Most MSA documents have a set term, and while some will automatically renew, some by their own terms do not. We recently came across a situation in which our client wanted to review SOW documents with respect to a significant application development project. Naturally, the SOWs referred to the MSA, however after reviewing the MSA, it was apparent that the MSA had expired. The MSA was actually well done and in general, protected the interests of the client. The appropriate language required for the client to retain their valuable intellectual property rights was contained in the MSA, so had the MSA still been effective, the client would have owned these rights (our desired result). Because the terms contained in the MSA had expired, execution of the SOW and completion of the contemplated development work would have resulted in the contractor owning the intellectual property rights to the work–not our client. 

The potential error was caught in this case, but this example underscores how important it is for someone to closely review all agreements. Simply “rubber stamping” even seemingly simple documents could result in a very draconian and undesired result such as the one that was avoided in the above example.

Those terms state:

Consider that for a minute. You just handed Google $1,500 for the privilege of wearing severely goofy-looking eyewear, and if you let your friend try it out – and if Google finds out you did that – your goofy-looking eyewear becomes an awkward paperweight. With no refund or other compensation on its way.

Business and individuals need to start being increasingly wary of the contents of end-user terms that seem to be attached to all manner of services and (now) products acquired in the digital age. While restrictions associated with software licenses are now commonplace and generally enforceable in court, end user agreements associated with consumer products are somewhat novel. While the extent to which they too can be enforced remains to be seen, it is clear that manufacturers are implementing innovations in their legal relationships with customers almost as fast as they are implementing innovations in their products, and many of those innovations can carry with them significant sources of risk.

One would naturally assume that when you compensate someone to create a creative result, that you then retain intellectual property ownership of the result. This, a large global retailer found not to be the case.¹  This retailer had contracted with a small video production company for decades to record certain meetings and gatherings at the retailer sites. When the company later decided it wanted to “control” the tapes as a means of containing some bad press concerning its management, the video production company, not the retailer was found to be the owner of the tapes. 

According to the article, there was no written agreement in place. However, as is often the case, there is a written agreement in place. If that written agreement does not include the appropriate language, it is likely the vendor who owns the intellectual property rights. When contracting for a vendor to provide any creative services, one would be wise to ensure they have protected their intellectual property rights. 

[1]McWilliams, Gary. “Candid Camera: Trove of Videos Vexes Wal-Mart.” The WallStreet Journal, 09 April 2008.  Web. 04April 2013. <http://online.wsj.com/article/SB120770260120100121.html>

•  Use Rights Use-rights provisions define and restrict how customers can access and use software. The key here is to fully understand the intersection between what the publisher allows under the license and what the customer intends to do with the software. There will always be problems where the two are not in alignment.
•  Audit Rights Publishers generally ask for the right to audit at any time and the right to transfer the costs of the audit to the customer. The best agreements, from a purchaser perspective, allow for only periodic audits (once per-term) and permit the customer to choose to self-audit and self-report.
•  Deployments Counting Especially for those agreements that come with true-up requirements (e.g., enterprise licenses, service provider licenses, etc.), understanding how to count deployments is critical. Customers that do not have processes in place to assess deployments against the precise license metrics required by publishers often find themselves spending more money in soft costs to generate the counts than they save by being in enterprise agreements in the first place.
•  Intellectual Property Indemnification A publisher ideally should be willing to indemnify its customers against claims by a third party that the publisher’s software infringes on the third party’s IP rights. In practice, however, publishers are almost universally resistant to such terms, at least in their standard forms. In better deals the publisher will indemnify the customer for infringement of not only copyrights and patents, but also trade secrets and trademarks.
•  Data privacy and security insurance coverage For engagements where the customer’s data is stored on servers controlled by the vendor, data privacy and security insurance, sometimes called “cyber coverage,” often is very important. Such policies pay for, among other things, costs associated with breach-notification requirements under various state and federal data privacy laws.

This list is by no means exhaustive, nor does it fully account for other provisions that may be more important for a particular agreement type or circumstance, but it does highlight some of the most important provisions to understand and negotiate when considering new software licenses or service agreement.

For example, a company may have a web server to which end users directly connect, an application server containing the core of the solution offered to those users by the company, and a database server that delivers content to the application server. It also may be the case that while the web server and application server require the company to obtain some kind of “commercial hosting rights,”the database server in this configuration does not, for one reason or another, require the same rights. (Note: This is only a hypothetical example. Please DO NOT assume any database server deployments to be outside the scope of any publisher’s “commercial hosting” requirements.) It therefore may be theoretically possible for this company to license the web server and application server under one licensing agreement (say, a Services Provider License Agreement (SPLA) for Microsoft products) and the database server under a different agreement (say, a Select or Enterprise agreement).

The problem for many businesses in considering such an option is at least three-fold:

1. Added Audit Complexity Software asset management (SAM) is complicated enough without having to differentiate between “hosted” and “non-hosted” servers for inventory purposes.

2. Resource Sensitivity It may make sense for resource-management purposes for the three servers to be virtualized partitions on the same physical machine, making such a possibility even more cumbersome (if not impossible under standard licensing models).

3. The Real World Most IT environments are significantly more complex than the simplified example provided above, making it that much more difficult at the outset to draw the“hosted”/”non-hosted” line in a way that the publisher would approve.

For these and other reasons, many businesses try to find a one-size-fits-all option for the entire environment. Microsoft, as one example, has two: internal-use rights provided under SPLA and the Self-Hosted Applications benefit under Software Assurance. However, not all publishers offer this level of flexibility. Therefore, it makes sense for IT teams to work closely with knowledgeable legal counsel in selecting a licensing model that represents the best fit for the environments in question and then negotiating custom licensing terms to address areas of potential risk.

One of the simplest methods to set the vendor’s expectation is to ask for an editable version of the vendor’s paper early on in the negotiation, even before the suitability of the product or service has been determined. This will indicate to the vendor that terms and conditions will be reviewed while the engagement is being evaluated from a business perspective. This technique has the further benefit of giving the purchaser’s legal team a head-start on the review process, so as not to bog down the deal after the parties has agreed on the business terms.

When vendors have only sent their PDF version of the agreement, and the customer makes edits to it either in-line in the PDF or by converting the PDF to an editable version, the vendor can be surprised to find a redlined copy of this agreement coming back from the customer. This tends to put the vendor in a reactionary and defensive position, where it is less likely to accept reasonable changes to its document because it was not anticipating any changes at all. Contrast this to those situations where the purchaser sets the vendor expectations early on in the negotiation. Just taking the simple step to ask for an editable copy of the vendor’s agreement will yield, on average, a more balanced and timely deal for the customer.

• Intellectual Property Ownership: For either party, it is vital to delineate who owns what. In general, Customers always should own their content and the deliverables associated with any development work they pay for as a “work for hire.” Vendors always should own the technology and deliverables they bring to the table. But these are generalities. Both parties should take the time to understand the deliverables, the technology, and the deal and make sure the IP ownership provisions accurately reflect the understanding.
• Audit Rights: If the agreement involves software licensing, the publisher often will ask for the right to audit the customer. The customer should read and understand the requirements and should push back when the publisher demands potentially burdensome audit rights. Ideally, the vendor should be satisfied with the right simply to demand periodic self-audits from the customer.
• Cyber Liability Coverage: Cyber coverage is triggered when there is a data breach event and will cover expenses that are not otherwise protected under a typical professional liability policy. Both parties will benefit from the vendor maintaining this generally affordable coverage.
• Infringement Indemnification: An absolutely critical benefit for the customer. The vendor should be able to warrant that it has not infringed on a third party’s intellectual property rights. If it does, and if the customer is sued, then the vendor must step in and cover the costs and expenses related to such action. Customers should be hesitant to enter into any agreements without this protection.
• Assignment Rights: Limiting assignment of the agreement in some circumstances, especially when software is involved, is reasonable. However, it is important to be able to assign these agreements in the event of a merger, acquisition, or other similar event without requiring the consent of the other.

As with any top-five/top-ten/best-of/worst-of list, there are going to be near misses and honorable mentions that some will argue are just as important (liability limits, termination rights, and change-management processes come to mind). However, the bottom line is that there is no substitute for being familiar with both the technological and legal methods for managing and balancing the unique risks associated with technology agreements that fit both parties' needs.

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• “Force” Customers to Review the Terms. The biggest factor in successfully enforcing click-wrap terms usually is whether the customer had reasonable notice of those terms and clearly indicated his or her assent to the agreement. It is not enough in many cases simply to include a link to a click-wrap agreement during the ordering process that the customer is free either to click or not to click. It is much better practice to display the full agreement on screen as a mandatory step in the process and to require the customer to place a check in a box or click on a button or link that says “I Agree” or “I Accept.”

• Document the Transaction. Having a solid contract-formation process is critical, but the mere existence of that process may not get you very far in the context of a dispute if you are unable to show what steps a particular customer took during the process and what specific terms were presented to him or her at that time. It is very important for your e-commerce system to create a paper-trail that clearly reflects all information submitted, the date submitted, and the terms that were presented and accepted by the customer.

• Beware of Prior Agreements. In many cases, businesses may want to transition from a paper-based contracting process for their products and services to a more efficient, electronic process incorporating click-wrap terms. However, in those circumstances there is a risk that previously signed agreements still in effect may include language prohibiting any contract modifications without a writing signed by both parties. Under those circumstances, even if the customer accepts the click-wrap terms, a court may refuse to enforce those terms because they are not “signed” and therefore are ineffective to modify the original agreement. Businesses contemplating such a transition should work with counsel to determine whether it is possible to move existing customers to click-wrap agreements and also to determine what options exist if prior agreements include prohibitions against unsigned modifications.

Under the Standard edition, which is the only version that can be installed on a single physical processor server, the customer can run one instance of a virtual Operating System Environment (OSE) for each physical OSE installed. With the CIS Suite Enterprise edition, customers get two virtual OSEs for every physical OSE, though you can only run one instance per virtual OSE. This means that administrators must pay attention to the virtualization deployments to ensure compliance with the license. The Datacenter edition comes with no such restrictions—there is no limit to the number or configuration of virtual OSEs on the server, often vastly reducing compliance-related burdens for the OSEs and management software installed on the server.

It is important to note, however, that with the CIS Suites, customers still must ensure that any additional licensing requirements are met. For instance, any necessary external connectors, CALs, or Management Licenses needed to manage other servers must be purchased under a different licensing model (CIS Suites are the only products available under the ECI). Also, customers may not run either the Enterprise or Datacenter versions of CIS on servers with less than two processors and further may not unbundle the components to run on different physical servers. However, unlike the standard EA Qualified Desktop or User deployment, you can mix and match your CIS Suites under ECI so long as you meet the minimum, 50-server requirement.

A written set of internal procedures related to SPLA licensing – prepared in connection with a line-by-line review of the SPLA and MBSA – often can help to avoid compliance errors. A rough outline of such a document might include the following items:

1. Order Receiving
   • How customer orders for SPLA licenses are received
   • Contracting process (e.g., consultation with SPLA customers regarding license needs, generation of sales quotes or service agreements, steps required before licenses are included in monthly orders to SPLA reseller)
   • Any steps taken to verify the accuracy of license counts specified by customers
2. Order Processing
   • How SPLA-licensed software is installed on devices
   • Where devices with SPLA-licensed software are located
   • Any steps taken or tools deployed during the system-setup process to limit customers’ ability to access or modify software configurations
   • Any steps taken or tools deployed during the system-setup process to allow service provider to monitor software access and usage levels
3. Change Orders
   • How and from whom requests are received to change SPLA-license levels for existing SPLA customers
   • Change-order process (e.g., consultation with SPLA customers regarding license needs, generation of any revised sales quotes or service agreements, steps required before additional licenses are included in monthly orders to SPLA reseller)
4. Usage Monitoring
   • Frequency of any “internal” auditing processes used to reconcile licenses ordered from SPLA reseller against licenses ordered by SPLA customers, along with a description of those processes
   • Frequency of any “external” auditing processes used to verify that customer access to and usage of SPLA-licensed software is within the scope of the licenses ordered from SPLA reseller, along with a description of those processes

Preparing such a document usually carries a number of benefits, chief among them probably being the fact that the drafting process itself forces company management to familiarize itself with SPLA requirements. However, given the fact that preparation of the policy document requires an accurate understanding of all applicable SPLA terms, the assistance of corporate counsel in the process is critical.

Questions regarding enterprise software licensing often implicate complex, interconnected legal issues. When in doubt, enlist the assistance of knowledgeable licensing counsel.

To accommodate multi-level, multi-entity organizations, Microsoft allows the Enrolled Affiliate define the scope of the "enterprise" at Enrollment by permitting the Enrolled Affiliate to choose how its Affiliates are treated. An Enrolled Affiliate can choose to exclude all Affiliates, exclude a select number or Affiliates, or include all Affiliates. To handle new Affiliates acquired after the enrollment, the Enrolled Affiliate chooses, at Enrollment, whether it wants to auto-enroll all future Affiliates under the EA.

For auto-enrolled Affiliates, the Enrolled Affiliate is required to deploy enterprise software across all Qualified Users or Desktops, and these new licenses then are included in next annual True Up. If the new Affiliate changes the number of Qualified Users or Desktops under an EA by more than 10%, or if it already has an existing Enterprise Agreement, Microsoft is required to work with the Enrolled Affiliate in good faith to determine how to accommodate these changed circumstances. However, for Enrolled Affiliates that choose not to auto-enroll, new Affiliates must be licensed under a separate Enrollment or other license agreements with Microsoft.

Whether or not to auto-enroll typically depends on the EA customer’s growth plans and the strength of its IT organization. If the enterprise has a well-defined acquisition plan – including known targets that will rely on the company’s IT organization for support and maintenance – auto-enrollment often makes sense. Under those circumstances, the EA can eliminate the administrative burden of establishing a new Enrollment for the acquired Affiliate and can offer reductions in licensing costs from stepping up to new volume price levels. For many other organizations, however, it often makes more sense not to choose to auto-enroll new Affiliates, so that the necessary evaluation of the acquired Affiliate’s IT environment can occur prior to making any enrollment decisions moving forward.

When in doubt on any of these issues, consult with knowledgeable legal counsel

It is vital for software solution resellers to be familiar with all SPLA terms that may affect the ability to distribute those services to end users and, where possible, to negotiate better terms before moving forward with business plans that might cause compliance problems down the road.

First, it is important to keep in mind the fact that the value line between the two licensing options depends on the number of processors involved and on the edition of SQL Server to be deployed. For example, on a 4-processor server running Enterprise Edition of SQL Server, the “break even” point under Microsoft’s current MSRPs is approximately 618-619 clients. In other words, At 618 or fewer clients, the server + CAL option likely makes better sense, while at 619 or more clients, you may want to consider processor licensing. By contrast, for a 2-processor server running Standard Edition of SQL Server, that “break even” point is approximately 81-82 clients.

In addition, though, it also is important to keep in mind the fact that SQL Server CALs allow a licensed client-user or client-device to access an unlimited number of SQL Server databases in the company’s network. Therefore, in the above Enterprise-Edition example with 619 clients, if the company has two servers that have the same hardware configuration, but that have the same pool of clients, then server + CAL licensing would result in a licensing bill of approximately $118,700.00, while the previously attractive processor-based option would result in a bill of approximately $219,960.00.

Finally, if a company’s IT infrastructure is to include a number of SQL Server installations on virtual servers, then the licensing calculations will be further complicated by the different virtualization rights entailed with the different SQL Server editions. For example, SQL Server Datacenter may be licensed only on a per-processor basis, but it allows SQL Server to be deployed to an unlimited number of virtual servers on the licensed physical server. By contrast, SQL Server Enterprise licensed on a per-processor basis allows SQL Server to be deployed to only four virtual servers on the licensed physical server, and SQL Server Standard can only be licensed to virtual servers based on the number of virtual processors supporting each virtual operating system environment.

It is little wonder that companies often get tripped up by Microsoft’s licensing rules for SQL Server and other server software products. Unfortunately, licensing errors also can be very costly in the event of an audit. It makes sense for businesses to work with experienced licensing counsel when planning new SQL Server architecture and assessing existing deployments for license-compliance purposes.

1. Customer Purchases for Sub-Capacity but servers are not capped -  in this scenario IBM entitlements are purchased under certain assumptions regarding the server capacity and eligibility for sub-capacity licensing.  For whatever reason during the initial deployment or afterwards the hardware is not capped and the processor core capacity available to the partition hosting the server software is much greater than originally believed resulting in significant financial exposure under IBM's Processor Value Unit (PVU) calculations.    

2. Customer Purchases for Sub-Capacity but fails to deploy ILMT -  in this scenario IBM entitlements are purchased under the assumption of eligibility for sub-capacity licensing and is correctly deployed using appropriate capping.  However, because the client fails to deploy the ILMT discovery tool or to otherwise maintain the required monthly reports, IBM claims that customer owes for the full capacity of the hardware under PVU calculations notwithstanding the use of capping.  IBM argues that because IBM Passport Advantage PVU-based offerings license terms require ILMT reports be created, verified, adjusted, signed, and saved, any customer that fails to comply with the ILMT requirements forfeits it's rights to use sub-capacity licensing and therefore owes as if the hardware had not been capped.     

While there are many issues that arise in IBM audits, the issues involving sub-capacity licensing are the most prevalent and involve the most financial exposure based upon our experience.

SQL Server actually is a package of various software components with different functions in creating and managing a SQL database, so one of the more challenging aspects of analyzing SQL Server license obligations is determining how many licensable SQL Server instances are installed on company computers. Some of those components can be installed, effectively, on an unlimited number of network computers, provided that the core components are correctly licensed. Those “free” components include:

• Business Intelligence Development Studio
• Client Tools Backward Compatibility
• Client Tools Connectivity
• Client Tools SDK Management Tools - Basic
• Management Tools - Complete
• SQL Client Connectivity SDK
• Microsoft Sync Framework
• SQL Server 2008 R2 Books Online

However, the core components of SQL Server – the Database Engine and the Reporting, Integration and Analysis Services – all require separate licensing. This means that if a company wants to separate the core SQL Server components across several different servers (for security or workload-distribution reasons, for example), then it must purchase the same number of SQL Server licenses that it would need to purchase if it were deploying all of the core components on each of those machines. Those licensing costs can add up very quickly (per-processor licenses for certain editions of SQL Server can cost between $25,000 and $50,000 per physical processor that is activated on the servers where the software is installed).

Complicating matters is the fact that some automated software-inventory products sometimes report the “free” SQL Server tools and the “paid” SQL Server components the same way. That can lead the users of those inventory products to believe that the number of SQL Server product installations for which they need to purchase licenses is lower that it really is, resulting in a licensing gap and potential audit-related exposure.

Businesses with questions about licensing for SQL Server and other costly, mission-critical software owe it to themselves to discuss their requirements with knowledgeable licensing counsel before proceeding with license purchases that may be either inadequate, in terms of quantities acquired, or incorrect, in terms of product versions, editions and license types included in a purchase order.

First, the license that accompanies an ISV’s solution typically includes terms that are specific to the third-party technology utilized by that solution. ISV customers need to be familiar with those terms in order to avoid liability associated with possible over-deployment of the third-party products. For example, many of SAP’s client-relationship management solutions use IBM’s DB2 Enterprise Server software as the associated runtime database. The DB2 license grant included in SAP’s end-user agreement typically allows the user to install the DB2 software as widely as necessary in order to use the SAP solution within licensed limits. However, those terms also expressly limit the use of DB2 to functions related to the SAP solution, and business that use that DB2 software for any other purpose incur the obligation to ensure that those DB2 deployments are independently licensed through IBM. Therefore, in the event of a software audit initiated by IBM, past inattention to the use of SAP-licensed DB2 installations can result in significantly increased licensing exposure.

In addition, it is important to keep in mind the fact that a business’ license to use third-party software in connection with an ISV’s solution is only as good as the rights acquired by the ISV. To the extent that the ISV has failed to secure adequate pass-through license rights through the platform vendor, any license purportedly granted to the end user is potentially worthless. Businesses need to remember that copyright infringement is a strict-liability offense, which means that a belief that software was properly licensed through an ISV is no defense to liability for unlicensed installations (though it may help to mitigate the amount of a damages award). Therefore, it is critical for a business to ensure that its agreements with ISVs include terms requiring the ISVs to provide indemnification for third-party infringement claims. In cases where an ISV is relatively small or otherwise may not have adequate resources to deliver on a duty to indemnify, it is not inappropriate to request that it acquire appropriate insurance coverage against such claims.

Companies are well advised to seek input from knowledgeable licensing counsel where there appears to be potential for risk associated with ISV solutions.

· Standardizing the definitions of terms commonly used in patent applications, in order to avoid ambiguity at the enforcement stage
· Passage of legislation requiring publication of patent applications 18 months after filing, in order to facilitate public notice of the patent claims
· Urging courts not to presume irreparable harm based on a finding of infringement or on the patentee's use of the patent

"There is a place in this world for IP trolls, or 'patent assertion entities,' as the FTC names them" says Christopher Barnett, an attorney with Scott & Scott, LLP. "In some cases, they serve as a source of compensation for inventors whose products otherwise might not make it to market due to lack of capital. The trick is to strike a balance between that value and the fact that, when unchecked, trolls can stifle innovation by increasing the risks for other players without bringing anything new to the table." For more information, please contact Mr. Barnett at 800-596-6176 or cbarnett@scottandscottllp.com.

The measure results in potential civil liability for affected companies doing business in the state, and it also enables the state attorney general to pursue civil damages and injunctive relief against violators. Unsurprisingly, the bill was heavily favored by Microsoft, one of Washington’s largest private employers, which gains a significant new remedy for the unlicensed use of its software products. However, tech companies like Apple, Dell and Motorola lobbied hard against the bill, since it effectively forces them to conduct costly due diligence into their suppliers’ IP and software-licensing practices.

Washington is not the first state to consider this kind of legislation – Louisiana passed a similar measure last year, and Microsoft is actively pursuing a state-by-state campaign to pass similar laws. However, Washington probably is the most economically significant state to pass this kind of measure. Negatively affected businesses can expect to find themselves hauled into Washington state court in the event of a violation or, if they are outside its jurisdiction, might find their product inventory located in Washington being impounded and subject to forfeiture. It also would not be surprising to see this kind of measure used as leverage against businesses in software audit-related matters.

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

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

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

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

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

In Einhorn, the purchaser corporation, Ruberton Construction Co., was aware of the late contributions prior to its purchase of the assets of Statewide Hi-Way Safety, Inc. Shortly after the purchase, the administrator of the benefit plan in question sued Statewide for the delinquencies, plus liquidated damages. Statewide and Einhorn entered into a settlement agreement under which Statewide was to pay the late contributions in a series of installments. Statewide later breached that agreement, and Einhorn sued Ruberton. The Third Circuit ruled that Ruberton was liable for the delinquencies, even though Ruberton was not merely a continuation of Statewide. While the finding that Ruberton was liable for Statewide’s failure to contribute to an ERISA plan can be viewed as a narrow exception to the successor-liability doctrine, it may signal a trend toward expanding the responsibilities of buyers for the liabilities of sellers.

Purchasers and M&A counsel should take note that due diligence is more than reviewing a checklist of documents produced by sellers. In Einhorn, Ruberton knew of the liability prior to purchasing Statewide, which suggests that an open and honest due diligence process was employed. However, risk assessment goes hand-in-hand with due diligence checklist review. While a purchaser may be eager to execute a deal, experienced counsel must understand the implications of each piece of information gleaned from the due diligence process and must take time to outline the associated risks for their client prior to closing the deal.

In a December 27, 2010, decision by the Eleventh Circuit, the court upheld the conviction of an employee for accessing certain social security information for improper purposes, even though the employee was authorized to access that social security information. The court said that policies defining both the types of information that an employee may access along with the purpose for which the employee may use that information are both relevant under the CFAA “without authorization” inquiry. In contrast, the Ninth Circuit ruled in 2009 that an employee who was given access to files, without such access being accompanied by a specific “permitted use” requirement, could not be considered in violation of the CFAA regardless of the use of the information—even if the use was clearly non-business-related.

The decisions by these two and other Circuit courts are indicative of a split in authority when interpreting “without authorization.” However, the lessons for businesses should not be subject to debate. Businesses need to implement thoroughly considered and well-crafted Acceptable Use Policies addressing, among other things, the specific types of information that employees may access along with descriptions of how such information may be used by those employees. It is best practice to review and amend these documents on an annual basis, as changes to company structure or employee access frequently change.

Many organizations are either unaware that their current document retention policy does not include social media, or they rely on the social media platforms themselves to maintain social networking communications for them. The problem with relying on the social media platform to maintain your company’s communications is that these platforms are typically not under any obligation to do so. Before a company chooses a strategy of “let Twitter manage our communications, and if they lose some, we’ll just tell the court we don’t have ‘em”, organizations should be aware that courts are increasingly penalizing such attempts to avoid responsibility with harsh monetary sanctions.

Companies should revise their document retention policies to include social media communications if they wish to avoid the risks of discovery sanctions. From a technical perspective, there are some vendors emerging with monitoring and storage services designed to maintain social media compliance with document retention policies. Organizations should understand their use of social media platforms, and work with their legal and IT teams to determine the best method for storing and maintaining social media content and communications.

