Tag Archives: Copyright

Copyright Lawsuit against Patent Firms Continue: Firms Claim Fair Use and Copyright Misuse

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John Wiley & Sons v. McDonnell Boehnen Hulbert & Berghoff (MBHB) (N.D. Ill.) (Complaint)

Earlier this year, Wiley sued the MBHB law firm for copyright infringement. The basis of the lawsuit stems from the firm’s compliance with its duty to inform the USPTO of information materially related to the cases that it is handling. See 37 C.F.R. 1.56. The complaint identifies two short scientific articles that the firm submitted to the USPTO:

  • Raznikov, V., et al., “A new approach to data reduction and evaluation in high resolution time-of-flight mass spectrometry using a time-to-digital convertor data recording system,” Rapid Communications in Mass Spectrometry, vol. 15, No. 8, pp. 570-578 (2001); and
  • Erchak, A., et al., “Enhanced coupling to vertical radiation using a two dimensional photonic crystal in a semiconductor light-emitting diode,” Applied Physics Letters, vol. 78, No. 5, pp. 563-565 (2001).

The crux of Wiley’s argument is that the firm infringed Wiley’s exclusive rights by submitting these documents to the USPTO as well as by allegedly sharing the articles with the inventors and storing a copy in the firm’s files. I contacted one of the authors – Nobel Laureate, Dr. Alan Heeger – from the parallel Schwegman case. Dr Heeger had not previously heard of the lawsuits. He had only two comments: (1) that the lawsuits seem “somewhat strange” and (2) that he is not receiving any royalties from the article.

More Background on the Case

The MBHB law firm has now filed its answer to the complaint – arguing that Wiley’s lawsuit is both troubling and disruptive to the operation of the US patent system.

Plaintiffs seek in this case to create unprecedented liability for law firms filing patent applications that would change long established practices in fulfilling legal obligations under the Patent Law and Regulations requiring patent practitioners to disclose prior art to the United States Patent and Trademark Office (“USPTO”). Such a result would undermine the Patent Office’s ability to get full disclosure of relevant prior art to the detriment of our patent system and, thus, to innovation in general. Fortunately, Plaintiffs’ claims are without merit.

The process of securing U.S. patents is dictated by complicated USPTO Rules and Federal regulations. Failure to comply with those Rules and Regulations could lead, among other things, to fraud on the USPTO and could jeopardize a patent’s scope, validity and enforceability. . . .

Now, Plaintiffs John Wiley & Sons, Ltd. and American Institute of Physics (“Plaintiffs”) attempt to introduce a costly new requirement into this long-standing practice. They seek to impose a requirement on those practicing patent prosecution to negotiate a license with the holder of the copyright in the journals before complying with the Patent Office’s prior art submission requirements. Plaintiffs’ misguided attempt to change established practice will only serve to undermine the full disclosure requirements of the USPTO and interfere with access to the constitutionally mandated patent system.

Because of the negative impact of claims such as the Plaintiffs’ on the patent system, and thus on its goal of encouraging innovation, the Patent Office has taken the unusual step of posting on its website a position paper from Bernard J. Knight, Jr., General Counsel of the USPTO, stating the USPTO’s position that copying and submitting non-patent literature (“NPL”) by patent applicants in order to satisfy the USPTO’s disclosure requirements is fair use. The official position paper addressed all four fair use factors and concluded that “we believe that it is a fair use for an applicant to make copies of NPL and submit those copies to the USPTO during examination in an [Information Disclosure Statement].” The General Counsel’s position was based in part on the fact that “the applicants here are not ‘exploiting’ the copyrighted work, and are instead merely submitting it, pursuant to a legal requirement, based on its factual, rather than its expressive, content [and] the use could be considered transformative.” The General Counsel also concluded that “there is no basis for concluding that the applicants submission of NPL to the USPTO has any significant negative impact on the market for the submitted NPL.”

Plaintiffs’ attempt to characterize MBHB’s alleged use of the scientific journal articles as anything but a legal, customary practice by attorneys to comply with their legal obligations during patent prosecution is unavailing. MBHB is being sued simply for following the requirements of the patent regulations. An adverse judgment against MBHB would harm not just MBHB, but all firms who practice in this area, and interfere with the federal government’s interest in promoting an inexpensive and efficient patent system whereby prior art is appropriately disclosed. Plaintiffs’ allegations, thus, fit squarely within the parameters of what the Copyright Act deems as a fair use. Accordingly, as a matter of law, Plaintiffs lack meritorious grounds for their copyright infringement suit.

The answer claims includes a number of defenses including fair use; copyright misuse; immunity under the Noerr-Pennington doctrine; and implied license.

Supreme Court to Hear International Copyright Exhaustion Case

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By Dennis Crouch

Kirtsaeng v. John Wiley & Sons, Inc. (Supreme Court 2012)

The Supreme Court has granted certiorari in another international copyright exhaustion case. Previously, in Omega v. Costco, the court stalled in a 4-4 tie and left the case without an opinion. Copyright exhaustion – also known as the “first sale doctrine” – is codified under 17 U.S.C. § 109(a) and allows the holder of a copy of a work “lawfully made under this title” to sell or otherwise dispose of the copy without the copyright holder’s permission. Without this doctrine, such a sale could be considered a violation of the copyright holder’s exclusive distribution rights under section 106(3). The question in this case is whether the exhaustion doctrine applies to authorized copies manufactured outside of the US and then imported. Copyright holders argue that exhaustion does not apply because the foreign copies were not “lawfully made under this title,” but instead were lawfully made in a region not subject to US copyright law. A win for the copyright holders would support a system of price discrimination that would allow a rights-holder to block third-party imports of legitimate (non-counterfeit) products into the US. The rule would also tend to encourage foreign manufacture.

The question presented:

How do Section 602(a)(1) of the Copyright Act, which prohibits the importation of a work without the authority of the copyright’s owner, and Section 109(a) of the Copyright Act, which allows the owner of a copy “lawfully made under this title” to sell or otherwise dispose of the copy without the copyright owner’s permission, apply to a copy that was made and legally acquired abroad and then imported into the United States?

