Category: Intellectual Property

Supreme Court to Consider Case on Patent Eligibility of Computer-Implemented Inventions

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On December 6, 2013, the Supreme Court agreed to consider Alice Corp. v. CLS Bank International, a case concerning the patent eligibility of computer-implemented inventions. The Court will review a split decision issued by the en banc Federal Circuit in May 2013. In that decision, seven of 10 judges concluded Alice Corporation’s claims to computer-based methods for minimizing settlement risk in financial transactions, as well as claims to computer-readable media containing program code for performing such methods, constituted patent-ineligible subject matter under § 101. The judges split evenly, however, regarding the patent eligibility of Alice’s remaining claims to computerized systems for performing such transactions. Given the stark differences of opinion expressed by members of the Federal Circuit, it was widely predicted that the Supreme Court would step in to settle the dispute. The Court’s decision could have significant implications for the computer hardware and software industries, as well as for patent eligibility standards in general.

The Supreme Court is expected to hear arguments in early 2014, and a decision is expected by the end of the term in June 2014. The case number is 13-298.

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Federal Court Narrows Claims Surrounding “HAPPY BIRTHDAY TO YOU” Copyright Suit

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Following up on a previous post regarding the lawsuit winding its way through federal court seeking clarity on whether the music publisher Warner Chappell owns or has the exclusive right to license the copyright in the ubiquitous “Happy Birthday to You” song, U.S. District Judge George H. King (Central District of California) has ordered that certain tangential claims be stayed until further notice, while the case will move forward on the central claim, essentially whether Warner’s copyright in the song is valid and enforceable or not.

Judge King’s order confirms the parties’ agreement at an October 7th hearing to bifurcate (separate) the central claim from the remaining claims (seeking an injunction against Warner, and a variety of related claims such as unfair competition, false advertising, and breach of contract) at least through the summary judgment phase of the central claim.  The central claim alone will proceed for the time being allowing the parties and the Court to focus on what is truly the dominating question in this case.

In his order Judge King also declined to apply a four-year statute of limitations to the central claim instead of the traditional copyright infringement three-year period.  Plaintiffs claimed that unlike a traditional copyright infringement action where a plaintiff alleges a defendant infringed its copyright, this is a “declaratory judgment” action involving a copyright, that is to say one where plaintiffs are preemptively bringing suit so the Court can decide whether Warner even has rights it can assert.  Basically instead of asserting its purported rights, Warner is being forced into a suit to defend its rights.  Despite the procedural change however, the analysis and issues are very similar to a traditional copyright infringement action.  The question Judge King has to resolve was, since the Declaratory Judgment Act (which permits this type of suit) does not contain its own statute of limitations, plaintiffs argued that the Court should instead use the four-year period applicable to California’s unfair competition claims (one of those ancillary claims Judge King stayed in this same order).  Judge King declined, holding that because the Declaratory Judgment Act is merely a procedural vehicle and the substantive rights being challenged are copyright-based under the Copyright Act, the best statute of limitations period is not California’s four-year period, but rather the Copyright Act’s three-year period.  He therefore dismissed two plaintiffs whose claims were time-barred by the new shorter period and gave them three weeks to re-file if they can/chose to.

Judge King’s order is clearly going to focus the parties and the court on the central issue, whether Warner has a valid enforceable copyright in the “Happy Birthday to You” song.  We will continue to closely watch this one as it proceeds.

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To Track or Not to Track Re: Digital Advertising

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Digital advertising based on tracking users’ interests and related privacy concerns have been the subject of many recent news articles.  What does this mean for businesses?  Evolving industry practices and new legislation relating to online privacy and user tracking likely require changes to online privacy practices and policies.

Online privacy and user tracking are in the news almost daily.  Consider these highlights from the past few weeks about online tracking of California minors, big data brokers, California legislation addressing “do not track,” new mobile and online interest-based advertising technology, and a warning to all website operators from the Better Business Bureau:

New Privacy Rights for California Minors

On September 23, 2013, Governor Brown signed into law new Sections 22580 through 22582 of the California Business and Professions Code titled “Privacy Rights for California Minors in the Digital World.”  The new law, which goes into effect January 1, 2015, requires an operator of a website (including online services and applications, such as a social media site) or mobile application that is “directed to minors” to allow minors (defined as anyone younger than 18 years old residing in California) who are registered users the opportunity to un-post or remove (or request removal of) their posted online content.  The operator also must provide minors with notice and “clear instructions” about how to remove their posted content.  The operator is not, however, required to remove posted content in certain specific circumstances, such as when the content was posted by a third party.