The parties should ask themselves and each other: What may the licensee do with the licensed product?  What may the licensee not do?  May only certain individuals associated with the licensee use the licensed product?  Don’t be afraid to delve into details.  If the license includes a product with an accompanying service, clearly define the product and the service (some products and services appear inseparable at first glance, but it is usually possible to differentiate them in some meaningful way).  If the license is for software, may the licensee make copies of the software for its internal use?  May the licensee run older versions of the software for legacy systems?  May the licensee run the software in multiple virtual environments simultaneously?  If the license is for a complete technology solution, will the licensee have access to the technology platform, or will the licensor deliver the solution to the client from a secure environment under its exclusive control?

License agreements that incompletely define the scope of the license may result in disagreement and even litigation between the parties at a later date.  It is almost always a good idea to seek the advice of knowledgeable IP counsel when drafting or reviewing such documents.

Online content providers increasingly are facing legal challenges from both users and third parties demanding that they take affirmative steps to police the content they host. Google famously is facing an expensive and challenging legal fight initiated by Viacom alleging that Internet service providers either “inducing” the use of their services for infringing activities or having reason to “know” that their services are being used for those activities are ineligible for protection under the safe harbor provisions of the Digital Millennium Copyright Act (DMCA). Viacom wants to hold Google liable for copyright damages associated with third parties’ posting of Viacom-owned content on YouTube. The devil, of course, is in how you define “induce” or “know,” and that same question now appears to be at the crux of the challenge now faced by Match.com.

It will be interesting to see whether the plaintiffs’ complaint in the Match.com case gains traction and, if so, whether social networking sites will start taking steps to reduce the frequency of spam-level profiles. Online content providers need to watch these developments closely, as unfavorable precedent could have a real and lasting impact on how they are able to do business in the future.

In the complaint, the NLRB states that blanket prohibitions on employees voicing dissatisfaction or posting disparaging remarks about their employers are overly broad and a violation of the NLRA. However, this complaint is even more interesting due to the fact that it appears to be in direct opposition to an Advice Memo filed by the NLRB in 2009, where the Board found that a Social Media Policy issued by an employer was specifically not in violation of Sections 7 and 8(a)(1). The policies in question are strikingly similar, so the apparent 180-degree turn by the NLRB may be a sign of a significant ideological shift in the Board.

If upheld, this complaint has implications for companies attempting to protect themselves from employees’ use of blogging and social media sites through Internet use policies. How companies should react to the NLRB complaint likely will not be clear until the complaint is heard in January of 2011, but for companies falling under the NLRA, a full internal review of Internet use and related policies should be planned.

Now, U.S. Courts are beginning to weigh in on social media, potentially highlighting a new privacy concern. In September, a New York court considered a discovery request by the defendant for the current and historical content of the plaintiff’s Facebook and MySpace profile. The court found that despite the plaintiff’s privacy concerns, the defendant’s need for access to the information contained in the profile outweighed that privacy right. In doing so, the court found an analogy for posting material to a social media site, even one restricting access, to a Second Circuit case where the appeals court found that individuals have no expectation of privacy for e-mails.

For corporations, there is the potential for this kind of finding to extend to social media accounts accessed by employees while at work. A 2010 Trend Micro study found that social media use in the workplace has risen from 19% to 24% in the past two years, and it is not hard to predict that number will continue trending up. For companies seeking to protect themselves from this discovery risk, a corporate Acceptable Use Policy (AUP) should be implemented either prohibiting social media use in the workplace or outlining very specific and acceptable uses of these sites while at work. Factors such as company size, technological capability, and corporate culture should be considered when developing an effective AUP. Experienced counsel should be able to help in the design and implementation of an effective AUP, which would mitigate some social media risks.

In a written appeal filed with the U.S. Department of Justice, the Service Industry Association (SIA), an industry organization representing computer, medical and business products service providers, has requested action against Oracle’s policies pertaining to Sun server hardware maintenance. In its letter, the SIA cites to new policies instituted by Oracle that effectively restrict access to necessary operating systems software updates only to customers with active Oracle hardware maintenance contracts. The effect of the policy is to keep third-party hardware maintainers from servicing Sun hardware, which is widely used across many different industries. According to the SIA, because of Oracle’s market power, this represents an attempt to monopolize a significant segment of the server hardware maintenance market in violation of U.S. antitrust law.

This may be a new policy for Oracle, but it is consistent with past practice by Sun prior to its acquisition by Oracle in January 2010. In the past, Sun attempted to justify that policy as an effort to protect its trade secrets from disclosure to third parties who may try to misappropriate the information, thereby damaging Sun’s business. Oracle likely will try to justify the new policy in the same way. However, that justification seems dubious, since third-party maintainers generally do not compete with Oracle as software publishers or hardware manufacturers, and even if there were a security concern, it is one that could be addressed more efficiently with an appropriate confidentiality and non-disclosure agreement.

Oracle customers and business partners may want to keep an eye on the DOJ’s response to the SIA’s appeal and on any other legal developments related to this issue.

Antitrust litigation almost always is a complicated affair, but this lawsuit has the potential to turn into a legal quagmire, especially in light of the incendiary nature of the nation’s pending health-care debate.  The outcome likely will hinge on the ability of BCBS’ lawyers to show that the ultimate effect of the MFN language is not anticompetitive, which is a defense that will require significant discovery efforts and expert testimony.

Requests for MFN clauses can be fairly common in a variety of contexts when one of the parties at the table is able to wield sufficient leverage during the negotiations process. However, businesses with sufficient market share need to be careful when drafting agreements that include MFN language, because third parties who are left out of the MFN relationship – or who believe that they have been damaged by it – may scour any operative contracts for provisions that can be used to cast doubt on the agreement. U.S. antitrust law can be a very powerful weapon for aggrieved consumers and jilted vendors.

Developments in this lawsuit should be very interesting to watch.

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

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

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

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

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

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

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

The main function of any SLA is to establish expectations for the client with respect to software availability or “uptime”. In addition to service guarantees, a good SLA should accomplish the following: 1) establish built-in remedies for the customer if the vendor is unable to meet service guarantees; 2) define disaster recovery provisions; 3) define customer duties with respect to the manner of use of the software; and 4) establish procedures for software maintenance and upgrades. Because most cloud customers depend on software hosted on external networks, stipulating the level of service customers have the right to expect is critical.

Vendors generally measure their availability using metrics that seem understandable, but that often are dangerously vague and difficult to measure from an accounting perspective. For instance, customers may see a “99.999% service access uptime,” (or some variation thereof), standard guarantee from ISPs. This metric may be easy to understand, but it does not necessarily reflect the needs of the customers. For instance, a cloud service may be technically accessible, while large swaths of the functionality are inoperable. With a “service access uptime” metric in place, a customer may be left without access to service credits that should otherwise be available to it. One alternative to consider in those situations may be a SLA based on incident-response-time guarantees or some other metric that is easier to apply and that does not require constant attention.

Because the SLA is so critical to mitigation of one of the primary risks in cloud computing, it is important for a customer to carefully read and understand the SLA and either accept the risk associated with the standard metric or negotiate for more appropriate measurement of success.

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

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

Career Agents Network, Inc. (“CAN”) brought suit against a former customer, Lawrence White, who had developed a web site called careeragentsnetwork.biz solely to warn prospective customers against doing business with CAN.  The lawsuit included claims under the Anti-cybersquatting Consumer Protection Act, alleging that White registered the web site in bad faith in an effort to profit from his use of CAN’s trademark. The complaint also included a more traditional trademark infringement claim under the Lanham Act.  White prevailed, with the court finding that his site was simply meant as a forum to express dissatisfaction with CAN and not to reap profit by stealing potential customers from CAN.  As a result, White not only succeeded in obtaining a dismissal of CAN’s claims but also received an award of attorney’s fees – the court determined CAN had brought the suit in an oppressive manner and that its claims were unfounded.

The case should be viewed as a warning to businesses to think carefully before retaliating against gripe sites and online critics with legal action. Litigation is always an expensive proposition, but the costs in this kind of scenario are augmented by the reputational damage that can result even from sending a threatening letter to a targeted business. Such letters have a habit of being posted on the sites in question and of further exacerbating the existing publicity problem.

A better solution, when possible, is usually to engage critics in an effort to resolve a negative experience through customer service efforts. Barring that, an effective search engine optimization strategy can help to bury search results pointing to gripe sites and to keep the majority of potential customers from encountering the negative content. A knowledgeable attorney can assist with those efforts and can provide an effective battle plan when informal efforts are found to be ineffective.

Now imagine you are the vendor of software products that could potentially store statutorily protected data for your customers. You potentially have just inherited compliance evaluation projects for every one of your customers.

For many vendors, such compliance demands are too burdensome, and a quick review of their cloud computing agreements shows that their methods for handling these requirements often consist of avoiding the subject altogether or by expressly absolving themselves of the responsibility. Many vendors attempt to avoid liability by including provision in their contracts disclaiming any liability for data breaches or compliance with data security regulations. Cloud customers that do not carefully evaluate cloud agreements can find themselves holding the bag for data breaches that may have been caused by their cloud vendors.

Some statutes, such as the recently revised HIPAA rules, have addressed such contractual liability avoidance by specifying that business associates of companies covered by the statutes are also liable for data breaches. As the cloud computing industry matures, vendors will learn that they have to comply with statutory security requirements. During this maturation, new and possibly standardized methods to share responsibility for security of customer information will emerge. For now, customers should seek the advice of experienced counsel before entering into any cloud computing agreement to mitigate or eliminate vendor avoidance and to ensure the vendor will adequately protect protected personal information.

In its regular 3-year review of exemptions to the DMCA’s anti-circumvention exceptions, the Library of Congress, which includes the U.S. Copyright Office, added to the list so-called “jail breaking” of wireless telephones, most notably Apple’s iPhone. iPhone users are now able to modify, unlock, and use previously unauthorized applications on their cell phones. Apple had argued that modifications to its iPhones constituted unauthorized modification of its software. However, the Library of Congress emphasized that iPhone owners paid for the product and should have the right to modify their phone for their personal use. The new DMCA exceptions also include:

  Circumvention of security measures in DVDs, when short portions of the content is to be used for “educational uses by college and university professors and by college and university film and media studies students
  Circumvention of security measures in video games accessible on personal computers for certain testing and security-related operations
  Circumvention of security measures in computer programs protected by out-of-date hardware-based security accessories (also known as “dongles”)
  Circumvention of security measures in ebooks for the purpose of making the content accessible for readers with disabilities, provided that no other edition of the work allows accessibility-related modifications

In MGE UPS Systems Inc. v. GE Consumer and Industrial Inc., the 5^th Circuit further clarified the overall scope of the DMCA’s anti-circumvention provisions in ruling that bypassing protections on copyrighted software in order to access or use the product does not necessarily trigger a DMCA claim. MGE had sued GE for copyright infringement, claiming GE hacked the software security key to access its copyrighted software. The Court held that simply viewing or using copyrighted software does not constitute unlawfully accessing copyrighted materials in violation of the DMCA, and that a copyright owner’s software security protections must protect against a right specifically granted Act. That holding also might be significant for some companies faced with allegations of unlicensed software use by organizations such as the Business Software Alliance (BSA) or the Software & Information Industry Associations (SIIA).

The DMCA is multi-faceted legislation, with some provisions that historically have been good for small to medium-sized businesses and some that have been less positive. These recent developments represent a net improvement to the effect of the law for most consumers of digital media.

Northrop has yet to answer or to respond to the lawsuit, so its position with regard to AccuSoft’s factual claims has yet to be determined. However, the facts presented in the complaint appear to reflect the kind of dispute that often arises when one or both parties to a software licensing relationship do not have an accurate grasp of controlling license agreements. Especially with many larger enterprises, the business units responsible for software license negotiation and acquisition may lack sufficiently open lines of communication with production departments, resulting in internal confusion regarding what agreements have been signed, what agreements remain in effect, and what those agreements mean for the company’s day-to-day operations.

Compounding the confusion is the fact that larger software license transactions often involve the execution of a master license or services agreement, to which other documents specifying discrete product or service orders are attached, as executed, as schedules or exhibits. Over time, the resulting “document soup” can become nearly impossible to manage unless the company’s has been diligent, in the interim, in tracking all material changes or amendments to the master agreement, all exhibits or schedules that have been executed since the beginning of the relationship, and the effects, if any, of those later instruments on earlier agreements.

Where businesses fail to take pro-active, enterprise-wide, contract-management steps at an early stage, disputes such as the Accusoft v. Northrop litigation become almost inevitable, especially in an age where many publishers, such as Microsoft, IBM and Oracle, to name a few, are proceeding with software audit initiatives, in some cases across their entire customer bases, in order to ensure compliant software use and licensing.

Businesses with a heavy reliance on software and technology licensing cannot afford not to work closely with counsel in reviewing the terms of all agreements that may affect their ability to use that software or technology in the way that their customers demand.

Elaborating on the differences among the various messaging options offered by social networking sites, Judge Morrow found that messages sent between users via Facebook and MySpace private messaging systems are no different than e-mail under the Stored Communications Act. Under the Act, a third-party company storing private electronic data is not required to turn over the private information unless presented with a federal criminal law warrant. However, the judge limited her decision to private messages sent on social media sites and left unanswered other questions, such as the issue of discoverability, through subpoena, of semi-private postings on user walls visible only to a select few.

Increasingly, courts will be asked to interpret outdated discovery rules against new technologies and heightened public concern over online privacy. Following the recent furor over Facebook privacy settings in the press, we expect to see a court take on the task of a comprehensive examination of social media privacy concerns with respect to electronic discovery, similar to Judge Shira Scheindlin’s Zubulake opinion on general e-discovery issues, before the Supreme Court and Congress undertake revisions to the Federal Rules.

The CDA often is applied to Internet service providers, but it has also been used by individuals who operate websites and web-based forums. The CDA even has been used to protect individuals who knowingly allow content to be posted to a website under their control.

Although the New Jersey case involved an antiquated forum (USENET can be properly characterized as Web 0.1), the rule generally applies to Web 2.0 as well, from Twitter to Facebook to, likely, whatever comes next. Courts continue to find that the CDA immunizes publishers from liability for defamatory comments posted to their websites.

In many cases, filing suit against anyone other than the author of arguably defamatory content is likely to produce no advantage for the complainant. A better approach to dealing with attacks on your online brand may be to utilize other methods, such as drowning the negative comments with positive publicity. An attorney knowledgeable regarding Internet marketing and brand protection efforts can assist you to formulate an appropriate strategy in response defamatory, third-party activities.

Ensure Counsel Oversees e-Discovery Production at All Stages

In addition to highlighting the importance of fully reviewing and documenting litigation hold policies (click here if you missed the previous post on that subject), Judge Scheindlin’s opinion also reminds businesses not to fall into the trap of relying on IT departments to independently design and implement e-discovery procedures. Judge Scheindlin made clear, by issuing sanctions against the offending parties in the Pension Committee case, that legal counsel must actively participate in the entire process of document preservation and production. The judge said that anything less than total legal oversight would be considered negligence, which in an e-discovery context can be extremely costly. Essentially, when a party fails to have attorney participation in electronic discovery procedures, the judge can shift the costs of electronic discovery from the innocent to the offending party. For large cases, these costs can easily range into the multiple million dollar range. For more significant oversight failures, the judge can issue an adverse jury instruction—a sanction that can easily derail an otherwise winnable case by permitting the jury to infer facts that are detrimental to the offending party.

To avoid costly sanctions, companies must ensure that their e-discovery processes include regular, documented attorney review of all e-discovery production policies. Judges are becoming more and more familiar with the e-discovery process, and a party must show the court that attorneys were involved in the development and implementation of all stages of e-discovery activities. It is no longer acceptable to give the IT department control over the manner and method used to produce electronic information.

Senior managers, in-house counsel and litigators take note: last month a new set of e-discovery guidelines emerged. Judge Shira Scheindlin, author of the definitive electronic discovery opinions in the Zubulake case six years ago, has issued another soon-to-be classic opinion in Pension Committee of the Univ. of Montreal Pension Plan, et al., v. Bank of America Securities, LLC, et al., 05 Civ. 9016 (SAS) (S.D.N.Y. Jan. 15, 2010) Amended Opinion and Order. Judge Scheindlin dubbed her decision in Pension Committee, “Zubulake Revisited: Six Years Later,” and in it, set out some examples of common mistakes companies make with respect to records management and e-discovery.

In Pension Committee, Judge Scheindlin enumerates specific conduct that she deems to be per se negligent, or worse. The harsh sanctions that accompany a finding of negligence with respect to electronic discovery is a warning to senior managers and in-house counsel that e-discovery can no longer be passed off to the IT department—the process must be closely managed by legal counsel at every step along the way.

Technically the opinion is only applicable to the federal courts in New York, but Judge Scheindlin’s status as a thought leader in the field of electronic discovery guarantees that the examples set out in this case will elicit serious discussions between senior management, legal departments, and IT groups throughout the country. Because Pension ­Committee is too lengthy for overview in a blog, I intend to highlight some of the key findings in a series of blogs that should get companies thinking about the way they handle electronic discovery and records management.

LESSON 1:

To avoid such a devastating sanction, companies should take the time now to review their litigation hold policy with experienced counsel. Taking Judge Scheindlin’s opinion as an example, in most cases litigation holds must be issued in advance of the filing of a suit. Because of the timeliness requirement, a litigation hold process must allow for swift and comprehensive implementation of the hold as disputes become apparent. Also, the mere issuance of a litigation hold is not enough to avoid devastating e-discovery sanctions. A timely issued hold that does not effectively protect potentially relevant data is meaningless. Companies must carefully outline not only litigation hold triggering events, but they should also review the technology used to implement the hold to ensure compliancethat potentially relevant data is being saved.

Next installment: Ensure there is sufficient legal oversight of your document review and production.

Managed services agreements that assign all intellectual property rights related to the service contract to the subscriber weaken the strength of the contract.  Rights to any software, processes, or marketing materials developed by the MSP under the agreement would belong to the subscriber.  The MSP will have forfeited a potentially substantial revenue stream from licensing agreements with licensors.

MSPs often want to retain the right to increase rates for new subscribers with whom the MSP is unfamiliar.  Flexible rates allow MSPs to ensure new subscribers understand the importance of keeping their account current.  A managed services agreement that does not allow the MSP to raise rates under certain conditions exposes the MSP to potential losses.

If you are selling an MSP, buying an MSP, or if you are an MSP enrolling new subscribers, you should consult counsel experienced in advising managed service providers.

What happened:

Defendants were sued for deceptive practices in the marketing of New York City real estate. Soon after the litigation started defense counsel instructed the company’s IT director to put a litigation hold on relevant information.  Faced with allegations of incomplete production of ESI, defense counsel filed an affidavit and represented to the Court that the electronic information was centrally stored and all relevant documents had been produced.  At a subsequent hearing, it was discovered that the litigation hold was inadequate in that employees of the company could delete electronic documents in between the time that the company backed-up copies of its network. Furthermore, it was not until the fourth day of hearings that it became known that there were backup tapes available from which to cull data—a fact that had heretofore been affirmatively disclaimed.

According to the IT Director’s testimony, he never told counsel that there was a possibility, notwithstanding the litigation hold, that the Defendants could permanently delete documents without any means of recovery. He continued by testifying that no one asked him to ensure nothing could be deleted. Further testimony confirmed that the specific rules contained in the retention order were not even discussed with the IT Director, nor were examinations of the Defendants’ hard drives performed as ordered.

Lessons to be learned:

Communication between legal counsel and information technology managers is now more important than ever. Ensuring that litigants understand what is and is not possible with respect to information technology is of the utmost importance. Insufficient understanding of the technologies used to store ESI coupled with a lack of communication with the IT departments that are called on to execute e-discovery orders can turn a case in which you should win on the merits into one in which you lose due to discovery sanctions.

Based on our consulting experience with general counsel and outside counsel concerning the risks and obligations regarding retention and production of electronically stored information (ESI) and in litigating spoliation motions, Mr. Weprin’s prediction is on point and the following three defenses will no longer suffice:

“We Have Produced What We Could Find”

The defense to a motion to compel that the party has produced what it could find will not suffice in many instances. The question that will invariably follow is whether reasonable steps were taken to preserve the information.  As litigators, we know that whenever a rule turns on the meaning of the term reasonable, a fight will ensue.

“The Evidence Was Not Lost on Purpose”

If the Federal approach in New York is any predictor, it will not be a valid defense to a sanctions motion that the litigant lost the evidence through carelessness as opposed to having done so intentionally to try to get an advantage in the case.  The Second Circuit Court of Appeals has held that the degree of fault necessary to impose the full range of sanctions in a Federal civil case is only that of negligence or carelessness.

“The Lost Evidence Was Not That Important”

Courts ordinarily decide cases on the merits based upon its assessment of the importance of conflicting evidence.  When evidence cannot be produced, the Court’s inability to assess the significance of the evidence-whether a “smoking gun” or merely a collateral point-works to the detriment of the party who failed to preserve it.  Such an approach promises a sea-change because in all other contexts the significance of the evidence to the outcome depends on the Court’s assessment of the evidence.  Here, the Court is empowered to presume that the lost evidence was very significant.

If you have any thoughts, comments or questions about this article, please contact Jonathan Scott at (214) 999-0080.

The assertions made by a former managing counsel for Toyota, Dimitrios Biller, sounded more like a story for a movie. While at Toyota, Biller was responsible for its defense of personal injury claims involving its vehicles. After he resigned and was in an employment related dispute with Toyota and still subject to attorney-client confidentiality obligations, he made public statements claiming that Toyota had deliberately withheld unfavorable crash test evidence and delivered to the US District Courthouse in Marshall, Texas, four boxes of documents that allegedly contained this “smoking gun” evidence.  This Court was the venue for a number of personal injury cases against Toyota.

Pursuant to a Court order, the evidence was sealed and placed on a secure server.

In response to Biller’s assertions, the Dallas firm that represented the plaintiffs in the underlying lawsuits, filed fifteen lawsuits on September 25, 2009, including Lopez v. Toyota Motor Corporation et al., 2:09 CV-00292-TJW alleging that Toyota and its officials had operated a racketeering enterprise designed to obstruct justice. The claims were brought under the Federal RICO statute, which Congress enacted to target organized crime but that has been used and sometimes misused to cast a traditional business dispute into a Federal case. The remedies available where a civil RICO claim has been proven are powerful and include treble damages, attorney’s fees, and injunctive relief. In an extreme case, the Court is authorized to appoint a Federal monitor over the enterprise.

As it turns out, there was a big problem with these RICO cases against Toyota and the problem was that the evidence of misconduct that Mr. Biller asserted he delivered to the Court was not in the materials the Court received.

After the materials were secured, Plaintiff’s counsel was given electronic access to a mirror image copy of the evidence deposited with the Court and after reviewing the documents and finding no evidence to substantiate that Toyota had engaged in any discovery misconduct, counsel voluntarily dismissed the lawsuits.

These events illustrate some important points. Allegations are merely that and must be distinguished from evidence. It is fortunate that the documents were available to disprove the allegations. Allegations of non-disclosure of evidence, if proven, not only threaten to undermine the outcome in litigation but can also trigger an avalanche of ancillary lawsuits.

Jonathan and his team consult nationally with business executives and attorneys to help manage the risks involved in e-discovery and helps companies defend allegations of wrongdoing in complex litigation matters.

If you have any questions or comments about this topic, Jonathan may be reached (214) 999-0080.

Courts always carefully construe these provisions. State laws are essentially unanimous in requiring that the provisions be reasonably limited, with their duration and scope – geographic and otherwise – narrowly tailored to protect the employer’s legitimate interests. Any ambiguity in such provisions almost always is construed against the employer, so employers must exercise considerable care in drafting them. In some states, however, non-compete clauses are even more particularly disfavored. For example, California law affirmatively prohibits “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind.” (Cal. Bus. & Prof. Code § 16600) In addition, courts construing the California law have made it clear that the statute applies not only to “traditional” non-compete clauses that expressly restrain an employee from engaging in competitive activities following termination, but also to differently structured provisions that have substantially the same effect as an express prohibition.

A recent example is found in the opinion of the U.S. District Court in the Northern District of California in the case of Applied Materials, Inc. v. Advanced Micro-Fabrication Equipment (Shanghai) Co. (May 20, 2009). There, the employer, Applied Materials, had attempted to enforce the following patent assignment clause against former employees and their new employer:

In case any invention is described in a patent application or is disclosed to third parties by me within one (1) year after terminating my employment with APPLIED, it is to be presumed that the invention was conceived or made during the period of my employment for APPLIED, and the invention will be assigned to APPLIED as provided by this Agreement, provided it relates to my work with APPLIED or any of its subsidiaries.

In defending the clause, Applied Materials argued that the clause merely created a presumption that a former employee would have the opportunity to rebut in order to avoid an assignment. However, the court disagreed, noting that the provision “does not state that an employee may rebut this presumption, nor does it state how an employee would do so.” The court further held that because the clause “touches post-employment inventions, regardless of when they were conceived or whether they were based on Applied's confidential information, [it] necessarily operates as a restriction on employee mobility.” As a result, the court determined the clause to be unlawful and void under California law and incapable of reformation.

Cases such as Applied Materials emphasize the point that, regardless of the jurisdictions in which they are located, companies need to look to various kinds of measures to protect their trade secrets and should not rely solely or even substantially on non-compete clauses. California businesses have a special burden to overcome, but even businesses in states that allow non-compete clauses must be wary of the scrutiny to which such provisions are subject. It is important to consult with counsel to identify and implement a holistic and diverse regime of trade secret protections.

