruled non-generic did not persuade the court.

Additionally, the multitude of other domain names incorporating the word “advertising” (Advertise.com cited 32 such examples) convinced the court that AOL’s mark is generic. The court addressed AOL’s remaining arguments as inapplicable or unpersuasive and reversed the district court’s grant of an injunction against Advertise.com to the extent it enjoined Advertise.com from using the designation and trade name ADVERTISE.COM or any other designation or trade name that is confusingly similar to AOL's ADVERTISING.COM marks.

If you require assistance navigating a trademark dispute or registering your trademark, you should consult counsel experienced in handling trademark matters

The American Society of Composers, Authors, and Publishers (ASCAP) recently filed copyright infringement actions against 21 bars, nightclubs, and restaurants nationwide. ASCAP claims in its press release that the establishments “either publicly performed the copyrighted musical works of ASCAP’s songwriter, composer and music publisher members without obtaining a license from ASCAP to do so, or had signed a license agreement with ASCAP but failed to comply with the license's payment terms.” ASCAP claims that it gives each establishment an opportunity to license music and pay the appropriate fees and that it resorts to legal action only when amicable attempts at resolution to a licensing dispute have failed.

Establishments that engage in copyright infringement are subject to significant liability if found guilty. ASCAP has the option of electing statutory damages of up to $30,000 per song infringed or up to $150,000 per song infringed if the conduct was considered willful. The exact amount of damages awarded is within the court’s discretion. Willful conduct often is defined as actual knowledge of infringement or reckless disregard that conduct constituted infringement. Willful conduct also does not need to be proven directly and may be inferred from the defendant's conduct. Some courts have presumed an establishment acted willfully if it fails to respond to a complaint or court order or if it fails to appear in court.

Alternatively, ASCAP may elect actual damages, normally calculated with respect to its lost profits. The defendant also may be assessed ASCAP’s attorney’s fees in addition to paying its own fees.

Music copyright infringement disputes with ASCAP, BMI, and other music copyright owners and royalty clearinghouses can become very expensive for bars, nightclubs, restaurants, and other establishments. If you are negotiating a license agreement with ASCAP, BMI, or a similar entity, or if you already are in a licensing dispute with the entity, you should contact counsel experienced with copyright law and license agreements.

In Vergara Hermosilla v. Coca-Cola Co., 2010 WL 2232657 (S.D. Fla. 2010), a U.S. federal court in Florida required Coca-Cola to post a conspicuous notice indicating Rafael Vergara Hermosilla’s (“Vergara”) contribution to a song Coca-Cola intended to use in its advertising during the 2010 World Cup soccer games.

Vergara had been asked to translate into Spanish a portion of the lyrics to the song “Wavin’ Flag” by the artist K’naan and to mix and produce a newly recorded Spanish vocal track for the final mix. Vergara penned the Spanish lyrics of the song, sent rough vocal tracks demonstrating how the vocals should be sung to Universal Music Group (“Universal”), who had the contractual relationship with Coca-Cola, added backing vocals to the rerecorded Spanish track, and mixed and produced the final song.

However, before Universal paid the invoice, it asked Vergara to sign a document indicating the work he completed was a work-for-hire under the Copyright Act. Vergara responded that he would not have gone forward with the project had he known it would be considered a work-for-hire, and he insisted that he receive credit for the production work and that, for the Spanish version of the song, his name appear next to the composer(s) of the original English version. Universal did not agree to Vergara’s proposed terms.

In May, 2010, Vergara filed an action for injunctive relief seeking an order requiring that Coca-Cola cease advertising with or distributing the Spanish version of the song and that Coca-Cola make a public acknowledgement of Vergara’s contribution to the song.

Coca-Cola argued it secured an implied and non-exclusive license to use the song, that the work was a work-for-hire, and that Vergara failed to obtain a copyright registration prior to filing the action, barring him from filing suit. The court rejected all of these arguments and issued an injunction prohibiting Coca-Cola from distributing the work without proper credit given to Vergara.

