Andrew will speak at a MENG (Marketing Executives Networking Group) NY chapter meeting on Tuesday evening February 7, 2012, on protecting your intellectual property from new forms of online infringements and brand attacks. Here is an outline of some of what he will cover.

Andrew will discuss why global infringement is a increasing and what brand owners can do to combat it. Andrew will outline some questions brand owners should consider before responding to infringement and suggest some creative ways to deal with infringement. He will also outline how brand owners can monitor the web for infringement and talk about how brand owners can select a domain name and protect it from cybersquatters.

The program will take place at Andrew’s firm. Here is the meeting information:

PLACE:   Tannenbaum, Helpern, Syracuse & Hirschtritt

Now that the window has opened for submitting new top-level domain name applications, should you apply? Before tying to answer that question, a little background.

The Internet Corporation for Assigned Numbers and Names, or ICANN, that regulates the use of Internet domain names announced last June that it would open the field of generic top-level domains (“gTLD”), the identifiers to the right of the dot (.com, .biz, .org) from the current 22 to any word in any language. The application period began on January 12, 2012 and will end 3 months later.

Playing in this new namespace is costly. The application fee is $185,000 and approved gTLDs must pay ICANN an annual fee of $25,000. Total costs for applying and operating a new custom gTLD are expected to reach $500,000. For more information see the fine piece by my colleagues Don Prutzman and Amy Beard of Tannenbaum Helpern Syracuse & Hirschtritt here.

What are the benefits and the pitfalls you should consider?

Benefits

Here are a few of the many benefits. A hotel could offer better access to loyalty programs (rewards.marriott); multinational companies could fashion closed gTLD networks to more easily communicate across boundaries (employeename.exxon); sporting goods manufacturers may set up counterfeit-free zones for the authorized purchase of their products (clubs.callaway); high end retailers may create a network of custom pages for consumers with similar tastes (iloveleather.chloe); and upscale car companies could provide customers with their own domain name (myname.bmw). Doctors could promote their practices and confidential access for patients via a doctor.hospital address. See the helpful Carter Ledyard advisory here for more a listing of more benefits.

Further, in Asia and the Middle East businesses may create gTLDs in their own native languages and dialects allowing consumers to more easily type in the domain using letters they are familiar with. Banks may also benefit. Banks may be able to more easily promote a confidential and trusting exchange with customers by advertising with this tag line, “if it doesn’t end with .mybank, it’s not me.”

Problems

The land rush of new gTLDs will increase the number of registry operators, expand exponentially the number of registered domain names and thereby increase the costs brand owners must incur in monitoring and enforcing their intellectual property rights. Also trademark owners may be unable to block other trademark owners from registering the same mark as a gTLD if the owners are in unrelated businesses. For instance, assume that Ford Motors and Ford Flowers hold similar marks within their industries. If only one applies for .ford, the other would have a hard time proving it will be harmed by that application.

There is also the potential for brand abuse. Suppose that a milk producer buys .milk and uses it to favor only its own brands. There is the further possibility of considerable customer confusion. As the FTC points out, “ABC bank could be registered in .com, but another entity could register ‘ABC’ in a new .bank gTLD, and a different entity could register ‘ABC’ in a new .finance gTLD.” Scam artists may then be able to take advantage of this potential for confusion to defraud consumers.

So should you sit back or apply? There is no easy answer. As the advisory by Don Prutzman and Amy Beard points out, applying for a gTLD will be expensive and the benefits not readily apparent.  But waiting runs the risks of incurring significant defensive costs if another applies for your brand.

Further, trying to predict consumer behavior on the Internet over the next few years is a little bit like trying to predict the weather. Will consumers begin to recognize the new .anything and .everything extensions as useful and profitable alternatives to the current .com and .biz extensions? Stay tuned.

Below is the transcript of my January 26, 2012, webinar presentation sponsored by the International Executive Resources Group focusing on protecting intellectual property here and abroad from new forms of online infringement and brand attacks. But first a word of warning. My talk runs for about 45 minutes and therefore this is a long post. Here is a quick overview of what I cover.

Outline of Talk

I begin by discussing three reasons why global infringement is a growing and what governments and copyright holders are doing here, in Europe and China to combat it.