A recent case that helps define the scope of the Sherman Act is Xerox Corporation v. Media Sciences, Inc., in the United States District Court in the Southern District of New York. In that case, Media Sciences claimed Xerox is monopolizing the after-market manufacturing of ink sticks for printers, is engaging in anti-competitive behavior, and is fixing prices to exploit consumers. In ruling on a motion for summary judgment filed by Xerox, the court analyzed monopolization based on several criteria, including whether Xerox has the power to control prices and exclude competition, whether it engaged in predatory or anticompetitive conduct, and whether it has a specific intent to monopolize or a dangerous probability of achieving a monopoly. The court noted that an after-market analysis further requires a court to consider whether consumers who have already purchased a defendant’s product are locked in by the high costs and whether the company is exploiting customers.

The court determined that Xerox did not take advantage of its consumers by fixing the price at a supracompetitive rate, and it dismissed the anti-trust action. The court’s analysis shed light on the importance of pricing of products in which there are few, if any, alternatives in the market. Companies with a significant market share in an industry should consult regularly with counsel to ensure their business model and practices do not conflict with existing anti-trust law.

The Kansas case involves Boyd Kesler, a borrower who, in 2004, secured a loan from Landmark National Bank (Landmark) with a mortgage on the property in Ford County, Kansas that Landmark subsequently registered with the Ford County Clerk. In March of 2005, Mr. Kesler took out a second mortgage on the same property from Millennia Mortgage Corp (Millennia). The mortgage document on this second loan listed MERS as the mortgagee, acting “solely as a nominee for Lender, as hereinafter defined, and Lender’s successors and assigns.” The document identified Millennia as the “Lender.” Sometime later, Millennia assigned the second mortgage to Sovereign Bank (Sovereign). Relying on the framework of MERS for protection, Sovereign chose not to record the transaction in the Ford County register.

In 2006 Mr. Kesler filed for bankruptcy, prompting Landmark to file a petition to foreclose on its mortgage. Landmark, relying on the Ford County records, served both Kesler and the original note holder on the second mortgage, Millennia, in the foreclosure action. Neither Kesler nor Millennia answered the petition, and the trial court issued a default judgment. As a result, Landmark received the full amount owed on the first mortgage, Kesler received the balance from the foreclosure sale with nothing left to Sovereign.

Upon learning of the default judgment, MERS, as the mortgagee of record, filed a motion to vacate but was confronted with an unsympathetic trial court. The court found that MERS was not a real party in interest and that Landmark was not required to name it as a party to the foreclosure. Applying an abuse of discretion standard, the Kansas Supreme Court analyzed the content of the mortgage document along with other opinions on related matters to conclude that MERS is functionally a straw man with no stake in the outcome of the foreclosure.

It is the Court’s ruling that MERS has no interest in the underlying loan transaction that could prove problematic to the mortgage industry. If MERS is deemed not to have any ownership interest in loans recorded in their name, lien priority issues arise for those mortgages that subsequently were sold in the mortgage instrument market. The practical effect of this decision is that second mortgage holders utilizing the MERS system will have to scramble to re-record their mortgages in order to protect themselves from suffering the same fate as Sovereign.

Given the trend of the nation’s courts to closely scrutinize the transactions underlying the foreclosures plaguing the country as a result of unscrupulous lending practices, it is possible that the Kesler case may prove to be a harbinger of more decisions hostile to MERS in the future. Mortgage lenders and purchasers should keep the decision in mind when drafting or revising their policies regarding recordation and perfection of their interests.

The FTC now will require full disclosure of all payments to bloggers and consumer reviewers, including distribution of free products.  Thus, someone on a company’s payroll must disclose that information when posting an online review, comment, or testimonial.

The proposed guidelines have a broad reach, and may include blogs by an average consumer.  Bloggers will be required to disclose any free samples they may receive, and the FTC will require proof to support claims about a product.  Once the guidelines are in place, software companies will need to work with counsel to revise marketing strategies in order to ensure compliance or to fully disclose payments to reviewers.

The guidelines are expected to be effective by the end of the year.

A musician promoting him- or herself, securing shows at clubs and venues, and attracting consistent audiences may be urged to obtain a manager, business manager, or public relations (“PR”) representative.  The musician must carefully select which, if any, of these assistants and representatives to hire.  A manager, business manager, and PR representative are each important elements of a successful music career, but each may only be appropriate at a certain stage in the musician’s career.  Additionally, the musician should carefully evaluate which representatives to hire and should avoid hiring representatives based only on that representative’s current client base.

Securing legal counsel to review and revise contracts with managers and representatives will help protect the musician from agreeing to contracts that are unfavorable to the musician.  Musicians presented with contracts often feel pressured to sign the contract immediately without consulting an attorney.  Signing a contract that was not reviewed by an attorney working in the musician’s best interest could result in significant impairment to the musician’s rights.

Musicians also should avoid relying solely on non-attorneys such as managers and business managers to evaluate contracts with record labels, music publishers, and other entities seeking an agreement with the musician.  Managers, business managers, and PR representatives possess unique and helpful skills in the music industry but may not have the proper training to give legal advice about contracts.  Reviewing manager and record label contracts with an attorney will help to ensure the musician retains the rights most valuable to the musician.

In 2007, in its opinion in Leegin Creative Products v. PSKS, Inc., the U.S. Supreme Court did away with a century-old rule that vertical price restraints are, by their very nature, illegal under U.S. antitrust law. Such restraints often appear in minimum advertised price or “MAP” policies and usually take the form of restrictions imposed by product manufacturers on the minimum price at which authorized, “downstream” resellers may advertise the manufacturers’ products. Historically, agreements containing MAP policies were held to be per se illegal under the Sherman Act, the principal U.S. antitrust statute. In Leegin, the Supreme Court reversed this precedent, holding instead that such agreements are not per se illegal under the Sherman Act, but rather that they must be evaluated in light of all of the circumstances of a particular case to determine whether their net effect is to restrain competition generally. As a result of the opinion, in most cases it has become much more difficult and expensive to maintain successful antitrust claims based on allegedly unlawful MAP policies.

In reaction to Leegin, some states (and some U.S. legislators) have considered laws that return their respective jurisdictions back to the status quo before Leegin by expressly banning all vertical RPM agreements. Maryland’s new law applies to any businesses selling products to consumers or to purchasers in Maryland and effectively requires any of those businesses also selling or marketing products in other states either to have two different sets of agreements with its resellers or, effectively, to analyze all of their agreements under Maryland law, regardless of their resellers’ locations, in order to avoid liability in one jurisdiction. For many businesses, despite the potential cost, the latter option may make the most sense, especially if other states or the U.S. legislature follows Maryland’s lead and passes laws re-imposing the pre-Leegin ban.

However, compliance with such prohibitions and control over pricing are not necessarily mutually exclusive. Depending on the nature of their supply chains, many businesses may be able to avoid liability under the new Maryland law or other laws by including flexible termination provisions in their dealer agreements and by setting and enforcing MAP policies unilaterally and uniformly across their dealer network. Especially in the wake of the new Maryland law, manufacturers interested in maintaining such control need to consult with their attorneys in an effort to examine their existing dealer agreements and to make any changes needed to maintain compliance with changes in applicable law while also maintaining control over the supply chain.

On July 31, 2009, the Tenenbaum jury returned its verdict that the defendant (a Boston University graduate student) should pay $675,000 in statutory damages to several different record labels for sharing copyrighted songs over the Internet on peer-to-peer networks. The Thomas-Rasset jury’s verdict was even higher, ordering the defendant there – a natural resources coordinator for the Mille Lacs Band of Ojibwe Indians – to pay $1.92 million to several labels under similar factual circumstances. Each defendant has vowed to pursue a reduction in damages or to appeal the verdicts based on the Supreme Court’s suggestion in other circumstances that punitive damages awards greater than 10 times actual damages are unconstitutional. In each of these cases, the damages awarded are many times higher than the amounts the defendants claim to be able to pay without filing for bankruptcy protection. The Recording Industry Association of America (RIAA) certainly is aware of this, undoubtedly making the magnitude of the awards most valuable to it and its member music distributors as useful examples to help coerce other, potential defendants into accepting settlement on the RIAA’s terms.

Many businesses are justifiably concerned regarding the implication of these recent awards, to the extent that software companies and their representatives – such as the Business Software Alliance (BSA) or the Software & Information Industry Association (SIIA) – might attempt to use them in the context of settling claims of software copyright infringement. In fact, the attorneys at Scott & Scott already have noticed that attorneys for software publishers and trade groups have begun to reference the awards in the music download cases in order to force their clients’ points at settlement. From this perspective, the cases are a good reminder of the importance of implementing solid software asset management practices in order to prevent the significant exposure that could result from a BSA or SIIA software audit.

However, it is also important to keep in mind that the circumstances surrounding allegations of software copyright infringement often depart substantially from the circumstances in the music cases. In many cases, business owners and managers may be wholly unaware of any unlicensed software use in their organization, and in some cases, the fault for any non-compliance may rest in the hands of the individuals who are acting as the confidential sources of the BSA’s or SIIA’s information. Every case is different, and a business’ attorneys should be prepared and able to distinguish the facts at hand in a dispute from the facts of cases that a claimant may use to argue for excessive settlement amounts.

It is also important to keep in mind that these high-profile music cases may serve as catalysts for judicial or legislative action on the issue of the maximum damages available for copyright infringement. It will be very interesting to watch development in this area.

In the opinion, authored by Justice Scalia and joined by, perhaps unexpectedly, Justices Stevens, Souter, Ginsberg and Breyer, the Court held that a state attorney general bringing suit against a nationally chartered bank is not necessarily a prohibited exercise of “visitorial powers” over the banks. With regard to federal banks, such powers – including, per the majority opinion, “administrative oversight that allows a sovereign to inspect books and records on demand, even if the process is mediated by a court through prerogative writs or similar means” – are reserved exclusively to the federal government by operation of the National Bank Act.

Rather, the Court held such a state action does not reflect the attorney general “acting in the role of sovereign-as-supervisor, but rather in the role of sovereign-as-law-enforcer.” According to the majority, such action thus is not a prohibited exercise of “visitorial powers” under the Act, and prior attempts to prohibit such action as being federally preempted were incorrect.

Assuming Congress takes no action to reverse course, this opinion is pivotally important both to federally chartered banks and to those interested in their oversight. In the wake of the recent crises facing the nation’s financial industry, it will be very interesting to see how the states begin to align in terms of their banking enforcement activity.

Horizon Group Management LLC (“Horizon”) filed a libel lawsuit Monday, July 27, 2009 against former tenant Amanda Bonnen alleging a Twitter post she “maliciously and wrongfully” published contained false and defamatory information regarding Horizon and her former apartment.

Ms. Bonnen allegedly posted the following message on her Twitter account: “Who said sleeping in a moldy apartment was bad for you? Horizon realty thinks it's okay.” Horizon alleges that Ms. Bonnen’s account is public and accessible throughout the world via the Internet and that Ms. Bonnen’s Twitter post greatly injures Horizon’s reputation as a landlord in Chicago. Horizon has requested $50,000 in damages.

On July 28 Horizon published a press release indicating the libel suit is related to a class action Ms. Bonnen filed related to Chicago Residential Landlord Tenant Ordinance violations. Horizon discovered Ms. Bonnen’s Twitter post during the course of its due diligence investigation for the class action lawsuit.

An alternate approach for a business in Horizon’s position that is interested in mitigating negative publicity in online media would be to aggressively promote a positive message regarding their brand and their products or services. Businesses can launch blogs or ad campaigns to counteract negative comments made on the Internet with the goal of ensuring the positive messages appear higher in Internet search results than negative messages. Depending on the content of negative messages, additional remedies may be available including DMCA takedown notices, copyright infringement actions, or trademark infringement actions.

If your business is the victim of negative electronic advertising from third parties, you should retain counsel experienced in protecting business’ rights and brands.

To view the complaint, click here.

To view the subsequent press release, click here.

The court found that the statute does not allow the turnover of the defendant’s domain name to satisfy the judgment. The statute authorizes the judgment debtor's interest in property to be applied toward the satisfaction of the money judgment. The court reasoned that cash is easily applied toward satisfying a judgment, but nonmonetary property is not so easily applied.  It must be valued and sold, and section 708.205 does not authorize the judgment debtor to value property unilaterally or put it up for public sale.

Additionally, the plaintiff did not invoke and could not rely on the general turnover statute, section 699.040 because, among other reasons, the statute limits itself to tangible property that can be levied upon by taking it into custody (or tangible, documentary evidence of title to property or a debt). Domain name registration supplies the intangible contractual right to use a unique domain name for a specified period of time. Even if this right constitutes property, it cannot be taken into custody.

Blockbuster, Inc. learned this lesson the hard way in a 2009 trial court opinion from the U.S. District Court in the Northern District of Texas. There, one of Blockbuster’s customers sued the company for alleged violations of the U.S. Video Privacy Protection Act for sharing information about the movies she rented with Facebook through the Blockbuster Online service. (Blockbuster had entered into a contract with Facebook under which Facebook’s Beacon software was able to collect and broadcast the customer’s rental choices to the her Facebook friends.) Aside from being a highly questionable business decision from a customer privacy perspective, Blockbuster’s arrangement with Facebook also directed light to a significant problem with Blockbuster’s customer agreement.

In response to the plaintiff’s claims, Blockbuster sought to enforce an arbitration clause in the “Terms and Conditions” of its customer agreement to take the matter out of federal court. However, on the plaintiff’s objection, the court refused to do so based on its opinion that the arbitration provision was unsupported by adequate consideration and, thus, illusory and unenforceable. The court based its holding on another provision in the customer agreement, titled “Changes to Terms and Conditions,” that read as follows:

Blockbuster may at any time, and at its sole discretion, modify these Terms and Conditions of Use, including without limitation the Privacy Policy, with or without notice. Such modifications will be effective immediately upon posting. You agree to review these Terms and Conditions of Use periodically and your continued use of this Site following such modifications will indicate your acceptance of these modified Terms and Conditions of Use. If you do not agree to any modification of these Terms and Conditions of Use, you must immediately stop using this Site.

With regard to the agreement’s arbitration provision, the problem with the above language is that it does not clearly indicate that Blockbuster’s unilateral decision to modify the Terms and Conditions will not apply to disputes, otherwise subject to arbitration, that arose out of events occurring prior to publication on Blockbuster’s site. Thus, Blockbuster theoretically could change the terms of the agreement after the accrual of a claim against it, with that change then retroactively applying to the dispute. The court held that even if Blockbuster never intended this to be the effect of the agreement, it had no alternative but to rely on the agreement’s language in light of prevailing law. The court therefore denied Blockbuster’s motion to compel arbitration.

The court also noted that other courts have considered similar agreements that were held to be enforceable due to the presence of appropriate savings clauses in the terms of the agreements at issue. One such provision read as follows:

[N]o amendment shall apply to a Dispute of which the Sponsor [Halliburton] had actual notice on the date of amendment…termination [of the arbitration agreement] shall not be effective until 10 days after reasonable notice of termination is given to Employees or as to Disputes which arose prior to the date of termination.

(Quoted from In re Halliburton Co., 80 S.W.3d 566, 569-70 (Tex.2002).) Because the above provision specifically limited the company’s ability to make unilateral changes to the agreement, thereby leaving enforceable an arbitration clause found elsewhere in the agreement.

All businesses owe it to their owners or shareholders to ensure that they obtain as much benefit as possible out of their service agreements. To move new agreements into production without the benefit of the opinion of counsel has the potential to result in consequences that are both unintended and unwanted.

The Blockbuster opinion is from the case of Harris v. Blockbuster, Inc., Case No. 3:09-cv-217-M. 

Under a source code escrow agreement, the developer or vendor agrees to deposit into the custody of a neutral, third-party escrow agent a copy of the current source code for the product that is at issue in the relationship and, at defined intervals, to update the deposit with the then-current version of the code, assuming changes have been made following the date of the original or previous deposit. Then, going forward, the escrow agent is under instructions to maintain, for a reasonable fee, the security, confidentiality and integrity of the source code until the term of its agreement with the parties ends or until it receives notice of the occurrence of an event giving the non-depositing party the right to obtain the source code. This sort of arrangement serves to give the business contracting with the developer or vendor peace-of-mind that its past investments in the software will not have been wasted and that it will have the tools its needs to continue to serve its customers without a significant lag or gap in delivery.

However, there are a number of potential pitfalls of which businesses must remain aware in order for source code escrow to provide meaningful protections. First and foremost, it is vital that the parties to a transaction actually agree on, draft and sign the escrow agreement with the escrow agent. It is not at all uncommon even for otherwise knowledgeable businesses who know to seek third-party escrow services to forget to secure a signed, enforceable escrow agreement. It is too easy for the escrow agreement to be pushed aside in the rush of activity that can follow the execution of a substantive development or licensing deal. However, the absence of that signed agreement likely means that the purchasing party is left with no recourse in the event of what otherwise would have been a release event under escrow. If at all possible, businesses should include the agreed escrow contract as an exhibit to their agreement in order to increase the likelihood that it will be remembered at closing.

In addition to execution, the terms of the escrow agreement also can present potential traps for the unwary on both sides of the transaction. It is especially important that the escrow agreement carefully defines what does and does not constitute a release event and that it provides a transparent process for providing notice of release events to the agent, any response or objection to such notices, and the agreed dispute resolution procedures. In addition, it is critical that the purchaser’s rights to use the source code following release be clearly stated, either with ownership rights vesting in the purchaser or (more commonly) with the purchaser obtaining a license to use and/or modify the source code to meet its needs and to allow it to obtain its value from the transaction.

A business contemplating a significant software development or licensing transaction should thoroughly explore source code escrow and other protective measures with counsel before proceeding with the deal.

It is also important to keep in mind a few additional points when reviewing an existing or contemplated PMA. First, the Supreme Court has held that “the antitrust laws are designed primarily to protect interbrand competition, from which lower prices can later result.” Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705, 18 (2007). Thus, to a point, courts generally consider brand-specific PMAs to be less of a threat than other types of agreements affecting products from multiple manufacturers: “[E]xcept when [resale price maintenance] spreads to cover the bulk of an industry’s output, depriving consumers of a meaningful choice between high-service and low-price outlets, most [resale price maintenance arrangements] are probably innocuous.” Id. at 2719 (citing F.M. Scherer & D. Ross, Industrial Market Structure and Economic Performance 558 (3d ed. 1990)). In addition, the fact that a manufacturer also may play a role at the same wholesale or retail level in the supply chain as the businesses with which it enters into PMAs likely does not mean that those agreements are subject to a potential per se reasonableness analysis often applied to horizontal agreements – where a manufacturer enters into a PMA with a reseller, that PMA likely will be reviewed under the rule of reason. See International Logistics Group, Ltd. v. Chrysler Corp., 884 F.2d 904, 906 (6th Cir. 1989). However, to the extent that a vertical PMA is implemented in order to support an illegal, horizontal agreement among resellers, that PMA, even though remaining subject to the rule of reason, nevertheless will be more likely to be found to be an unreasonable restraint on trade.

It is vital that businesses contemplating the implementation of a PMA consult with counsel before proceeding with any contemplated agreement. Sherman Act liability can be significant, not only in terms of monetary damages awarded at trial, but also in terms of less tangible damage to a business’ brand or reputation. A knowledgeable attorney will be able to let you know when a proposed PMA is likely to be within the scope of permissible agreements, when it is in need of revisions, either in terms of substance or implementation, and when it should be avoided altogether, under the circumstances.

Pricing agreements come in two principal flavors: vertical – agreements between players at different levels of the supply chain – and horizontal – agreements between players at the same level of the chain. Horizontal agreements typically are more difficult to justify, because they often run the greatest risk of embodying the sort of anti-competitive “price fixing” schemes that the Sherman Act is designed to prohibit. Courts often consider such agreements to be per se unreasonable restraints on trade, “conclusively presumed to unreasonably restrain competition without elaborate inquiry as to the precise harm [they have] caused or the business excuse for [their] use.” Toledo Mack Sales & Service v. Mack Trucks, Inc., 530 F.3d 204, 221 (3rd Cir. 2008).

However, courts most often analyze PMAs and other vertical agreements pursuant to a more searching inquiry, often termed the “rule of reason.” Under this model, the judge or jury reviews all of the facts and circumstances of a case in deciding whether a pricing agreement should be prohibited, often looking to a number of prescribed factors, including: whether there existed an actual conspiracy or agreement among several defendants to set prices; whether a conspiracy or agreement produced adverse, anti-competitive effects within relevant product and geographic markets; whether the objects of or conduct supporting a conspiracy or agreement were illegal; whether a plaintiff was actually injured as a result of a conspiracy or agreement; whether the impetus for the agreement came from the lower levels of the supply chain (e.g., from the retailers or wholesalers, as opposed to the manufacturer); and whether the party insisting on the pricing agreement has significant market power (i.e., “the ability to raise prices above those that would prevail in a competitive market”). Id. at 226.

With much hype, Google has been publicizing since late 2007 its “Android” Linux-based software platform for mobile devices, which it is developing in conjunction with a group of several, prominent tech companies (including Broadcom, Intel, LG, Motorola, Qualcomm, Samsung, Sprint, T-Mobile, and Texas Instruments), called the Open Handset Alliance (OHA). On October 31, 2007, Google filed an application with the U.S. Patent & Trademark Office (USPTO) seeking registration of the Android mark in connection with a broad set of goods and services:

mobile phones; operating system software; software for use in developing, executing, and running other software on mobile devices, computers, computer networks, and global communication networks; computer software development tools; computer software for use in transmitting and receiving data over computer networks and global communication networks; computer software for managing communications and data exchange among and between mobile devices and desktop computers; computer middleware, namely, software that mediates between the operating system of a mobile device and the application software of a mobile device; computer application software for mobile phones

However, and unfortunately for Google, more than five years prior to Google’s application, the USPTO had granted to Android Data Corporation, an Illinois software development and Internet application service provider, registration of another mark – “Android Data” – for use in connection with a narrower, but potentially competitive set of services:

Computer e-commerce software to allow users to perform electronic business transactions via a global computer network.

In response to Google’s application, the USPTO issued an Office Action refusing to register the mark based on a likelihood of confusion with the registered mark (for which the USPTO had required the applicant to disclaim any exclusive right to the word “Data” apart from the mark, leaving the word “Android” as the dominant element). Google initially responded to the Office Action by pointing out that “Android Data” appeared to be no longer used in commerce and by showing that Android Data Corporation had been involuntarily dissolved in 2004. However, this sort of collateral attack, while potentially useful in a proceeding to cancel the original registration, generally is unavailing in the USPTO’s likelihood-of-confusion analyses as long as the earlier mark retains its registration status. The USPTO therefore made final its initial refusal in a second Office Action in August 2008. In response, Google drew the examining attorney’s attention to mandatory filings due for the Android Data mark and asked that the examining attorney suspend action on the application and reconsider its decision in light of the outcome of those filings. (The mandatory filings subsequently were submitted to and accepted by the USPTO in late April, 2009, thereby maintaining the registration status for the earlier mark.) Google also filed a notice of appeal with the Trademark Trial and Appeal Board.

However, on April 28, 2009, Erich Specht, principal for Android Data Corporation and for The Android’s Dungeon, Inc., filed a complaint in the U.S. District Court for the Northern District of Illinois, seeking $2 million in civil penalties and injunctive relief against Google, the OHA and various OHA members for willful infringement of its registered mark. Thus, in addition to the costs associated with the handling and appeal of its trademark application at the USPTO, Google now faces the much more significant costs and financial exposure of a federal lawsuit alleging trademark infringement under the Lanham Act. It will be very interesting to see the outcome of this lawsuit and any effect it has on Google’s marketing plans for the Android operating system.

In the meantime, for all businesses that do not have the resources to contend with the sort of legal thicket in which Google now finds itself, this case serves as an excellent reminder of the importance of advance planning from a legal perspective before devoting time and money to the promotion of new goods and services. The costs of working with a knowledgeable attorney to perform early due diligence are much, much less than working with that attorney to work through a lengthy trademark application process and appeal or to defend against a federal lawsuit.

If you are involved in one of these disputes, understand that it may be a long drawn out process to arrive at a solution and that you should have experienced counsel at your side to protect and advance your interests.

Contact attorney Jonathan Scott at jscott@scottandscottllp.com if you have any questions about this post or are dealing with a similar dispute with your commercial lender.

Before responding to an Oracle inquiry, it is important to identify a mutually agreeable framework for the response.  Work with Oracle to ensure that you know how the audit materials will be used and what Oracle expects to see in your response. 

Make sure that you are not jeopardizing your legal position before you submit a response.  In many instances, your Oracle license agreement may contain a provision purporting to give Oracle the right to audit your installations and usage.  Understanding your legal obligations and limiting the scope of the audit can be critical to a prompt, reasonable resolution.

Many companies have older versions of Oracle products installed and in use in their organizations.  It is important to determine which version of Oracle’s license agreement will apply to any licensing analysis before providing information to Oracle. 

It can be difficult to know how to appropriately complete an Oracle Server Worksheet or otherwise respond to an Oracle inquiry.  Accordingly, it is important to consult with experienced counsel to guide you through the process and help minimize your exposure.