This new law also prohibits website and mobile app operators from advertising to California minors certain products and services that minors cannot legally purchase, such as alcoholic beverages, firearms, ammunition, spray paint, tobacco products, fireworks, tanning services, lottery tickets, tattoos, drug paraphernalia, electronic cigarettes, “obscene matter” and lethal weapons.  Operators also are prohibited from using, disclosing or compiling certain personal information about the minor for the purpose of marketing these products or services.

Senator Rockefeller Expands Investigation of Data Brokers

On September 25, 2013, Governor Rockefeller (W.VA) announced that he sent letters to 12 operators of popular family-, health- and personal-finance-related consumer websites requesting details about whether and what information collected from consumers is shared with data brokers.  In his letter to the operator of self.com, for example, Rockefeller noted that “[w]hile some consumers may not object to having their information categorized and used for marketing purposes, before they share personal information it is important that they know it may be used for purposes beyond those for which they originally provided it.”

California Adds Do-Not-Track Disclosure Requirements Effective January 1, 2014

On September 27, 2013, California Governor Brown signed into law amendments to the California Online Privacy Protection Act (CalOPPA), a 2004 law requiring all commercial websites and online service providers collecting personally identifiable information about California residents to “conspicuously” post a “privacy policy.”  The amendments to CalOPPA, which take effect on January 1, 2014, add two new disclosure requirements for privacy policies required by CalOPPA:

  • The privacy policy must explain how the website “responds to ‘Do Not Track’ signals from web browsers or other mechanisms that provide California residents the ability to exercise choice” about collection of their personally identifiable information (Cal Bus and Prof Code §22575(b)(5)).
  • The privacy policy must disclose whether third parties use or may use the website to track (i.e., collect personally identifiable information about) individual California residents “over time and across third-party websites” (Cal Bus and Prof Code §22575(b)(6)).

The “Bill Analysis” history indicates that CalOPPA amendments are not intended to “prohibit third-party or any other form of online tracking” but rather to “implement a uniform protocol for informing Internet users about tracking . . . and any options they may have to exercise choice . . .” (6/17/13 – Senate Judiciary).

A website operator may meet the “do not track” disclosure requirement by including a link in the privacy policy to “an online location containing a description, including the effects, of any program or protocol the operator follows that offers the consumer that choice” (Cal Bus and Prof Code §22575(b)(7)).

The reference in §22575(b)(7) to “an online location” suggests that businesses already complying with the “enhanced notice link” requirements of the Self-Regulatory Program for Online Behavioral Advertising of the Digital Advertising Alliance (DAA) will comply with amended CalOPPA.  Among other requirements, the DAA’s self-regulatory program requires website owners/operators (called “First Parties”) to provide “clear, meaningful and prominent” disclosure about data collection and use for advertising purposes, and to offer consumers a way to opt out of tracking, such as through the DAA’s consumer choice page.  As noted in the Bill Analyses, while the DAA’s consumer choice mechanism enables consumers to opt out of receiving advertising based on online tracking data, it only works for companies that participate in the DAA’s program and “does not allow consumers not to be tracked.”

User Credentials Subject to California Breach Laws Effective January 1, 2014

Governor Brown also signed into law amendments to California’s breach notification laws on September 27, 2013.  As amended, the definition of “personal information” that triggers breach notification requirements includes consumers’ online credentials: “user name or email address, in combination with a password or security question and answer that would permit access to an online account.”

Mobile Advertising: Mobile Telephone as Tracking Device

In the October 6, 2013, edition of the New York Times, an article titled “Selling Secrets of Phone Users to Advertisers” describes sophisticated profiling techniques for mobile phone users that feed on data collected through partnerships with other various online service providers.  These companies are developing alternatives for cookies, which do not work on mobile devices and, as the new California law illustrates, are increasingly irrelevant as an online tracking technique because users can block or delete them.