I then focus on some self help steps that brand owners can take in whatever country they may be in to deal with brand attacks and Internet infringement. I suggest that brand owners practice the three C’s when faced with a justified brand attack or a legitimate copyright or trademark infringement complaint.  I then give two examples of the consequences other brand owners faced when they did not follow this approach. Next, I list some questions you should ask  before responding to infringement and also suggest some low cost and creative ways to deal with infringement. I further give some suggestions about how you can monitor the web for infringement and finally end with some guidance on selecting a domain name.

Now to the talk:

Reasons for the Growth of Infringement Globally

There are several reasons for the growth of infringement across the globe. The first is that an increasing segment of the population, especially those 18-30, believes that what’s available in the digital marketplace is free for the taking. In other words, they believe that free music and movies are their natural-born rights.

One U.S. study in 2011 estimated that nearly 24% of all global Internet traffic was infringing. And infringers in Europe have gained some political power. The International Pirate Party born in Europe advocates that copyrighted works should be freely shared online. That Party now controls 15 of the 130 seats in the German Parliament. Further, Sweden has recognized the file sharing culture that party advocates as an official religion.

Inability of Some Countries to Combat Infringement

Infringement is also on the rise because a number of countries across the globe are unable to combat this problem. The United States Trade Representative annually issues a Priority Watch List of countries where significant infringement and counterfeiting is taking place. In 2011 the USTR, after reviewing 77 trading partners, placed 42 countries on that list.

America’s two largest trading partners, Canada and China, remain on the Priority Watch List from the year before. Also included on the 2011 list were Russia, Algeria, Argentina, Chile, Indonesia, Israel, Pakistan, Thailand and Venezuela.

Ease of Infringement and Resilience of Infringers

A third reason for the spread of infringement is the ease with which it can be achieved, the anonymity of those who engage in it and the resilience of the infringers. Infringers can copy and paste copyrighted works with the click of a mouse out of sight of others. Rogue or pirate sites targeted in one country can move to new servers in a more hospitable country in a day or so did the notorious infringing site Pirate Bay. Infringers and counterfeiters can just as easily switch domains. For instance, if a U.S. prosecutor obtains a court order seizing a .com domain, the infringer can move to an .org domain.

 Efforts by Copyright Holders to Combat Infringement

What’s being done to combat this problem? Governments and copyright holders are doing quite a bit but with limited success.

Megaupload

Here are some examples. On January 19, 2012, the U.S. Justice Department announced that a grand jury indicted Megaupload in one of the largest criminal copyright cases ever brought. Megaupload is a public content storage site or cyberlocker that allows users to upload files and share them with others.  Megaupload had 50 million daily visitors and 150 million registered users. The government accused it of running an international criminal enterprise responsible for worldwide online piracy of copyrighted works generating more than $175 million in criminal proceeds and causing copyright owners more than half a billion dollars in harm. The indictment has had a ripple effect prompting two other public content storage sites, FileSonic and FileServe, to shut down their file sharing services.

The Motion Picture and Recording Industry Associations have also been fighting infringement globally for the last decade. Beginning in approximately 2003 the Recording Industry accused more than 18,000 persons in this country, including many college students, of uploading and downloading music without authorization. In response many of the persons targeted agreed to make small payments to the recording companies. But critics complained this legal offensive did little to stem the tide of illegally downloaded music other than create a public-relations problems for the industry.

SOPA and PIPA

The media and entertainment industries have also attempted most recently to combat foreign piracy by lobbying Congress to enact legislation that would have given the government and copyright holders increased powers to fight online trafficking in copyrighted works and counterfeit goods. The proposed legislation was called Stop Online Piracy Act (SOPA) in the House and the Protect Intellectual Property Act (PIPA) in the Senate. Under the legislation a rights holder could have taken steps to shut the foreign pirate site off from several vital channels — search engines, ad networks, even Internet service providers. But on January 20, 2012, in response to a firestorm of consumer protests, including a day-long blackout of Wikipedia, and heavy lobbying by the information and tech industries, the House and the Senate withdrew the bills for further study effectively killing them for this legislative year.