In an article titled Credit Crunch Fuels Rise in 'Advance Fee' Schemes, published in the Wall Street Journal on July 1, 2008, it is reported that Federal regulators including the Federal Deposit Insurance Corp., the Department of Justice and State Attorney Generals are warning that con artists are using the credit crisis to take advantage of people looking for loans.

According, to the article, “some companies are targeting upper middle class folks and small businesses “who just couldn’t quite get” funding from conventional banks but who do have some cash.” The company promises to secure the loan, collects the advance fee and the funding never comes.

The Federal Bureau of Investigation was quoted in the article as saying that it had recently received several hundred complaints about advance fee loan schemes. It has posted an alert on its web site about this with some tips on how to avoid becoming a victim. http://www.fbi.gov/scams-safety/fraud/fraud

Among the suggestions in the Government’s fraud alert to borrowers: exercise due diligence, be suspicious of non-disclosure and confidentiality agreements, and involve a competent attorney in the review of complex agreements or documents.

If you have any questions or comments about this post, or are a business owner or developer who had a similar experience, please contact attorney Jonathan Scott at jcscott@scottandscottllp.com.

Blank forms, such as time cards, graph paper, account books, diaries, bank checks, scorecards, address books, report forms, order forms and the like, which are designed for recording information and do not in themselves convey information 37 CFR § 202.1(c).

However, many content developers rightly – and some successfully – seek to protect works that, at first glance, may appear to consist of blank forms in the context of spreadsheets or other media useful to a particular industry. Success here depends on whether the forms, as the CFR says, “in themselves convey information.” One recent case from the U.S. District Court for the Southern District of Florida provides guidance.

In Utopia Provider Systems v. Pro-Med Clinical Systems, the trial court was asked to consider claims of copyright infringement involving “a system of charts or templates for use by emergency room physicians,” entitled “ED Maximus,” which the court described as follows:

The charts as a whole act as an integrated system for efficiently documenting a patient's symptoms, and the physician's conclusions and directions to the patient. ED Maximus is made up of numerous two- or three-page sets of charts, each useful for a particular type of ailment, such as chest pain, burns, head injury, pregnancy related problems, etc. Other than what necessarily differs chart to chart based on the nature of the ailment addressed, each chart is identical. They consist of blocks in which to record information from the patient: The top block calls for personal data such as name, date of birth, and chief complaint. The next block calls for information on the present illness, such as how long it has been present, the quality of the pain, what exacerbates it, what relieves it, etc. The next block calls for information on the present state of all the patient's body systems. The next block calls for information about the patient's medical and social history. The next two blocks, on page two, call for information to be input as part of the actual exam done for the problem presented and the decisions made by the physician. These blocks change based on the particular illness to be addressed using the chart. The final blocks allow for information to be inputted for clinical impressions, consultations with other doctors, and discharge instructions. See generally DE 100, Ex. A-1. Each of the blocks on the charts contains blanks to be filled in by the physician with the relevant information. The line item blanks each have a word or two identifying what information should be placed there.

On the Defendant’s motion for summary judgment, the court held that the ED Maximus system was not copyrightable. In so holding, the court relied on testimony provided by one of the Plaintiff’s principals, which it interpreted as an admission that the charts themselves did not convey anything to their users. Rather, they are merely “a receptacle for information, not a compilation of data or facts.”

The court also cited to an opinion in a 40-year-old case from the Northern District of Illinois, styled Norton Printing Co. v. Augustana Hosp., where copyright protection had been extended to a system of medical forms. However, the court noted that the facts of that case were distinguishable, in that the forms at issue were “quite detailed,” with “many separate categories and areas for examination.” More importantly, in the Norton Printing case, “the format and arrangement used, together with the different boxes and terms, can also serve to convey information as to the type of tests to be conducted and the information which is deemed important,” which, the Florida court held, made the difference with regard to copyrightability.

Therefore, the distinction between forms and templates that are amenable to copyright protection and those that are not may be a subtle one. Complexity likely is a factor to consider, but it is not by itself sufficient. As the Florida Court noted:

The fact that Plaintiff's ED Maximus work is much more extensive than a check stub does not make it different in kind. There is simply less happening on a bank check than in the human body, and thus more blank forms are required for the latter. That fact alone cannot grant protection to Plaintiff's work, dealing with the body, when a bank check stub is non-copyrightable.

Rather, the controlling factor is likely to be one of the following: the degree to which the forms or templates convey information to the user, independent of the data that the user enters manipulate the form, the degree to which the forms or templates manipulate the data entered to convey something new to the user, or some combination of the two. A spreadsheet written in Microsoft Excel that contains multiple worksheets with formulae linking to data entered on different sheets is likely to be copyrightable, for example, where a simpler spreadsheet with no formulae and little more than a series of useful input categories may be at risk of receiving no protection.

It is a good idea to schedule a consultation with knowledgeable counsel regarding the copyrightability of forms or templates, either prior to registration of a work, during contemplation of a licensing or distribution agreement, or at the onset of a potential dispute.

However, the DMCA also gives the Copyright Office the authority to grant specific exemptions from this provision of the Act. In an effort to address the issue of iPhone jailbreaking, the Electronic Frontier Foundation (EFF) recently filed comments with the Copyright Office seeking just such an exemption for users of the iPhone and other devices, real or potential, with similar countermeasures. (A copy of the filing is available here.) In its brief, the EFF argues that jailbreaking a telecommunications device for the purpose of installing lawfully obtained software infringes no copyright and is, therefore, outside the range of activities intended to be addressed by the DMCA.

Apple, unsurprisingly, disagrees with the EFF’s assertions. In its written objection to the filing (also available, here), Apple argues that current, widely used jailbreaking techniques do result in copyright infringement, because, according to Apple, they require the reproduction of, and creation of derivative works based on, the iPhone’s “bootloader” and operating system. Therefore, Apple urges that they are outside the scope of exemptions that the Act allows the Copyright Office to consider. Apple further argues that such techniques are not protected by the Fair Use doctrine under U.S. Copyright Law.

Beyond the copyright infringement it alleges is implicated in jailbreaking, Apple further argues that the EFF’s proposed exemption fails to satisfy the standards for exemptions imposed by the DMCA. According to Apple, granting the exemption would result in harm to its reputation, because jailbroken iPhones would be more prone to bugs and security flaws. In one interesting passage from its objection, Apple argues:

It should be clear that the iPhone ecosystem Apple has built is good for developers, good for iPhone users, good for Apple, and good for the policies underlying the copyright laws to encourage the creation of works of authorship. That ecosystem depends upon the “chain of trust” implemented in the iPhone through its TPMs. The proposed exemption would destroy that chain of trust and threaten many of the benefits the ecosystem affords, and should therefore be rejected.

Putting aside, for the sake of argument, Apple’s substantive legal arguments under traditional U.S. copyright law, such a sentiment could, if widely adopted, grant privileged and enviable legal status to software developers and electronics manufacturers whose products include integrated software. In response to Apple’s argument, the EFF countered on its web site:

One need only transpose Apple's arguments to the world of automobiles to recognize their absurdity. Sure, GM might tell us that, for our own safety, all servicing should be done by an authorized GM dealer using only genuine GM parts. Toyota might say that swapping your engine could reduce the reliability of your car. And Mazda could say that those who throw a supercharger on their Miatas frequently exceed the legal speed limit.

(Full EFF post available here.)

It will be very interesting to see whether the Copyright Office grants the exemption urged by the EFF and whether any litigation flows from such a decision. Many iPhone users, of course, may have a special interest in following the outcome of the dispute, but the ultimate decision on the issue likely would have significant impacts on consumers of a wide variety of products.

Substantial Similarity: Abstraction-Filtration Method

Substantial similarity between competing software works is the third element of the copyright infringement claim. In assessing whether a computer program has been infringed, the Fifth Circuit has adopted the “abstraction-filtration” method proposed by the Tenth Circuit in Gates Rubber Company v. Bando Chemical Industries.

Under the abstraction-filtration test, the court first dissects the program according to its varying levels of generality as provided in the abstractions test. Learned Hand presented a summary of the analysis involved in the abstractions test when he wrote, in the context of alleged infringement of a theatrical script:

Upon any work, and especially upon a play, a great number of patterns of increasing generality will fit equally well, as more and more of the incident is left out. The last may be no more than the most general statement of what the play is about, and at times might only consist of its title; but there is a point in this series of abstractions where they are no longer protected, since otherwise the playwright could prevent the use of his “ideas,” to which, apart from their expression, his property is never extended.

According to the Gates court, “a computer program can often be parsed into at least six levels of generally declining abstraction: (i) the main purpose [‘a description of the program's function or what it is intended to do’], (ii) the program structure or architecture [‘a description of how the program operates in terms of its various functions, which are performed by discrete modules, and how each of these modules interact with each other’], (iii) modules [consisting of ‘operations,’ which identify a particular result or set of actions that may be performed, and ‘data types,’ which define the type of item that an operator acts upon], (iv) algorithms [‘more specific manifestations of operations…a specific series of steps that accomplish a particular operation’] and data structures [‘precise representation[s] or specification[s] of…data type[s] that [consist] of (i) basic data type groupings such as integers or characters, (ii) values, (iii) variables, (iv) arrays or groupings of the same data type, (v) records or groupings of different date types, and (vi) pointers or connections between records that set aside space to hold the record's values’], (v) source code [‘the literal text of a program's instructions written in a particular programming language’], and (vi) object code [‘the literal text of a computer program written in a binary language through which the computer directly receives its instructions’].” Expert testimony often is necessary in order to educate the court and the jury regarding the organization of a program into the appropriate levels of abstraction.

Second, poised with this framework, the court should examine each level of abstraction in order to filter out those elements of the program that are not protectable. Filtration should eliminate from comparison those aspects of the software that are not eligible for copyright protection, including ideas, processes, facts, and public domain information. Filtration also should include application of the doctrines of merger and scenes a faire to remove any additional elements that are not eligible for protection.

Finally, the court compares the remaining protectable elements of the original program with the allegedly infringing program to determine whether the defendants have misappropriated substantial elements of the plaintiff's program. The goal of the analysis should be to determine whether any copied elements constitute “matter that is significant in the plaintiff's program.” This is a qualitative, rather than quantitative analysis, the outcome of which will depend heavily on the unique facts of each case. 

If an alleged infringer is able to establish a prima facie case of circumstantial infringement based on the apparent similarities between the defendant’s software and documentation and those used by defendants, the burden of proof then shifts to the defendant to demonstrate that no copying occurred. An expert with experience in software coding likely will be needed to rebut any expert testimony presented by the plaintiff during the abstracted analysis of the two programs. While a line-by-line comparison of the documentation may reveal many similarities between the works, experts may testify that they are merely surface similarities between the plaintiff’s and defendant’s software and documentation, many of which may be attributable to the similar functions and purposes of the systems.

Competing works cases often involve one or more primary, individual alleged infringers as well as the corporate entities with which they are associated. If the plaintiff is able to establish any actual damages as a result of infringement, all defendants could be held jointly and severally liable for those damages. In addition, the plaintiff in the action may seek to hold the individual defendants liable for the “profits” they made independently as a result of the alleged infringement. Specifically, the plaintiff could attempt to recover a portion of the individuals’ income earned while developing and/or selling the competing work at issue. 

If you have received a notification from a copyright owner who is seeking damages against you, you should contact experienced counsel to preserve your legal rights.

Per-user licenses may make sense for hosted applications or those where the primary product is a server-installed application with multiple users on workstation clients. Such a model allows for more straightforward license counting and billing, but it still may be too simplistic for certain products, such as middleware, where computing resource usage may be a more relevant metric than the number of users with access. In these cases, processor licensing may be a more appropriate alternative, though such a model typically entails a much more complicated accounting process, especially in environments with many virtual machines.

Developers who deliver highly customized products for their customers with whom they have long-term relationships may prefer a maintenance-subscription model, where developer and customer reach an agreement regarding an essentially flat fee to license, maintain and/or support the software for a given term. Such a model can help to give both sides to the transaction peace-of-mind that the amounts being charged for software are reasonable. However, such agreements typically require much more negotiating work at the front end as well as a willingness by the parties to work together on a regular, ongoing basis.

Finally, developers catering to a particular industry may be able to price their licenses according to some industry-specific metric, such as sales closed or securities traded. This can help to ensure a fair price to the licensor while still tying itself to actual use for the customer’s accounting purposes. The model clearly would be less likely to work, though, if the developer intends to license his product to customers in a range of industries.

Where questions arise regarding the most appropriate licensing model to follow, or where ongoing negotiations suggest the desirability of an outside opinion, it is advisable to seek the assistance of counsel with experience in software licensing transactions.

In UMG Recordings, Inc. v. Veoh Networks, Inc., the U.S. District Court for the Central District of California specifically addressed Section 512(c) of the DMCA, which sets forth the circumstances under which service providers can escape liability for copyright infringement “by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider.” UMG, the plaintiff, asserted that Veoh was not eligible for protection under the safe harbor provision, because its site’s software manipulated files uploaded by users by “(1) automatically creating “Flash-formatted” copies of video files uploaded by users; (2) automatically creating copies of uploaded video files that are comprised of smaller “chunks” of the original file; (3) allowing users to access uploaded videos via a technology called “streaming”; [and] (4) allowing users to access uploaded videos by downloading whole video files.” According to UMG, such operations do not constitute “storage,” nor are they undertaken “at the direction of a user.” Veoh responded by arguing that, even though the operations occur after a user has taken steps to upload his or her content, they nevertheless occur automatically “by reason of the storage at the direction of a user” and are intended only to facilitate access to files stored by users.

The court denied UMG’s arguments and held that Veoh was entitled to use the defense. In so holding, it noted that Section 512(c) does not require that infringing conduct constitute storage in and of itself. Instead, the infringing conduct must occur “as a result of the storage.” In addition, the court agreed with Veoh that other language in Section 512(c) “presupposes that the service provider will be providing access to the user's material,” giving rise to a logical expectation that a service provider will take steps to manipulate the raw data uploaded by users in order to facilitate such access. Finally, the court cited to the legislative history of the DMCA, noting that “Congress enacted the DMCA ‘to facilitate the robust development and world-wide expansion of electronic commerce, communications, research, development, and education in the digital age.’” According to the court, the DMCA would be hard-pressed to achieve such goals “if service providers otherwise eligible for limited liability under [Section] 512(c) were exposed to liability for providing access to works stored at the direction of users.” 

While the opinion is that of a trial court rather than an appellate court, the Central District of California’s considerable experience with software issues, coupled with the number of such disputes it regularly hears, likely means that its analysis will be very persuasive in other jurisdictions and venues, and it would not be surprising if its holding were upheld or otherwise left standing by the Ninth Circuit, were UMG to appeal. Therefore, service providers and their counsel should be sure to review the opinion carefully in assessing the threat of litigation arising from hosted content. Copyright holders also should keep the Central District’s holding in mind when determining the advisability of filing suit against service providers to protect their content.

Venue decisions and other District Court rulings in cases not involving federal intellectual property (IP) claims are reviewed by the 5th Circuit Court of Appeals; those involving IP are reviewed by the Federal Circuit.

The  issuance of two decisions between December 2008 and January 2009 in two unrelated cases, one by the Fifth Circuit and the other by the Federal Circuit that overrode Plaintiffs' choice of venue in Marshall by granting  immediate writs, are being interpreted by the defense bar as a sea-change on venue change motions.  In a prior study by Riskmetrics of the outcome of venue challenges made by defendants in that Court, venue transfer was denied almost 70% of the time.  While two appellate decisions in a row are too few to conclude that a trend has developed and the odds tilted in favor of defendants in every case, it does send a strong signal to the District Court Judges in Marshall that connections between the case, the witnesses and the events may override the Plaintiff's choice of venue.  How a venue challenge will come out is highly fact dependent as ten members of the Fifth Circuit voted as the majority directing the District Court to transfer the action in   In Re Vollkswagen of America  and seven members of the Court dissented that the Plaintiff's choice should be respected.  In the second case, the Federal  Circuit in IN RE TS TECH USA CORPORATION et al. cited the ruling in Volkswagen as authority to direct the District Court to transfer venue out of Marshall in a patent infringement case involving all out of State and out of District parties.

Accordingly, if you are an out of District defendant sued in the EDTX (Marshall), you should quickly evaluate and decide whether to seek a venue transfer.

Among its many other business activities, Cisco distributes network routers and other consumer products under the Linksys brand. Several of those products incorporate as firmware certain open-source software products in which the FSF holds the copyrights. The FSF licensed that software under the GNU General Public License (GPL), which requires downstream distributors to include a copy of the source code with the original or modified versions of the software they make available to others. According to the FSF, Cisco failed in several instances to include the source code as required under the GPL. The FSF claims that it attempted to work with Cisco since 2003 to implement appropriate compliance protocols for the GPL-licensed products Cisco distributed, but that those efforts had reached an impasse, making litigation necessary.

Other litigants have enjoyed some success in disputes involving allegations of improper distribution of GPL-licensed products, notably including several out-of-court settlements obtained by the developers of BusyBox software. (See Robert J. Scott and Christopher Barnett, Hot Topics in Open Source Software Licensing, available here.) The BusyBox plaintiffs were represented by the Software Freedom Law Center, which is representing the FSF against Cisco.

However, the FSF-Cisco suit may present an interesting opportunity for the courts to provide legal guidance regarding the enforceability of the GPL and whether the failure to distribute source code constitutes copyright infringement or, rather, merely the violation of an independent provision of the license agreement. It is possible that implementation of FSF-sanctioned compliance procedures may present prohibitive costs for Cisco, giving it the incentive to pursue a vigorous defense against the FSF’s claims and making more likely the possibility of a federal court decision regarding the strength of the GPL. However, each side in the dispute would have much to lose by an adverse decision, and aversion to that risk would tend to lead the parties to settle, if possible.

Developments in this case will be very interesting to monitor. Businesses with an interest in the use or distribution of open-source software may finally receive much-needed legal guidance regarding the terms and conditions under which such programs may be incorporated into new products and business models.

The Board determined that the applicant acknowledged the descriptive nature of the mark when it disclaimed the word GRUNGE in its application. In its appeal, Grapevine Intellectual Properties, LLC (Grapevine) claimed that the unique stylization of the lettering gave the mark a striking commercial impression separate and apart from the word portion of the mark. The examining attorney responded that the font used in the mark was not sufficiently substantial or distinctive to create a separate commercial impression apart from the disclaimed portion of the mark.

The TTAB ruled that in order for an otherwise unregistrable term to be capable of distinguishing an applicant's goods, the presentation of the term must be sufficiently distinctive so as to create a commercial impression separate and apart from the unregistrable components. After the applicant disclaims the unregistrable components, a mark which is registrable as a whole would remain. The Board used a subjective test to determine whether the stylization of an otherwise unregistrable mark is sufficiently distinctive to “rescue” the mark as a whole.

The TTAB found that the stylization of Grapevine’s mark was not distinctive enough to warrant protection without a claim of distinctiveness. The Board referred to other marks with stylized lettering and concluded that the styling in Grapevine’s GRUNGE mark was not sufficiently fanciful, eye-catching, or imaginative. Each of the marks the Board referenced contained a unique font applied to each letter as opposed to the random and jagged letter styling used in Grapevine’s mark. One mark required a showing of acquired distinctiveness.

The Board also found that other stylized marks which passed the distinctiveness test were presented for placement on the Supplemental Register rather than the Principal Register. Grapevine applied for placement on the Principal Register. The requirements for allowance on the Supplemental Register are less stringent than those for the Principal Register. Additionally, the Supplemental Register offers fewer benefits than the Principal Register.

The TTAB’s ruling illustrates the importance of conducting careful and thorough research regarding trademark law before filing your trademark application.

View the TTAB’s decision here.

According to the court, from 2003 to 2004, Heriot worked for Byrne's production company Prime Time Productions under a consultancy agreement. After the agreement expired, Byrne approached Heriot in 2005 regarding work on The Secret, a concept derived from self-help materials Byrne had reviewed. For several months Heriot assisted Byrne in developing the concept. Prime Time Productions paid Heriot’s production company for work on the project pursuant to the company’s invoices. Apparently in lieu of a written service agreement, Byrne ensured Heriot that he could “trust her” by working on the project in this manner, and she allegedly told him that Heriot and his company would be entitled to a share of any resulting profits. Thereafter, Heriot and Byrne co-wrote outlines of the show. In addition, Heriot wrote “Questions for Interview Subjects,” and a “2hr Paper Edit” and “tranSCRIPT” that was the screenplay for The Secret. Heriot also directed the original edition of The Secret and oversaw various creative aspects of the post-production work, including editing, visual effects, music, and the overall style and look of the film.

Apparently without Heriot’s knowledge, Prime Time Productions transferred its rights in The Secret to Byrne, who then transferred her interest to TS Production LLC, a Hungarian shell company owned by a United States parent company, TS Production Holdings LLC. TS Production Holdings LLC is owned, in whole or in part, by Byrne and another business partner. TS Production LLC later engaged Prime Time Productions to create an extended version of the movie. Byrne was attributed as the sole creator and author of The Secret in both the extended version of the movie and in a book associated with the movie.

Following publication, The Secret enjoyed rapid worldwide success. After release of the original edition of the movie, Heriot inquired about unpaid invoices due to Drew Pictures. Byrne allegedly informed Heriot that he was “unappreciative of all the opportunities that have been given to you” and that she and her business partner had “some serious thinking to do.”

Heriot and his production company then filed suit against Byrne, her business partner, and the various business entities associated with The Secret. Heriot sought a declaratory judgment of copyright co-ownership and duty to account, an equitable accounting, damages for copyright infringement, and damages for unjust enrichment. In an opinion, issued on December 23, 2008, the court dismissed the state law equitable accounting and unjust enrichment claims as being pre-empted by the U.S. Copyright Act. The court also dismissed the request for declaratory judgment against Prime Time Productions, because the plaintiffs did not allege that Prime Time claimed an ownership interest in The Secret. However, the court allowed the copyright infringement claim against Prime Time to survive the defendants’ motion to dismiss.

This case is a very good example of the vital importance of memorializing in written agreements the intended resolution of intellectual property rights resulting from creative collaborations. It is almost never advisable to rely on a collaborator’s verbal assurances or to hope for the best in lieu of expressing intended outcomes in a contract. “The law of attraction” described in The Secret may represent an intriguing avenue to self-improvement, but, in legal arrangements, it cannot take the place of thorough planning and clearly drafted agreements. Before commencing any work on collaborative projects with other parties, all sides are well advised to seek the advice of counsel to ensure that their existing and future rights and interests are protected and enforceable.

The case described above is Drew Heriot, et al. v. Rhonda Byrne, et al., 2008 WL 5397496 (N.D. Ill. December 23, 2008).

The complaint filed by New York Law School as a putative class action in the United States District Court, Southern District of New York on December 16, 2008 is a good example of pursuing the deep pockets and couching the claim in terms where professional liability and officers and directors errors and omissions insurance may provide coverage.   New York Law School did not name Bernie Madoff or his firm as a defendant.  Rather, the essential theory of the lawsuit is that New York Law school’s money manager invested all of the proceeds of Ascot partners in Madoff investments that are now worthless without exercising due diligence and in breach of the money manager’s fiduciary duties to the school and others similarly situated. New York Law School has also sued Ascot Fund’s auditors for allegedly failing to identify “red flags” with regard to the Madoff investments in their auditing role for Ascot.

It remains to be seen how the Courts will define the responsibilities of money managers and auditors that were not alleged to have been complicit in the Madoff scheme.

A link to the case and an article describing the suit may be found at the Wall Street Journal Law Blog at this link:

http://blogs.wsj.com/law/2008/12/17/ny-law-school-races-to-court-sues-merkin-over-madoff-investments/

“It could have been helpful to plaintiffs to demonstrate that certain emails were discovered in Ellison's files; otherwise, for instance, Ellison could argue that he never actually read or received an email that was sent to him, and thus had no knowledge of its contents. Moreover, having established with certainty that numerous emails were not produced from Ellison's email files-because the emails were produced from other files or accounts-it is impossible to know whether additional unproduced emails were also deleted or not turned over. This uncertainty about the existence of other emails is precisely the reason all of Ellison's emails should have been preserved and produced.”

As a result, the court found that an adverse inference regarding the e-mails was appropriate and that, in considering the parties’ competing motions of summary judgment (which, also before the court, were returned to the parties with instructions to clarify their arguments in light of the holdings regarding sanctions), the court would infer that the e-mails “would demonstrate Ellison's knowledge of, among other things, problems with Suite 11i, the effects of the economy on Oracle's business, and problems with defendants' forecasting model.”

The lesson here is that e-discovery policies and procedures and litigation strategy during discovery always should consider the bearing that the source of documents or records may have on the information they convey. Oracle and Ellison learned the hard way that it may not sufficient to assume in all cases that preservation of records without reference to where they are found is sufficient to reduce or eliminate the possibility of spoliation sanctions. All businesses need to work with counsel to implement document preservation strategies that do more than just preserve the physical records themselves – those strategies also need to consider the preservation of relevant evidence about those records as well.

The case at issue is Nursing Home Pension Fund Local 144 et al. v. Oracle Corp. et al., Case No. 01-CV-988-SI, in the U.S. District Court for the Northern District of California.