New Tracking Technology from Microsoft and Google

On October 9, 2013, AdAge reported that Microsoft is developing a new kind of tracking technology to replace cookies.  The new technology would function as a “device identifier,” allowing user tracking across devices that use Microsoft Windows, Xbox, Internet Explorer, Bing and other Microsoft services.  Similarly, USA Today reported that Google is developing its own digital tracking mechanism known as “AdID.”  While both of these new trackers will be used to collect and aggregate date for advertising and marketing purposes, they purportedly will offer users more control over how and what online activity is tracked and who has access to their personal data.

Better Business Bureau Issues Compliance Warning to Website Operators

On October 14, 2013, the Better Business Bureau issued a Compliance Warning noting that a “significant minority of website operators” are omitting the “enhanced notice link” (as required by the DAA’s Self-Regulatory Program for Online Behavioral Advertising) when ad networks and other third parties collect data for interest-based advertising purposes but cannot provide their own notice on the website on which the data collection occurs.  The Better Business Bureau operates the Online Interest-Based Advertising Accountability Program, through which it monitors businesses’ advertising practices and enforces the DAA’s self-regulatory program, even for companies that are not participating in it.

All of this news has created consumer confusion.  While consumers are increasingly aware of being tracked, they don’t know what exactly it means or which websites are doing it—and they are not happy about it.  A study from data privacy company TRUSTe found that 80 percent of consumers are aware of being tracked and 52 percent don’t like it.

What to Do?

A check-up for the privacy policy (or “privacy statement,” which is the increasingly popular industry term) posted on your company’s website is a good way to start evaluating your company’s digital advertising and privacy practices.  The online privacy statement is the primary means by which website operators (also known as “publishers”) communicate their privacy practices to users.

These Four steps can help you successfully evaluate your company’s privacy statement:

First, find out if your company’s marketing strategy includes advertising based on consumer information collected through cookies or other tracking technology.  Even if this type of advertising is not part of current plans, your company’s website still may have third-party tracking activities occurring on it, and these activities must be disclosed in the privacy statement as of January 1, 2014.

Second, review the privacy statement displayed on your company’s website(s) and/or mobile application(s) and make sure it accurately, clearly and completely discloses the information collected from users, how it is collected (e.g., by your company or by third parties), how your company uses the information, and whether and how the information is disclosed to third parties.  If you use information that you collected from consumers for targeted advertising, make sure the privacy statement says so.  A federal judge in the Northern District of California recently reviewed a company’s online privacy policy to evaluate whether users reading the privacy policy would understand that they were agreeing to allow user profiles and targeted advertising based on the contents of their e-mails.  The court found that the lack of specificity in the company’s privacy policy about e-mail interception meant that users could not and did not consent to the practices described in the online privacy policy.

Third, find out when and how the privacy statement is or was presented to users who provide personal information through the company website(s) and/or mobile application(s).  Is the privacy statement presented as a persistent link in the footer of each webpage?  Are users required to agree to the privacy statement?  If not, consider implementing a mechanism that requires users to do so before providing their personal information.

Finally, if your privacy statement needs to be updated, make sure you notify all consumers in advance and ensure that the changes you propose are reasonable.  Unreasonable and overbroad changes made after the fact can cause reputational harm.  Instagram learned this at the end of 2012 when it tried to change its terms of service so that users’ photos could be used “in connection with paid or sponsored content or promotions, without any compensation to [the user].”  After a hail of consumer complaints, Instagram withdrew the revised terms and publicized new, more reasonable ones.

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Another Software Patent Horror Story Unmasked and Debunked: This One You Won’t Believe

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I have noticed lately that the anti-software patent PR machine is trying pretty hard to find examples of start-ups “crushed” by software patents.

Ok, so here is the latest laugher example they came up with:  FindTheBest.com, a company that is nearing its fifth birthday and handling 20 million visitors a month, is supposedly a “start-up” being unfairly targeted by a patent troll  (see http://www.latimes.com/business/la-fi-hiltzik-20131011,0,704586.column).