If you would like to license or obtain rights to music, you should consult counsel experienced in negotiating agreements to help prevent disputes like the one described above. If you have already become involved in such a dispute, you should contact counsel to discuss your options to resolve the issues between you and the other parties.

In Lapine v. Seinfeld, 2010 WL 1688713 (N.Y.C.A. 2010), plaintiff Missy Chase Lapine and The Sneaky Chef, Inc. (“Lapine”) appealed from a summary judgment awarded to defendants Jessica Seinfeld and others on plaintiffs' claims of copyright infringement, trademark infringement, and trademark dilution. The district court determined that Seinfeld’s book Deceptively Delicious: Simple Secrets To Get Your Kids Eating Good Food, was not substantially similar to plaintiffs' cookbook, The Sneaky Chef: Simple Strategies for Hiding Healthy Foods in Kids' Favorite Meals, released four months earlier. The court affirmed the district court’s findings.

Lapine contended the district court erred when it decided Seinfeld’s book was not substantially similar to Lapine’s book. Both cookbooks provide information related to tricking children into eating healthy foods by including pureed vegetables in other foods. Lapine claimed the two works are substantially similar in their unique and innovative expression of the idea of sneaking vegetables into children's food by means of a cookbook containing comprehensive instructions for making and storing a variety of vegetable purees in advance, and then using the purees in specially created recipes for children's favorite foods. The court determined that the standard test for substantial similarity between two items is whether an ordinary observer, unless he set out to detect the disparities, would be disposed to overlook them, and regard the aesthetic appeal as the same. When, as in this case, a work incorporates unprotected elements from the public domain, the court should apply a “more discerning observer” test, which requires substantial similarity between those elements, and only those elements, that provide copyrightability to the allegedly infringed work.

The court stated that stockpiling vegetable purees for covert use in children's food is an idea that cannot be copyrighted. The Copyright Act does not protect ideas. It protects expressions of ideas. To the extent the two works have general and abstract similarities-including their vaguely similar titles and inclusion of illustrations of prepared dishes, health advice, personal narrative, descriptions of how to make purees, instructions for preparing dishes, and language about children's healthy eating-the district court correctly concluded that these elements do not raise a fact issue for trial because they are “scènes à faire,” or unprotectable elements that follow naturally from the work's theme rather than from the author's creativity. The two books lacked the substantial similarity required to support an inference of copyright infringement.

Lapine also contended the district court erred by failing to apply an eight-factor test in Polaroid Corp. v. Polaroid Electronics Corp., 287 F.2d 492, 495 (2d Cir.1961) when it rejected Lapine’s trademark infringement claims. The court ruled that a district court need not slavishly recite the litany of all eight Polaroid factors in each and every case. The Court of Appeals considered the overall impression on a consumer and the context in which the competing marks are displayed and reached the same conclusion as the district court: the marks are not confusingly similar. Defendant’s cover art was much more detailed than plaintiff’s, though the two drawings incorporated similar themes. Additionally, Defendant Jessica Seinfeld’s use of the famous “Seinfeld” name reduces any likelihood of confusion with Lapine’s marks. The court affirmed the district court’s dismissal of Lapine’s trademark dilution claims for the same reasons.

If you have been accused of copyright or trademark infringement, you should seek counsel experienced in resolving such disputes.

In New York City Triathlon, LLC v. NYC Triathlon Club, Inc., 2010 WL 808885 (S.D.N.Y. 2010), the court granted plaintiff’s request for an injunction against defendant barring defendant from using versions of “NYC Triathlon” in its name. New York City Triathlon, LLC (“NYC Triathlon”) sent a cease and desist letter to NYC Triathlon Club, Inc. (the “Club”) after the Club changed its name from SBR Multisports, Inc. to NYC Triathlon Club. The Club did not respond to the letter, and NYC Triathlon then filed its request for injunctive relief seeking relief to protect its trademark and goodwill pursuant to the U.S. Lanham Act and to the common and statutory laws of New York.