Gagnon and AMS memorialized their relationship by executing a one-year Technical Services Agreement (“TSA”) that included no provisions regarding licensing of intellectual property developed by Gagnon for AMS.  The relationship continued several years after expiration of the TSA.  Gagnon later proposed that AMS execute an Outside Vendor Agreement (“OVA”) that included a provision granting to Gagnon and his company, Mister Computer, all intellectual property rights to the software Gagnon developed for AMS.  After AMS rejected the OVA and counter-proposed with a revised agreement granting it all rights and license to the software, AMS decided to terminate its services with Gagnon.  Over the course of the following several months, Gagnon and AMS exchanged correspondence evidencing that confusion existed as to who owned the rights to the software and that the parties’ understanding regarding payment for services differed.

AMS filed a complaint in California Superior Court against Gagnon alleging, among other things, misappropriation of trade secrets and conversion.  Gagnon removed the case to federal court and counterclaimed alleging copyright infringement and other intellectual property and contractual claims.  The district court remanded AMS's claims back to state court.  AMS then filed its remanded state law claims as counter-counterclaims to Gagnon's federal counter-claims.

The Ninth Circuit determined that although exclusive licenses must be in writing, grants of nonexclusive licenses need not be in writing, and may be granted orally or by implication.  The court relied on a case involving use of movie footage and determined that an implied license is granted when (1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes that particular work and delivers it to the licensee who requested it, and (3) the licensor intends that the licensee-requestor copy and distribute his work. 

The court concluded that the first two prongs of the test were satisfied because AMS requested the programs and Gagnon delivered the programs to AMS.  Gagnon, however, disputed that he had the intent required by the third prong of the test.  The court noted that Gagnon misunderstood the import of the intent requirement.  The relevant intent is the licensor's objective intent at the time of the creation and delivery of the software as manifested by the parties' conduct.  The court relying on precdent from another court, applied the following factors for determining whether the relevant intent exists:

• whether the parties were engaged in a short-term discrete transaction as opposed to an ongoing relationship;
• whether the creator utilized written contracts providing that copyrighted materials could only be used with the creator's future involvement or express permission; and
• whether the creator's conduct during the creation or delivery of the copyrighted material indicated that use of the material without the creator's involvement or consent was permissible.

The court reviewed the course of conduct of the parties, including the written agreements whether executed or unexecuted, and concluded that Gagnon demonstrated the objective intent that the licensee-requestor copy and distribute his work.  Any of Gagnon’s conduct contrary to that conclusion was belated and insufficient to sway the court.  Of interest is Gagnon’s argument that the splash screens he created reserving in Gagnon a copyright in the software negated AMS’s license to use the product.  The court determined that the splash screens speak to Gagnon's intent to retain copyright ownership over the programs, not to his intent to grant or not grant a license as would be his right as the copyright owner.  Also of no concern to the court was Gagnon’s registration with the United States Copyright Office for his six programs one week prior to his termination from AMS.

Finally, because the AMS paid consideration, the license is irrevocable.  The Ninth Circuit affirmed the district court’s granting of summary judgment against Gagnon and ruled that Gagnon gave an implied license to AMS to use and modify the computer software he created after the termination of their relationship.

If your company develops software for other businesses or licenses software developed specially for your company, you should seek counsel experienced in protecting your intellectual property rights.

Past cases based on similar allegations point to an uncertain resolution that likely will be heavily dependent on the substantiated facts that 7Search will be able to bring to the table. For example, in Grace v eBay (16 Cal. Rptr. 3d 192 – 2004), a California appeals court upheld the decision of a trial court that had dismissed the plaintiff’s complaint. In that case, the plaintiff had alleged that eBay’s refusal to remove what the plaintiff believed to be defamatory “feedback” about plaintiff constituted defamation. The trial court had rejected eBay’s argument that it was immune from such claims by operation of the federal Communications Decency Act of 1996. However, the court also held that the eBay user agreement that the plaintiff had accepted contained a release that served to extinguish eBay’s liability.

In another case, Northwest Healthcare Alliance v. Healthgrades.com (50 Fed. Appx. 339 – 2002), the Ninth Circuit reversed the decision of a federal district court in Washington state that had dismissed the case for lack of personal jurisdiction. The Ninth Circuit held that Healthgrades.com, a Delaware corporation based in Colorado, had “purposefully interjected itself into the Washington state home health care market through its intentional act of offering ratings of Washington medical service providers,” and that it therefore could be sued in Washington state for allegedly defamatory statements made on its web site. A subsequent petition for certiorari to the U.S. Supreme Court was denied, and the case ultimately settled out of court.

Finally, in Agora, Inc. v. Axxess, Inc. (11 Fed. Appx. 99 – 2001), the Fourth Circuit upheld the trial court’s dismissal of the plaintiff’s claims on what the court had treated as a motion for summary judgment. The jurisdictional issue involved in the Healthgrades.com case evidently was not raised, but the trial court held that the allegedly defamatory statements made on Axxess’ web site constituted only “an expression of opinion based on disclosed or readily available facts,” which was not actionable as a matter of law.

If the Seventh Circuit (in which Illinois is located) applies the same jurisdictional test as the Healthgrades.com court, and if McAfee’s “red” rating can be characterized as a factual, rather than subjective statement, then the newly filed case may present an opportunity for new standards to be set for the treatment of “ratings” and other potentially disparaging information posted online.

 Section 7 of AT&T’s agreement, entitled “Dispute Resolution,” requires binding arbitration of all disputes related to the agreement. It forbids class actions and requires that all arbitrations be kept confidential. The agreement also forbids joinder with another lawsuit or arbitration with a dispute of any other person. Also forbidden are class-actions. The dispute resolution section also imposes a statute of limitations of two years and limits a consumer’s right to collect punitive damages and attorney fees.

The court found that A&T's Consumer Services Agreement is substantively unconscionable and therefore unenforceable to the extent that it purports to waive the right to class actions, require confidentiality, shorten the Washington Consumer Protection Act statute of limitations, and limit availability of attorney fees. The court also agreed with the trial’s court’s ruling that the unconscionable provisions were not severable from the rest of the agreement because the provisions permeated the entire arbitration agreement. The court added that these unconscionable provisions operate in concert to eliminate any realistic possibility of relief for consumers with small claims such as McKee’s

The court stressed that these provisions have nothing to do with arbitration. Arbitrators supervise class actions, conduct open hearings, apply appropriate statutes of limitations, and award compensatory and punitive damages, as well as attorney fees, where appropriate.

In LimitNone LLC v. Google Inc. (Cas No. 1:08-cv-04178), a small software development business based in the Chicago area brought claims that Google misappropriated software LimitNone  developed to facilitate users’ transition from desktop-based office productivity software, like Microsoft Office, to Google’s Google Apps solution, in which the software is hosted at, and files are stored and accessed remotely from, Google’s servers. According to LimitNone, when the parties first met, Google had been unable to create an efficient method for its users to transfer existing Office files to Google Apps. LimitNone developed a solution to this problem (called “gMove”), and the parties began to explore the possibility of a licensing deal for gMove. LimitNone then signed a Google-drafted non-disclosure agreement (NDA) and a “Google Enterprise Professional Agreement” (GEP) governing LimitNone’s participation in the program through which Google encourages outside businesses to develop programs for use with Google Apps. Thereafter, according to LimitNone, the parties entered into beta-testing and release-version license agreements pertaining to gMove. Following the parties’ exchange of these agreements, LimitNone discovered that Google had deployed a different solution on Google Apps to allow users to transfer their documents. According to LimitNone, it would have been impossible for Google to have completed the development of the software in the time intervening between its first contact with LimitNone, at which time Google allegedly had no such solution, and its discovery of the competing tool. LimitNone then filed its lawsuit in Illinois state court.

Following its removal of the action to federal court, Google filed a motion to dismiss based on choice-of-law and forum-selection language in the NDA and GEP. LimitNone responded with a brief arguing that the dispute at hand is not within the scope of the law and venue provisions of those agreements and that, even if it were within the scope, the subsequent license agreements superseded the NDA and GEP, at least with regard to Google’s use of LimitNone’s IP. As of the date of this entry, the court has yet to rule on Google’s motion to dismiss.

It is usually in the best interest of all parties to a proposed transaction to ensure that the writings memorializing the transaction accurately and completely set forth each and every one of the parties’ respective rights and obligations.  Parties (and sometimes their attorneys) frequently overlook choice of law, venue, and merger provisions such as those involved in the LimitNone litigation, because those provisions typically appear among a laundry list of general contract terms that are perceived to be less important than the “meat” of the contract. However, when a dispute arises, it is usually the case that more ink is spilled resolving disputes as to procedure and interpretive rules, rather than the substance of the transaction. When trade secrets and other intellectual property rights are at issue, the need for careful selection and, if necessary, negotiation regarding accurate verbiage is especially important, because the rights at issue may be substantively harmed by the unintended consequences of a sloppy transaction. 

Always discuss proposed contracts and their ramifications with your attorney, and if you have any reservations or unanswered questions after doing so, seek a second opinion. The legal and financial consequences of a deal gone bad can be – and frequently are – much more costly than the marginal cost attributed to careful legal review.

Under U.S. Antitrust law, vertical price fixing agreements between manufacturers and their dealers are illegal. Accordingly, when implementing a MAP policy, it is critical to establish a policy that controls the price at which products can be advertised but not the ultimate price at which the products may be sold. The law is well settled that manufacturers may set suggested retail prices and that minimum advertised pricing policies are not per se illegal but will be analyzed by the courts under a rule of reason that considers all of the relevant circumstances. When developing a MAP program for e-commerce, I generally advise my clients to:

1. Act Unilaterally – Section 1 of the Sherman Act only applies to concerted action but does not apply to the unilateral establishment of a minimum advertised price by a manufacturer.

2. Regulate Advertisements Not Prices – the law is clear that agreements between manufacturers and dealers that fix the price at which products are to be sold are per se illegal. MAP policies should focus on advertised prices in paid search ads, shopping comparison ads, and internet landing pages but not in shopping carts or other point of sale interfaces.

3. Avoid involving dealers in policing activity.

4. Avoid coercive action regarding actual prices sold.

5. Treat all dealers equally and unilaterally terminate those that don’t comply.

The law involving minimum advertised pricing for e-commerce is in flux. Before adopting a policy, you should consult with an attorney experienced in antitrust and e-commerce law.

Jacobsen manages an open source software group called Java Model Railroad Interface (“JMRI”), which involves many participants.  JMRI created an application called DecoderPro that allows model railroad enthusiasts to program the decoder chips that control model trains.  DecoderPro files are available for download and use free of charge from an open source incubator website called SourceForge.  The downloadable files contain copyright notices and refer the user to a “copying” file that sets forth the terms of the license.  Katzer/Kamind offers a competing software product called Decoder Commander that also programs decoder chips.  While Decoder Commander was being developed, one of Katzer/Kamind’s employees is alleged to have downloaded the decoder definition files from DecoderPro and used portions of those files as part of the Decoder Commander software.  The Decoder Commander software did not comply with the terms of the DecoderPro license.

Jacobsen filed a lawsuit seeking a preliminary injunction against Katzer/Kamind, contending that the violation of the terms of the DecoderPro license constituted copyright infringement.  The district court concluded that while Katzer/Kamind may have violated the license, this did not create liability for copyright infringement and that Jacobsen, at most, had a claim for breach of contract.

 The Federal Circuit disagreed.  The court noted that open source software projects allow programmers to view software code and make changes and improvements, and in exchange, the copyright holder permits users to copy, modify, and distribute the software code “subject to conditions that serve to protect downstream users and to keep the code accessible.”  Part of this protection is achieved by requiring that users copy and restate the license and attribution information. 

The court rejected the notion that because the software had not been sold for money, this affected the analysis.  “The lack of money changing hands in open source licensing should not be presumed to mean that there is no economic consideration, however.  There are substantial benefits, including economic benefits, to the creation and distribution of copyrighted works under public licenses that range far beyond traditional license royalties.”  The court concluded that open source licenses still grant copyright holders the right to control the modification and distribution of the material their own.  If a license is limited in scope and the licensee acts outside the scope of the license, the copyright holder has a claim for infringement along with a claim for breach of contract.  Because the terms of the license in this case set conditions on the use and copying of the software, failure to abide by those conditions constituted copyright infringement. 

According to the court, “copyright holders who engage in open source licensing have the right to control the modification and distribution of the copyrighted material.”  Under the license, it was impermissible to modify and distribute the materials without including the copyright notices and without tracking the modifications from the original files.  “The clear language of the Artistic License creates conditions to protect the economic rights at issue in the granting of a public license,” and Jacobsen therefore could pursue a claim for copyright infringement. 

Full opinion text: http://www.cafc.uscourts.gov/images/stories/opinions-orders/08-1001.pdf 

 XPEL creates designs for headlamp protection and window film products for different models of cars.  Some of XPEL’s kits are delivered electronically through the company’s web-based proprietary software.  XPEL registered its Design Access Program 6.2 with the United States Copyright Office and required its users to assent to an End-User Licensing Agreement.  American Filter provides window film products and installation tools to professional window dealers, automotive dealerships, and others who install and sell window film.  XPEL contends that American Filter was intermittently using XPEL’s services to provide XPEL designs to its customers, that American Filter had software on its computers that could copy XPEL designs, and that American Filter used copied XPEL patterns without paying XPEL for such use.  XPEL filed suit against American Filter and other defendants for conversion, violations of the Lanham Act, copyright infringement, and other claims. 

American Filter moved to dismiss XPEL’s claims, including its conversion claim. XPEL’s conversion claim was based on American Filter’s alleged conversion of XPEL’s trade secrets.  American Filter argued that the conversion claim should be dismissed because such a claim will only lie for wrongful possession of the tangible embodiment of a work. 

The court dismissed XPEL’s claim for conversion under Texas law.  In doing so, the court noted that Texas conversion law “concerns only physical property.”  One Texas appellate court, however, has concluded that trade secrets may be subject to conversion.  See Chandler v. Mastercraft Dental Corp. of Texas, 739 S.W.2d 460, 469 (Tex. App. – Fort Worth 1987, writ denied).  The XPEL court concluded, however, that “Texas conversion law does not make a trade secrets exception to its physical property requirement.”  In reaching this determination, the court examined the elements of a conversion claim.  Among other things, a plaintiff asserting conversion must show that the defendant “assumed and exercised dominion and control over the property in an unlawful and unauthorized manner to the exclusion of and inconsistent with plaintiff’s rights.”  According to the court, “dominion and control” may only be exercised over physical property.  The Fifth Circuit may ultimately have to address how this decision may be reconciled with the Texas appellate decision in Chandler.

 For example, many open-source license agreements require licensees of the software to make the source code of the licensee’s software product available if the licensee includes the open-source software in the licensee’s software.  In other words, if a business includes open-source software in the software it produces and sells, the business may also be required to make its own proprietary software code available to the public.  This can have significant effects on the business’ intellectual property interests.  A business wishing to keep private the source code of its commercially-available software should not select open-source software solutions.

 Similarly, any changes a business makes to open-source code must generally be made available as open-source code.  Changes to the original open-source code may need to be tracked and documented in a file accompanying the code that includes dates the changes were made.  Open-source code license agreements also often include certain notice requirements intended to identify to the user the original distributor of the code, the contributor to the code, and the type of license covering the code.  The actual open-source license may need to be distributed with the code, perhaps in the code itself.  The GNU General Public License defines the use terms of most open-source software.  Most distributors of open-source software use either the GNU GPL or a license based on the GNU GPL.

 Open-source software, though powerful and low-cost, may come with hidden costs and may place your business at risk of losing protection of its intellectual property.  Businesses should consult with counsel experienced in evaluating open-source license agreements before implementing an open-source solution.

Popular Internet content owners must maintain vigilance against attempts to misappropriate that content. When the infringers are located in the U.S., it is often easier to remedy the problem. Online acts of copyright infringement often can be handled without ever even contacting the infringer by giving notice of the problem to the infringer’s ISP under the Digital Millennium Copyright Act. While there is no equivalent to the DMCA for alleged online trademark infringement, it is still often possible to contact the infringer’s ISP to draw attention to behavior that is, usually, a violation of the ISP’s terms of use. Even when an ISP is non-responsive to that kind of informal request, having all of the parties stateside usually makes it easier to dispose of the matter through a cease and desist letter or, when necessary, through litigation.

Foreign infringers often present additional difficulties, however, because their ISP’s may not be subject to the DMCA (though there may be other, similar, copyright-related tools in their jurisdiction), and they are likely to be even less receptive to advances from a U.S.-based business regarding allegations of infringement. In its case, Facebook had the "fortune" (if you want to call it that) of having an alleged infringer with a sufficient U.S. presence to support a claim of jurisdiction in U.S. courts. In contrast. many content owners face the challenge of dealing with content infringers who have no U.S. presence, thereby usually requiring either an unlikely informal resolution or else action in the infringer’s jurisdiction.

If you discover that your online content has been misappropriated by another party, it is important to confer quickly with your attorney to determine what, if any, remedies may be available to reach the most effective resolution available.

In Eagle Services Corp. v. H2O Industrial Services, Inc., the plaintiff, Eagle, filed suit after several of its employees, who left to form H2O, used copies of Eagle’s safety manual in operations at the new business. The manual in question consisted largely, if not entirely, of quotations from OSHA regulations, making the scope of the copyright limited to the compilation as a whole. Instead of pursuing an award of statutory damages under the Copyright Act, Eagle argued that it should be awarded all the profits that H2O made in its business before it created its own manual, because, according to Eagle, without a manual H2O could not have provided any services in its industry without violating OSHA regulations. Though the trial court allowed Eagle to present its case to the jury, at the close of its evidence, H2O moved for judgment in its favor as a matter of law, which the court granted, based on Eagle’s failure to prove that OSHA requires the companies it regulates to maintain a safety manual. However, the trial court refused to award H2O, as the prevailing party, its reasonable attorney’s fees on the ground that the suit was not frivolous and had not been filed in bad faith. H2O appealed the denial of attorney’s fees.

The 7th Circuit reversed the trial court’s decision. In his opinion, Judge Posner noted that the suit “could not have been brought in good faith,” because Eagle never had any reasonable basis to believe that the state would have shut down H2O’s operations for want of a safety manual, especially in light of the fact that, even if a manual were required, the applicable regulations would have given H2O an opportunity to procure one. Judge Posner further noted, colorfully:

So we have a suit brought almost certainly in bad faith, a frivolous suit, a suit against a newer and probably smaller and weaker firm. Under any standard we know for shifting attorney's fees from a losing plaintiff to a winning defendant, H2O (and the individuals joined as defendants along with it) would be entitled to an award of attorney's fees.

Judge Posner also noted that in copyright cases, prevailing defendants are not required to prove that the plaintiffs’ suit was frivolous in order to prove their entitlement to an award of attorney’s fees. According to Judge Posner, if there is any asymmetry in the analysis regarding whether to award attorney’s fees in copyright cases, that asymmetry actually tips in favor of prevailing defendants:

The successful assertion of a copyright confirms the plaintiff's possession of an exclusive, and sometimes very valuable, right, and thus gives it an incentive to spend heavily on litigation. In contrast, a successful defense against a copyright claim, when it throws the copyrighted work into the public domain, benefits all users of the public domain, not just the defendant; he obtains no exclusive right and so his incentive to spend on defense is reduced and he may be forced into an unfavorable settlement.

Though H2O’s success in this case did not result in the enlargement of the public domain, that fact did not rebut the basic presumption affirmed by Judge Posner that, in most cases, awards of attorney’s fees to prevailing parties are presumed to be appropriate.

This case serves as a useful reminder to businesses considering whether to file suit over infringement of its copyrighted works. The costs of federal litigation are always high, and a loss at trial could mean that the plaintiff would be out not only its own attorney’s fees, but also those of its adversary.

In Utah Lighthouse Ministry (UTLM) v. Foundation for Apologetic Information and Research (FAIR), the plaintiff, UTLM, filed suit against FAIR based on a web site published by FAIR’s vice president and webmaster, a co-defendant, which parodied the content of UTLM’s site. UTLM is an organization that publishes critiques of the Mormon Church. FAIR, on the other hand, is a volunteer organization that responds to such critiques.

The description in the opinion indicates that the parody site bore many similarities to the UTLM site:

The design elements are similar, including the image of a lighthouse with black and white barbershop stripes. However, the words “Destroy, Mislead, and Deceive” are written across the stripes on the Wyatt website. Prominent text on the Wyatt website consists of a slight modification of the language located in the same position on the UTLM website. For example, the UTLM website states: “Welcome to the Official Website of the Utah Lighthouse Ministry, founded by Jerald and Sandra Tanner.” In comparison, the Wyatt website states: “Welcome to an official website about the Utah Lighthouse Ministry, which was founded by Jerald and Sandra Tanner.” (emphasis added.) The Wyatt website does not have any kind of disclaimer that it is not associated with UTLM.

The opinion also indicates that FAIR’s webmaster, through his company, also registered ten domain names, which were “combinations of ‘Utah Lighthouse Ministry,’ ‘Sandra Tanner,’ ‘Gerald Tanner,’ ‘Jerald Tanner,’ and ‘.com’ and ‘.org.’” UTLM alleged that FAIR’s parody site and its webmaster’s registration of the domain names at issue constituted trademark infringement, unfair competition, and cybersquatting. The trial court disagreed with UTLM and granted the defendants’ motion for summary judgment as to all UTLM claims. UTLM then appealed the trial court’s decision to the 10th Circuit.

In upholding the trial court’s grant of summary judgment, the 10th Circuit relied, in large part, on the fact that UTLM was able to prove no commercial intent behind the parody site or FAIR’s webmaster’s registration of the domain names. FAIR’s webmaster neither promoted nor sold any products or services at the parody site. UTLM argued that the parody site linked to FAIR’s web site, where FAIR sold books, some of which also were available through the UTLM site. However, the Court found that any connection between the parody site and the commercial activities at the FAIR site was too attenuated to support a finding of commercial intent. In reaching that conclusion, which was the 10th Circuit’s first time to analyze an argument for commercial intent based on this type of fact pattern, the Court cited to a 9th Circuit opinion in which no commercial intent was found where a parody site linked to another site operated by the same defendant, which in turn linked to a newsgroup containing advertisements for the plaintiff’s competitors. Though the “distance” between the parody site in this case and the FAIR site’s commercial activities was not as great as in the 9th Circuit case, the 10th Circuit held that the trial court had used an analysis similar to that employed by the 9th Circuit, which it believed to be appropriate.

UTLM also argued that the parody site interfered with “the ability of users to reach the goods and services offered on the UTLM website.” The 10th Circuit disagreed, stating:

In our view, the defendant in a trademark infringement and unfair competition case must use the mark in connection with the goods or services of a competing producer, not merely to make a comment on the trademark owner's goods or services. The Lanham Act addresses the specific problem of consumer confusion about the source of goods and services created by the unauthorized use of trademarks. Unless there is a competing good or service labeled or associated with the plaintiff's trademark, the concerns of the Lanham Act are not invoked. (quotations omitted)

UTLM raised a third argument regarding the general commercial nature of the Internet, but this too was denied by the Court. The Court also found that there was no likelihood of confusion between the sites at issue, especially in light of the fact that the defendants’ site was a parody site, and that UTLM had failed to prove any bad faith intent by FAIR or its webmaster to profit on the domain names that had been registered, thereby supporting the denial of UTLM’s cybersquatting claims.

Especially for businesses in the 10th Circuit, this case appears to present a significant challenge for claims of Internet-based trademark infringement where commercial intent is difficult to prove. Business considering lawsuits based on such claims should consult closely with counsel to determine whether the costs of litigation are worth the risk of loss.

The U.S. District Court for the Southern District of New York described Burck as follows: “a ‘street entertainer’ who performs in New York City’s Times Square as The Naked Cowboy, wearing only a white cowboy hat, cowboy boots, and underpants, and carrying a guitar strategically placed to give the illusion of nudity.” Burck owns registered U.S. trademarks in the Naked Cowboy name and likeness. Starting in April 2007, Mars began running an animated cartoon advertisement on two oversized video billboards in Times Square featuring a blue M & M dressed “exactly like The Naked Cowboy, wearing only a white cowboy hat, cowboy boots, and underpants, and carrying a guitar.” The court illustrated these facts with the following picture:

Burck sued Mars for compensatory and punitive damages asserting violations of New York’s right to publicity laws and trademark infringement. The court dismissed Burck’s right to privacy claim but held that Burck could proceed with his false endorsement claim under the Lanham Act because consumers might mistakenly conclude that the Blue M & M advertisements were endorsements of Mars’ products by Burck. The court, however, denied Burck’s motion to strike Mars’ affirmative defense of parody. According to the court, parody is a form of fair use that is protected under the First Amendment. This protection applies even where the parody is used in part for advertising purposes. Specifically, the court held that “because a parody may be of a hybrid nature, combining artistic expression and commercial promotion, it is valid to plead a parody defense even where the parody is used in part for advertising purposes.” The dispute between the Naked Cowboy and the Blue M & M will therefore continue.

Jerry Greenberg is a freelance photographer who had some of his photographs published in four issues of the National Geographic Magazine. For decades, the National Geographic Society has been reproducing its back issues in bound volumes, microfiche, and microfilm. In 1997, National Geographic produced “The Complete National Geographic,” a thirty-disc CD-ROM set containing every monthly issue of the magazine since 1888. The CD-ROMS contained each magazine as it was originally published, reproducing each page. The CD-ROMS also included a short opening montage and a program that allowed users to search, zoom into particular pages, and print.