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As far as I can tell from their web site, FindTheBest is doing a land-office business, and probably has a valuation better than 95% of all software companies.  For starters, in my opinion, pretty much every software entrepreneur on the planet would gladly endure a challenge from a troll if they could get 20 million visitors a month in web traffic.  But that is just the beginning of the irony of this anti-patent sob story.   The leader of this particular start-up at present, Kevin O’Connor, sold a previous start-up he co-founded, Doubleclick, to Google for $3.1 billion in 2008.  Doubleclick, and indeed O’Connor himself, named as an inventor on at least four software patents acquired by Google (http://www.patentbuddy.com/Inventor/O%27Connor-Kevin-Joseph/5640460#More), had aggressively filed patents to protect its innovations (http://www.seobythesea.com/2007/04/doubleclick-google-looking-at-some-of…).   Those patents weighed heavily in the valuation of Doubleclick when it was sold to Google.  So, is it not a little ironic that FindTheBest.com would be outraged about software patents impeding their progress, after one of their founders profited mightily from the patent filings of his own prior company?  Well, I sure think many would think so.  This is not to say I don’t have nothing but the utmost admiration for Mr. O’Connor’s entrepreneurial talents.  And, its not to say that he may very well be legitimately frustrated to have to deal with a patent infringement issue.  But, these are the problems that go with the kind of success few entrepreneurs are ever lucky enough to achieve, not the problems of the vast majority of true start-ups still trying to find enough customers to survive another round of financing.

Here is another injustice of this story: Eileen C. Shapiro, the inventor of the so-called troll patent in question, is no slacker. She has an undergraduate degree from Brown University and an MBA from Harvard University.  According to her LinkedIn profile, she holds 14 patents and has been actively involved in many start-ups.  Is this really an example of some undeserving “troll” inventor with no right to exclusive rights in her inventions?  Is it so improbable that someone that likely has a genius level IQ would be awarded a valuable patent for her ideas, which mind you appear to have come to her a good while ago before the site FindTheBest.com was even a notion in its founder’s imagination.

So, is this really an example of a “start-up” getting drummed out of business by underserving troll?  The Electronic Frontier Foundation would like you to believe that — “Trolls do a really good job of targeting start-ups at their most vulnerable moments,” says Julie Samuels, a staff attorney at the Electronic Frontier Foundation and holder of its Mark Cuban Chair to Eliminate Stupid Patents.”  (LA Times, October 13, 2013).   Or, is this an example of a large, successful, well established and fast growing company nearing its fifth birthday, that some time ago left “start-up” mode behind?  Wouldn’t most five year old companies be embarrassed to say they were still “starting up”?  This is a label only those desperately in need of contriving the facts to suit their hypothesis would dare to come up.

Moreover, is this not a great example of how Mr. O’Conner’s patents helped him get a fair return for the sale of Doubleclick to Google, so he could reinvest some of his gains in FindTheBest.com, rather than an example of how Ms. Shapiro’s innovations are a poster child for patents underserving of a reward.

If this is the best software patent horror story the anti-patent forces can come up with this Halloween, they should give it a rest for a while.

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Federal Court Rules That Patent Infringement Can Violate Antitrust Laws

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Patent infringement can be considered anticompetitive conduct under federal antitrust law, according to a recent ruling issued by the U.S. District Court for the Eastern District of Texas.

This ruling arose out of a dispute between Retractable Technologies, Inc. (Retractable) and Becton, Dickinson and Company (BD),1 in which Retractable alleges, among other claims, that BD’s infringement of Retractable’s patents foreclosed competition and maintained BD’s monopoly power in the hypodermic syringe market, thereby violating Section 2 of the Sherman Act.2

Retractable manufactures patented safety syringes and IV catheters, which protect against needlestick injuries by automatically retracting the needle after injection.  According to Retractable’s complaint, BD is the leading U.S. manufacturer of hypodermic syringes and holds a very large share of the relevant market.  Retractable claims that BD took steps to protect its dominant position after Retractable’s entry into the market, including by introducing an inferior line of safety syringes that infringe on Retractable’s patents.  Retractable contends that these actions, together with other exclusionary conduct including unlawful bundling and loyalty discounts, impeded the adoption of new and novel safety syringes, including those of smaller rivals such as Retractable, substantially lessening competition and maintaining BD’s dominance.  Retractable also alleges false advertising and other unfair competition claims.