The New York City Triathlon is a grueling and popular Olympic-distance triathlon offered every summer in New York, New York. Last year, 20,000 applicants vied for 5,600 race spots, and an estimated 250,000 spectators attend the event. The triathlon is sanctioned by USA Triathlon, the independent organization that governs triathlon racing in the United States. Numerous news and media outlets cover the race and it has received local coverage in nearly every U.S. State. Media outlets in Australia, India, and Great Britain also cover the triathlon. The Club is a retail outlet that sells triathlon equipment, and it was among the triathlon’s sponsors from 2005-2008.

The court found that NYC Triathlon’s marks had acquired secondary meaning because they signified NYC Triathlon as the exclusive source of the services at issue to an appreciable number of consumers. “NYC Triathlon Club” was also confusingly similar to “NYC Triathlon,” “New York City Triathlon,” and “NYC Tri.” The court analyzed the proximity of the goods and services provided by the two entities and determined that NYC Triathlon and the Club operated in the same channels of trade and that consumers may mistakenly assume a common source of the goods and services. NYC Triathlon also was able to demonstrate actual consumer confusion by submitting emails it received indicating individuals assumed the two organizations were the same.

The court found that the Club’s bad faith in using the NYC Triathlon’s marks was evident from its decision to change its name rather than pay NYC Triathlon a sponsorship fee, from its failure to respond to NYC Triathlon’s cease and desist letter, and from its history of attempting to trade on the goodwill of other sporting events, namely, the Ironman Triathlon, by creating what it called the “Iron Race.” The court also found that the Club‘s quality of products and services was inferior to those provided by NYC Triathlon. Though the consumers in the relevant market may be sophisticated, 56% of the race’s registrants identified themselves as first-time triathletes and may be confused by the similar names. The court therefore granted NYC Triathlon’s motion for an order enjoining the Club’s ongoing trademark and trade name infringement and other claims related to dilution, cybersquatting, unfair competition, and deceptive trade practices.

If you suspect your mark is being misused or if you are concerned your mark may infringe another mark, you should contact counsel experienced with trademark and brand management.

If you have started a business and have not already formed an organizational entity or protected your business name, you should swiftly move to protect yourself and your business from unforeseen liability or loss of intellectual property. New business owners should form a legal structure to add additional protection against personal liability. Establishing a partnership, professional corporation, limited liability company, or corporation will add additional layers or protection against claims related to your business. Business of all types – retail, general services, medical, financial, technology, and media, to name a few – should form legal identities at the early stages of their existence. Compared to defending a claim against you or your business, setting up a legal entity is generally affordable and straightforward. A good rule of thumb is: If you have customers or clients, you could have a lawsuit. Don’t risk your business or your personal assets. Protect yourself.

In addition, registering your core trademarks is something every entrepreneur should investigate. A trademark registered with the U.S. Patent & Trademark Office will establish your claim of right to a particular brand and will provide you with a stronger position when asserting or defending against infringement claims if another business contends you are improperly using their brand. Additionally, a registered trademark will enable you to pursue infringers with more confidence in achieving a successful result. A cease and desist letter accompanied with proof of a federal trademark registration is oftentimes all it takes to dissuade a would-be infringer from using your business name or a name similar to your business name. Preventing others from operating under business names similar to yours also will help you differentiate your business as a leader in your field and will ensure consumers do not confuse your products and services with those provided by business that may be offering inferior products and services.

Finally, obtaining copyright registrations at the U.S. Copyright Office for any original content, whether written or electronic, that you own will provide you with a stronger claim of right over those materials. As with trademark registrations, copyright registrations also will prevent other business from taking your words and pictures and using them for their business. Obtaining a copyright registration for a website is often the first step a business takes in protecting its content. It also represents a strategic first copyright, because websites often include both textual descriptions of the business and images related to the business’ products and services. Obtaining a website copyright is advisable because it can protect a large amount of original material with one legal tool.