Greenberg sued National Geographic, alleging that it infringed his copyrights by reproducing the print magazine issues that included his photographs. The district court granted summary judgment in favor of National Geographic, holding that because the CD-ROMS constituted a revision of the print issues of the magazine, the reproduction was privileged under 17 U.S.C. section 201(c) of the Copyright Act and therefore did not constitute infringement. A panel of the Eleventh Circuit disagreed and reversed that decision. After a second appeal, the Eleventh Circuit granted rehearing en banc to address the question of whether National Geographic’s use of the photographs was a privileged revision.

By a 7-5 majority vote, the Eleventh Circuit held that National Geographic’s reproduction of Greenberg’s photographs was privileged under section 201(c). Section 201(c) provides that ”copyright in each separate contribution to a collective work is distinct from copyright in the collective work as a whole, and vests initially in the author of the contribution. In the absence of an express transfer of the copyright or of any rights under it, the owner of copyright in the collective work is presumed to have acquired only the privilege of reproducing and distributing the contribution as part of that particular collective work, any revision of that collective work, and any later collective work in the same series.” A magazine is considered to be such a collective work. According to the court, section 201(c) is intended primarily to prevent publishers from revising the contribution of the author or including it in a new anthology or an entirely different magazine or other collective work without the author’s consent.

Greenberg claimed that the CD-ROMS constituted an entirely new collective work, such that section 201(c) did not apply. The court, however, concluded that the digital reproduction of the magazines was nothing more than a revision of the collective work. The court noted that the Supreme Court had previously recognized that reproducing a magazine on microfilm was privileged under section 201(c). By analogy, a digital reproduction is similarly privileged. The court rejected the notion that adding a computer program that allowed users to search and access individual pages somehow altered the collective works, concluding that “the revision of a magazine by reproducing it in its original context in a new ‘distinct form’ – i.e., a digital version – is not a difference that would undo a publisher's privilege under § 201(c).” The dissenters strongly disagreed with the majority’s conclusion, concluding that the CD-ROMS did constitute a new collective work to which the privilege of section 201(c) did not apply.

http://www.ca11.uscourts.gov/opinions/ops/200516964.ENB.pdf

In 1987, fashion designer Joseph Abboud launched his first menswear line under the “Joseph Abboud” label. At that time, he also registered his personal name “Joseph Abboud” as a trademark with the U.S. Patent and Trademark Office. In 1988, Abboud entered into a joint venture with another company to manufacture, market, and sell various products under the Joseph Abboud label. The joint venture was named JA Apparel, and during the joint venture, Abboud licensed the “Joseph Abboud” trademark to JA Apparel. In 2000, Abboud signed an agreement under which he conveyed all trademarks and licenses, including the mark “Joseph Abboud” to JA Apparel. Abboud also signed a noncompete agreement that was to run until 2007. Several disputes subsequently arose between Abboud and the owners of JA Apparel. In the Spring of 2005, Abboud left the business. A few weeks after the noncompete agreement expired, JA Apparel learned that Abboud intended to debut a new menswear collection under the name of “jaz” and intended to promote the new label with taglines such as “a new composition by designer Joseph Abboud” and “by the award-winning designer Joseph Abboud.”

JA Apparel filed suit against Abboud to prevent him from using his name in connection with goods and services. The court described the issue presented as follows: “whether and how an individual, whose name and reputation have become clearly identified with a business and line of products, and which serve as its trademarks, can continue to use his name after he sells the business, its trademarks, and his name, for a considerable amount of money.” Abboud contended that his use of his own name constituted fair use under the Lanham Act. The court, however, disagreed. While the court acknowledged that Abboud was not seeking to use his name as a tradename, the court concluded that Abboud’s use of his name did more than describe the products being sold – the name was being used to promote the products. Indeed, at trial, Abboud acknowledged that he wanted consumers to know that “jaz” was his brand.

The court also disagreed with Abboud’s contention that consumers would not be confused by his proposed use of his personal name to refer to himself as the designer of the “jaz” product line. According to the court, advertising the “jaz” menswear collection as being designed by Joseph Abboud would result in a likelihood of confusion with JA Apparel’s trademarks. The court noted the close proximity of the goods and services at issue, the strength of the marks, and at least some instances of actual confusion that had been identified at trial. The court issued a permanent injunction preventing Abboud from using his personal name to promote products.

• Openness – Data policies should be open and clear and the entity or person controlling the data should be easily identifiable.
  
• Collection Limitation - Collection of personal data should be limited and obtained by lawful and fair means and, where appropriate, with the knowledge or consent of the data subject.
  
• Purpose Specification - The purpose for which personal data are collected should be specified not later than at the time of data collection and the subsequent use limited to the fulfillment of those purposes or such others as are not incompatible with those purposes and as are specified on each occasion of change of purpose.
  
• Use Limitation - Personal data should not be disclosed, made available or otherwise used for purposes other than those specified as described above, except with the consent of the data subject or by the authority of law.
  
• Data Quality - Personal data should be relevant to the purposes for which they are to be used, and, to the extent necessary for those purposes, should be accurate, complete, relevant and kept up-to-date.
  
• Individual Participation - An individual should have the right: a) to obtain from a data controller, or otherwise, confirmation of whether or not the data controller has data relating to him; b) to have communicated to him, data relating to him within a reasonable time; at a charge, if any, that is not excessive; in a reasonable manner; and in a form that is readily intelligible to him; c) to be given reasons if a request is denied and to be able to challenge such denial; and d) to challenge data relating to him and, if the challenge is successful, to have the data erased, rectified, completed or amended.
  
• Security Safeguards - Personal data should be protected by reasonable security safeguards against such risks as loss or unauthorized access, destruction, use, modification or disclosure of data.
  
• Accountability - A data controller should be accountable for complying with privacy measures.
  The FTC currently articulates five core Principles: notice/awareness, choice/consent, access/participation, integrity/security, and enforcement/redress. Many of the current federal regulations related to privacy contain these five Principles.
  

Generally speaking, few would quarrel with the notion that intellectual property is a valuable and important property interest, fully deserving of strong protection. However, in announcing this new, altruistically-titled "Campaign to Protect America," Mr. Cotton verbally expressed a degree of fanaticism that is, in practice, characteristic of many industry organizations that cite to the public interest to justify their sometimes indiscriminate targeting of alleged IP infringers. Mr. Cotton said:

Our law enforcement resources are seriously misaligned...If you add up all the various kinds of property crimes in this country, everything from theft, to fraud, to burglary, bank-robbing, all of it, it costs the country $16 billion a year. But intellectual property crime runs to hundreds of billions a year.

Never mind the personal stress and often life-long sense of unease that can follow a home invasion or burglary, not to mention a mugging. Never mind the complete financial devastation that can come in the wake of white-collar crimes that lead to the evaporation of a worker's life savings. Never mind the fact that "bank-robbing" often also involves immediate public danger flowing from the use of deadly weapons and, on occasion, subsequent police chases. Clearly, these concerns are trifles compared to the bottom-line cost of IP crimes, and they should not serve to divert our valuable public resources away from the identification, apprehension and prosecution of those who would infringe IP rights. Right?

At least Mr. Cotton was kind enough to limit his generalization to "property crimes."

Statements like these should make clear to any business targeted and accused of "piracy" by organizations such as the BSA or the SIIA that the IP "defenders" are more likely to be interested in making examples of their targets, rather than reaching a solution that truly accounts for all the facts (not the least of which is the usually confusing and even deceptive way that software publishers in particular undertake to license and market their content). If your business has been accused of "pirating" software, it is immensely important that you know whom you are dealing with before you divulge any information or sign any agreement.

A copy of the CACP’s press release can be found here.

In effect, a trade secret operates as a kind perpetual patent; the owner potentially can use the secret for his or her own commercial benefit forever. Moreover, almost anything can be a trade secret, while the availability of trademark, copyright or patent protection may be limited based on the nature of the IP at issue. However, "forever," with respect to trade secrets, may be roughly translated as: "for as long as you can keep it." Unlike with patents, where a fairly complex, federal statutory regime usually provides most of the protection afforded to patent holders, those who intend to protect their inventions as trade secrets must be willing to do more of the heavy lifting themselves, using, in the United States, two primary tools: state law and contracts.

Most states have enacted trade secrets legislation - usually modeled on the Uniform Trade Secrets Act - under which an owner of a trade secret may obtain injunctive relief to prevent another from misappropriating that secret by acquiring or using it without the owner's consent. The Trade Secrets Act also gives the owner the opportunity to seek civil damages arising out of such misappropriation, as well as attorney's fees. However, in many cases, an owner's resort to such statutory protection will represent a failure of the owner's front-line trade secrets defenses: his contracts and internal policies.

The key to effective trade secrets protection lies in addressing those secrets with a holistic set of internal policies regarding their use and with a well-crafted set of contractual agreements designed to restrict the ability of a third party to misappropriate them. Internally, access to the existence or details of a trade secret should be clearly limited by internal policies to only those employees who need to have such access, and those policies themselves must be crafted in such a way as not to attract unnecessary (or, sometimes, any) attention to the secrets they should be designed to protect. Moreover, a trade secrets owner must always be mindful of the extent to which any vendors or contractors or even customers are allowed to access those secrets, and it should include enforceable provisions in contracts with such parties to protect its interests. Finally, a trade secrets owner needs to include a comprehensive set of protections in its employment agreements, which should provide, within the bounds of what is permitted in the owner's jurisdiction, that work completed by employees in the course of their employment constitutes property of the employer and that those employees will remain bound to the terms of specified non-disclosure agreements and non-compete covenants during the course of, and for a period of time following, the term of their employment. What is and is not legally permissible with respect to such clauses usually varies from state to state.

It is worth noting that most of these same protections are good ideas for patent holders as much as they are for trade secrets owners. With trade secrets, though, while the owner must devote more vigilance to the implementation and enforcement of such protections, it need not  necessarily undertake the considerable initial expense to obtain the protection in the first place.

Whether it makes sense to construct a comprehensive trade secrets protection regime for your IP will depend on your willingness to commit to full implementation and enforcement, and that willingness may itself depend on the type of property at issue. If that property likely will become obsolete within the patent term (generally, 20 years) just by virtue of the market in which it competes, then it may make more sense to seek protection from other sources. If that is not the case, though, trade secrets protection could be the most appropriate means of protecting your IP.

This latest lawsuit is part of Louis Vuitton’s ongoing fight against counterfeiting and trademark infringement.  On its website, the company proclaims that it has a special team devoted to fighting counterfeiting and is trying to make consumers aware of the risks inherent in purchasing counterfeit merchandise.  Furthermore, Louis Vuitton notes that 13,000 counterfeiting proceedings and 600 raids were launched last year, with 1000 arrests.  Finally, Louis Vuitton makes it clear that its products are sold exclusively in its stores and on it websites, so no one can claim they thought they were making a legitimate purchase when they bought a product on the street or at a “purse party.”  Louis Vuitton’s actions and strategy are an example to other businesses of the steps that should be taken to protect a valuable trademark.  A business that does not actively fight against trademark infringement risks tarnishing the company’s reputation  by allowing counterfeiters to sell inferior product and weaken its trademark.

Bowles arose out of a habeas proceeding, but the holding applies in all civil appellate cases.  After being given a sentence of 15 years to life for murder by an Ohio jury, Bowles filed a habeas corpus petition in the federal district court.  This application was denied.  Under Federal Rule of Appellate Procedure 4(a)(1)(A) and 28 U. S. C. § 2107(a), Bowles had thirty days in which to file his notice of appeal but did not meet this deadline.  Subsequently, Bowles filed a motion to reopen the period during which he could file his notice of appeal pursuant to under Rule 4(a)(6) and 28 U.S.C. § 2107(c).  These provisions allow district courts to extend the filing period for 14 days from the day the district court grants the order to reopen when certain conditions are met. The district court granted Bowles’ motion to reopen the filing period but instead of extending the time period by 14 days, as Rule 4(a)(6) and § 2107(c) allow, the district court gave Bowles 17 days to file his notice of appeal. Bowles filed his notice on the sixteenth day of that time period, within the time allowed by the district court’s order but after the 14-day period allowed by Rule 4(a)(6) and § 2107(c).  The Sixth Circuit ruled that Bowles appeal was untimely and the Supreme Court agreed.

In a 5-4 decision written by Justice Thomas, the Supreme Court noted that filing a timely notice of appeal is “mandatory and jurisdictional.”  If a notice of appeal has not been timely filed, there is no appellate jurisdiction over the case.  The authority to extend the time for filing an appeal comes from 28 U.S.C. § 2107(c), which specifies only a 14-day extension of the time period.  The Supreme Court made it clear that statutory time limits are jurisdictional.  Only Congress has the power to determine the lower federal court’s subject matter jurisdiction, and appellate jurisdiction cannot be altered by court order.  The Supreme Court stated that “because Congress decides whether federal courts can hear cases at all, it can also determine when, and under what conditions, federal courts can hear them.”  As an example, the Supreme Court pointed to its own certiorari procedures, which recognize that the 90-day time limit for filing a petition is based on a statute.  When a cert petition is not timely filed, the Supreme Court has repeatedly held that the failure to do so is jurisdictional. 

The Supreme Court applied the same reasoning in holding that the time limits for filing a notice of appeal must be strictly enforced and cannot be varied by court order.  Bowles argued that in any event, the court should recognize an exception with respect to appellate jurisdiction in his case, given that he relied on a federal court order in filing his late notice of appeal.  The Supreme Court held that the federal courts did not have the authority to create an equitable exception to the statutes and rules governing appellate jurisdiction.  In doing so, the court overruled Truck Lines, Inc. v. Cherry Meat Packers, Inc., 371 U. S. 215 (1962), and Thompson v. INS, 375 U. S. 384 (1964), two earlier U.S. Supreme Court cases applying a “unique circumstances” doctrine allowing for equitable relief from a jurisdictional deadline.  The court overruled both decisions “to the extent they purport to authorize an exception to a jurisdictional rule.”  The Supreme Court recognized that the result in this case might be harsh but stated that Congress could change the rules governing appellate jurisdiction if it wished to.  Writing for the four dissenters, Justice Souter rejected the notion that the notice of appeal deadline was mandatory and jurisdictional and asserted that courts could allow for equitable exceptions to the appellate jurisdiction deadline.

In the wake of the Supreme Court’s decision in Bowles, even if a federal court issues an order extending the time in which to file a notice of appeal, businesses and individuals planning to appeal a federal district court decision should know they still have to meet the statutory deadline and cannot rely on the federal court’s order.  Otherwise, there will be no appellate jurisdiction, and the right to appeal will be permanently lost.

The Eleventh Circuit has agreed to rehear the matter en banc, reflecting the Court’s recognition of the extraordinary impact of the panel opinion. Weissman v. National Ass’n of Securities Dealers,  481 F.3d 1295 (11th Cir. 2007). If the majority opinion prevails and is adopted by other Circuits, for-profit stock exchanges not only face the specter of significant new liabilities in relation to investments solicited in member companies but the added uncertainty because the theory of liability may derive from a myriad of laws that vary from state to state.  Stay tuned . . .

This important case arose out of a seemingly prosaic set of facts involving a dispute between a farmer and a seed company.  While Paris Hilton might view farming as part of “The Simple Life,” American agribusiness is actually a high-tech industry with complex legal issues.  Indeed,  Monsanto Company v. McFarling,  2007 WL 1502080 (Fed. Cir. 2007), is the third opinion issued by the Federal Circuit in a closely watched dispute between a farmer and Monsanto.  Monsanto developed a system for weed control using genetically modified crops that are resistant to the effects of certain herbicides.  When the genetically modified seeds are planted, farmers are able to spray the herbicide on their fields to kill the weeds while sparing the resistant crops, making weed control more efficient.  Monsanto patented this technology. 

When McFarling purchased genetically modified soybean seeds from Monsanto in 1998, he paid a license fee and signed a “Technology Agreement” that included a promise not to replant seeds that were produced from the purchased seeds or to supply those seeds to others for replanting.  The terms of the Technology Agreement also included payment of a $6.50 “technology fee” per bag of seeds and required the farmer to purchase seeds from an authorized distributor.  Despite this agreement, McFarling saved seeds from the 1998 crop and planted those seeds in 1999 and did the same thing in 1999, saving soybean seeds from that crop and planting them in 2000.  The saved seeds contained the patented genetic traits, and McFarland did not pay any license fee for 1999 or 2000.

In a previous decision, the Federal Circuit held that McFarling infringed on Monsanto’s patent by saving seeds and replanting them.  The court also previously held that the liquidated damages provision in the agreement between Monsanto and McFarling was invalid.  At trial, the jury returned a damages verdict of $40 per bag of saved seed.  Under 35 U.S.C. § 284, damages for patent infringement are to be adequate to compensate for the infringement and must not be less than a reasonable royalty for use of the invention.  McFarling argued that because Monsanto had charged a $6.50 “technology fee” to licensees who purchased the seeds under its Technology Agreement, that fee constituted the established reasonable royalty for use of the technology and should be used as an upper limit on his potential exposure.

The court stated, however, that the technology fee was actually only part of the royalty being charged by Monsanto.  By requiring a farmer to purchase seeds only from an authorized distributor, which would charge between $19 and $22 per bag of seeds, Monsanto had elected to impose an additional royalty, although it was not labeled as such.  The court concluded that the total out-of-pocket cost to the farmer – the technology fee plus the cost of the seeds purchased from an authorized distributor – should be characterized as a royalty payment for purposes of calculating the reasonable royalty and damages.  To decide otherwise would create a windfall for infringers,  who would have a huge advantage over other farmers by paying only the technology fee without having to purchase seeds from distributors.  The court also held that it was reasonable for the jury, in calculating damages, to consider the benefits Monsanto’s damages conferred on farmers such as McFarling, such as the savings on weed control measures. 

 By allowing courts to consider charges and costs beyond what a patent holder has labeled as a royalty or technology fee, as well as the economic benefits conferred on the infringer by the technology, the decision in <em>McFarling</em> may lead to higher damages awards in patent infringement cases.  It will certainly make it more difficult for businesses concerned about infringement claims to calculate their potential exposure. 

At any time while an action under this title is pending, the court may order the impounding, on such terms as it may deem reasonable, of all copies or phonorecords claimed to have been made or used in violation of the copyright owner’s exclusive rights, and of all plates, molds, matrices, masters, tapes, film negatives, or other articles by means of which such copies or phonorecords may be reproduced, and records documenting the manufacture, sale, or receipt of things involved in such violation. The court shall enter an appropriate protective order with respect to discovery by the applicant of any records that have been seized. The protective order shall provide for appropriate procedures to assure that confidential information contained in such records is not improperly disclosed to the applicant.

The potential for this or similar legislative proposals to affect the operations of your business makes it even more important to ensure that all records regarding software license purchases and installations are readily available, or at least easy to retrieve. Such pro-active organization on your part not only makes good business sense, it also greatly facilitates the software audit process for those destined to receive letters from the Business Software Alliance or the Software & Information Industry Association (as are an ever-increasing number of U.S. businesses)…and it might help to avoid some of the harsher remedies that the future may hold under the Copyright Act.

A copy of the legislative proposal may be found here.

By statute, such review is not now available, and parties who consent to arbitration will find themselves at the mercy of the arbitrator, whose decision, as a practical matter, is unreviewable.  Under the Federal Arbitration Act, which applies if an agreement containing an arbitration clause involves interstate commerce, an arbitrator’s decision may only be vacated, modified, or corrected by a court under very limited, rarely applicable circumstances.  See 9 U.S.C. § 10 & 11.  Indeed, under the FAA, an arbitration award will still be confirmed and converted into an enforceable judgment even if the award was based on clear legal or factual errors.   See Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 994 (9th Cir. 2003) (en banc).  Many states have enacted similar provisions limiting the scope of review of arbitration awards for agreements governed by state law. 

In an attempt to avoid this potentially frightening result and create an opportunity for meaningful review of erroneous arbitration awards, businesses have begun to include in their arbitration agreements provisions purporting to establish different standards under which an award will be reviewed.  For instance, the parties to an agreement may specify that an arbitration award is reviewable for legal errors or must be supported by substantial evidence.  It is not clear, however, that such provisions are enforceable.  The Ninth and Tenth Circuits have held that parties may not expand the judicial review provisions found in the FAA, reasoning that allowing such an expansion would threaten the independence of arbitration.  See Kyocera, 341 F.3d at 998; Bowen v. Amoco Pipeline, Inc., 254 F.3d 925, 936 (10th Cir. 2001).  California courts have similarly held that under the FAA and the California arbitration statutes, an agreement to expand judicial review is unenforceable, though the California Supreme Court is currently considering the validity of those decisions.  See Cable Connection, Inc. v. Directv, Inc., 53 Cal.Rptr.3d 318  (Cal. 2006).  In contrast, the First, Fourth, Fifth, and Sixth Circuits have held that parties may contract for more expansive judicial review, concluding that the parties’ agreement with respect to arbitration must be enforced. 

The Supreme Court has now granted certiorari in a case presenting the issue of whether such contractual provisions are enforceable.  On May 29, 2007, the court granted the petition in Hall Street Assoc. v. Mattel, Inc., No. 06-989.  The court will address the specific question of whether the Ninth Circuit erred when it held that the FAA “precludes a federal court from enforcing the parties’ clearly expressed agreement providing for more expansive judicial review of an arbitration award than the narrow standard of review otherwise provided for in the FAA.”  The case will not be set for argument until the next court term, which begins in October 2007.  In the meantime, businesses concerned about the limited reviewability of arbitration awards should still consider including clauses providing for expanded judicial review.  Given that such provisions may be invalidated, however, businesses may want to re-examine whether they really want to agree to arbitration in the first place, knowing that an erroneous decision by an arbitrator may be the final word. 

The costs of litigation can be managed and decreased using court rules that promote efficient litigation and provide for speedy resolution of disputes.  Courts in the Eastern District of Texas are widely recognized as national leaders in patent litigation, in large measure, because they provide a relatively quick system for resolving patent disputes.  For the party that employs experienced counsel and a strategy to maximize those attributes, the cost of preparing a patent case can be reduce on both sides.  This efficiency is accomplished in various ways, including the use by several judges of special rules for patent cases and those same judges’ continuation of the district's tradition of early, firm trial settings.   Experienced counsel can see that speedy trial settings and discovery limitations can be used not only to the benefit of a plaintiff, but to the small defendants’ favor as well when defending commercial patent cases.  In fact, the settings provide a way of defending a case on the merits that would otherwise cost too much.  A small patent defendant is best off in the Eastern District when it has a defense on the merits because there it may possibly get the cheapest path to a trial setting of anywhere in the nation.   The truth is, with a valid case and good lawyering, there is no reason that tremendous advantage cannot be found and a path to more efficient litigation discovered by all parties by using the resources of the Eastern District. 

What does this mean?

As a defendant service provider it means that you may seek immunity under § 230(c)(1) where state intellectual property claims are brought against you.  Of course, if the federal and state claims are similar, you won’t be escaping much because the federal claim will still survive.

As a plaintiff seeking to enforce a state trade secret claim or any other intellectual property interest recognized and created under state law, the results are not so good.  It will be much more difficult to bring a state intellectual property claim, or seek an injunction based on a trade secrets claim.  For instance, when a service provider hosts user-posted material misappropriating your trade secrets or infringing on other state-recognized intellectual property rights, the service provider will be immune under § 230(c)(1), and your only recourse will be a claim against that user who posted the material.

The original opinion was amended so that the Ninth Circuit could insert a footnote that reiterates that it really did mean that intellectual property means “federal intellectual property” and state intellectual property claims are preempted by § 230.  There are two other cases pending before the Ninth Circuit dealing with the same types of questions, and those decisions will indicate just how far the Ninth Circuit believes the immunity provision extends.  In the meantime, service providers in particular should take note that they can now invoke section 230 immunity for the acts of third-parties where the claims raised are state intellectual property claims.

• Protect information stored on the laptop with a secure password. It should consist of a combination of numbers and upper and lower-case letters.
• Implement advanced security measures such as remote laptop security and laptop encryption.
• Be sure that all important data contained on the laptop is backed up.
• Make use of physical security measures like locks and cables. These security devices make theft more difficult and thereby discourage thieves from taking your machine.
• When leaving a laptop in the office, make sure it is hidden and secured.
• Keep your laptop in an inconspicuous case. Flashy cases expose your computer by attracting thieves’ attention. A simple padded messenger bag can suffice as a protective container.
• When using a laptop for meetings or conferences, always keep it in your sight. Do not leave the room without taking the laptop with you.

The Ernst & Young laptop theft in Miami could have been prevented if employees had followed these simple instructions. Furthermore, the companies whose data was stolen could have easily identified the compromised data if the companies regularly backed up the information contained on the laptops. Finally, all of the information could have been protected if it was encrypted. Only 65 percent of the Ponemon survey respondents claimed that their organizations utilize encryption to protect information.

The Transportation Security Administration acknowledged that it recently lost a hard drive containing 100,000 archived employee records.  The TSA purchased credit monitoring services for employees whose data was involved in the breach.

On a smaller scale, two Federal Trade Commission laptops disappeared from a locked trunk.  The FTC attorneys were working on a case, and were authorized to have the laptops.  The information on the laptops included the names, addresses, Social Security numbers, financial account information, and dates of birth for persons the FTC had investigated.  The laptops did not contain any information about FTC employees or government officials.   Ironically, the laptops contained sensitive personal information for defendants that had been investigated for stealing other people’s identities.  The FTC offered free credit monitoring for 110 people as a result of the theft.