To prove a violation of Section 2 of the Sherman Act, a plaintiff must demonstrate that the defendant (1) possesses monopoly power, and (2) acquired, enhanced, or maintained that power by exclusionary or anticompetitive conduct.3 In one of several motions to dismiss, BD asked the court to find that, as a matter of law, patent infringement can never be considered “exclusionary or anticompetitive conduct,” and therefore cannot be the basis of a Section 2 monopolization claim.  BD argued that no court has ever found patent infringement to be an “anticompetitive” act under Section 2 and that Retractable’s claim makes no economic sense, because patent infringement actually increases competition by making more products available to consumers.

On September 9, 2013, U.S. District Court Judge Leonard Davis adopted the recommendations of U.S. Magistrate Judge Roy S. Payne’s August 5 Report and Recommendation and issued an order denying BD’s motion.  Judge Davis agreed with Judge Payne that the only binding precedent offered by BD in support of its arguments held that patent infringement is not an injury recognized under the Sherman Act,4 but this has nothing to do with patent infringement as anticompetitive conduct.  Both judges noted the U.S. Supreme Court’s statement in U.S. v. American Tobacco Co. that the Sherman Act covers “every conceivable act which could possibly come within the spirit or purpose of the prohibitions of the law, without regard to the garb in which such acts were clothed.”5 Judge Payne further explained in his Report that while patent infringement often increases competition and benefits the end consumer despite harming a specific competitor, in this case Retractable alleges that the effect of BD’s patent infringement was to decrease competition by keeping BD’s inferior products on the market and preventing the sale of other, better quality safety syringes.

The complex interactions between intellectual property rights and the antitrust laws have received significant attention recently in various contexts, such as pay-for-delay settlements in pharmaceutical patent cases and abusive enforcement of standard essential patents.  The decision in this case adds an arrow to the quiver of companies with patented technology that are trying to compete in a market with a large and established player.  Companies with high market shares should take note that this ruling may expose them to additional antitrust risks, and should carefully consider whether any of their business practices would support a Section 2 monopolization claim against them.

1 Retractable Technologies, Inc., et al. v. Becton, Dickinson and Co., Case No. 2:08-CV-00016 (E.D. Tex.).

2 15 U.S.C. § 2.

3 United States v. Grinnell Corp., 384 U.S. 563 (1966).

4 A plaintiff must prove antitrust injury in order to recover damages.

5 221 U.S. 106, 181 (1911).

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It’s the Words, Not the Ideas, that Are Copyrightable

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The U.S. Court of Appeals for the Seventh Circuit dismissed a lawsuit claiming that Elton John and his songwriter partner Bernie Taupin had plagiarized their hit song “Nikita” from a song called “Natasha,” explaining that copyright law does not cover general ideas, but only the specific expression of an idea.  Guy Hobbs v. Elton John, Case No. 12-3652 (7th Cir., July 17, 2013) (Manion, J.).

Guy Hobbs composed “Natasha,” a song about a love story between a British man and a Ukrainian woman.  In 1983, Hobbs registered his copyright in the song and then sent the song to several music publishers, one of them being Elton John’s publisher, Big Pig.  However, the song was never published.  John released the Nikita song in 1985, wherein the singer from the west describes his love for a girl named Nikita, who he saw through the wall and who was on the other side of the line.  The copyright in Elton John song was registered with the U.S. Copyright Office by Big Pig.

Hobbs claimed that he first learned of the Nikita song in 2001.  He alleged that the lyrics infringed his copyright of Natasha and sought compensation from John and Taupin.  Hobbs later sued John, Taupin, and Big Pig for copyright infringement.  Hobbs claimed that his work was entitled to copyright protection because his selection and combination of the elements in Natasha constituted a “unique combination.”  Hobbs argued that the number of similar elements between the two works supported a claim for copyright infringement.

The district court held that the elements identified by Hobbs were not entitled to copyright protection when considered alone.  Hobbs had not established a “substantial similarity” between Natasha, a song about a British man and a Ukrainian woman who did meet, and John’s Nikita song describing an East German woman peering through the Berlin wall at a man she never met.  The district court also rejected Hobbs claim that the elements in the song created a unique combination that was copyrightable.  The district court held that although the theme of the two songs had some similar elements in common, the elements identified were not protectable under the Copyright Act.  Hobbs appealed.