In Lettuce Entertain You Enterprises, Inc. v. Leila Sophia AR, LLC d/b/a Lettuce Mix, No. 09 CV 2582, Slip Op. (N. D. Ill. 2010), Lettuce Entertain You Enterprises, Inc. (“LEYE”) obtained a preliminary injunction against Leila Sophia AR, LLC d/b/a Lettuce Mix (“Sophia”). LEYE owns a group of federally registered marks for restaurant services utilizing the word “lettuce.” Sophia opened a restaurant named “Lettuce Mix” several blocks away from one of LEYE’s restaurants. In March, 2009, LEYE sent a cease and desist letter to Sophia requesting that Sophia remove the sign. Sophia, through counsel, refused to remove the sign and defended its use of the name.

In April, 2009, LEYE filed a complaint alleging, among other things, federal and common law infringement of LEYE’s marks. Sophia thereafter covered its “Lettuce mix” sign with a banner that read “Let us be” with “Name pending…” below in a smaller font. Images of lettuce heads appeared on the banner.

A preliminary injunction is an exercise of potentially very far-reaching power. To obtain a preliminary injunction, a plaintiff typically must demonstrate (1) that its case has some likelihood of success on the merits; (2) that no adequate remedy at law exists; and (3) that it will suffer irreparable harm if the injunction is not granted. The movant must show that it has a “better than negligible” chance of success on the merits. The court will adopt a sliding scale approach and take into consideration the irreparable harm an injunction would cause the nonmoving party and any consequences to the public from denying or granting the injunction.

The court determined the word “lettuce,” as used by LEYE, was not generic because it refers to the types of services LEYE provides and that LEYE would have a better than negligible chance of showing that its group of marks is protectable. Sophia’s use of the word “lettuce” in “Lettuce mix” is substantially similar to LEYE’s use of “lettuce” in its marks because both are being used in connection with providing restaurant services and because “Lettuce mix” appropriates the salient feature of LEYE’s family of marks: the use of “lettuce” as a pun for “let us.” The court therefore found that the two marks are substantially similar.

Further analyzing the factors, the court found that LEYE established a likelihood of success on the merits. Sophia raised a fair use defense that the court struck down. To prevail on its fair use defense, Sophia had to show (1) that it is not using Lettuce mix” as a service mark; (2) that it is using the mark in good faith merely to describe their services, and (3) that the mark is in fact descriptive of its services. The court did not find that Sophia’s use of the mark qualified as a fair use.

Concluding its analysis, the court determined that LEYE had no adequate remedy at law, that the balance of the harms weighed in favor of LEYE, and that the public interest was served by enjoining Sophia’s use of the mark to prevent a likelihood of confusion among consumers.

If you think someone is improperly using your brand or trademark, you should contact counsel experienced with protection of intellectual property.

The Business Software Alliance (“BSA”), a trade association representing a number of software publishers, is launching a new campaign to attract would-be informants to its reward program. The BSA’s new Know it / Report it / Reward it campaign will attempt to attract a larger number of informants through a coordinated effort involving online advertisements, radio advertisements, research reports, and other tools.

The program continues the BSA’s practice of offering rewards of up to one million dollars for qualifying reports of software piracy. Individuals allegedly possessing knowledge about a business’ software compliance practices report information to the BSA which may become the basis of a legal engagement.

Issuance of a Software Policy can also provide the education and training employees need to help the business maintain compliance. Management should clearly delineate the company’s software asset philosophy and process to ensure compliance across the organization. Companies that receive audit letters from the BSA should contact experienced counsel for assistance.

View the BSA press release here.

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.