However, since all of the alternative legislation now pending in Congress would preempt state laws to one degree or another, it makes sense for companies to begin to familiarize themselves with the direction that Congress might be heading in this regard in order to ensure early and full compliance with whatever rules Washington ends up enacting. The various privacy bills still pending in the House and Senate described in the article referenced above are a good place to start. In addition, though, on April 30, 2007, Congress received a report on a study conducted by the U.S. Government Accountability Office (“GAO”) in order to assess the government’s own response to data breaches. While the stated aim of the study was to help federal agencies improve their ability to respond to such incidents, the basic framework of the GAO’s policy recommendations incorporates many concepts found in pending federal and enacted state legislation, and it is therefore easy enough to translate to a business context. To the extent that the report will return congressional attention to the issue of data security, it should be a useful resource for businesses wanting to begin early implementation of internal procedures that likely will not be too far from the mark, once a final federal rule is enacted and becomes effective.

Many of the GAO’s policy recommendations will sound familiar to those who have some experience with existing data security regulations and best practices. Among other measures, the report recommends: a “two-tiered” approach to incident reporting, where all incidents are reported to a designated, responsible government office, with only those entailing a risk of identity theft being reported to the affected individuals; the designation of a “core management group” to be responsible for quickly responding to incidents; the implementation of mechanisms to allow for the efficient retrieval of addresses of potentially-affected individuals for notification purposes; and taking steps to ensure awareness and training on data security issues. both among internal staff as well as among contractors.

The full report may be obtained here.

The six factors that will be considered by Texas courts to determine whether a trade secret exists are:

• The extent to which the information is known outside of the business;
• The extent to which the information was known to employees and others involved in the business;
• The extent of the measures taken by the business to protect the secrecy of the information;
• The value of the information to the business and its competitors;
• The amount of effort or money expended by the business in developing the information;
• The ease or difficulty with which the information could be properly acquired or duplicated by others.

In re Bass 113 S.W.3d 735, 739 (Tex. 2003). These six factors are to be weighed in determining whether the information is a trade secret, but all six factors do not have to be present for the information to be considered a trade secret in Texas. Id. at 740.

Of course, the more of these factors that the information meets, the more likely the information will be considered a trade secret. For instance, Texas businesses should be sure that the information is not widely known outside of the business; the information is only known by employees who have a direct need to know the information; the business should take great measures to protect the privacy of the information; the information should be valuable information; the business should expend significant resources in developing the information; and the business should make it difficult for others to acquire the information. Taking these six steps to protect the trade secrets of your business will also help the Texas courts identify that the protected information is in fact a trade secret worthy of protection from misappropriation.

 In a common law claim for damage to reputation, most jurisdictions recognize privileges belonging to the defendant, which, in varying degrees, may defeat the claim as a matter of law. An absolute privilege bars suit over a communication, even if defamatory, because of competing public policy considerations that recognize the chilling effect of such suits. A qualified privilege is less favorable to the employer and depends on the reasonableness of the employer’s conduct and commonly presents an issue requiring a trial for resolution.

In an unpublished opinion, Galligan v. Edward Jones & Co., 2000 WL 785041 (Ct. Super. 2000), the Court expressed what had been the common view that statements made by the member company on the U-5 termination notice are only protected by a qualified privilege defense and therefore refused to summarily dispose of the issue.

At least in cases subject to New York law, member companies will be protected from suit over pertinent information communicated on the U-5 termination notice by virtue of a recently decided New York Court of Appeals case that expanded the absolute privilege to apply it to the completion of the U-5.   The Court’s well reasoned decision provides a blueprint for the public policy arguments that should be pursued in other jurisdictions that have decided this issue less favorably to the employer.

In Rosenberg v. MetLife, 8 N.Y.3d 359 (2007), the New York Court of Appeals declared that statements made by the member firm on the U-5 termination notice are absolutely privileged because it is a preliminary step in the quasi-judicial process the NASD uses to investigate and sanction violations of securities laws. The Court of Appeals rejected the former employee’s claim that the completion of the U-5 was too attenuated from any judicial proceeding to fall under the rubric of the litigation privilege.  The Court of Appeals found strong public policy considerations required recognition of an absolute privilege as to pertinent communications on the U-5 termination notice because it is a preliminary step in the NASD’s investigation of brokers in furtherance of regulating the industry.  Inasmuch as the absolute privilege defeated the defamation claim, the Court of Appeals agreed that the lawsuit against MetLife was properly dismissed. 

Member dealers that have a nexus with New York should also evaluate whether its employment documents are written in such a way so as to invoke these immunities to defeat such claims at an early stage of the case..

 The Federal Circuit’s jurisprudence evaluating local patent rules therefore provides district court judges with considerable discretionary power to facilitate patent litigation and move along their dockets through enforcing local rule requirements, even where the exercise of that discretion can be outcome determinative.  There has been no hesitation to use that discretion among Texas district courts enforcing local patent rules.  MGM Well Servcs., Inc. v. Mega Lift Sys., LLC, 2007 WL 433283 (S.D. Tex. 2007) (granting plaintiff’s motion to exclude invalidity contentions, expert testimony, evidence, and argument regarding prior art patents on grounds that Defendant failed to accurately, timely, or properly disclose same in accordance with the patent rules, and with the Court’s discovery and docket control orders); SoftVault Sys., Inc.  v. MicroSoft Corp., 2007 WL 1342554 (E.D. Tex. 2007) (denying plaintiff’s motion for leave to amend its claims and contentions disclosures to change the asserted priority date of the claims at-issue, acknowledging that the importance of the priority dates to the overall case weighed in favor of granting the motion, but denying on grounds that plaintiff had access to information earlier in litigation and thus could have amended in accordance with rules and order deadlines, preventing prejudice to opposing party and need for continuance).  Thus, patent holders contemplating litigation in the Northern District should take particular care to heed all the procedural requirements of that District’s recently-enacted local patent rules, as the failure to comply could determine the outcome of litigation.  Further, given the “abuse of discretion” standard of review on appeal, any discretionary rulings, including dismissals, based upon a failure to comply with local rule requirements in a patent case will likely prove difficult to overturn on appeal.  The lesson to take away here is therefore that any patent infringement plaintiff  or defendant must take seriously all discovery and procedural obligations imposed by local rule requirements – and in particular the obligations to disclose infringement and invalidity contentions – seeking experienced and knowledgeable counsel to draft and prepare them, and to review and re-examine them at every possible opportunity.  All infringement and invalidity theories should be regularly re-examined and updated in accordance with local rule requirements, or should be amended in accordance with a prompt request for leave to amend in the event new information is learned during the course of discovery.  Alternatively, given the broad discretion accorded district courts to enforce their local rule requirements, parties will have to be prepared to lose valid infringement and invalidity theories in the face of untimely disclosure under local rules, even where it means losing the litigation as a whole.

Acumed is only the latest case to demonstrate the wide-reaching effect that the eBay decision continues to have on patent infringement jurisprudence.   Those who have injunctions in place should be wary of challenges under eBay, as Acumed signals the unwillingness of the Federal Circuit to affirm the granting of injunctions by applying the Supreme Court’s rule during an appeal.  Moreover, it makes every injunction issued under the previously-existing “general rule” of patent cases vulnerable to reconsideration, and clarifies that evidence separate and independent from that supporting the infringement will be necessary to support the injunction.  The resonating message sent by Acumed is that the appellate courts will not only apply eBay to require that there be evidence on the four factors before an injunction issued pre-eBay will be affirmed, but more importantly that the appellate court will not conduct an eBay analysis on appeal.  The Federal Circuit’s conclusion in Acumed that evaluating the eBay factors in light of the evidence would be tantamount to weighing the evidence dictates that it cannot affirm any injunction issued prior to eBay, as no district court could have known to conduct the four-factor analysis prior to that time, and the Federal Circuit’s decision precludes it from doing so on appeal.  Acumed signals that if injunctions granted in patent infringement cases under the former general rule are challenged on appeal, remand will be necessary for reconsideration of the issues by district courts.  

In the New York case, Deutsche Bank Trust Co. of America v. Tri-Links Investment Trust, et al., 2007 WL 1412886 (App. Div. 1st Dep’t 2007), the Appellate Division of the Supreme Court of the State of New York, First Department rejected the lower court’s conclusion that Deutsche Bank’s pursuit of the litigation had worked such a waiver.  An “at issue” waiver of attorney-client privilege occurs when a party affirmatively places the subject matter of its own privileged communication at issue in the litigation, such that invasion of the privilege is required in fairness to the adversary so as to provide the opponent information vital to its defense.  The Appellate Division distinguished between the existence of a privileged communication that contains information relevant to the issues in the case, which does not effect a waiver, and the invocation of a claim or defense which relies upon such privileged materials.  In the latter case, selective disclosure is not permitted and will effect a waiver.  If Deutche Bank, in pleading its claim, anticipated the defense that the third party settlement was unreasonable by pleading that it relied upon the advice of counsel, the outcome would have been entirely different.

In the Florida case, XL Speciality Ins. Co. v. Aircraft Holdings, LLC, 929 So.2d 578 (1st Dist. 2006), the Florida District Court of Appeal, First District granted a writ quashing an order compelling XL Speciality to produce privileged documents related to the underlying claim.  The lower court ruled that because the question of whether the carrier’s refusal to pay the claim was in bad faith, the communications with its counsel and counsel’s work product were relevant to the issue of objective reasonableness.  In granting the writ, the Court of Appeal held that that because the statutory cause of action for bad faith did not indicate a legislative intent to waive the attorney-client privilege, no waiver would be found by the filing of such a claim.
 
The teaching of these decisions is that to avoid a waiver of the privilege, a litigant must be careful not to plead or refer to the advice of counsel to advance its claim or defense.

The Texas Supreme Court reversed, holding that a Texas court did not have jurisdiction over the nonresident company because its contacts with Texas were not substantially connected with the operative facts of the litigation.  Moki Mac had not established continuous and systematic contacts with Texas.  Accordingly, for Texas courts to exercise personal jurisdiction over Moki Mac, (1) Moki Mac must have made minimum contacts with Texas by purposefully availing itself of the privilege of conducting activities in the state, and (2) Moki Mac’s liability must have arisen from or been related to those contacts.  The court noted that Moki Mac did purposefully avail itself of the privilege of conducting business in the Texas market by directly marketing to Texas residents, regularly advertising in Texas, soliciting Texas residents using direct-marketing e-mail campaigns, and establishing channels of regular communication with its Texas customers.

Nevertheless, the court concluded that because Moki Mac’s liability did not arise from its contacts with Texas and was not related to those contacts, there was no personal jurisdiction.  The court explained that there must be a substantial connection between those contacts and the operative facts of the litigation.  That connection did not exist in this case because the operative facts of the case focused on the guides’ conduct of the expedition and whether they exercised reasonable care in supervising Andy.  Those events, which would be the focus of any trial, all took place in Arizona.  While the contents of Moki Mac’s brochures and website might have had some connection with the operative facts that led to Andy’s death, the court found that this connection was not sufficiently direct to meet due process concerns.  Under Moki Mac, businesses may be able to argue that websites, e-mail marketing, and other advertising in a state is insufficiently related to personal injury claims occurring outside the state to support an exercise of jurisdiction. 

While the video might have been more clearly damning if it had included footage of Chase employees actually dumping the bags, regardless of its weight, it serves as a valuable reminder to all businesses maintaining sensitive customer records that information security does not begin and end with electronic data. Clearly, no IS policy is complete unless it includes provisions for the proper collection, handling, storage and disposal of paper records containing private information. Chase has stated that it has reached out to the SEIU for information regarding the records appearing in the video and that it is investigating whether and/or the extent to which its employees may have violated its internal IS policies.

The consequences for failing to adequately protect against loss or theft of personal customer data are becoming increasingly severe. Expenses associated with information security breaches can and often do include the costs to notify and assist affected persons, loss of customers, litigation and consulting costs, regulatory fines, and diminution of stockholder share value. In Chase’s case, if the video footage does in fact end up being evidence of a failure on the company’s part to effectively enforce the paper record disposal policies it says it has, then it is not difficult to imagine that the number of affected customers – and Chase’s potential loss exposure – could be quite high indeed.

For more information regarding the consequences of data breaches, you can obtain a copy of a recent national survey on that subject commissioned by Scott & Scott, LLP and independently conducted by the Ponemon Institute by clicking here.

Teleflex sued KSR for patent infringement.  Teleflex held the exclusive license to the patent entitled “Adjustable Pedal Assembly With Electronic Throttle Control.” KSR International Co. v. Teleflex, Inc., 127 S.Ct. 1727, 1734 (2007). The case revolved around Claim 4 of Teleflex’s patent.  Claim 4 describes a mechanism for combining an electronic sensor with an adjustable automobile pedal so that the position can be transmitted to a computer that controls the throttle in the automobile.  Id.  KSR added an electronic sensor to one of its previously designed automobile pedals, and Teleflex sued for patent infringement.  KSR claimed that Teleflex’s Claim 4 was invalid under the Patent Act, 35 U.S.C. § 103, because the Claim was obvious.  Section 103 provides that a patent cannot be issued when “the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art.”  Id.

The District Court granted summary judgment in favor of KSR, reasoning the KSR had demonstrated that Claim 4 was obvious.  Id. at 1737.  The District Court also held that KSR satisfied the TSM test.  Id. at 1738.  The Federal Circuit reversed, reasoning that the District Court did not apply the TSM test strictly enough.  Id.

The Supreme Court held that the Federal Circuit addressed the obviousness question in a “rigid” manner, reasoning that helpful insights like the TSM test need not become “rigid and mandatory formulas,” and the TSM test as applied did not follow Supreme Court precedent.  The court threw out the TSM test, explaining that the Federal Circuit made four errors.  First, the Circuit erred by holding that courts should only look to the problem the patentee is trying to solve.  According to the Supreme Court, “any need or problem” can provide the patentee with a reason for combing elements. Id. at 1741-42.  Second, the Federal Circuit erred by holding that a person of ordinary skill would only look to solve a problem with prior art elements designed to solve the same problem.  The Supreme Court explained that a person of ordinary skill will be able to fit the teachings of multiple patents together.  Id.  Third, the Federal Circuit erred by reasoning that a patent cannot be obvious where it is shown that the combination was obvious to try.  Instead, a person of ordinary skill attempting to solve a problem will use common sense and ordinary skill to identify and pursue known options in the field, and if success results it is not innovation.  Id.  Fourth, the Federal Circuit erred by making a wrong conclusion about the risk of hindsight bias.  The Supreme Court held that rigid rules denying recourse to common sense are inconsistent with the Court’s caselaw.  Id.  

It is likely that the change in the obviousness standard will likely increase the amount of patent litigation.  This litigation will involve attempts to invalidate patents on obviousness grounds, and many patents will likely be invalidated.  Furthermore, it is likely that inventors will not easily resist an infringement claim and will litigate rather than settle the case.  In fact, the Federal Circuit’s first decision interpreting KSR was issued May 9, 2007, Leapfrog Enterprises, Inc. v. Fisher-Price, Inc. and Mattel, Inc., No. 06-1402 (Fed.Cir. May 9, 2007).  The Federal Circuit affirmed a lower court ruling invalidating Leapfrog’s patent on the grounds of obviousness.  There is no doubt that KSR will have a substantial impact on the patent litigation landscape.

The reorganization of the rules includes new rules specifically applicable to appeals in limited civil cases.  Rule 8.751 provides that a notice of appeal must be filed on or before the earliest of (1) 30 days after the clerk mails a notice of entry, (2) 30 days after a party mails a notice of entry, or 90 days after entry of the judgment or appealable order.  Under Rule 8.752, if a motion for new trial is filed, the time to file a notice of appeal is extended until 15 days after entry of the order denying the motion or denial of the motion by operation of law, but in no event may the notice of appeal be filed later than 90 days after the date of entry of the judgment.  A cross appeal must be filed within 10 days after the trial court clerk mails a notification of the first appeal or within the time period otherwise prescribed by local rules.  These short deadlines cannot be extended by the court or by agreement.  When appealing in a limited civil case, these deadlines must be honored or your appeal will be dismissed for lack of jurisdiction.

If SCO wins it fundamental claim that it owns the underlying source code to UNIX, the open source software community will lose control over one of its most used programs.  To the open source software community, the loss comes not only in the UNIX source code but the many man-hours invested by subsequent developers in customizations and derivations built on the original UNIX source code.

Because the open source software community depends on the free exchange of intellectual property within the source code, a system that works only if each developer that contributes to the whole has sufficient access to the intellectual property, a win for SCO could threaten the very model of open source software.  The open source software model breaks when one developer contributes an infringing work, because as SCO has claimed, every user thereafter is infringing.

What does this mean for a company using or developing open source software?  First, a company must know that it may be liable for copyright infringement even without knowledge that a work was subject to copyright infringement.  Like any other software the company uses, the company must know where the software originated from.  However, unlike most software programs where the company has assurance from a license that the vendor owns the copyright in the source code and the company, through the license, is allowed to use the software, with open source software the SCO litigation means that a company must complete some due diligence regarding the chain of title of the source code of the open source software to ensure that there are no other intellectual property claims to the source code.  

The new policies include coverage for the following claims:

• Failure of network security;
• Wrongful disclosure of private or confidential information;
• Failure to protect confidential or private information; and
• Violations of federal, state, or local privacy statutes.

Many companies face tremendous negative publicity after they experience a data loss or security breach. New corporate identity theft insurance policies will also assist with the costs associated with defraying damage to the company’s reputation following a security breach. The insurance coverage will provide crisis management and reimbursement for public relations expenses.

Most importantly, the insurance coverage will provide a defense in the event that a security breach results in a regulatory investigation or a civil lawsuit. For example, AIG’s Corporate Identity Protection offers a unique product that covers administrative expenses resulting from an administrative action related to a breach of personal information. Like a traditional commercial policy, the security breach policies contain provisions that the insurance company will be required to pay for an attorney to defend the company in the unfortunate event that the company experiences a data or security breach. Finally, the insurance products also cover the costs post-event services, like credit monitoring and identity theft education, to the individuals affected by the security breach.

In the Providence case, Providence’s employee left the office with tape back ups and disks containing more than 365,000 patient records.  The employee left the information in the car, where it was stolen.  When the patients indicated that they would like Providence to protect them from possible identity theft by providing credit monitoring, Providence refused and suggested that the patients take steps to protect themselves.

Because the information stolen was medical information, plaintiffs claimed that Providence violated the Oregon statute requiring protection of medical information.  Plaintiffs further sought damages under the Unlawful Trade Practices Act because Providence represented that it would keep all personal information confidential when it sold medical services and products to the patients.

The lesson to be learned from this decision is that while courts generally don’t go behind the plain language of a statute, where the intent of the legislation is at issue, legislative history may drive the outcome of the case as happened here.

 Now, with its recent implementation of its own set of local patent rules, the Northern District of Texas attempts to make headway of its own on the national intellectual property scene and demonstrates its seriousness about its participation in the new federal pilot program.  Whether it achieves the same notoriety as the Eastern District remains to be seen.  Certainly the Eastern District boasts more than simply a speedy docket.  It has gained its reputation by stacking its bench with a judiciary that has become highly savvy in the worlds of engineering and technology.  But the Northern District bench does not sit light in those areas itself, and it has the advantage of being located in a major metropolitan area.  Thus, if the Northern District manages to accomplish the same speedy “rocket docket” trial reputation, and combines it with expertise and its desirable geography, it will certainly give the Eastern District a run for its money in the “something to talk about” department.  Not least because it will be a district most attractive to the multi-million dollar corporate clientele that tends to take up the space on each side of those intellectual property case captions. 

 Certainly, though, the Northern District has its work cut out for it.  The patent rules contain numerous mechanisms to eliminate the traffic jams typically caused by intellectual property litigation.  They allow the district to conduct speedier patent trials and civil cases in general by placing strict time constraints on parties’ pretrial activities, such as discovery and claim construction, and by clarifying positions early in the case.  The rules eliminate discovery disputes by scheduling mandatory early conferences with the court, with obligations that push parties to be liberal in their disclosure and production, and to produce any relevant materials.  Claim term lists and proposed claim constructions must be served early.  These provisions, among others, ensure the relatively smooth and continuous flow of patent cases, and prevent them from obstructing the smooth and continuous flow of other cases.  Nevertheless, it will be truly interesting to watch as the Northern District implements the pilot program and attempts to remedy the congestion of a docket for one of the busiest metropolitan districts in the nation.  Interesting and, if successful, a true achievement and benefit to the bar and the state.

Now, legislation proposed in Texas goes one step further and stops just shy of naming an industry standard by name in the text of a bill designed to ensure the security of personal data stored in portable “access devices,” such as credit cards. Texas House Bill No. 3222 contains the following provisions:

A business that, in the regular course of business, collects, maintains, or stores sensitive personal information in connection with an access device must comply with payment card industry [“PCI”] data security standards [“DSS”].

…[and]…

A financial institution may bring an action against a business that is subject to a breach of system security if, at the time of the breach, the business is [not in compliance with PCI DSS].

The bill goes on to provide that a business may avoid a lawsuit brought under the statute if the business was certified by a “[PCI]-approved auditor” as being in compliance with PCI DSS at least 90 days before the date of a security breach. However, if the business was not in compliance, and if the lawsuit moves forward, the business may end up having to pay the financial institution’s “actual damages” – including costs incurred in connection with “cancellation or reissuance of an access device affected by the breach,” “closing of a deposit, transaction, share draft, or other account affected by the breach and any action to stop payment or block a transaction with respect to the account,” “opening or reopening of a deposit, transaction, share draft, or other account affected by the breach,” “refund or credit made to an account holder to cover the cost of any unauthorized transaction related to the breach,” and “notification of account holders affected by the breach” – in addition to the financial institution’s attorney’s fees. Obviously, for even a moderately large breach of, for example, credit card account information, the potential penalties flowing from this legislation for noncompliance with PCI DSS could be staggering.

The interesting part of this for me, though, is the bill’s almost express naming (but for the initial capital letters) of a specific industry standard – the Data Security Standard published by the Payment Card Industry Security Standards Council – to substitute for a detailed description of the actions a business must take to be in compliance with the law. Businesses should expect to see ever more numerous examples of this sort of legislation in coming years, making familiarity with and early adoption of generally-accepted business standards all the more advisable.

You can read the full text of HB 3222 here.

In addition, you can download a free copy of the PCI DSS here.

The question presented to the Supreme Court was whether Microsoft’s liability would extend to computers made in another country when loaded with Windows software copied abroad from a master disk or electronic transmission dispatched by Microsoft from the United States?

Generally, no patent infringement occurs when a patented product is made and sold in another country, except where the patented invention’s components are supplied from the United States for combination abroad.  35 U.S.C. § 271(f)(1). 

AT&T holds a patent on a computer used to digitally encode and compress recorded speech.  Microsoft’s Windows incorporates software that enables a computer to process speech in the manner claimed by AT&T’s patent.  Microsoft sends its software on a master disk to foreign manufacturers, who then make copies of the disk and install them onto computers that they sell.  The master disk is not installed.

AT&T sued Microsoft and argued that Microsoft infringed on its patent by supplying from the United States, for combination abroad, components of AT&T’s patented computer, and therefore Microsoft would be liable under § 271.  Microsoft argued that the copies were not supplied from the United States and were not a component under § 271.  

The Supreme Court answered the question presented in the negative, and characterized the copies of the Windows operating code as a blueprint giving instructions rather than a component as AT&T argued.  The Supreme Court reasoned that a blueprint may contain precise instructions related to components of a patented instrument, but the blueprint itself is not a component of the patented instrument.  Specifically, the court ruled that if the code is sent abroad, the copy made from it will not be considered a component under § 271.  The Court explained that AT&T’s only options would be to seek foreign patent prosecution or seek a change in § 271 from Congress.

While significant with respect to Fourth Amendment jurisprudence, the decision in Scott v. Harris also signals a willingness on the part of the Supreme Court to allow appellate courts when presented with certain types of evidence (like video records) to decide factual issues as a matter of law.  In this case, there was a videotape record of the car chase.  The justices themselves reviewed the video and even posted it on the Supreme Court’s website.

In summary judgment practice, a court is tasked with viewing the evidence in a light most favorable to the nonmovant.  Justice Scalia, writing for the court, concluded, however, that the videotape blatantly contradicted Harris’s version of the facts, such that no reasonable jury could adopt his version.  It was therefore permissible for the appellate court to conclude, as a matter of law, that Scott did not act unreasonably.  Of course, as Justice Stevens pointed out in his dissent, both the district court and the Eleventh Circuit had seen the same videotape and reached different conclusions regarding whether the tape resolved the factual issues as a matter of law.  In decrying their decision to resolve the factual issues themselves based on the video, Justice Stevens repeatedly referred to the justices in the majority as “jurors” in his strongly worded descent. 