The case is expected to be argued this fall.

Exclusive Rights of Importation: The particular facts of the case are interesting. John Wiley sells textbooks at a reduced rate in Thailand. Kirtsaeng imported eight Wiley books and resold them in the US. Although Wiley had profited from the original sale in Thailand, the company argued that the importation also violated US law because the foreign sale did not exhaust the copyright and that, therefore, Wiley maintained exclusive rights of importation and distribution. A jury awarded Wiley statutory damages of $75,000 per copy for a total of $600,000 for the eight books. The Second Circuit affirmed that judgment.

Patent Law: Patent law’s exhaustion doctrine is not based upon a statute but does run roughly parallel to the copyright law as outlined above. In the Jazz Photo cases, the Federal Circuit ruled that international sale does not exhaust US patent rights. If the Supreme Court reverses in Kirtsaeng, this will likely be seen as an implicit reversal of Jazz Photo and its progeny. Thus, the case will obviously impact patent law. The AIPLA filed a brief in support of the petition – focusing on the need for resolving the circuit split.

John Wiley’s cases are still pending against various patent law firms for failing to obtain a license to make copies of prior art documents before making copies and submitting those to the USPTO as required by law. The defendant law firms are expected to file their answers later this month.

Copyright: Lawfirms Sued for Submitting Prior Art to the USPTO

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  • John Wiley & Sons and American Institute of Physics v. McDonnell Boehnen Hulbert & Berghoff (MBHB) (N.D. Ill.) (Complaint)
  • American Institute of Physics and John Wiley & Sons v. Schwegman Ludberg (D.Minn) (Complaint)

The Hoboken publishing company (John Wiley) and the non-profit American Institute of Physics have continued their quest to pursue copyright infringement charges against US patent attorneys who submit copies of journal articles to the US Patent Office during the patent application process. The submission of those documents is required by law and attorneys who fail to submit known and relevant prior art can be subject to ethics charges and the associated patents held unenforceable. Earlier this year, the US Patent Office issued a memo indicating its belief that copying and submitting copyrighted documents should be considered a non-actionable fair use.  Firms already pay for access to the articles and the USPTO also has its own access to most of the articles. The issue is whether the patent applicants must pay an additional fee for making a copy for the USPTO and an additional copy for the in-house file.

The first two law suits were filed yesterday. The first against my former law firm MBHB LLP in Chicago and the second against the Schwegman firm in Minnesota.  These two firms are known for the high level of scientific and technical expertise of their attorneys.  (Full Disclosure – MBHB is the primary advertiser on Patently-O)

The complaints allege two particular infringing acts:

14. In connection with researching, filing and prosecuting certain patent applications, McDonnell made and/or distributed to the United States Patent and Trademark Office (“PTO”), and perhaps others, unauthorized copies of copyrighted articles from plaintiffs’ journals … Such unauthorized copies were used for the commercial benefit of defendants and their clients.

15. Upon information and belief, defendants made (a) additional copies of the copyrighted works that defendants included or cited in their patent applications to the PTO, including those identified on Schedule A, and (b) copies of plaintiffs’ copyrighted works that defendants considered in connection with those applications, but did not ultimately cite or provide to the PTO. Plaintiffs cannot know the full extent of defendants’ copying without discovery. Apart from the copying of plaintiffs’ works accompanying the patent filings described above, this internal copying infringes plaintiffs’ copyrights.

In his article for PaidContent, Jeff Roberts sees these two as “a test-run. . . . If the firms fold their cards and settle, John Wiley and the physicists may be emboldened.” (See also Zach Winnick at Law360).

In the complaint, Wiley identifies two articles that MBHB allegedly submitted to the USPTO:

  • Raznikov, V., et al., “A new approach to data reduction and evaluation in highresolution time-of-flight mass spectrometry using a time-to-digital convertor datarecording system,” Rapid Communications in Mass Spectrometry, vol. 15, No. 8, pp. 570-578 (2001); and
  • Erchak, A., et al., “Enhanced coupling to vertical radiation using a twodimensional photonic crystal in a semiconductor light-emitting diode,” Applied Physics Letters, vol. 78, No. 5, pp. 563-565 (2001).

The complaint in the Schwegman case are based upon these two articles:

  • McDonald S., et al., “Photoconductivity from PbS- nanocrystal/ semiconducting polymer composites for solution-processible, quantum-size tunable infrared photodetectors,” Applied Physics Letters, vol. 85, No. 11, XP012062554, ISSN: 0003-6951, pp. 2089-2091, (Sep. 13, 2004); and
  • Greenwald, et al., “Polymer-Polymer Rectifying Heterojunction Based on Poly(3,4-dicyanothiophene) and MEH-PPV,” J. Polym. Sci. A: Polym. Chem., vol. 36:17, pp. 3115-3120, (1998).

I have contacted the authors of each of these articles, but have not yet received any response. MBHB’s managing partner Marcus Thymian released a statement referring to the USPTO’s position on fair use. “We note that the United States Patent and Trademark Office has released its position — that it is a fair use for a patent applicant to submit a copy of non-patent art to the patent office to fulfill the disclosure requirement imposed by the patent regulations.”  It will also be easy for the law firms to obtain an opinion that internal copying also qualifies as a fair use under Section 107 of the Copyright Act. 

In a statement to Law360, the plaintiffs attorney Bill Dunnegan appears ready to admit – despite language in the complaint – that submissions to the USPTO are not actionable.  He is quoted as saying “The crux of what our case deals with is the internal copying by the law firms after they have one copy in their hand. . . . Those copies are not licensed, and the patent office didn’t take a position on whether or not fair use would apply to those copies.”  The copy-for-file issue seems to fall in line with the Supreme Court’s analysis in Sony v. Universal (1984). In that case, the court held that it was a fair use for home consumers to record television broadcasts so the consumers could view the shows at a later time. 