 Enforcement Efforts in Europe and Asia

Globally, the media and entertainment industries have been slightly more successful in convincing foreign governments to enact legislation to curb illegal music downloading and in convincing some governments to prosecute infringers. Here is a brief overview of some legislative and enforcement efforts in Europe and China.

Overview of Efforts in Europe and China to Combat Infringement

In the past two years France, Spain and England have enacted legislation to combat file sharing. The legislation in France takes a three step approach. Illegal downloaders are first sent a warning e-mail, then, if necessary, a letter and finally, if their activity continues, they are compelled to appear before a judge who can impose a fine or suspend their access to the Internet. But many question the effectiveness of the three-strikes legislation. The agency in France responsible for enforcing the law, Hadopi, has received a reported18 million complaints in a nation of 65 million persons but has sent very few warning emails. Reports also indicate that infringers in France accused of illegally file sharing have simply chosen to instead stream content.

In Spain the administrators of two file-sharing sites have been sentenced to fines and a year in jail for linking to copyrighted works. In Finland, an Internet service provider was ordered to block access to a website linked with Pirate Bay. And a British court recently ordered British Telecom to block customer access to another infringing site called Newzbin2.

China had some 477 million Internet users in mid-2011 compared with some 223 million in the United States, Baidu is China’s most visited site; and it has also been China’s biggest source of pirated media on the Internet. As a result of pressure from copyright holders and the US government, Baidu in the summer of 2011 entered into a landmark licensing agreement with Universal, Warner, and Sony agreeing to license their new releases and pay these labels on a per song basis for each download.

But there have also been setbacks in global enforcement. In November the European Court of Justice, echoing similar rulings in the US, held that internet service providers like Google cannot be required under European Union law to install filtering systems to combat online intellectual property piracy. And U.S. Customs announced earlier this month that the number of seizures of counterfeit goods in 2011 increased by 24% from the year before with Chinese goods representing the number one source of counterfeits.

Self-Help Steps to Take to Deal with Brand Attacks and Infringement

So with enforcement efforts around the globe difficult, expensive and problematic, what self-help steps should brand owners take to combat new forms of online infringement and brand attacks? Let me give you some suggestions which are applicable no matter in what country your site is located.

The Impossibility of Controlling the Message

First, brand owners must accept the reality that it is impossible to control the online message. In the pre-Internet days a brand had more control. It carefully crafted its message and used the few channels of communication that were available to disseminate it. If a customer had a problem with the brand, there was no way the customer could broadcast the problem to the world. The customer might write to the local better business bureau or chamber of commerce or complain to its local paper but that was about it. In other words, echoing an old Burger King commercial, most brands had it “their way.”

But now we are all publishers. Anyone with access to the Internet can reach a global audience with a two-sentence tweet. That means it is now impossible to control the message. Once the viral attack starts it gets larger. More people embrace it; more people talk about it; in other words, once the genie is out of the bottle it’s gone. And someone else is now in charge of the message. And that someone else can be your enemy really quickly because they can spread the word in milliseconds. If you try attacking the person who started the attack, the response is often worse.

So what should you do if you are faced either with an online brand attack damning the quality of the goods or services you provide or if you are accused online of infringing another’s work?

The Three C’s

You want to follow the three C’s: confirm, confess and correct

You need to first investigate to see whether the attack or the accusation of infringement has merit. If it does, you want to confess and at the same time tell the world that you have corrected the problem.

Here is what you may want to say:

One of customers just posted a message complaining about x. Although we would have preferred that the customer talk with us first about the problem we have investigated and made some changes that will benefit all.

Or you could say:

Someone just posted a message video; although we’re not sure it was aimed at us, we loved it and it inspired us to modify our policies.

And here is how you should respond to a legitimate complaint about online infringement.

One of our visitors just advised us that we are displaying a work that the visitor believes is protected by copyright. We respect the intellectual property rights of others and have taken down that copyrighted work.

Why the Three C’s?

Why the three C’s? The Internet does not let you hide from an attack. So you best try to turn it into a positive and embrace it. Customers will only be passionate about your brand if they feel good about it.