The judge in MySpace Inc. v. Wallace, et al, CV-07-1929-ABC-AGR (C.D. Cal. May 12, 2008) entered a default judgment against Sanford Wallace and Walter Rines for violations of the CAN-SPAM Act and ordered the defendants to pay MySpace over $230 million in statutory damages. The CAN-SPAM Act regulates the transmission of commercial email and various activities related to commercial email, such as prohibiting the use of false, misleading, or deceptive information, prohibiting the use of automated “bots” to create multiple email accounts, and requiring certain contact information in commercial electronic mail messages.

MySpace, a social networking site, allows individuals to create unique user profiles containing personal and private information and to share their profile information with others. The networking site allows users to send each other messages within the MySpace network and to post comments on each other’s profile pages.

MySpace alleged that Wallace and Rines created over 11,000 false profiles by circumventing MySpace’s security measures designed to prevent such actions. MySpace further asserted that Wallace and Rines sent nearly 400,000 commercial messages and posted 890,000 comments from 320,000 profiles defendants “hijacked” by luring users to a website designed to look like a MySpace page. The phony MySpace page then solicited MySpace users’ account credentials which defendants Wallace and Rines used to hijack user profiles and send messages.

The court found that Wallace and Rines violated the CAN-SPAM Act and assessed damages as follows:

- $157,390,200 against Wallace and $233,777,500 against Rines, for violations of the CAN-SPAM Act ($157,390,200 in joint and several liability and an additional $63,387,300 against Rines).

- Statutory damages in the amount of $1,500,000 against both defendants for violations of California’s anti-phishing statute, Cal. Bus. & Prof. Code § 22948.2.

- Attorneys’ fees in the amount of $4,709,140.00, as calculated pursuant to the formula prescribed by Local Rule 55-3 ($5,600 plus 2% of the amount over $100,000); plus costs of suit.

An Arizona district judge recently reconsidered its decision to grant summary judgment in favor of a group of recording companies in Atlantic Recording Corporation et al. v. Howell. The record companies accused Mr. and Mrs. Howell of using music-sharing software KaZaA to share music files in violation of the Copyright Act. The Howells, proceeding pro se, argued that KaZaA shared Mr. Howell’s private music folder without his authorization or knowledge. Mr. Howell denied placing music files in KaZaA’s shared folder, which allows public access to computer files. The district court originally granted summary judgment based on the record companies’ evidence that Mr. Howell admitted he shared copyrighted materials through KaZaA. However, upon reconsideration, the court determined that Mr. Howell never admitted he disseminated the materials.

The Copyright Act provides in section 106(3) that the owner of a copyright possesses, among other rights, the exclusive right to distribute copies of the copyrighted work. Although the Copyright Act does not define “distribute,” the court followed precedent from other jurisdictions and determined that actual dissemination of either copies or phonorecords is required to demonstrate a violation of Section 106.

The court concluded that unless a copy of the work is transferred “by sale or other transfer of ownership, or by rental, lease, or lending,” there is no distribution. Judge Wake added that merely making available an unauthorized copy for public access is does not violate the copyright owner's exclusive right to distribution. Combined with other circumstantial evidence, such conduct may create liability, but it is insufficient on its own to result in a copyright violation.

Although the record companies may ultimately prevail on their copyright claims, the court’s ruling makes it difficult for plaintiffs in Arizona to prevail merely by showing that copyrighted material was available on a file-sharing network without an additional showing that the defendant affirmatively disseminated the material.

To view the court’s opinion, click here.

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.

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.

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.

The FTC announced on March 4 a settlement with Goal Financial, LLC, a San Diego-based student loan company that allegedly violated information privacy laws. If accepted, the settlement will require Goal Financial to implement a comprehensive information security program and subject itself to independent, third-party audits every two years for 10 years.