Notes:

  • Submitting Citations: Several years ago, the USPTO realized that it already had copies of all issued US patents within its in house databases and asked patent practitioners to stop sending-in copies of patents. Rather, the patent attorneys were asked to simply submit a list of US patent documents that materially related to the patent being examined.  To the extent that the USPTO already has access to many of the publications in question here, a similar solution could work that allows patent practitioners to simply submit the citation to articles within the USPTO databases.
  • Open Access: Depending upon pricing structure, access to a journal such as the Journal of Applied Physics costs as much as $15k per year.  Academic authors generally receive no compensation for publication and there is a growing movement amongst academia toward open access journals.  Almost all law reviews make their works freely available online.  This enforcement project may push the sciences in that direction as well.

The New Choice: Inequitable Conduct or Copyright Infringement

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CopyrightSymbolMany patent applicants enjoy the fact that the USPTO lists all cited and considered references on the face of each patent. That listing provides an apparent presumption that the newly patented invention is a step beyond anything found in those references. Economists have even shown that patents with more cited references tend to be relatively more valuable. Patent applicants are also under a duty to submit prior art references that are material to patentability. 37 C.F.R. §1.56.

A negative side of citation is now emerging. Recently, copyright owners have begun trolling non-patent prior art citations to see whether any of their works were copied and submitted to the USPTO. Of course, following standard law firm practice additional copies were likely generated for the file and for review by the inventors or attorneys. These copies may be hard copes or electronic versions, but as MegaUploads can now attest, that makes no difference in copyright law. Statutory damages for copyright infringement range from $750 to $150,000 per work. The exact figure is largely within the discretion of the judge and is based upon what the "the court considers just" and whether the infringement was willful.

A number of scientific journals have begun to threaten law firms and their clients for submitting copies of journal articles to the USPTO.  The typical cease & desist letter that I've seen says something like the following:  

"We've been trolling through USPTO records and found that you submitted a copy of one of our articles articles to the USPTO and we suspect that you maintained other copies in your files and distributed additional copies within your organization. These actions constitute copyright infringement and are not fair use.  We will sue you unless you come into compliance with our CCC licensing scheme."

To be clear, the focus in the letter is on copies being submitted to the USPTO as well as copies retained in the file and distributed internally.

I looked-into the CCC automated licensing system and found that they offered the right to make copies of a NATURE article (one of the journals taking action) for $32 per copy. 

USPTO Response: In a surprisingly bold statement, the USPTO's General Counsel Bernie Knight released a statement late last week indicating the USPTO's belief that submission of unlicensed copies of copyrighted materials to the USPTO for the purpose of complying with Rule 56 cannot create copyright liability because that action is fair use under 17 U.S.C. 107.  This issue previously arose when the USPTO was building the PAIR electronic record system.  It was because of potential copyright concerns that the USPTO decided not to make available non-patent prior art through the PAIR system. However, the USPTO has offered its position that it is fair use for the agency to charge a fee to make and distribute paper copies of the copyrighted works (as part of the file history).

The USPTO took no position on whether applicant's creation of file-copies and internal distribution of copies also qualify for the fair use defense. In addition, applicants who have obtained limited licenses to works may be under a contractual duty to avoid making further copies even if those copies would have been fair use.

How much money?: On an annual basis, I would estimate that at least five hundred thousand journal articles are submitted to the USPTO for consideration.  Each submission probably results two local copies for the file & review by the attorney, inventors, and others in addition to the submitted copy.  That takes the annual licensing market to around $50 million.  Not a tremendous amount for a nationalmarket, but that may be enough to save the struggling scientific journal industry.

Fair Use: An interesting aspect of fair use analysis is that the outcome can change based upon market conditions and general custom.  Here, for instance, if it is very easy to obtain a license by simply paying a fee online and a number of patent applicants begin paying that fee regularly, an action that was once considered fair use may again fall under the copyright infringement umbrella. 

How will your firm respond? Should your engagement letter be amended? 

Copyright: Supreme Court to Hear Constitutional Challenge to Copyright Restoration

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Golan v. Holder (Supreme Court 2011) (materials from SCOTUS blog)

Symphony Conductor Lawrence Golan along with a group of supporters have successfully petitioned the Supreme Court for a writ of certiorari in their public domain copyright case. The lawsuit arose after Congress enacted the Uruguay Round Agreements Act (URAA) of 1994. Section 514 of URAA restored the copyright term for works created by foreign authors who had lost their rights due to some reason other than expiration of the copyright term. Most frequently, the authors had either failed to renew their copyrights or failed to include a notice of copyright on the works. According to the petitioners, Section 514 restored copyright protection to thousands of works that had previously been in the public domain, including symphonies by Stravinski, books by C.S. Lewis, films by Federico Fellini, and artwork by Pablo Picasso. These works had been previously recognized as public domain in the US and had been used extensively by the petitioners.

The petition for certiorari asks two questions:

  1. Whether the “Progress Clause” of the US Constitution prohibits Congress from removing works from the public domain?
  2. Whether the removal of those works from the public domain violates the First Amendment of the United States Constitution?

The District Court (Colorado) held the law unconstitutional on First Amendment grounds at least “to the extent Section 514 suppresses the right of reliance parties to use works they exploited while the works were in the public domain.” On appeal, a 10th Circuit panel reversed – explicitly rejecting both Constitutionality arguments.

This case is similar to Eldred v. Ashcroft. In that case, the Supreme Court upheld the constitutionality of the 1998 Sonny Bono Copyright Term Extension Act (CTEA) that had extended copyright terms by an additional 20-years. In Eldred, the Supreme Court recognized that Congressional authority to grant copyright was limited by the “limited times” provision of the Progress Clause of the US Constitution. However, the Court concluded that the 20-year extension was sufficiently limited.

Documents:

Copyright Interlude: What is the Public Domain?