Further, your customers are often your best spokesmen and are trusted sometimes even more than your brand image and your brand marketing message. So if you are able to turn your detractors into your friends with respect and honesty, they may help bolster your bottom line and protect you online next time you are attacked.

Two Examples of Inappropriate Responses to Online Attacks

Let me now give you two examples of inappropriate responses to viral attacks.

The Cooks Source Response

A magazine called Cooks Source published a story about the evolution of the apple pie written by Monica Gaudio. The problem was that Cooks Source simply copied the story from another website without Ms. Gaudio knowledge or consent.

When Ms. Gaudio found out about it, she asked Cooks Source for an apology and to make a small donation to the Columbia Journalism School.

The Cooks Source editor responded:

But honestly Monica [referring to Ms. Gaudio] the web is considered public domain and you should be happy we just didn’t lift your whole article and put someone else’s name on it.

And:

We put some time into rewrites, you should compensate me.

Cooks Source’s response sparked a collective fury on blogging and social media sites or what some called “nerd rage.”

Facebook removed the Cooks Source site because it received so many hits.  Advertisers were urged to withdraw support for the magazine. The messages that bloggers posted can’t be reprinted here.

The three Cs could have diffused this situation. Instead, Cooks Source is now out of existence.

The Nestlé Response to Greenpeace

Here’s another example of an inappropriate response to a brand attack. The environmental group Greenpeace two years ago attacked Nestlé for buying cheap palm oil (a key ingredient of their Kit-Kat bars) from companies that destroy the Amazon rainforest. In response Nestlé got feisty on Facebook. In response to one consumer post, Nestlé pronounced:

Thanks for the lesson in manners. Consider yourself embraced. But it’s our page, we set the rules; it was ever thus.

When the consumer raised a concern about freedom of speech, Nestlé replied:

You have freedom of speech. Here there are some rules we set. As in almost any other forum, it’s about keeping things clear.

The attacker responded:

Your page, your rules true and you just lost a customer. Won the battle and lost the war. Happy?

When news of this and similar interchanges spread virtually, Nestlé went into damage-control mode posting Facebook updates defending its use of palm oil. When that didn’t quell the furor Nestlé reduced its dependence on palm oil and partnered with a non profit that helps businesses develop sustainable forest harvesting practices.

The lesson here is that, when faced with a justified brand attack, you can’t dictate or control the conversation on the Internet and you shouldn’t try.

Responding to Online Copyright or Trademark Infringement

Let’s now shift and talk about how you should respond when others infringe your intellectual property online. Remember the Internet puts you in a fish bowl. Whatever response you take will be broadcast by others. Further, overzealous enforcement can mean loss of goodwill and damage to your reputation and image.

And also keep in mind that trademark owners have to police their marks or their rights to their marks may erode.

Criteria to Consider Before Responding

Mindful of these considerations, here are some criteria to keep in mind when making a decision about how you will respond to infringement.

1. If you are faced with a counterfeit situation, are consumers being damaged by the conduct in question? Babies in the U.S. were at risk a few years ago when counterfeiters imported toys made in China containing lead. In that situation, the U.S. toy industry had to respond.

2. Is your marketing message being eroded by the infringing conduct? In other words, is consumer confidence in your brand being damaged by the knock-offs?

3. Is the infringing conduct costing you money?

4. How valuable is your asset that is the target of the infringement; is the asset or product a key to your success or one that you intend to discontinue?

5. Are there equitable consideration that favor the infringer; for example, is the infringer raising an issue of public importance?

6. Are we dealing with a serial, well financed infringer or one who sees the attack as a passing fancy?

7. Do you need to send out a warning shot to keep others away?

8. People in glass houses should not throw stone; can the same attack you are defending against be made against you?

9. What’s your budget; trademark and copyright litigation is expensive.

10. Does the infringer have a fair use defense?

Dealing with Fan Sites

Let’s now talk about fan sites; how should brand owners deal with them. Here’s an example of an enlightened approach to fan sites.

About 5-6 years ago two young men who really liked Coke started a Coke fan site on Facebook that soon gathered more than 3 million users and became the 2nd most popular site on that site. Coke found out about it. Instead of taking any kind of drastic measures, they invited these two fellows to Atlanta. They welcomed them because they wanted to find out how these were able to attract so much fan support. And Coke said to these fellows “continue, you are doing a great job.” Here’s some product; here’s some special invitations; here are certain things we don’t give to anybody because we want you to continue to do what you are doing. As a result these impassioned Coke fans are even more so to Coke’s benefit.