Goal Financial provides a variety of loan services and collects personal information from loan applications and other sources. The information includes name, address, telephone number, driver’s license number, Social Security number, date of birth, and income, debt, and employment information in its course of business. The company is therefore a “financial institution” according to the Gramm-Leach-Bliley Act (“GLBA”) and is subject to the GLBA’s Safeguards Rule and Privacy Rule. Goal Financial stores the records in electronic and paper form.

The FTC’s complaint alleges that Goal Financial engaged in a number of practices that, taken together, failed to employ reasonable and appropriate security measures
to protect personal information. Specifically, the complaint alleges that Goal Financial placed at risk the personal information of over 41,000 consumers because it failed to:

(1) assess adequately risks to the information it collected and stored in its paper files and on its computer network;
(2) restrict adequately access to personal information stored in its paper files and on its computer network to authorized employees;
(3) implement a comprehensive information security program, including reasonable policies and procedures in key areas such as the collection, handling, and disposal of personal information;
(4) provide adequate training to employees about handling and protecting personal information and responding to security incidents; and
(5) require third-party service providers by contract to protect the security and confidentiality of personal information.

Goal Financial’s employees allegedly exploited these failures and removed more than 7000 consumer files containing sensitive information without authorization and transferred them to third parties. In 2006, a Goal Financial employee sold to the public computer hard drives containing personal information of approximately 34,000 consumers.

Due to such failures, Goal Financial also violated the Safeguards Rule of the GLBA which requires financial institutions to protect the security, confidentiality, and integrity of customer information be developing a comprehensive written information security program that contains reasonable administrative, technical, and physical safeguards.

Additionally, The Privacy Rule requires financial institutions to provide customers, no later than when a customer relationship arises and annually for the duration of that relationship, “a clear and conspicuous notice that accurately reflects [the financial institution’s] privacy policies and practices” including its security policies and practices. Goal Financial distributed to its customers a privacy policy that contained false or misleading statements regarding the measures implemented to protect its customers’ personal information.

The proposed settlement requires Goal Financial to institute measures to bring it into compliance with the rules stated above and to prevent it from committing future violations.

View the news release http://www.ftc.gov/opa/2008/03/studlend.shtm

View the complaint http://www.ftc.gov/os/caselist/0723013/080304complaint.pdf

View the proposed settlement http://www.ftc.gov/os/caselist/0723013/080304analysis.pdf

Many businesses use Microsoft server products to manage their network, their data, and their e-mail communications. However, businesses often select a Microsoft server product without weighing the advantages and disadvantages of the products' Standard and Enterprise versions. Carefully examining the functionality and licensing schemes of each product can help prevent unnecessary expenditures on software.

Standard products are generally less expensive and less robust than their Enterprise counterparts. This does not mean that Standard products are the wrong choice for a business. Standard products are often powerful enough for a business' needs. A business that is better matched to a Standard product may experience more difficulty managing the numerous features and settings of an Enterprise product, which may require significantly more effort and expertise to properly implement.

A business that owns a properly licensed copy of a Standard product can not operate an Enterprise version without purchasing and owning an Enterprise license. Obtaining an Enterprise product by alternative means and installing it in place of a Standard product may lead to compliance issues in the case of an audit. Management may be unaware of the technology solutions deployed in its environment, and to its surprise, discover too late that the business is out of compliance and under investigation by one of the several auditing entities that represent Microsoft. An improperly licensed Enterprise product may lead to exponentially higher licensing costs than a Standard product.

Enterprise products are typically used in complex environments such as universities, hospitals, and data centers serving users numbered in the hundreds or thousands. Consulting the features and licensing rules for individual products could result in a more cost-effective purchase for your business.

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 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.