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The Eighth Circuit Court of Appeals is holding court in the Missouri Law School this week. One of the appeals being heard is a copyright case involving the 1939 Wizard of Oz movie (as well as Gone with the Wind and Tom & Jerry). The case is captioned, Warner Bros. Entertainment, et al. v. X One X Productions, et al., App. No. 10-1743. TBS (now owned by TimeWarner) claims title to the copyright to the Wizard of Oz movie. The defendant apparently obtained a set of publicity posters and other material from the movie that are in the public domain and that were distributed prior to the movie being copyrighted. The public domain materials included images of Judy Garland playing Dorothy Gale, Jack Haley as the Tin Woodsman, etc. Using those public domain materials as a base, the defendant began manufacturing and selling t-shirts and trinkets showing the likeness of the well-known characters. To be clear, at least for the t-shirts, the defendant only used images cropped from the public domain materials. As the accused products below show, the defendant also included well known phrases from the movie such as “there’s no place like home.”

Warner (WB) sued the defendants alleging copyright infringement as well as liability under the Lanham Act. On summary judgment, the Missouri-based district court agreed that the defendant had not copied any images from the films, but still held that the defendant was liable for infringing the film copyrights. In particular, the lower court held that WB held copyright to the Wizard of Oz characters as portrayed in the movie:

i.e., Judy Garland as Dorothy Gale, Ray Bolger as Scarecrow, Jack Haley as Tin Man…. Each character has widely identifiable traits and is especially distinctive. Each has been extensively developed through the films. Be it Dorothy’s inherent wisdom coupled with her Midwestern farm girl innocence, … or the apparent inconsistencies of Scarecrow, (without a brain vs. wisdom and leader), Tin Man (without a heart vs. compassion and tenderness) and Cowardly Lion, (without courage vs. bravery and chivalrousness), they are especially distinctive.

Ironically (and without comment from the district court), the particular identifiable traits of the characters identified here (apart from the portraying actors) were all derived directly from L. Frank Baum’s 1900 Wonderful Wizard of Oz novel that is now out of copyright.

In focusing on the public domain materials, the district court indicated that merely copying the public domain material likely would not have created any copyright liability. Here, however, the defendant did not merely copy the posters. Rather,

they pluck from these pages images of Plaintiffs’ copyrighted characters such that Defendants’ images are no longer innocently copied publicity ads, but are indeed the characters themselves, to be embossed onto any number of trinkets, clothing and other collectibles. . . Notwithstanding Defendants have copied only the publicity materials, such actions violate the component parts of Plaintiffs’ copyrights in the films.

Based on the finding of copyright infringement, the district court issued a permanent injunction that prohibits the defendants from

using for commercial gain images from the film The Wizard of Oz as well as images of Judy Garland as Dorothy Gale, Ray Bolger as Scarecrow, Jack Haley as Tin Man, and Burt Lahr as Cowardly Lion [except] that Defendants are [may use] reproductions of public domain movie publicity materials, in their entirety and without alteration or modification.

On appeal, the defendants have argued that they should be able to use particular images of the Wizard of Oz characters so long as they are taken from the public domain materials.

Documents:

Wizard-of-oz-poster

Guest Post: Copyrights, Patents, and International Exhaustion

Copyright, First Sale / Exhaustion, Guest Post, Infringement, Patent,

By Professor Ryan Vacca

Last week, the Supreme Court heard oral arguments in Costco Wholesale Corporation v. Omega, S.A., to determine whether copyrighted works first sold in Switzerland and then imported into the U.S. infringed the copyright owner's right of distribution or whether the first sale doctrine (aka the exhaustion doctrine) applied to make the importation non-infringing.

The facts are fairly straightforward.  Omega is a watch company that manufactures watches in Switzerland.  Omega owns a copyright in a small visual image that is laser-engraved onto each Swiss-manufactured watch.  Costco, a U.S. warehouse retailer, acquired genuine Omega watches from a third party, who had purchased them from an authorized Omega distributor abroad.  Costco subsequently sold these watches in the United States.  Omega alleged that Costco's sale of these watches infringed its exclusive right to distribute copies of its copyrighted work under § 106(3) of the Copyright Act because § 602(a)(1) provides that:

Importation into the United States, without the authority of the owner of the copyright under this title, of copies … of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies … under section 106.

Costco argued that its sales in the U.S. were non-infringing under the exhaustion doctrine codified in § 109, which provides:

Notwithstanding the provisions of section 106(3), the owner of a particular copy … lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.

As I blogged earlier and others have discussed here and here, the Court is wrestling with what the phrase "lawfully made under this title" means in § 109 of the Copyright Act.

Costco argues that goods manufactured abroad can still fall within this phrase whereas Omega argues that goods manufactured abroad are not "made under this title" unless the goods are made or sold with permission from the copyright owner to import the goods into the United States. At oral argument, the Justices quickly pointed out the difficulties in these two interpretations on both a textual and policy level.

In contrast to the formidable task before the Court in the copyright context, patent law takes a relatively easier approach to the international exhaustion issue. The seminal Supreme Court case on international exhaustion under patent law is Boesch v. Graff, 133 U.S. 697 (1890). In Boesch, the plaintiffs held a U.S. patent and German patent for an improvement to lamp burners. The defendants purchased burners in Germany from Mr. Hecht, who was authorized to make these burners in Germany because of Germany's prior user defense (Hecht was not authorized by the patentees). When the defendants imported these burners into the U.S., the patentees sued for infringement. The defendants argued that their legal purchase in Germany from Mr. Hecht permitted them to import and sell them in the United States. The Court disagreed and held that although Mr. Hecht had a right to make and sell the burners in Germany under German patent law, this had no effect on the U.S. patentee's ability to enforce its U.S. patent in the United States.

Over a century later, the issue of international patent exhaustion arose again in Jazz Photo v. ITC, 264 F.3d 1094 (Fed. Cir. 2001) and Fuji Photo Film v. Jazz Photo, 394 F.3d 1368 (2005), where the Federal Circuit reaffirmed the Supreme Court's holding in Boesch and clarified that the exhaustion doctrine would not apply even if the U.S. patentee or its licensees authorized the first sale abroad. In other words, even if the U.S. patentee permitted the first sale in a foreign country, a subsequent attempt to import such an item into the U.S. would still constitute infringement. In support of its holding, the Federal Circuit noted that the U.S. patentee's "foreign sales can never occur under a United States patent because the United States patent system does not provide for extraterritorial effect."