You need to monitor fan sites especially if they start selling your product at prices below what you want to charge. But in most cases you want fans sites to grow and prosper. Police with a carrot not a stick because happy customers can be your biggest advocate on social media.

Low Cost and Creative Ways to Deal with Infringement

Let’s talk about some low-cost and creative ways to deal with brand infringement?

1.      Set up a victory page;

2.      Use an offending site’s terms of service; it will not cost you anything;

3.      Pay infringers to migrate elsewhere;

4.      Enter into a co-existence agreement;

5.      Consider a gradual name change;

6.      Maybe even license your mark-after you develop some trust with the infringer; and

7.      Be proactive: register domain names for prospective products before you launch them.

Monitoring the Internet for Infringement

With new online sites born nearly every day, how do you monitor them all? It’s not easy. Here are some suggestions.

1. Get to know the sites where infringement is likely to occur

2. Establish relationships with the in-house people at these sites

3. Globally cultivate relationships with the government and the media, especially at the local levels

4. Set up alters with Google and others.

5. Decide who in your client’s company will respond and what your objectives are: take a holistic approach.

6. Have standard responses prepared.

Guidance on Selecting a Domain Name

Finally here is some guidance you may wish to follow when choosing a domain name.

First find out if the name is available by going to the sites that will tell you in an instant, including knowem.com or namechk.com. To check whether your trademark is being used by others on social media sites go to tm.biz.

But even if the name is available you want to be sure your name does not include any more of the trademark of another’s company than necessary to identify the nature of your business. For instance if the name Lexus.com were available (it’s not) you could not use it in most cases because it suggests that the Lexus brand is sponsoring or endorsing your site. But if your business is buy-a-lexus.com or buyorleaselexus.com you may be able to use it because you are truthfully telling consumers by the name you use the nature of what you do. That’s a form of fair use.

Finally with the Internet you can’t just think out of the box. There is no box. Instead, there is a medium of communication that is constantly changing and evolving in response to new technology. So you need to attempt to stay current with change because the shelf life in this space is short.

Andrew will begin by discussing three reasons why global infringement is a growing and what governments and copyright holders are doing here, in Europe and China to combat it.

He will then focus on some self help steps that brand owners can take in whatever country they may be in to deal with brand attacks and Internet infringement. He will recommend that brand owners practice the three C’s when faced with a justified brand attack or a legitimate copyright or trademark infringement complaint. He will then give examples of the adverse consequences two brand owners faced when they did not follow this approach. Next, he will list some questions brand owners should ask themselves before responding to infringement and also suggest some low cost and creative ways to deal with infringement. He will further give some suggestions about how brand owners can monitor the web for infringement and finally end with some guidance on selecting a domain name.

For more information and registration click here.

Click here for a transcript of Andrew’s talk.

Mastering Rubik’s Cube may be easier. Predicting the amount of statutory damages that will be awarded in copyright infringement litigation continues to confound attorneys on both sides of the fence. Why? Here are some reasons.

But first a few words of explanation.  I originally wrote this post in April of 2010. I decided to update it after some of the cases I mentioned went through further appeals and retrials.  I kept the same title (so you may see the earlier version come up on Google searches) but I substantially rewrote this version.

Broad Range of Statutory Damages

The first reason why it’s hard to predict is that an award of statutory damages may fall within a broad statutory range. Ordinary or non-willful infringers face a minimum of $750 and maximum of $30,000 in damages per work infringed. Willful infringers face a minimum of $750 and maximum of $150,000 per work infringed. And in the rare case the infringer is found to have acted “innocently,” it faces minimum damages of not less than $200 per work infringed.

Courts and Juries Have Great Discretion in Setting the Award

To compound unpredictability, courts and juries have considerable discretion within the broad statutory range in setting the award. The only statutory guideline is that the amount be “just.” But what is just? As you might imagine, reasonable minds will differ.