The 7th Circuit agreed, concluding that “Natasha and Nikita simply tell different stories, and are separated by much more than small cosmetic differences.”  The 7th Circuit stated that the Copyright Act does not protect general ideas, but only the particular expression of an idea.  In addition, the Copyright Act does not protect “incidents, characters or settings which are as a practical matter indispensable, or at least standard, in the treatment of a given topic.”  The 7th Circuit concluded that “as a matter of law Natasha and Nikita are not substantially similar because they do not share enough unique features to give rise to a breach of the duty not to copy another’s work.”

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WildTangent Files its Supreme Court Certiorari Petition in Patent Infringement Case – Part 1

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In September of 2009, Ultramercial, Inc. sued WildTangent, Inc., Hulu and YouTube in the Central District of California for alleged patent infringement of U.S. 7,346,545 (the ’545 patent).  The ’545 patent claims trading advertisement viewing for access to content over the Internet.  The Abstract of the ’545 patent reads:

The present invention is directed to a method and system for distributing or obtaining products covered by intellectual property over a telecommunications network whereby a consumer may, rather paying for the products, choose to receive such products after viewing and/or interacting with an interposed sponsor’s or advertiser’s message, wherein the interposed sponsor or advertiser may pay the owner or assignee of the underlying intellectual property associated with the product through an intermediary such as a facilitator.

Claim 1 of the ’545 patent is more detailed:

1. A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:

a first step of receiving, from a content provider, media products that are covered by intellectual-property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;

a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor of the sponsor message;

a third step of providing the media product for sale at an Internet website;

a fourth step of restricting general public access to said media product;

a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message;

a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product;

a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;

an eighth step of, if the sponsor message is not an interactive message, allowing said consumer access to said media product after said step of facilitating the display of said sponsor message;

a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query;

a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and

an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

As you can see, there are 11 method steps recited in Claim 1, so it is a very detailed claim and it cannot be summarized in a sentence or two.

The history of the case is not easy to summarize either.  In short, the District Court found that the subject matter of the patent was not patent eligible and dismissed the district court action before interpreting the claims.  In 2011, the Federal Circuit reversed the District Court decision, but the Supreme Court vacated the Federal Circuit’s decision in 2012 based on its recent opinion in Mayo v. Prometheus.  And in June of 2013 the Federal Circuit again reversed the District Court decision, leading to WildTangent’s Petition for Writ of Certiorari filed last week.

WildTangent’s cert petition is attached.  I will be discussing the petition and the ongoing patent eligibility battle in more detail in future posts.

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Google, Yahoo, and Ad Networks Agrees to Set of Best Practices to Combat Online Piracy

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The United States Intellectual Property Enforcement Coordinator Victoria Espinel recently blogged about a new effort to combat online piracy of intellectual property.  The broad-based effort attempts to leverage the participation of several large internet/publishing companies (Google, Yahoo, Microsoft, AOL and Condé Nast), advertising networks (24/7 Media, Adtegrity) and the Interactive Advertising Bureau.  The parties have agreed to voluntarily adopt a set of best practices to remove advertising from websites that are primarily engaged in copyright piracy (movies, video games, music, books, etc.) or selling counterfeit goods.

In addition to efforts by companies to combat a similar problem using the Copyright Alert System, which we have previously covered, the current agreement takes aim at shutting down the profitability (and it is hoped, the major incentive) of these piracy websites to attenuate their proliferation.

The parties have agreed to implement these procedures and establish a system whereby a rights holder will send an initial informal complaint to one of the participating ad networks alleging that the website at issue is “principally dedicated to” engaging in copyright piracy and/or counterfeiting goods.  Further, the website must have no “substantially non-infringing uses.”  Upon receipt of a complaint, the ad networks will investigate and determine whether to take action, which can range from requesting the website cease from engaging in the alleged activity, to an embargo on advertisements placed by that ad network on the website until such time as the alleged violations are removed, or ultimately, removing the website from the ad network altogether.  While not required to, the ad network may also consider any evidence provided by the website owner that it is either not principally dedicated to counterfeiting or copyright piracy, or has substantial non-infringing uses.  Any such “counter notice” should include the content prescribed in the Digital Millennium Copyright Act (17 U.S.C. §512(g)(3)).  In addition, the participating ad networks will be certified by the Interactive Advertising Bureau’s Networks and Exchanges Quality Assurance Guidelines.