Based on the dialogue between the Justices and the attorneys in Costco, it appears that the Court may be uncomfortable limiting the exhaustion doctrine in the copyright context solely to situations where the first sale took place within the United States. They seem to be struggling to articulate a standard that allows some foreign sales to take advantage of the exhaustion doctrine while giving the phrase "lawfully made under this title" some meaning.

If, in the end, the rule announced by the Court in Costco differs from the holdings in Boesch and Jazz Photo, then what effect may this have on the future of patent law's exhaustion doctrine? Of course, the Court could maintain a dual approach, where copyright exhaustion and patent exhaustion are treated differently. However, if presented with an international patent exhaustion case, the Court could rely on its Costco holding and try to align the copyright and patent rules. We have seen the Court take this approach recently in MGM Studios v. Grokster, 545 U.S. 913 (2005), when it created a new theory of secondary liability in copyright law (the inducement theory) by relying, in large part, on patent law's recognition of this theory via statute in § 271(a) of the Patent Act.

Another possibility for harmonization of copyright and patent law is that the Court takes its cue from patent law and hold that exhaustion in the copyright context only applies when the copyrighted works were first sold or otherwise distributed in the United States. If this disrupts the policy concerns underlying the exhaustion doctrine, then Congress can always step in to resolve this issue.

Guest Post: Open Season on Copyright Infringement Claims? All Hail, or Hate, the “Troll”?

Copyright, Guest Post, Patent,

By Robert W. Zelnick, McDermott Will & Emery LLP

Is it me, or has there been a noticeable uptick in publicity about copyright infringement claims in 2010? There is the prolific new so-called "copyright troll," Righthaven LLC, which has sued more than 120 parties on behalf of its sole newspaper client, the Las Vegas Journal-Review (including against some high-profile defendants, such as politician Sharron Angle). The Fox network has been defending against claims that it violated a plaintiff's copyright when it ran footage of Bernard Madoff, and now the Fox network (in an unrelated claim) is suing politician Robin Carnahan for alleged unauthorized use of Fox clip in a political ad. Some blame the poor economy, some blame the lawyers, some blame a heated election season. Maybe it is all of those reasons, or none of those. But at the end of the day, it doesn't appear that anything has really changed in the substantive copyright law.

Although the nuances of copyright law can be sometimes challenging to understand and interpret, at its heart copyright law stands for a relatively simple proposition – don't copy. The copyright laws are not an act of "judicial activism" to codify a common-sense grammar school lesson. Instead, these laws find their basis in the U.S. Constitution: Article I authorizes Congress to "Promote the progress of science and the useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." Some of the comments in the blogosphere – including some rather nasty and ad hominem attacks against the "copyright troll of 2010" Righthaven LLC – seem to overlook that the easiest way to avoid copyright infringement claims is to avoid copying.

So, why all the angst related to enforcement of IP laws, now particularly centering on the concept of a copyright troll? In part, there are some of the same criticisms that have long been aimed at so-called "patent trolls": opportunistic lawyers, recoveries that are disproportionate to the "sweat of the brow" of the actual inventor/author, a drag on corporate profitability, etc. However, there are significant differences between a so-called patent troll and a so-called copyright troll.

First, the stakes and business model so far for the copyright cases seem to be quite different from the patent model. Righthaven's model, at least so far, has seemed to be a high-volume of cases that often individually settle in the range of a few thousand dollars.

Second, the policy issues are different. Revenue problems have cause newspapers to disappear at an alarming rate, and copyright revenue gives troubled businesses a new revenue stream from an existing asset. On the other hand, even those bloggers who infringe a copyright are usually creating knowledge, and there may be other counterconsiderations.

Third, some forms of clearinghouse model for copyright licensing/enforcement have existed for decades. For example, ASCAP, BMI, Copyright Clearance Center and others have generated revenue for themselves and for copyright owners by pursuing users of copyrighted works.

Fourth, it seems that courts may have a significant role in influencing policy when it comes to so-called "copyright trolls." For example, the courts have latitude in setting statutory damages in copyright cases within a wide range spanning $200 to $300,000; the exercise of that discretion can directly affect whether a so-called troll's business model will be profitable.

Most of all, though, parties being sued by Righthaven seem to feel a sort of "gotcha" moment. Sure, these defendants saw the copyright notices on the newspapers and websites whose content they allegedly copied, and they knew at some level that copying often has some element of "wrong" to it. But perhaps they figured that there was a safe harbor in doing what everyone else seemed to be doing. Compare the rumored – and often very dangerous – "rules of thumb" about things like the percent of content that can "safely" be copied, the supposed "free pass" that comes from a direct link to the original (copyrighted) article, the breadth of applicability of the fair use defense, and so on.

Perhaps the one aspect of the Righthaven model that many defendants feel most indignant about is that they were sued before receiving a cease-and-desist demand. As another example of the many disconnects between expectations and reality in IP enforcement, a demand letter is not a prerequisite to a complaint. There is no guaranteed "free bite at the apple" when it comes to infringement, and for good reason. Indeed, what would be the value of opinion counsel in the IP arena if the ultimate outcome were that liability only starts to accrue after a party elects to continue infringement after being actually warned of potential claims? Cease-and-desist demands have a place in certain infringement scenarios; however, they are sometimes a waste of time and money, and there is a strong deterrent to infringement when a defendant cannot escape liability for past acts simply by ceasing accused conduct when directly asked by the IP owner. Righthaven has apparently decided that such warning letters do not fit into its business model, which seems to be its prerogative.

The other major factor that contributes to the sense of "gotcha" is undeniably the role of the internet, email and related technologies. In short, acts of infringement can be publicized to the world at the speed of light, via a few keystrokes. Infringement over the internet is also much easier to identify, via increasingly-sophisticated searching and tracking technologies. It comes as no surprise that Righthaven reportedly uses a proprietary technology to identify suspected infringements before offering to buy the underlying copyrights from the copyright owner.