The Tenenbaum music downloading case in the 1st Circuit illuminates the difference. There the jury awarded the record labels $675,000 in statutory damages. The trial judge on due process grounds reduced that amount to $67,500 but the 1st Circuit reversed the trial judge and reinstated the jury’s damage award.  See my earlier posts on this case here and here.

The Difficulty in Predicting Whether a Jury Will Find the Infringing Conduct Willful

Another reason for unpredictability is the difficulty in handicapping whether a jury will find the infringing conduct to be willful or not. Each side at trial will paint a different picture. Plaintiff will stress the knowing and intentional nature of the infringement or defendant’s reckless disregard for plaintiff’s rights. Defendant will argue innocence or unintentional conduct taken in good faith reliance on the advice of others or pursuant to an ambiguous license agreement.

The difference between a willful and non-willful finding can be significant. If the jury finds willful infringement, it can assess statutory damages up to 5 times the $30,000 cap for non-willful infringement. But until the jury renders its verdict, no one can safely predict what it will be.

The Courts May Give Whatever Weight They Wish to the Criteria They Have Developed

Still another reason for unpredictability is that, although the courts have created their own criteria for determining the amount of statutory damages, they may give whatever weight they wish to each factor, considering all, some or none.

The factors include: (a) any revenues or fees a plaintiff may have lost as a result of the infringement; (b) the expenses saved or the profits gained by the defendant in connection with the infringement; (c) the value or nature of the plaintiff’s infringed works; (d) the need to deter the defendant and others similarly situated from committing future infringements; (e) the defendant’s financial situation; (f) the defendant’s state of mind; (g) in the case of willful infringement, the need to punish the defendant.

Courts apply these criteria differently. Some courts focus on the actual damages plaintiff incurred as a result of the infringement. (Actual damages are the license fee the copyright owner would have received from the defendant had it negotiated a usage fee for the work instead of infringing it. Actual damages also include the profits the infringer made that are attributable to the use of the work.) The courts who focus on actual damages state “statutory damages should bear some relation to actual damages suffered” and set statutory damages at a multiple of actual damage. Thus awards of two to four times actual damages are common, although these small sums do little to incentivize copyright enforcement.

Other courts expressly reject making statutory damages a multiplier of actual damages, stating that such a mathematical formula or equation is “spurious.” Instead, these courts assess significant statutory damages (sometimes in the millions) to deter future infringing conduct.

Even in the Same Case the Jury Can Reach a Widely Different Result on Retrial

As a result, the same plaintiff in different cases involving similar infringing conduct may be awarded different amounts. Even the same case may produce a much different result on retrial, as evidenced by Capitol Records, Inc. v. Thomas-Rasset.

In Thomas, record companies sued defendant for downloading 24 songs and then making them available through her Kazaa shared folder. In the first trial, the jury assessed statutory damages of $220,000 ($9,250 per song). The trial judge vacated the verdict because of an error in jury instructions. In dictum the judge noted that the award was “wholly disproportionate to the damages suffered by Plaintiffs.”

When the case was retried, the jury increased the award to $1.92 million ($80,000 per song) or more than eight times the damages awarded in the first trial. But the trial court in a decision in January 2010 reduced the verdict by 97 percent to $54,000 ($2,250 per song or 3 times the minimum statutory damages amount) based on the common-law doctrine of remittitur. The trial judge reasoned that a “verdict [of] $2 million for stealing 24 songs” by “noncommercial individuals” “is simply shocking” and was not justified by the need for deterrence.

The trial judge gave the record labels seven days to either accept the remitted award of $2,250 per song or agree to a third trial on damages. When the labels declined to accept the remitter, the jury in the third trial assessed $1.5 million in statutory damages or $62,500 for each song. See news report here. But the trial judge finding this amount “appalling,” slashed it to $54,000—$2,250 per song.

Thus the verdict in this case has moved up and down like the stock market. The case is now on appeal to the Eighth Circuit.

Will Unpredictability Continue?

