Friday, July 30, 2010

IBM Under the Microscope: The EU Competition Commission Takes a Hard Look

In the 70’s and 80’s, IBM was a frequent target of investigation, both in the U.S and abroad, for alleged anti-trust claims. The last twenty years has seen that focus shift to Microsoft, as software became a much more lucrative and competitive field than computer hardware. With this history in mind, it is somewhat surprising to see that the European Union Competition Commission is now re-focusing its investigative eye on Big Blue. The focus of the investigation, according to an article in the July 29th San Francisco Chronicle with Bloomberg Business Report, is whether IBM is abusing its dominant position in the market for mainframe computers. The impetus for this investigation is a complaint by t3 Technologies Inc., a company in which Microsoft has invested in. Signaling its awareness that its rival is behind this complaint, IBM responded in a June 26th statement that “there is no merit to the claims being made by Microsoft and its satellite proxies”.

If the investigation yields evidence that supports the complaint, it could present a serious problem for IBM. Although mainframe sales account for only 4 percent of IBM’s revenue, those sales generate related sales of software, services and financing. These elements combine to contribute almost a quarter of IBM’s sales and 40% of its profits, according to Sanford C. Bernstein analyst Toni Sacconaghi.

The European Union has long taken a much tougher stance regarding competition policy (referred to in the U.S. as “antitrust”), and in recent years has focused on U.S. companies, collecting 2.2 billion in fines from Microsoft, and 1.39 billion from Intel. Bolstered by these victories, it is unlikely to ease off is aggressive policies – a factor U.S. companies would be wise to consider.

Applying Nominative Fair Use to Domain Names: Toyota v. Tabari

My thanks to GGU IP alum Jennifer Lam for alerting me to this decision. Farzad and Lisa Tabari are car brokers, focusing primarily on Lexus automobiles. They operate two websites, and, where customers would see photos of Lexus vehicles and the L symbol design mark used by Lexus. They are not authorized Lexus dealers – what they do is help customers get the best price from Lexus dealers, and they shop for their customers to get the best deals in terms of price, location, and model style and accessories.

Toyota, owner of the Lexus trademark, objected to the Tabaris’ usage of their logo, photos and related items. The Tabaris’ removed the photos and logo from their site, and posted a large disclaimer, making it clear they were not affiliated with Toyota. They declined, however, to abandon or change their URLs. Toyota sued, and the trial court found trademark infringement and issued an injunction ordering the Tabaris to cease using lexus in the existing or any future website. The Tabaris, acting pro se, appealed to the Ninth Circuit.

The Court, in another opinion by Judge Kozinski, reversed the District Court. Noting that this is a case involving nominative fair use, Judge Kozinski points out that the Tabaris were not involved in the sale of vehicles that weren’t in fact Lexus vehicles. So there is no passing off, no confusion in the marketplace – their customers wanted to buy a Lexus, and that is what the Tabaris found for them.

Because this is a nominative fair use case, the first error the Court finds in the District Court decision is that the use of the AMF v. Sleekcraft (599 F.2d 341, 348-49 (9th Cir. 1979) eight-factor test for likelihood of confusion, was incorrect, because that test only applies to actual infringement cases, not nominative use cases.

Judge Kozinski notes that because the URLs used by the Tabaris do not
claim affiliation with Lexus or Toyota, there is no basis to assume customers form a firm expectation, before going to the site, that it is a sponsored or endorsed site. This, he notes, “is sensible agnosticism, not consumer confusion”.

Citing the test established in the seminal nominative fair use case of New Kids on the Block v. News Am. Publ’g, Inc., 971 F.2d 302,308 (9th Cir. 1992), the Court finds that the revised Tabari website, which eschews use of the logo or official photos, used just what was necessary of the Lexus mark to let customers know the nature of their business. Consequently, their use was fair.

Judge Kozinski found support for this decision from another Judge known for his trenchant humor and concisely written decisions: Judge Posner in the Seventh Circuit. In an odd coincidence, Judge Posner, in upholding the right of a seller of Beanie Babies to operate at “”, noted that prohibiting the use of such a domain name “would amount to saying that if a used car dealer truthfully advertised that it sold Toyotas, or if a muffler manufacturer truthfully advertised that it specialized in making mufflers for installation in Toyotas, Toyota would have a claim of trademark infringement”.

I derive two takeaways from this case: 1. The nominative fair use defense in trademark infringement cases is alive and well; and 2) When Judges Posner and Kozinski line up against you – its’ time to throw in the towel.