It will be interesting to see whether the Righthaven model, or some other models of so-called "copyright troll," will be sustainable. So far, to my knowledge, none of the 120+ Righthaven defendants has litigated what appear in some cases to be potentially valid "fair use" theories. Indeed, so far, Righthaven reportedly has been willing to settle individual cases for a few thousand dollars, which is far less than it would typically cost a defendant to secure copyright counsel and answer a federal complaint (both without any guarantee of success). I have heard rumblings that some defendants are pursuing discussions to form a defense coalition of sorts, to share costs and to combine expertise and effort. I will be curious to see how Righthaven handles serious defenses to the complaints, and whether pursuing active litigation fits Righthaven's business model.

In the meantime, the publicity surrounding this so-called "copyright troll" and the other high-profile copyright infringement claims of 2010 have served a useful purpose in reminding the public (and even non-copyright lawyers) about best practices regarding copyright law. Said differently, this is a very good time for clients to revisit their copyright practices. Maybe the economy and the election cycle have motivated more parties to enforce their copyrights, and maybe there could be a sustainable entrepreneurial enforcement model for a new kind of "troll," but the copyright law – as always – still prevents copying.

Supreme Court to Decide Case of International Copyright Exhaustion

Patent,

PatentLawPic972Costco Wholesale Corp. v. Omega, S.A., Docket No. 08-1423 (Supreme Court 2010)

The Supreme Court announced today that it would decide the international copyright exhaustion case of Costco v. Omega. Costco purchased Omega watches from a third-party importer and sold the watch for $1,300 instead of the $2,000 suggested retail price. Omega (a division of Swatch) then sued Costco for copyright infringement – alleging that the sale violated the Swiss Company’s US Copyright covering the “Omega globe design” on the back of the watch. In a 2008 decision, the Ninth Circuit agreed with Omega, holding that the US Copyright was not exhausted because Omega had originally sold the watches to distributors in Egypt and Paraguay. This arbitrage was available because Omega sells its watches for a higher price in the US than it does elsewhere.

The question on appeal is whether Omega’s authorized foreign sale exhausted its US copyright.

Under the Copyright Act’s first-sale doctrine, 17 U.S.C. § 109(a), the owner of any particular copy “lawfully made under this title” may resell that good without the authority of the copyright holder. The closest Supreme Court precedent is Quality King Distribs., Inc. v. L’Anza Research Int’l, Inc., 523 U.S. 135, 138 (1998). In that case, the unanimous court held that the copyright was exhausted and therefore that the copyright holder could not block imports of shampoo bottles with copyrighted labels. The Ninth Circuit distinguished Quality King based on the fact that the labels were originally made in the US then shipped abroad before being re-imported. According to the Ninth Circuit, the Omega watches are not subject to the first sale doctrine because they were not “lawfully made under” the US Copyright Act.

The US Patent Laws are also subject to an exhaustion doctrine – although patent exhaustion is entirely judge-made and not subject to statutory interpretation. In Fuji Photo Film Co. v. ITC, 474 F.3d 1281 (Fed. Cir. 2007), the Federal Circuit held that US patent rights are only exhausted through a first sale “in the United States.” In that case, the Federal Circuit recognized that “a different rule applies in copyright cases.” Of course, the Supreme Court’s copyright decisions often interplay its discussion of the two intellectual property forms.

Patent holders that rely upon the current law to block parallel imports will likely want to file an amicus brief to justify a difference between the two regimes.

Thriving Resale Market: EBay argues that the Omega ruling “could have a detrimental effect on the ability of buyers and sellers of secondary-market goods to engage in commerce in the United States.”

Copyright?: Of course, Omega would be hard-pressed to claim copyright in the watch itself. Rather, the copyright claim is in the arrangement of the 8 mm OMEGA symbol and name.  Although not strictly at issue here, the Supreme Court is not likely to overlook the fact that the copyright claim is an artificial construct that Omega is asserting to control downstream uses of its non-copyrighted watch that it otherwise could not control.

Notes:

Design Law: Protecting Copyrighted Designs

Design Patent, Patent, Patent Cases 2009

Design Ideas v. Things Remembered, 3:07-cv-03077 (C.D. Ill. Filed March 16, 2007)

Perry Saidman is a frequent contributory to Patently-O — especially when the topic turns to design patent law. In a recent case, his firm used copyright law to protect its client's wire-flower design. The flowers were incorporated into candle holders and other small useful objects.

Although cheap ($35), early copyright registration is important for collecting infringement damages. Registration is also helpful in establishing priority and ownership. In this case, the designer registered early and was awarded $750k for willful infringement.

pic-77.jpg

Notes:

Case: Design Ideas, Ltd., v. Things Remembered, Inc., Case No. 3:07-cv-03077 (C.D. Ill. Filed March 16, 2007) (Garfield Goodrum served as lead attorney for the plaintiffs).

Jury Verdict Form: 2000005312.pdf

The original complaint also included charges of trademark and utility patent infringement. The broadest claimof the utility patent (No. 6,398,058) includes a limitation that "loops formed to simulate a flower" are used to connect the base to the top:

1. A container constructed of metal wires, comprising:

   a base including a lower support wire bent to establish the predominant shape of said base;

   a top including an upper support wire bent to establish the predominant shape of said top;

   a plurality of wire figures, each of said wire figures having a first wire forming a central body and a second wire forming a plurality of loops outwardly extending from the central body and circumferentially offset from one another, said central body and said plurality of loops formed to simulate a flower, wherein said first wire and said second wire are separately formed and coupled together; and

   a sidewall connecting said lower support wire and said upper support wire to space said lower support wire from said upper support wire, said sidewall comprising said plurality of said wire figures.

Open Source License Conditions Enforceable Through Copyright Law

License, Patent,

Jacobson v. Katzer (Fed. Cir. 2008)

In an interesting decision, the CAFC held that open source license conditions are enforceable under the copyright laws. Jacobson’s open source license at issue here allowed anyone to use his software so long as his conditions are met (such as making any modified code freely available).

Copyright vs Contract: The district court held that violation of the open source conditions are remedied through a contract claim rather than copyright. The CAFC sided with the copyright holder – holding that “Copyright holders who engage in open source licensing have the right to control the modification and distribution of copyrighted material.”