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 Massachusetts Appeals Court ruled on January 15 that when parties accept the terms of a settlement agreement via e-mail, the settlement agreement is enforceable. In the midst of a jury-waived trial, plaintiff Basis Technology Corporation and defendant Amazon.com, Incorporated appeared to agree to the terms of a settlement agreement. Basis Technology Corp. v. Amazon.com Inc., No. 06-P-1048 (Mass. App. Ct.). Basis' counsel sent Amazon's counsel an email setting forth six settlement terms to be later memorialized in a writing, after which Basis' counsel wrote, “please contact me first thing tomorrow morning if this e-mail does not accurately summarize the settlement terms….” Amazon's counsel responded with a one word reply: “correct.” Both counsel reported in open court and on the record that a settlement had been reached without specifying the settlement terms. Amazon's counsel sent to Basis' counsel the next day a facsimile of the e-mailed terms.

The parties later disagreed about a settlement term requiring Amazon to convert preferred stock to common stock and Basis sought to enforce the settlement agreement. Amazon opposed. The trial judge ruled that the e-mail constituted an agreement on all material terms and was not ambiguous. Amazon appealed on grounds 1) the trial court incorrectly ruled as a matter of law that the e-mail exchange could create a complete and unambiguous agreement and 2) the trial court incorrectly ruled as a matter of fact-finding that Amazon intended to be bound by the e-mail terms.

The Appeals Court ruled that settlement terms do not become ambiguous simply because the parties develop different meanings of them. Genuine ambiguity requires language susceptible of more than one meaning so that reasonably intelligent persons would differ as to which meaning is the proper one. The court ruled that because Amazon's counsel responded to the e-mail with “correct” that the essential business terms were resolved. Intent to subsequently memorialize terms in writing does not mean intent to create terms. The terms needed only to be recorded. The court determined that where parties agree to material terms, it may be inferred that a document executed by the parties serves as a polished memorandum of an already binding contract.

Amazon’s most strenuously argued contention was that the settlement term requiring application of a formula for a stock conversion was too indefinite. The court ruled that the term described in the email incorporated by reference the ratio set forth in a previous stock purchase agreement and a previous amendment to Basis' certificate of incorporation agreed to by both parties. Because those provisions incorporated the conversion ratio and accompanying formula as constant elements of the Basis certificate of incorporation, they together provided an objective method for determining a variable contractual element. The court determined that Amazon had actual or chargeable knowledge of the formula in question when it agreed to the settlement terms. Amazon’s counsel should have rejected that settlement term if Amazon did not intend to be bound by it.

The FTC recently announced its first settlement regarding FACTA document disposal rule, 16 C.F.R. 682, which requires any company collecting consumer information for a business purpose to dispose of that information in a way that prevents unauthorized access and misuse of the data.

American United Mortgage Company agreed to pay a $50,000 penalty in response to the FTC’s accusations that it failed to do the following:

1. Implement reasonable policies and procedures requiring the proper disposal of consumers’ personal information, including consumer reports;
2. Take reasonable actions in disposing of such information;
3. Identify reasonably foreseeable internal and external risks to consumer information;
4. Develop, implement, or maintain a comprehensive written information security program; and
5. Provide its customers a privacy notice describing its information collection and sharing practices with respect to affiliated and non-affiliated third parties, as required by the FTC’s Privacy Rule.

The complaint alleged that American United collected personal information about consumers, including Social Security numbers, bank and credit card account numbers, income and credit histories, and consumer reports and that American United failed to dispose of the personal information in accordance with the FACTA provisions regulating document disposal. American United documents containing consumers’ personal information were found in and around a dumpster near its office that was unsecured and easily accessible to the public. Many such documents, some in open trash bags, were found in February 2006.

In addition to the $50,000 payment, the settlement requires American United to obtain an independent, third-party audit to ensure that its security program meets the standards of the order. The audit must be completed every two years for the next 10 years. The settlement also enjoins American United from any further FACTA violations.

If your business collects sensitive consumer information, you should seek counsel for advice regarding FACTA and its state counterparts. FACTA violations could lead to unnecessary expense of time and resources. Properly preparing your business could help prevent subsequent losses.

View the FTC Press Release here.

View the complaint here.

View the FACTA Disposal rule here.