Will the U.N. Try to Regulate the Internet? Not Likely

In an Opinion page piece in the Wall Street Journal on July 23rd, Robert McDowell, an FCC Commissioner, warns of a threat by the United Nations to take over regulation of the Internet. He bases his concern on the prospect that the FCC will soon classify the Internet as a “telecommunication service”. This, he suggests, could lead the International Telecommunication Union, a treaty-based organization under the auspices of the U.N. which regulates international telecom services, to assert regulatory power over the Net. He supports his concern by noting the spread of efforts by certain states to regulate the Internet, citing government interference in Iran, North Korea, Syria, China and Afghanistan. He concludes that the success of the Internet has come because of the relative freedom it enjoys.

Commissioner McDowell’s concern about the efforts of largely totalitarian regimes to attempt to regulate the freedom of speech which characterizes a substantial part of the Internet is well placed, albeit nothing new. Critics have voiced concern over state regulation of the Internet for years, with warnings such as those expressed by Harvard and now Stanford Professor Laurence Lessig expressing this concern in his Code and Code 2.0 books.

What strikes me as dubious and far less likely is that any organization operating under the auspices of the U.N. would be able to reach an international consensus about how to regulate the Internet. The decade long failed effort of the U.N. to reach a uniform standard for the enforcement of judgments eloquently exemplifies how unlikely it is that any such consensus could be reached.

So, while the freedom of the Internet may indeed continue to be threatened by dictatorial regimes, and perhaps also by large corporate interests, I think it unlikely that we need to add U.N. management to the threat list.

Thursday, July 29, 2010

Chapter Two in the Saga of Mattel, Inc. v. MGA Entertainment (aka Barbie v. Bratz)

On July 22nd, the Ninth Circuit Court of Appeals delivered its much awaited decision in Mattel, Inc., v. MGA Entertainment, Inc., reversing a District Court decision which had, in effect, transferred all rights to the multi-billion dollar Bratz line of dolls and related items over to Mattel. At the core of the dispute is Carter Bryant, a former Mattel employee who developed the Bratz concept and prototype dolls while employed as a Barbie fashion and hairstyle designer.
The District Court found for Mattel on both trademark and copyright infringement claims, imposing a constructive trust in favor of Mattel as to the Bratz trademarked product lines, and issuing a injunction preventing MGA from using any of the copyrights attached to the products as well.

Chief Judge Alex Kozinski, writing for a unanimous panel, first questioned the District Court’s finding that Bryant’s 1999 Mattel employment agreement gave the company ownership of any ideas he developed. The relevant language read:

“I agree to communicate to the Company…all inventions conceived or reduced to practice by me at any time during my employment by the Company. I hereby assign to the Company all right, title and interest in such inventions, and all my
right, title and interest in any patents, copyrights, patent applications or
copyright applications based thereon.”

The agreement defines inventions as “all discoveries, improvements, processes, developments, designs, know-how, data computer programs and formulae, whether patentable or unpatentable”.

So once again a major multi-billion dollar case hinges on a poorly drafted contract. If Mattel had wanted to secure rights to anything Bryant created, why not require him to sign an express work for hire transfer of all works eligible for protection under copyright law anywhere in the world? The disputed language sounds almost entirely in patent, except for the gratuitous addition of the word “copyrights”. This uncertainty, along with an erroneous application of an overly broad scope of copyright protection in the dolls design, and related errors, led the Court of Appeals to overrule the District Court’s decision and remand the case for retrial. Ah well, this is how we keep IP litigators employed.

Aside from the pleasure of reading another characteristically witty and erudite opinion by Judge Kozinski, perhaps the most significant portion of the opinion is found in Section II B, where the scope of damages is discussed. The Court notes that even if Mattel can prove ownership of the Bratz concept and first production prototype (called a “sculpt” in the doll industry), it should not be able to recover from MGA damages based on the huge profits MGA earned by taking the concept and developing it, through their own sweat equity and creativity. The Court holds:

“It is not equitable to transfer this billion dollar brand – the value of which is overwhelmingly the result of MGA’s legitimate efforts – because it may have started with two misappropriated names.”

The significance of this analysis is its likely application to the copyright termination cases now wending their way through district courts in New York and Los Angeles over the rights to the hugely successful comic book empires of DC Comics (built around Superman) and Marvel Comics (built on the characters created by Jack Kirby in the 1958-63 period, including Thor, The Fantastic Four, the Avengers, Hulk and Iron Man). In each of these cases, the heirs of the original creators of these comic book superheroes seek to terminate their grant of copyright to the publishers, and recapture those rights for their own benefit. A key issue in the cases is what rights the heirs have to derivative works created and exploited by those publishing companies, which greatly enhanced and extended the value of the original properties. If the holding in the Mattel case applies, it could have the effect of significantly limiting the range of applicable damages in those copyright termination cases. I am working on several extensive articles dealing with these copyright termination cases, so I’ll be watching these developments closely, and I’ll keep you apprised of the effect of this decision on those cases.