In future cases where video evidence is available, parties will be able to cite Scott v. Harris for the proposition that a court, and not a jury, is capable of deciding issues that were traditionally left for the jury to resolve, particularly where the video evidence contradicts the nonmovant’s version of the facts.  As Justice Scalia stated, “when opposing parties tell two different stories, one of which is blatently contradicted by the record, so that no reasonable jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment.”  Scott v. Harris, 2007 WL 1237851 at *4.  This may be particularly significant on appeal, where at least five circuits have held that a federal appellate court has the authority to affirm entry of summary judgment on any ground presented by the record, whether or not the issue was raised, briefed, or argued in the district court.  See Iverson v. City of Boston, 452 F.3d 94, 98 (1st Cir.2006); Cromwell Assocs. v. Oliver Cromwell Owners, Inc., 941 F.2d 107, 111 (2d Cir.1991); Reasonover v. St. Louis County, Mo., 447 F.3d 569, 578 (8th Cir. 2006); Bones v. Honeywell, Int’l, Inc., 366 F.3d 869, 875 (10th Cir.2004); Banner v. United States, 238 F.3d 1348, 1355 (Fed. Cir. 2001).  The appellate review procedure approved in Scott v. Harris could allow an appellate court to decide a case as a matter of law based on video evidence where that evidence discredits the nonmovant’s version of events. 

What can a company do to protect its trade secrets from blogging employees?

The simple answer is to create a blogging policy.  A policy should outline the parameters that employees must follow while blogging about the company, and should coincide with the company’s policy manual related to confidential and proprietary information.  The following items are suggestions to include in a company blogging policy. 

The policy should contain provisions that the employee shall not blog about proprietary and confidential information.  The company should provide a definition of proprietary and confidential information.

The policy should contain a provision requiring that the employee shall not post any obscene, defamatory, libelous, abusive or hateful remarks about any the company, company employees, company’s competitors, or company’s customers or partners.

The policy should contain a provision requiring the employee to gain permission from the company before using the company’s symbols, trademarks, or graphics. 

For employees who have personal blogs unrelated to the company, the company may want to incorporate a provision that requires the blogger to place a disclaimer on its blog, that all content is that of the author and does not reflect the views of the company.

The policy should not stifle creativity or treat the employee as though they cannot write about work-related topics, but must inform the employee about the legal boundaries of their actions related to blogging about trade secrets, and that the company must take reasonable steps to protect its trade secrets so that they do not lose their status as trade secrets.

The lifecycle processes specified in ISO 19770-1 are designed to allow an organization first to identify and manage software changes at a fairly high level and then to specify the details of each “waypoint” in the software lifecycle identified in the standard. Those waypoints progress fairly logically from acquisition and development, to release and deployment, to incident and problem management, and finally to retirement.

As with all of the other processes specified by ISO 19770-1, it is important to keep in mind that the word “specified,” when it comes to this standard, is somewhat of a term of art. ISO 19770-1 lists out the process that an organization should implement and the goals that the organization should have in mind in doing so. However, it leaves the specifics of implementing those processes up to the organization seeking to achieve compliance. There are no ISO 19770-1-approved checklists or schedules included with the standard itself, leaving each organization more or less free to tailor the processes to its own unique set of demands and resources.

You can obtain a copy of the standard here. As I write this, the price is CHF 108.00, which translates into about $90 USD.

A company could adopt a policy prohibiting employees from storing personal information on a company computer, though this may be impractical to enforce.  A number of courts have held that an employee has no privacy expectation in workplace computer files where company guidelines and policy explicitly inform the employee that no expectation of privacy exists.  See, e.g., Muick v. Genayre, 280 F.3d 741, 743 (7th Cir.2002); United States v. Simons, 206 F.3d 392, 398 (4th Cir.2000); Thygeson v. Bancorp, 2004 WL 2066746 (D. Or. 2004); Kelleher v. City of Reading, 2002 WL 1067442 (E.D. Pa. 2002).  A company could adopt such a policy, which could be used as evidence that when the employee stored the information, the employee was aware that she had no privacy interest in that electronic data and that the information no longer belonged to her. 

It might also be helpful to require employees to acknowledge in writing that any information stored on a company computer belongs to the company and that they have no privacy interests in such information.  The Thyroff decision did not indicate whether or not Northwest Mutual had such a policy in place.  It is also not clear whether a court might conclude that whether or not there was a privacy expectation, the employee still had a property right in the information that could be enforced in an action for conversion.  Nevertheless, a company’s litigation position would in all likelihood be strengthened by implementing and enforcing a policy regarding storage of personal data on company computers.

In Arbor Hills, the Second Circuit admitted that its “fee-setting jurisprudence has become needlessly confused-untethered from the free market it is meant to approximate.”   It therefore clarified that the District Court is to consider all of the factors that would be relevant in the free market, such as the reputation of the attorney or firm, the complexity of the case, the resources required to handle the matter aggressively and effectively and any professional benefits which would independently motivate counsel to pursue the litigation.  The Court concluded that the fee award should compensate counsel in an amount equal to what a reasonable paying client would pay for that same representation.

The United States’ efforts to expand its jurisdiction over defendants who do not reside in the United States is not unique.  For example, other countries have exercised jurisdiction over foreign defendants in hacking cases.  In one highly publicized case, a British company and a Russian company were embroiled in a legal battle with a state-owned company in Tajikstan.  When the British company’s computers were hacked, the British company made a claim against the Russian company under Sections 1 and 2 of the British Computer Misuse Act of 1990.  See Out-Law News: Russian Hacking Case Can be Heard in England, says Judge located at www.out-law.com/page-7434.  The court based its conclusion on the fact that the server was located in the U.K. and therefore, the most significant element of the offense occurred in the U.K.

When faced with a foreign lawsuit, some companies elect to ignore the proceedings and allow the plaintiff to receive an award by default.  This approach can have dire consequences.  For example, Spamhaus, a British company that maintains a spam blacklist was sued in the United States by e360 Insight.  Spamhaus concluded that the Illinois court did not have jurisdiction over it and declined to appear or defend itself in the action.  See Out-Law News: Spamhaus decides to fight first US court action located at www.out-law.com/page-7404.  The Illinois court entered a default judgment in favor of e360 Insight for $11.7 million.  The court also instructed ICANN to suspend the spamhaus.org domain.  ICANN claimed it did not have the power to suspend the domain, but indicated that Spamhaus’ hosting company would do so.  With precedents like Spamhaus, defendants may be reluctant to ignore foreign lawsuits.  The best strategy is to consult with legal counsel in both jurisdictions and formulate an approach that minimizes your risks without jeopardizing your legal position.

In Merck & Co. v. Mediplan Health Consulting, Inc., 425 F. Supp. 2d 402, 415 (S.D.N.Y. 2006), the defendant used the plaintiff’s mark, “ZOCOR” as a search-engine keyword to generate sponsored links.  The court found that as a matter of law, this type of use was not use in commerce, but rather “an internal use of the mark.”  Based on the plaintiff’s failure to show use of the mark in commerce, the court dismissed the plaintiff’s trademark claim and declared that use of “a key word to trigger the display of sponsored links is not use of the mark in a trademark sense.”  Id. 

 A successful defense based upon no use in commerce can result in an early disposition of a case because unlike many trademark infringement defenses this is a legal issue decided by the court on a pre-trial motion to dismiss or for summary judgment.  

For example, in Bally Total Fitness Holding Corp. v. Faber, 29 F. Supp. 2d 1161 (C.D. Cal. 1998), the defendant operated a website under the name “ballysucks.com,” a website dedicated to complaints about the plaintiff’s Bally’s health-club business.  The court found that even though the plaintiff and the defendant both hosted websites on the internet using the term “BALLY” in the domain name, the parties did not operate in “related goods.”  Id. at 1163.  The court concluded “[n]o reasonable consumer comparing Bally’s official web site with [the defendant]’s site would assume [the defendant]’s site to come from the same source, or thought to be affiliated with, connected with, or sponsored by the trademark owner.”  Id. at 1163-65. 

 When faced with a claim under the Anti-Cybersquatting statute it is very important to evaluate an argument that the defendant does not operate related goods. 

In early 1998, the industry leaders of the open source movement met at an event that would later become known as the “Open Source Summit.”  This meeting led to the organization of the Open Source Initiative, a non-profit corporation formed to advocate the benefits of open source software.  According to the Open Source Initiative, whether software can be considered open source really depends on the distribution terms of the open source software. 

To meet the standards of the Open Source Initiative, the distribution terms of open source software must meet the following criteria:

1.  The open source software license cannot restrict any party from selling or giving away the software as a component of another software program containing programs from several different sources and the license cannot require any fee for sale.

2.  The open source software must include source code and must allow distribution of the source code.

3.  The open source software license must allow modifications and derivative works, and, importantly, must allow the modifications and derivative works to be distributed under the same terms as the license of the original software.

4.  The open source software license may restrict source code from being distributed in modified form only if the license allows distribution of patch files with the source code for the purpose of modifying the program at build time.  The license must permit distribution of software built from modified source code.

5.  The open source software license cannot limit use to any person or group of people.

6.  The open source software license cannot limit use in any field, such as for commercial purposes.

7.  The rights attached to the open source software must apply to all whom the program is redistributed without the need for execution of an additional license.

8.  The open source software license cannot be specific to a product.

9.  The open source software license cannot place restrictions on other software that is distributed with the open source software.

10.  The open source software license cannot demand that a specific technology be used with the software.

Where relevant evidence is spoiled, the jury may be invited to infer that the evidence lost was unfavorable to the party who failed to preserve it, with the prospect of devastating results on the outcome. 

After high-profile security incidents were reported by DSW, TJ Maxx Stores, and many governmental entities, federal legislators escalated the priority of proposed privacy and security regulations in an effort to make the security breach notification laws more uniform.  One proposed bill, the Personal Data Privacy and Security Act of 2007, proposed by Senators Leahy and Specter, requires entities that maintain personal data to give notice to both individuals and law enforcement officials when they experience a breach involving sensitive personal information. 

Unless Congress enacts a federal law that preempts state privacy breach notification statutes, businesses will continue to be impacted by the many disparate requirements in the numerous state breach notification laws.  Because the penalties for non-compliance can be severe and the costs for over-reporting can be significant, I advise businesses to consult with experienced counsel in the event of a security incident.

The ISO 19770-1 Core SAM Processes are divided into three process subsets: (1) those pertaining to SAM Inventory Processes, which include processes specific to software asset verification, inventory management, and control; (2) those pertaining to SAM Verification and Compliance Processes, which include processes specific to software asset record verification and security compliance, software licensing compliance, and conformance verification; and (3) those pertaining to Operations Management and Interfaces for SAM, which include processes specific to the management of third-party relationships and contracts, finances, service levels, and IT security.

The Inventory and Verification and Compliance processes together constitute the “meat” of ISO 19770-1 – those most directly related to assessment of an organization’s ownership and proper use of software assets. Unsurprisingly, the SAM Inventory Processes are those that allow an organization to know what software assets it owns and how efficiently it is using those assets. This is an obvious early step to SAM implementation under ISO 19770-1 or any other relevant standard. Without an appreciation for and up-to-date records regarding the assets to be managed and any changes to those assets, the management process is going to be a valueless one for the organization. Closely aligned with core SAM inventory processes are those related to Verification and Compliance. These processes ensure that the assets inventoried under ISO 19770-1 are used within the bounds of applicable organizational policies and contractual obligations, and also according to the ISO 19770-1 standard itself.

The Operations Management Processes and Interfaces of ISO 19770-1 consist of management functions that help an organization to efficiently and effectively implement the core Inventory and Verification and Compliance processes. This subset ensures that everyone influencing the SAM process – vendors, suppliers, budget managers, and responsible staff – provide their respective inputs in a manner that is standardized, reportable, and secure. This allows those ultimately responsible for effective SAM implementation to maintain a clear view of the organization’s current SAM status and opportunities for improvement.

That statement may be so obvious to you that my writing it seems a waste of bandwidth. However, many businesses nevertheless have been “late to the dance” when it comes to effective management of that business asset. While they may rigorously record and catalog the details of their IT hardware and infrastructure, they often fail to pay anything close to the same level of attention to the programs powering those assets.

To a certain extent, that is perhaps unsurprising, since software is a very different kind of asset. Where businesses usually own their network hardware outright, most software use is dependent on the details of a license agreement with the software publisher. Where hardware is relatively easy to safeguard from external dangers, the threats to software are constantly evolving and require similarly constantly evolving strategies to thwart them. Where there is no appreciable risk that a business’ employees are going to bring stolen network switches to work for their personal use, it can be very difficult to keep employees from installing and using pirated or otherwise unlicensed software on company computers.

However, just because software asset management (“SAM”) is a challenge does not mean that business may be (or should want to be) excused from rising to it. Considering the high costs associated not only with software licensing but also with the effort that must be spent to “fix” software-related problems when they occur, businesses simply cannot afford to have ineffective (not to mention missing) SAM tools at their disposal.

With that fact in mind, the International Organization for Standardization (“ISO”) and the International Electrotechnical Commission (“IEC”) released International Standard 19770-1 on May 1, 2006. Standard 19770-1 “establishes a baseline for an integrated set of processes for [SAM].” The standard divides the processes into three main categories – Organizational Processes, Core SAM Processes, and Primary Process Interfaces.

The ISO 19770-1 Organizational Management Processes for SAM are divided into two process subsets: (1) those regarding the SAM Control Environment, which include processes specific to corporate governance as well as organizational roles and responsibilities, policies and procedures, and assurance of competence with regard to SAM; and (2) those regarding SAM Planning and Implementation, which, predictably, include processes specific to planning, implementation, monitoring and continual improvement of SAM.

The key “message” of the Control Environment processes is that effective SAM is impossible without input and support from an organization’s corporate officers, who ultimately are the ones responsible for clearly defining the organizational roles, responsibilities, policies and procedures regarding planning and implementation of SAM. Officers are uniquely situated within an organization not only to oversee the big-picture implementation of effective SAM, but also to objectively assess the risks of incomplete or uninitiated SAM. Therefore, naturally, it must be the officers who select the individuals to execute SAM within the organization, and it must be the officers who approve the initiatives those executives undertake. ISO 19770-1 makes clear that, unless the officers become interested stakeholders, the SAM process will go nowhere.

Once the “captains” for an organization’s SAM efforts place themselves in charge of those efforts, they must make sure that the organization has a useful and standardized “playbook” to guide the SAM process and to prevent the need for micro-management. The SAM Planning and Implementation processes in ISO 19770-1 let the captains know what needs to go in that playbook. As with many ISO standards, one of the goals of ISO 19770-1 is to promote a set of processes that to a large extent implement themselves. While the ISO 19770-1 standard speaks in terms of “SAM owners” – those responsible for the management of one or a set of discrete SAM processes – the processes that an organization implements under ISO 19770-1 are standardized, cross-linked with other SAM processes, and tied by cross-reference to the ISO standard itself. Once implemented correctly, SAM under ISO 19770-1 should exhibit a cost-benefit ratio much lower than might be expected.

PC Pitstop buried a clause in their EULA that offered the reward to anyone who sent a message to the enclosed email address. The point was to prove that people rarely, if ever, read their software licenses. They were right – four months and 3,000 downloads later, one sharp-eyed end user finally wrote in and claimed the $1,000 prize. See http://www.pcpitstop.com/spycheck/eula.asp

Software developers are well aware of the fact that the end users who buy their products rarely read their license agreements. Many people are surprised to discover that the EULAs for their software might contain provisions granting the software company the right to conduct an onsite software audit with no notice, waive important consumer rights or other draconian measures which they would never knowingly agree to.

But this trend is changing as more IT professionals discover the importance of understanding their EULAs. Before Windows VISTA was released, Microsoft made the EULA publicly available. Not long after the IT community was in an uproar over some of the proposed provisions, including one that only allowed the end user to transfer the installation to a new system once (upgrading your existing system could constitute such a transfer as well). After that, you’re done. Want to transfer that software twice, or make a couple of upgrades? Go buy another copy of Windows then. That was essentially what the new license stated.

So what happened when the IT community raised their concerns? Not long afterwards, Microsoft removed the EULA and replaced it with a new, more user friendly version. See http://www.securityfocus.com/columnists/420.

This is an important development; as IT professionals and attorneys continue to scrutinize these agreements, software developers will increasingly bring their licenses in line with consumer expectations. These examples prove that it can (literally) pay to read those license agreements.

Rule 34. Production of Documents, Electronically Stored Information, and Things and Entry Upon Land for Inspection and Other Purposes.

(a)Scope. Any party may serve on any other party a request (1) to produce and permit the party making the request, or someone acting on the requestor's behalf, to inspect, copy, test, or sample any designated documents or electronically stored information -- including writings, drawings, graphs, charts, photographs, sound recordings, images, and other data or data compilations stored in any medium from which information can be obtained -- translated, if necessary, by the respondent into reasonably usable form, or to inspect, copy, test, or sample any designated tangible things which constitute or contain matters within the scope of Rule 26(b) and which are in the possession, custody or control of the party upon whom the request is served*** (emphasis added)

The primary benefit of a software patent is the broad protection provided by the patent laws. An owner of a software patent may prevent all others from making, using, or selling the patented invention. In connection with software, an issued software patent may prevent others from utilizing a certain algorithm without permission, or may prevent others from creating software programs that perform a function in a certain way.

In contrast, copyright law can only prevent the copying of a particular expression of an idea. In connection with computer software, copyright law can be used to prevent the total duplication of a software program, as well as the copying of a portion of software code, which would be literal infringement. Copyright law does provide some protection against non-literal infringement; however, courts have recently been reluctant to interpret copyright protection of computer software in a broad manner. In addition, the basic tenet of copyright law is that copyright will protect only the expression of an idea, and not the idea itself. Therefore, copyright law will not prevent the creation of a competing program that utilizes the same ideas as an existing program if the expression (the code) is different.

As a result, a software patent can provide much greater protection to software developers than copyright law. The benefits of obtaining patent protection can be extraordinary. As more developers understand the potential of software patents, more patents are being issued. According to the Software Patent Institute, thousands of software patents are being issued every year, covering such areas as business software, expert systems, compiling functions, operating system techniques, and editing functions.

There are limitations to obtaining a software patent. A patent can only be issued when an invention is new, useful, and nonobvious. In addition, obtaining a software patent can be an expensive process, costing ten thousand dollars or more. The choice of whether to pursue a software patent or copyright protection for software should be made by comparing the value of the program to the cost of the patent application process and the likelihood of obtaining significant patent protection.

What is the standard for determining whether the use of a similar mark is likely to cause consumer confusion and lead to trademark infringement?

If you don’t think handbags carry important legal issues, consider the Second Circuit’s statement,

We cannot help but observe that for the person carrying it, a handbag may serve as a practical container of needed items, a fashion statement, or a reflection of its owner's personality; it may fairly be said that in many cases a handbag is so essential that its owner would be lost without it.

Louis Vuitton Malletier v. Dooney & Bourke, 454 F.3d 108 (2d Cir. 2006).

In assessing the likelihood of confusion in a trademark infringement case, courts will consider the non-exclusive multi-factor Polaroid test which includes, (1) the strength of the mark, (2) the similarity of the two marks, (3) the proximity of the products, (4) actual confusion, (5) the likelihood of plaintiff's bridging the gap, (6) defendant's good faith in adopting its mark, (7) the quality of defendant's products, and (8) the sophistication of the consumers. Id. at 116. The similarity of the marks is a key factor in determining likelihood of confusion, and was particularly important in the battle of the handbags trademark infringement case.

The Second Circuit noted that the district court made a mistake in its likelihood of confusion analysis by “inappropriately focusing on the similarity of the marks in a side-by-side comparison instead of when viewed sequentially in the context of the marketplace”. Id. at 117. The Second Circuit recognized that a side-by-side comparison can be useful, as long at the court remains focused on the issue of consumer confusion, and that the law only requires confusing similarity and not identity. Id. at 117. So, while the Louis Vuitton bag and the Dooney & Burke bag look very different side-by-side, the court must consider whether the differences between the marks are “likely to be memorable enough to dispel confusion on serial viewing” in the context of the marketplace. Id. at 177, citing, Louis Vuitton Malletier v. Burlington Coat Factory Warehouse Corp., 426 F.3d 532, 538 (2d Cir.2005).

The Second Circuit recognized that the district court overemphasized the side-by-side comparison, and held that “because no single factor is dispositive, we must remand for the district court to revisit the entire analysis, under the new standard,” keeping in mind the context of the marketplace. Id. at 118.

So, in a trademark infringement case, the standard for determining whether the use of a similar mark is likely to cause consumer confusion is sequential viewing in the context of the marketplace, and not merely a side-by-side comparison.

Igal was terminated by Brightstar and contended that under his employment agreement, he was entitled to a post-termination salary. In 1989, the Texas Legislature amended the Texas Payday Law to provide for an administrative procedure under which a claimant could file a wage claim with the TWC. Accordingly, Igal filed a claim with the TWC, asserting a violation of his employment agreement and claiming unpaid wages. The TWC concluded that Igal’s claims failed on the merits and that it lacked jurisdiction because Igal filed his claim more than 180 days after his wages became due for payment. Instead of filing a motion for rehearing or seeking judicial review of the TWC’s decision, Igal sued Brightstar in a Texas state court for breach of contract and declaratory judgment. The trial court granted summary judgment for Brightstar, holding that res judicata barred Igal’s claims, and the Court of Appeals affirmed.

The Supreme Court agreed, concluding that “res judicata attaches to TWC’s final administrative decision.” Res judicata bars the relitigation of claims that have been finally adjudicated on the merits in a prior action. The court concluded that res judicata does apply to claims previously determined by an administrative agency. In deciding wage claims, “TWC acts in a judicial capacity.” Because the parties “had an adequate opportunity to litigate their claims through an adversarial process in which TWC finally decided disputed issues of fact,” res judicata applied.

The court rejected Igal’s contention that the TWC procedure was only intended to be an alternative, and not an exclusive, remedy. According to the court, agencies and courts may both “provide remedies for injuries actionable under the common law.” The Payday Law was intended to provide an alternate remedy to employees when it would be too difficult to pursue a traditional lawsuit. When an employee chooses this alternative, that employee cannot later relitigate the same claims in a court. The holding in Igal will therefore prevent employees who are unsuccessful in a TWC proceeding from pursuing the same claims against their employers in a Texas court.

Full Opinion Text: http://www.supreme.courts.state.tx.us/historical/2007/dec/040931.pdf

Data brokers Reed Elsevier and Seisint have agreed to conduct biennial audits of its data protection procedures for 20 years as part of a settlement with the FTC. Businesses that find themselves under the FTC's scrutiny and choose to settle data privacy allegations may have to eventually assume the expense of conducting costly audits for as long as 20 years.

Reed Elsevier, via its LexisNexis data broker business, and Seisint gather information about millions of consumers, including names, current and prior addresses, dates of birth, drivers’ license numbers and Social Security Numbers. The companies relied on user IDs and passwords to control customer access to consumer information in their databases.

The FTC alleged that Reed Elsevier and Seisint failed, among other things, to:

• Make Seisint user credentials hard to guess;
  
• Suspend credentials after a certain number unsuccessful log-in attempts;
  
• Require Seisint customers to encrypt or protect credentials, search queries or search results in transit between customer computers and Seisint Web sites;
  
• Verify that new user credentials were created by customers rather than identity thieves;
  
• Prevent users from sharing credentials;
  
• Adequately assess the vulnerability of Seisint’s Web applications and computer network to commonly known attacks; and
  
• Implement simple, low-cost, and readily available defenses to such attacks.

  Identity thieves allegedly exploited these security failures and obtained access to the sensitive information of at least 316,000 consumers from Accurint databases. The identity thieves used the information to create and activate new credit cards with which they made fraudulent purchases. Reed Elsevier acquired Seisint in late 2004, and the breaches continued for at least nine months afterward, during which time Reed Elsevier controlled Seisint’s practices.

  For the next 20 years, auditors will be required to certify that the companies’ security programs meet or exceed the requirements of the FTC’s orders and are operating with sufficient effectiveness to provide reasonable assurance that the security of consumers’ personal information is being protected. The Reed Elsevier and Seisint settlements also contain bookkeeping and record keeping provisions to allow the FTC to monitor compliance with its orders.
  View the compliant here.
  View the settlement agreement here.
  

The plaintiffs were unable to locate sufficient evidence to convince the court that the Defendant infringed any copyrights and attempted to depose Andersen's 10-year-old daughter. Eventually, the record companies stipulated to a dismissal of the case with prejudice. Andersen thereafter moved to recover attorney's fees.

The record companies disputed Andersen's status as “prevailing party.” The Copyright Act allows the court to award reasonable attorney's fees to the prevailing party in a copyright action. The court stated that awarding fees under this provision is a matter of the court's discretion, but that it is to be applied in an evenhanded manner. In other words, prevailing plaintiffs and prevailing defendants are to be treated alike.

Although Plaintiff record companies argued that fees may not be awarded to a prevailing party unless there is a material alteration of the legal relationship of the parties as demonstrated by an enforceable judgment on the merits or a court-ordered consent decree, the court refused to apply such a strict analysis. Instead, the court reviewed the underlying social policy of the Copyright Act to determine how the purposes of the Act would best be served given the specific facts and relevant considerations.

The court ultimately concluded that the policy underlying the Copyright Act was best served by awarding Anderson the $300,000 she incurred in defending the copyright infringement suit.

The FTC’s guidelines are designed to address four primary concerns:
- greater transparency and consumer control;
- the need to prevent criminals from accessing data collected for behavioral advertising;
- ensuring that companies keep their privacy promises when changing their privacy policies;
- the collection of sensitive data, like medical records or children’s activities, for behavioral advertising.

According to the FTC, businesses could use the guidelines as a tool for self regulation. The FTC has extended the deadline for commenting on the guidelines until April 11. For the complete text of the proposed guidelines, visit Ferderal Trade Commission.