It is important to note that the burden to initiate the process is squarely on the rights holder, the guidelines explicitly noting that (i) there is no burden on the ad networks to police or actively monitor the websites on which their ads are placed; and (ii) by participating in this program, the ad networks do not prejudice their ability to maintain any “safe harbor” status they may otherwise be entitled to.

These best practices certainly have the critical mass to succeed.  The critical question, however, will be the quality of the analysis by the ad networks in response to allegations of piracy or counterfeiting, and the efficacy of this avenue of redress as perceived by the rights holders.  Regardless, this agreement, which may be refined going forward, is another step towards alleviating some of the pressure search engines have been under recently to take more proactive steps toward protecting intellectual property.

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Next Time, Buy the CDs, Re: Illegal Music Download

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Following the lead of other courts addressing statutory penalties for illegal music downloading, the U.S. Court of Appeals for the First Circuit upheld a $675,000 fine for downloading and distributing 30 songs.  Sony BMG Music Entertainment  v. Tenenbaum, Case No. 12-2146 (1st Cir., June 25, 2013) (Howard, J.).

For over eight years, Tenenbaum ignored the warnings of his father, his college and the music industry and continued to download and distribute thousands of songs he knew were copyrighted.  In 2007 five record companies sued Tenenbaum under the Copyright Act for statutory damages and injunctive relief.  The record companies only pursued claims for 30 songs, though Tenenbaum admitted at trial he had distributed as many as 5,000 songs.  The trial court held as a matter of law that Tenenbaum had violated the Copyright Act and the jury found his violations were willful.  The jury awarded $22,500 for each of Tenenbaum’s thirty violations (15 percent of the statutory maximum), for a total award of $675,000.  The district court reduced the award to $67,500 finding that the jury’s award violated due process.  The First Circuit vacated the district court’s judgment holding that the principle of constitutional avoidance required the court to first address the issue of remittitur before determining the due process question.  On remand the district court determined remittitur was inappropriate and that the original $675,000 award comported with due process. Tenenbaum appealed the decision solely on due process grounds.

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The Court reviewed two questions: what is the correct standard for evaluating the constitutionality of an award of statutory damages under the Copyright Act; and (b) did the $675,000 award violate Tenenbaum’s right to due process?

The 1st Circuit looked to St. Louis, I.M. & S. Ry. Co. v. Williams, not BMW of North America, Inc. v. Gore, as the proper standard for reviewing the constitutionality of statutory damages under the Copyright Act, noting that Gore applies to punitive damages and the concerns regarding fair notice to the parties of the range of possible awards were “simply not present in a statutory damages case where the statute itself provides notice of the scope of the potential award.”  Under Williams, a statutory damage award only violates due process “where the penalty prescribed is so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.”

The 1st Circuit examined the purpose of the Copyright Act’s statutory damages and Tenenbaum’s behavior to determine if $675,000 metWilliams’ standard for constitutionality.  The 1st Circuit found that in 1999 Congress increased the Copyright Act’s minimum and maximum statutory awards specifically because of new technologies allowing illegal music downloading.  The record companies presented evidence that Tenenbaum’s activities had led to the loss of value of its copyrights and reduced its income and profits—precisely the harm Congress foresaw.  The Court went on to find that Tenenbaum’s conduct was egregious—he pirated thousands of songs for a number of years despite numerous warnings.  The Court held that “much of this behavior was exactly what Congress was trying to deter when it amended the Copyright Act.”  The 1st Circuit rejected Tenenbaum’s argument that the damages award had to be tied to the actual injury he caused, relying on Williams to find that the damages were imposed for a violation of the law and did not need to be proportional to the harm caused by the offender.

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International Trade Commission Addresses Use of Standard-Essential Patents in Section 337 Investigations

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The International Trade Commission (ITC) addressed for the first time the issue of whether infringement of a patent that has previously been declared “standard-essential” may form the basis for either a limited exclusion order or cease-and-desist order under a § 337, ruling that nothing in the ITC’s enabling statute prevents issuing an exclusion order, even if the complainant is under an obligation to license the patent.  Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, Inv. No. 337-TA-794, (U.S. ITC, June 4, 2013) (ITC, per curiam); Commissioner Pinkert, dissenting).