Tuesday, July 20, 2010

My Presentation at ComicCon

For those dedicated comics/comix fans going to the San Diego ComicCon, I am speaking at the Comics Arts Conference. Here are the details:

Thursday, July 222:30-3:30 Comics Arts Conference Session #4: Recapturing Copyright for Gold and Silver Age Comic Book Creators— Copyright lawyer Marc Greenberg (Golden Gate University School of Law) covers key developments in the Superman case (Siegel v. DC) and explores the claims filed by the Jack Kirby estate to the rights to the major Marvel Comics characters he created or co-created. Room 26AB.

Stop by and say hi. I will also be posting a blog about these cases in the near future.

Monday, July 19, 2010

George Carlin; Indecency and the FCC

On October 30, 1973, a man driving in his car with his young son set off a chain of events that had a significant impact on our legal system’s approach to obscenity law. He turned his radio dial to a New York station that was broadcasting George Carlin’s 12 minute monologue about “The Seven Dirty Words You Can’t Say On Television”. Offended that his young son heard these words, he filed a complaint with the FCC. After a five year see-saw battle in the lower courts, the Supreme Court upheld the FCC’s sanctioning of the radio station. In its decision, (FCC v. Pacifica Foundation, 438 U.S. 726 (1978)), the Court carved out a new category, “indecent language” which the FCC could ban from the airwaves until 10 p.m., when it was assumed that children and minors would be asleep and not at risk of hearing such language.

When the decision came down I was a law student and an Articles Editor of the Hasting Constitutional Law Quarterly, assigned to review that terms’ USSC decisions. I was baffled at the tortured logic the Court deployed in support of the “indecency” doctrine. In my article, First Amendment Cases - U.S. Supreme Court - 1978 Term, Hastings Constitutional Law Quarterly, Fall 1979, I was critical of the vagueness inherent in the definition of the term “indecency”. Coming on the heels of the equally vague decision in Miller v. California, (413 U.D. 15, (1973)), with its reference to a non-existent “local community standard”, the Pacifica case seemed to add insult to injury by adding yet another vague term for media publishers to attempt to avoid running afoul of.

Last week, 32 years later, the U.S. Court of Appeals for the Second Circuit finally struck down the “indecency” doctrine as being hopelessly uncertain and therefore in violation of the First Amendment. (Fox Television v. FCC, US Ct. App. 2d Cir., O6-1760-ag (July 13, 2010)).

The Court’s opinion answers the question of why it took so long for the indecency policy of the FCC to be once again considered by a court. The answer appears to be that the FCC, after the Pacifica case, may have realized that the Supreme Court’s decision rested on very thin legal reasoning, , and that the creation of the indecency standard was fraught with constitutional uncertainty, and likely was violative of First Amendment rights. So, for many years following the decision, the FCC limited itself to claims arising from the broadcast of only the specific seven dirty words from Carlin’s monologue. From 1978 to 1987 there were no such enforcement actions filed – why? Because broadcasters had a simple list of words to avoid, and did so.

The FCC, during most of these years, also recognized that with respect to live broadcasts, it was sometimes impossible to filter out the fleeting or one time use of an expletive, and so they adopted a “fleeting use” or one time use exception to the indecency policy as well. In a series of cases the FCC declined to enforce the policy where a single use of a word was the source of a complaint.

This caution on the part of the FCC also met a concern voiced by the Supreme Court in the Pacifica case – which was that the Court explained that it was trusting in the sound discretion of the FCC in allowing the indecency standard to be applied (Pacifica at 761 n.4) – a trust that the FCC honored by greatly limiting its use of its discretion for 30 years.

However, things changed in 2004. Blame it on Bono of U2. In accepting a Golden Globe Award, he said, “this is really, really, fucking brilliant.” (Fox at 9). The FCC found his spontaneous one time use to be “indecent” and “profane”. Over the next six years, the FCC dramatically increased its fines and abandoned both its limited application of the policy and its fleeting use exception. This shift in administrative approach drew substantial industry criticism, and led to the instant case.

The Second Circuit decision cites numerous examples of the FCC’s inconsistent application of its indecency policy over the past six years, and also noted that the changes in media platforms and the inclusion of the V-chip (allowing adults to filter programs they don’t want their children to watch) have changed the landscape of broadcast television, obviating the need for the policy. (Fox at 16).