Copyright holders who engage in open source licensing have the right to control the modification and distribution of copyrighted material. As the Second Circuit explained in Gilliam v. ABC, 538 F.2d 14, 21 (2d Cir. 1976), the “unauthorized editing of the underlying work, if proven, would constitute an infringement of the copyright in that work similar to any other use of a work that exceeded the license granted by the proprietor of the copyright.” Copyright licenses are designed to support the right to exclude; money damages alone do not support or enforce that right. The choice to exact consideration in the form of compliance with the open source requirements of disclosure and explanation of changes, rather than as a dollar-denominated fee, is entitled to no less legal recognition. Indeed, because a calculation of damages is inherently speculative, these types of license restrictions might well be rendered meaningless absent the ability to enforce through injunctive relief.

. . . .

The clear language of the Artistic License creates conditions to protect the economic rights at issue in the granting of a public license. These conditions govern the rights to modify and distribute the computer programs and files included in the downloadable software package. The attribution and modification transparency requirements directly serve to drive traffic to the open source incubation page and to inform downstream users of the project, which is a significant economic goal of the copyright holder that the law will enforce. Through this controlled spread of information, the copyright holder gains creative collaborators to the open source project; by requiring that changes made by downstream users be visible to the copyright holder and others, the copyright holder learns about the uses for his software and gains others’ knowledge that can be used to advance future software releases.

This decision is based on the court’s interpretation of 9th Circuit law. However, its impact on patent law may be a reminder that the court will allow patent infringement actions even when the infringement is based on violation of an intricate or exotic licensing contract.

First Sale Doctrine: Copyright & Patent

District Court, First Sale / Exhaustion, Patent, Patent Cases 2008,

PatentLawPic307In some ways, the Supreme Court case of Quanta v. LGE is a symbol of the ongoing struggle between property law and contract law.  With concepts like the first sale doctrine (and the rule against perpetuities), property law has typically operated to limit dead hand and downstream control over property rights.  These limiting doctrines are largely ignored in a freedom of contract regime.

Vernor v. Autodesk (W.D. WA 2008)

A federal copyright case last week landed on the side of property & the first sale doctrine.  The court denied summary judgment to Autodesk — finding instead that Vernor may well have a legitimate right to re-sell his copies of AutoCAD. Autodesk argues that he only holds a contractual license to use the software (via shrink-wrap license) and does not actually hold full property interests in the programs.

“[T]he transfer of AutoCAD packages from Autodesk to CTA was a sale with contractual restrictions on use and transfer of the software. Mr. Vernor may thus invoke the first sale doctrine, and his resale of the AutoCAD packages is not a copyright violation.”

In copyright law, the first sale doctrine is codified in statute — allowing the owner of a particular copy to resell that copy even if the owner had contractually agreed not to do so. 

“[T]he owner of a particular copy or phonorecord lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” 17 USC 109.

In patent law, the first sale doctrine – also known as patent exhaustion – has no statutory support. Rather, like the doctrine of equivalents, patent exhaustion is grounded in common law principles.  The Quanta case is fairly technical and could result in a narrow low-impact opinion. However, it is also quite possible that the Supreme Court will re-solidify the property concepts.  Expect a decision within the next few weeks.

Notes:

  • Patry and InternetCases have more details on the Autodesk case.
  • More on Quanta v. LGE.
  • Comment on Chain of Title: M. Slonecker: “For the sake of factual accuracy, AutoDesk “sold” the software to CTA. At a later date CTA auctioned off its assets, and Mr. Vernor was the winning bidder for the software program discs. With copies in hand, Mr. Vernor placed the discs he purchased at the auction on sale at eBay. Apparently AutoDesk is not pleased with this state of affairs and has been engaged in a running battle with Mr. Vernor about his eBay activities.”

Copyright Query

Patent

Hypothetical: Arthur the author writes a new book and transfers the copyright of the final-work to Penny the publisher — including rights to any derivative works.

Later, Arthur decides that the story should have a different ending. He goes back to a rough-draft and rewrites various portions. (In his rewrite, Arthur does not look at the final version.)  Who owns the new version? What about a sequal based on the new version?

Court Upholds Dual Patent/Copyright Protection for Software

Patent, Patent Cases 2006

Aharonian v. Gonzales (N.D.Cal. 2006).

Although he operates primarily through an e-mail list rather than through a website, Greg Aharonian is the honorary trailblazer for today’s intellectual property law blogs (including Patently-O).  He is also an activist.

In a lawsuit filed against the U.S. Government, Aharonian requested a declaratory judgment that copyright law cannot be applied to sourcecode.

Specifically, Aharonian hopes to build a powerful database of sourcecode to be used as a prior art repository — but does not want to be held liable for copyright infringement.  In a challenge to the statute, Aharonian argued that computer code is entirely made up of “algorithms” and “data structures,” both of which are uncopyrightable “ideas” or “processes” and additionally that the vague language of the Copyright Act is insufficient to support sourcecode copyrights. (And raised other arguments).

Standing: With any DJ action, there is often a question of standing. Here Aharonian was able to show that he was suffering a specific economic harm under the law (inability to build his database) and that economic harm, according to the court, was sufficient to establish standing.

This is not to say that all allegations of economic harm related to copyright law will be sufficient to meet the constitutional requirements for standing. For example, the mere assertion of a desire to copy, with no showing of an actual past or future business practice or actual economic benefit from copying, would not suffice. Here, however, plaintiff has an existing business which involves searching for potentially copyrighted prior art, and he has made a credible argument that incorporating (i.e. copying) such material into an automated search tool would result in additional profits.

Software as Math: The Aharonian machine will apparently transform computer code into a standardized logic framework and store that framework.  The court used that pont to avoid addressing the question head-on:

It would be unwise indeed for this court to make sweeping general pronouncements about the nature of software or the relationship between patent and copyright law, particularly where making such a pronouncement would have no clear effect on plaintiff’s ability to create his proposed database.