The complainant, Samsung Electronics, held two patents that it had previously declared to be “standard-essential” to the Universal Mobile Telecommunications System promulgated by the European Telecommunications Standards Institute (ETSI).  ETSI’s Intellectual Property Rights policy required Samsung to offer licenses to such patents on fair, reasonable and non-discriminatory (FRAND) terms.  After licensing negotiations between Samsung and the respondent, Apple, broke down, Samsung filed a complaint at the ITC requesting a limited exclusion order against Apple’s mobile communication products.  After the administrative law judge ruled, on an initial determination (ID), that none of the patents at issue were valid and infringed, the ITC determined to review the ID and sought views from both the parties and the public as to whether Samsung’s declaration of the patents at issue as “standard-essential” should affect either the ITC’s analysis of whether there was a violation of § 337 or what relief should be provided.

In its final determination, the ITC found one of the two patents to be both valid and infringed, and that the proper relief was a limited exclusion and cease-and-desist order directed to the infringing articles.  The ITC first rejected Apple’s argument that the Commission should not investigate an alleged violation of § 337 based on infringement of patents subject to a FRAND undertaking, ruling that under § 337(b)(1), the ITC is required to investigate any alleged violation based upon a complaint under oath, whether or not those patents have been declared standard-essential.  The ITC also rejected Apple’s theory that the Commission “cannot address infringement of standard-essential patents other than in the exceptional scenarios such as where a potential licensee has refused to pay a royalty after a U.S. court has determined that royalty to be FRAND, or where no U.S. court has jurisdiction over the potential licensee in order to set a FRAND rate,” ruling that the remedies provided under § 337 could be imposed in addition to any damages or injunctions available from a district court.

The ITC further determined that Apple had not “properly argued any affirmative defense that would preclude the Commission from finding a violation based on assertion of a declared-essential patent,” such as a breach of contract, promissory estoppel, laches or fraud  The ITC ruled that even if Apple had offered sufficient evidence that the FRAND declaration was a legally enforceable obligation, the patents at issue were actually necessary to practice the standard and that Samsung was required to grant irrevocable licenses under FRAND terms to any party, it still would not have found in Apple’s favor, because the parties’ final offers were sufficiently close to each other that Samsung did not violate its obligation to negotiate in good faith.  Importantly, the ITC found that Samsung was not under any obligation to make an initial offer that was FRAND, because “the SSO intends the final license to be accomplished through negotiation” and “even if it were true that a FRAND agreement that requires Apple to pay Samsung ultimately is not reasonable, the offers that Apple criticizes do not necessarily demonstrate that Samsung has violated its FRAND obligations by failing to negotiate in good faith” (emphasis in original).  Finally, the ITC rejected the theory that whether a patent has been declared standard-essential should be considered when the public interest is analyzed, finding that its consideration of the public interest is limited solely to the four factors listed in § 337(d)(1).

Uncommonly for a Commission opinion, Commissioner Dean Pinkert wrote a dissent arguing that the ITC should not issue an exclusion order based on Samsung’s obligation to license the patents on a FRAND basis, that the evidence indicated Samsung was unwilling to make a FRAND licensing offer with respect to the standard-essential patents and that the absence of a FRAND offer should have a bearing on whether relief under § 337 is in the public interest.  Specifically, Commissioner Pinkert found that it was neither fair nor non-discriminatory for a FRAND-encumbered patent holder to require licenses to non-FRAND-encumbered patents as a condition for licensing the FRAND-encumbered patent.  Commissioner Pinkert also would have found that the statutory language of § 337(d)(1), as well as the legislative history of the statute that “any evidence” of price gouging or monopolistic practices on the part of the complainant would be a proper basis for denying exclusion, suggests that the section should be read broadly.

Practice Note:  The Commission’s rejection of a per se rule barring exclusion orders for patents that have been declared standard-essential is likely to lead to have a number of effects, including increased litigation of standard essential patents at the ITC, counter-suits requesting that a district court rule determine what royalty rate is FRAND and/or requesting that a complainant be enjoined from proceeding before the ITC, presidential review taking on increased importance and potential legislative action to curb the ITC’s jurisdiction.

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