The Court in Fox noted that even the FCC could not provide a list of terms or actions that would give rise to sanctions, finding “If the FCC cannot anticipate what will be considered indecent under its policy, then it can hardly expect broadcasters to do so”. (Id at 24).

It’s a good day for protectors of the First Amendment. Thanks George, for opening minds.

Monday, July 12, 2010

To Arbitrate or Not to Arbitrate: Celador v. Disney Complicates the Answer

On July 8th the jury in the long-running (six years!) litigation between Celador International, Ltd, the creator in the U.K. of the "Who Wants to Be a Millionaire" game show, awarded the company a verdict of $269 million against Disney, based on Celador's claims that Disney breached a contract to pay the company royalties for the license to produce the show in the U.S.

The news commentaries about the verdict noted that it wasn't likely to have a significant impact on licensing practices because the contract language at issue was based on a 1998 contract. Licensing and profit participation agreements have been revised since then, making a contemporary dispute on these same terms unlikely.

What is important about this decision is its contribution to the long-standing debate over whether mandatory binding arbitration clauses should be included in IP and entertainment licensing agreements. In this instance the contract between Celador and Disney lacked such a clause (The same is true of the contract in the Don Johnson v. Rysher Entertainment case, decided the same day and providing a significant award to Johnson).

Those in favor of the inclusion of mandatory arbitration clauses point to its key benefits: 1) the substantial savings in litigation costs; 2) the much faster pace in moving the dispute to a hearing; and 3) the ability to choose arbitrators with knowledge of the often extremely complex IP and contract issues found in these kind of licensing deals. Critics of mandatory binding arbitration clauses point to their principal drawbacks: 1) the lack of a right of appeal; and 2) the absence of a right to jury trial in these cases.

For Celador, it seems almost certain that it benefited from the presence of a lay jury which accepted their characterization of themselves as the victim of bullying by the more powerful Disney company. The surprisingly high damages verdict is less likely to have been awarded if the case was presented to an industry savvy arbitrator.

What Celador loses by taking this case to trial is the ban on appeals which applies to arbitration cases. Disney announced immediately after the verdict that they intended to appeal it. The outcome of that appeal could take years, and Disney might use that time and added expense to negotiate a lower dollar settlement of the case in the interim.

The absence of an appeal right is a significant detriment in the arbitration process, and I suspect is the primary reason parties often opt out of that process. Given the benefits arbitration offers in the IP and entertainment law context, particularly in the area of arbitrator expertise in industry practices and IP law, this is a terrible choice to force on contracting parties. One hope is that this recent spate of cases may spur some legislative consideration of reforming the arbitration rules to allow for some forms of appeal.

Monday, July 5, 2010

Who Will Regulate Internet Television?

The lead story in the Business Section of the July 4th Sunday edition of the San Francisco Chronicle, "Internet products ready to challenge cable TV", written by James Temple, focused on the upcoming launch of Google TV, a new service rolling out this fall that blends online streams and broadcast programming viewable on television screens. Temple notes that, the popular online video site, recently announced plans to offer a subscription service that will deliver broadcast shows online to computers and mobile devices like the iPhone.

The goal of all of these new services is to woo viewers away from cable subscriptions or "free" television on the broadcast networks, in favor of the more interactive capabilities of Internet television, in which you select what you want to watch, when you want to watch it, and to some degree, even interact with what's on the screen.

The second half of Temple's article suggests that cable and satellite companies, and the broadcast networks are also developing ways to deliver their services to the Web, so as not to be left behind the technology curve. This last point got me thinking about author Ken Auletta's 1992 national bestseller, Three Blind Mice: How the TV Networks Lost Their Way. Auletta chronicled how NBC, CBS and ABC failed to recognize the threat cable posed to their business model, and how they lost the majority of their profits and market share as a result.

While I agree with Temple that these players have learned from their prior error, and most likely will, in some fashion, retain their seat at the table in the new formats for the delivery of video content, a different concern about this change in direction may prove less susceptible to easy transition. The concern I am focusing on is the regulatory structure for video content that presently is the turf of the Federal Communications Commission and the federal government through Congress and its media related committees.

Regulation of content in the earliest days of broadcast television was heavily controlled and restricted by the FCC and Congress, based on the argument that only limited bandwidth was available. The grant of rights to broadcast on that bandwidth could therefore be conditioned on compliance with a wide array of regulation, including content (networks were required to meet obscenity standards, provide hours of programming for children, and provide news programming).