The court did take pains to distinguish patent and copyright cases — thus predicting their conclusion that both forms of protection are available for software:

A declaration that software consists entirely of “ideas”—data structures and algorithms—has no bearing on the applicability of copyright law to software source code, which, like all copyrightable material, is a particular written expression of ideas. . . . In sum, if plaintiff copies source code that is protected by copyright law, he infringes the copyright regardless of whether the ideas underlying the source code are patentable. Conversely, if plaintiff independently creates software that is functionally identical to other software, he does not infringe any copyright on the other software’s source code, even if his independently created source code is nearly identical to the copyrighted source code.

Vague Statute: On the issues of vagueness, the court essentially found that prior controlling precedent had interpreted the scope of the statute — leaving no room for the district court to hold otherwise.

Dismissed. The case is now on appeal.

Links:

  • Link: Website dedicated to the lawsuit.

Hollywood Proposes That USPTO Regulate Technological Copyright Management

Patent, Patent Legislation

The recording industry is moving quickly toward technological ways to prevent digital copying and thus promote digital rights management (DRM).  One recognized vulnerability is the “analog hole” or more blandly, the analog reconversion issue. 

Analog Hole: When the information is converted to a perceptible analog form, there are no restrictions on the resulting analog signal, and the content can be captured back into digital form with no restrictions. (from Wikipedia).

Oddly, the Hollywood endorsed Analog Content Security Preservation Act Of 2005 would transform the Patent Office (USPTO) into a regulatory agency by giving the agency the job of enforcing a Copy Generation Management System for Analog (CGMS-A).

Read the proposed changes to 35 U.S.C. 101.

 

Federal Circuit Broadly Interprets Copyright Safe Harbor for Computer Repair

Patent, Patent Cases 2005,

Storagetek v. Custom Hardware Engineering (Fed. Cir. 2005)

Normally, the unauthorized duplication of computer software violates the exclusive right of the copyright holder.  Section 117(c) of the Copyright Act, however, authorizes the copying of a computer program for purposes of maintaining or repairing a machine if the “copy is made solely by the virtue of activation of [that] machine”. 

In a case of first impression, the Federal Circuit addresses the extent of this protection offered by 17 U.S.C. § 117(c). The Court of Appeals, relying on definitions in 17 U.S.C. § 117(d), held that § 117(c) protects maintenance and repair as two different activities. “Repair,” according to the Federal Circuit, is restoring a broken machine to its original specifications. “Maintenance,” on the other hand, has “a much broader temporal connotation” that “encompass[es] monitoring systems for problems [and] not simply fixing a single, isolated malfunction.” Thus, the Federal Circuit found erroneous the district court’s conclusion that only repair activities are protected under Sec. 117(c).

Furthermore, the Court of Appeals also found DMCA provisions likely not applicable. Circumvention of a technological measure providing access to a copyrighted work is not a violation of DMCA, according to the Federal Circuit, unless it “infringes or facilitates infringing a right protected by the Copyright Act.” Finally, the Court of Appeals did not agree, based on material factors, that the copyrighted work in question should receive trade secret protection.

The Federal Circuit thus vacated the district court’s grant of a preliminary injunction to Storage Technology and remanded for further proceedings. Judge Rader, in dissent, decried the majority’s decision as “destroy[ing] copyright protection for software that continually monitors computing machine behavior.”

NOTE: This post was written by Cory Hojka. Mr. Hojka is a law clerk at MBHB and a student at the University of Chicago Law School.

Preemption: Copyright Act Does Not Preempt Illinois Right To Publicity

Patent

Ultra Sheen SupremeToney v. L’Oreal USA (7th Cir. 2005) (CV 03–2184).

June Toney consented to allow her photograph to be used, to advertise a hair-relaxer (“Ultra Sheen Supreme”) by Carson Products.  L’Oreal later acquired the Ultra Sheen line and began to use the photo without her permission and beyond the time-period specified in the original contract, Toney sued — alleging a violation of her right of publicity under Illinois law. The district court dismissed the case as preempted under 17 USC 301.

On appeal, the Seventh Circuit panel vacated, finding that the Illinois Statute protecting the right of publicity is not preempted by the copyright act because the rights to publicity protect the identity of a person rather than a particular tangible picture or photograph.

Therefore, the bottom line is that Toney’s claim under the Illinois right of publicity statute is not preempted by federal copyright law.

Vacated and Remanded.

File Attachment: Toney v. Loreal.pdf (26 KB)

 

Federal Circuit: DMCA does not create a new property right for copyright owners

Patent, Patent Cases 2004, ,

garage_door
Chamberlain Group v. Skylink Technologies (Fed. Cir. 2004).

In a well reasoned opinion, the Federal Circuit (GAJARSA) affirmed a district court’s dismissal of a suit arising under anti-trafficking provisions of the Digital Millennium Copyright Act (DMCA).

The DMCA does not create a new property right for copyright owners.  Nor, for that matter, does it divest the public of the property rights that the Copyright Act has long granted to the public.  The anticircumvention and anti-trafficking provisions of the DMCA create new grounds of liability.  A copyright owner seeking to impose liability on an accused circumventor must demonstrate a reasonable relationship between the circumvention at issue and a use relating to a property right for which the Copyright Act permits the copyright owner to withhold authorization-as well as notice that authorization was withheld.  A copyright owner seeking to impose liability on an accused trafficker must demonstrate that the trafficker’s device enables either copyright infringement or a prohibited circumvention.  Here, the District Court correctly ruled that Chamberlain pled no connection between unauthorized use of its copyrighted software and Skylink’s accused transmitter.  This connection is critical to sustaining a cause of action under the DMCA.  We therefore affirm the District Court’s summary judgment in favor of Skylink.

This case involved electronic garage door technology with a “rolling code” to encrypt signals transmitted signals.  Skylink distributes a universal remote that can decode the encrypted rolling code.  In an attempt to control the aftermarket in remote control units, Chamberlain sued.

The court’s basic premise is that an element of a DMCA cause of action is an underlying copyright violation — without such a violation, there can be no remedy.

Updates: According to Ernest Miller, the court rescued the DMCA from “one of its most absurd aspects.” He is still concerned, however, that the Act, even as narrowly interpreted, will continue “stifling creativity and innovation.” More on the story from copyfight.