A recent decision from the Ninth Circuit clarifies the circumstances under which a company may be held liable for contributory copyright infringement. In Perfect 10, Inc. v. Amazon.com, Inc., 2007 WL 4225819 (9th Cir. 2007), Perfect 10, a website selling copyrighted images of nude celebrities, sued Google and other entities for copyright infringement. Perfect 10 alleged, among other claims, that Google should be held secondarily liable for copyright infringement by other websites that display Perfect 10’s copyrighted images.

Google’s search functionality allows Internet users to search for images based on textual search strings and to then view search results in the form of scaled-down images (“thumbnails”). The user can select an image by clicking on it, at which point Google transfers the user to a page divided into two parts, or frames. The top frame displays a thumbnail as it is stored on Google’s servers. The court concluded that such storage falls within the Copyright Act’s definition of Fair Use. The bottom frame, however, displays Perfect 10’s copyrighted images exactly as they appear on third-party websites that have infringed Perfect 10’s copyright by illegally displaying the images. Google did not dispute that such display by third-party websites constituted copyright infringement.

The court began its analysis with several underlying rules regarding secondary copyright infringement. Initially, contributory liability for copyright infringement may be predicated on:

1. Actively encouraging (or inducing) infringement through specific acts, or
2. Distributing a product distributees use to infringe copyrights, if the product is not capable of substantial non-infringing uses.

The court concluded that Google could be liable under the first prong. Noting that an element of intent is required for contributory infringement and that tort law imputes to a tortfeasor the intention to cause the natural and probable consequences of his conduct, the court reasoned that an actor may be contributorily liable for intentionally encouraging direct infringement if the actor knowingly takes steps that are substantially certain to result in direct infringement.

The court reasoned that a computer system operator can be held contributorily liable if it has actual knowledge that specific infringing material is available using its system and can take simple measures to prevent further damage to copyrighted works, yet continues to provide access to infringing works. The court then ruled that Google could be contributorily liable if it had knowledge that infringing Perfect 10 images were available using its search engine and it could have, but did not, take simple measures to prevent future damage to Perfect 10’s copyrighted content.

That Google’s search engine is also useful for searching and displaying noninfringing content did not sufficiently detract from the effect its world-wide service has on copyrighted and infringing content. The court remanded the issue of Google’s knowledge of the infringing content back to the district court for factual determinations.

If your business is in any way connected to potentially infringing activity, it is important to consider the legal ramifications of your connection to the activities at issue. Knowledge of infringing activity may be a basis for liability if your business had the opportunity to remedy or prevent the infringing conduct but failed to take action.

View the full opinion here.

In May of 2007, Sports Imaging Photography of Utah sent a cease-and-desist letter to Utah School & Sports Imaging requesting it to stop using the “sports imaging” name. Both businesses offer photography services for schools and sports leagues. Utah School refused Sports Imaging's request, claiming that the terms “imaging,” “sports imaging” and “sports imaging photography” are generic and cannot be trademarked. Sports Imaging filed a trademark infringement suit in the United States District Court, District of Utah, against Utah School seeking a preliminary injunction prohibiting further use of its trademark.

The court denied Sports Imaging's request for an injunction because: 1) it did not register its trademark and was therefore not entitled to the presumption of validity that accompanies a registered mark; and 2) terms like sports, photography, and imaging, which describe a relevant class of goods are not entitled to trademark protection.

The court also reasoned that even if the marks were descriptive, rather than generic, Sports Imaging would not be able to demonstrate that the marks had acquired a secondary meaning, which is a necessary element for protection. Although, Sports Imaging had been using its marks for 27 years, it never sought to register the words in its logo, and its request to register its logo was unsuccessful.

The court could not conclude that Sports Imaging, at this preliminary stage in the matter, had a likelihood of success on the merits. If you are seeking to protect a trademark and are considering filing a request for an injunction, it is important to evaluate the likelihood of success on the merits.