These standards loosened up with the development of cable television, as the availability of channels grew, and niche television programming became a reality. However, the cable industry remained located in the United States, and local programming also remained a mainstay of the television industry, guaranteeing that FCC and federal government regulation would still play a significant role in the television industry.

Internet television carries the possibility that this regulatory structure will no longer apply. Google TV promises to make the entire Internet available on your television. At that point, the regulation of content now enforced by the FCC and the federal goverment falls by the wayside in the same way those agencies and entities do not, and cannot, regulate what computer users see online. This will place the responsibility for regulating content on filtering systems, which have proven notoriously ineffective (for an analysis of the weaknesses of filtering systems, see my article, The Baby With the Bath Water: The ALA v. U.S. Case and the Application of Mandatory Filtering to Public Library Internet Access – Lead Article in the Spring 2006 issue of the Syracuse University School of Law’s Law and Technology Reporter).

As is often the case with technology innovations, the legal system follows along after each new wave and attempts to find, either through existing law or sui generis creation of new law, a way to accomodate for the diverse interests affected by the change. Stay tuned for that effort following the introduction of Internet TV this Fall.

Thursday, July 1, 2010

Viacom v. YouTube

When I decided to launch an IP Buzz Blog, the one thing I didn't worry about was finding subjects to blog about. I am obliged to the U.S. District Court for the Southern District of New York for offering up its Opinion and Order in Viacom International v. YouTube Inc. (07 Civ. 3582 - filed 6.23.2010) as it gives me the opportunity to begin this blog with a comment about this important decision.

The core of the decision is the Court's interpretation of the scope of the "safe harbor" offered to internet service providers (ISPs) by Section 512(c) of Digital Millenium Copyright Act of 1998. This safe harbor provision allows an ISP to avoid liability for a posting that violates copyright law, so long as the ISP complies with the "notice and takedown" process outlined in subsections (c), (m) and (n) of Section 512. A party who believes that material posted on a site operated by the ISP is required to notify the ISP of their claim, providing enough information about the location and content of the claimed infringement, so the ISP can find the allegedly offending material and take it down. The party posting the material is entitled to respond to the takedown by offering any defenses they have to the claimed infringement.

A key problem in this case is that YouTube subscribers had posted over a hundred thousand infringing items, forcing Viacom to expend considerable effort compiling a list of these infringements, which it then submitted to YouTube. Viacom argued that there were many more infringing posts, which it attemped to provide notice of by offering up a "representative list" of such works on the YouTube site. YouTube declined to take down any videoclips other than those specifically identified by Viacom, in essence ignoring the "representative list" Viacom submitted.

The ability to designate a representative list is an important element of the safe harbor protection offered by Section 512. This provision (512(c)(3)(A)(ii)), offers an option for companies like Viacom, who experience the problem of a huge number of infringing posts occuring over a short period of time. We have to remember that in 1998, when the DMCA became law, social networking and viewer created content sites like YouTube didn't exist. The notice and takedown process wasn't designed with the prospect of dealing with such a huge number of infringing posts, created by thousands of individual users. This representative list concept is the only way a content owner could attempt to limit the burden of having to compile a detailed list identifying thousands of individual users, their URLs, and further details of their post, when the same item is posted by many users. So, if 10,000 people all posted a video clip of an episode from the Seinfeld sitcom, the representative list option would allow Viacom to identify the clip, instead of all of the users who posted it, in its takedown notice.

The Court in this opinion essentially renders moot the representative list option in the Act by holding that the subsection which follows the representative list, which requires that the items referred to in that list be accompanied by "information reasonably sufficient to permit the service provider to locate the material" means that the content owner must provide the individual URL of the posting. In essence, this means Viacom would still have to identify each separate posting, thereby eviscerating any benefit the representative list option offers.

Supporters of this interpretation will point to YouTube's "Claim Your Content" system, which allows content creators an opportunity, via YouTube's Audible Magic fingerprinting tool, to pre-identify content by filing a reference video which YouTube would use to automatically remove matching material, as an appropriate response to the problem of multiple infringing postings. This system offers little benefit to creators of large quantities of content, such as Viacom, as it would require them to designate thousands of hours of content annually, an unduly burdensome task, and the system can still be circumvented if enough original content is added to the posts.

So what is the bottom-line takeaway from this decision? It highlights the need for Congress, aided by imput from all of the stakeholders and the IP academic community, to revisit the DMCA and address the issue of balancing the rights of content creators with those who wish to widely distribute that content online, via a much needed update and revision of the DMCA.