Is this unpredictability here to stay? I think so. The range of statutory damages and the discretion given to courts and juries in fixing the amount is simply too great to be able to predict the result with any degree of comfort. Will due process considerations help to reduce unpredictability? Again I think not. Statutory damages awards, although unpredictable, are not unlimited. Congress has set a range for these awards which gives notice of the potential liability and therefore any award within that range is entitled to substantial deference. But stay tuned Tenenbaum (back in the trial court) and Thomas-Rasset (before the Eight Circuit) will continue to raise constitutional issues that will educate us all.

Other Posts about Statutory Damages

I confess to having written a fair amount on statutory damages. In Part I of my statutory damages discussion I explained why they are not available for infringing conduct that began before registration and continues thereafter unless the work was registered within three months of initial publication. That post also explained that the number of grants of statutory damages depends on the number of works infringed, not on the number of infringements of those works. In Part II of my statutory damages discussion, I explained how courts have applied the one-grant- of-statutory-damages limitation in the last sentence of section 504 (c)(1) of the Copyright Act (the “Act”). That post also gave some guidance about when infringing conduct will be found to be willful.

For related posts click here for an article about statutory damages written for non-lawyers; click here for a post explaining when a copyrighted work qualifies as a work for purposes of fixing statutory damages and here  for an explanation of the one work limitation set forth in the last sentence of 17 U.S.C. § 504 (c)(1).

If you would like to add to the discussion about clearing up the statutory damages confusion, please do.

Appellate courts prefer to decide cases on the merits. But  they will affirm the sanction of a default judgment dismissing a case where the plaintiff has repeatedly flouted court orders. The latest example  is the Federal Circuit‘s December 28, 2011, decision in Benedict v. Super Bakery affirming Benedict’s default and cancelling his registered trademark as a sanction. But although the Federal Circuit affirmed, it rejected the reasoning below of the Trademark Trial and Appeal Board.

The facts in sanctions cases fall into a familiar pattern: non-compliance in response to discovery requests followed more compliance in response to court orders. This case is no exception.

In 2007 the Trademark Office rejected Super Bakery’s application to expand its GOODY MAN registered mark concluding it would likely be confused with Benedict’s G The Goodyman’s registered mark.

Thereafter Super Bakery (“Super”) began a proceeding to cancel Benedict’s mark and served discovery requests. After Benedict, appearing pro se, failed to respond to the requests, Super moved to compel responses. Benedict did not respond to the motion.

The Trademark Trial and Appeal Board (the “Board”) ordered Benedict to respond to the discovery requests within 30 days which he neglected to do. Super then moved for a default judgment. The Board denied that motion but further ordered Benedict to respond to the discovery requests by March 13, 2009.

Benedict, rather than comply with that order, moved on March 12, 2009, for summary judgment requesting dismissal of Super’s cancellation proceeding. Benedict argued that that proceeding was barred by what he referred to as the res judicata effect of the Trademark Office’s rejection of Super’s earlier application to expand its mark.  Benedict sought to avoid his discovery obligations by invoking Rule 2.127(d). It provides that a summary judgment motion seeking to dismiss a proceeding suspends it “with respect to all matters not germane to the motion and no party should file any paper which is not germane to the motion.”

In other words, Benedict took the position, supported by the face of Rule 2.127(d), that his motion relieved him of his discovery obligations till the motion was decided.

After the Board suspended Super cancellation proceeding, it filed a motion for sanctions requesting a default judgment pursuant to Trademark Rule 2.120(g), which authorizes the Board to default a disobedient party.

The Board granted the motion. It took the dubious position that Benedict’s discovery obligations were only be relieved,  not by his summary judgment motion, but only after the Board had suspended Super’s cancellation proceedings in response to that motion. The Board therefore found Benedict in default and cancelled his G The Goodyman mark.

The Federal Circuit reversed. It gave as its only reason the Board’s failure to discuss Trademark Rule 2.127(d), which, as mentioned above, bars the filing of “any paper not germane to the [summary judgment] motion” after it is made.

On remand the Board reinstated the default judgment. It restated its earlier ruling that Benedict was only excused from his discovery obligations after the Board issued a suspension order in compliance with the motion which was some 19 days after his March 13, 2009 deadline to respond to discovery.

The Board, seemingly straining,  relied on a comment made by the PTO during a 1998 rulemaking process in response to a proposal to slightly modify Rule 2.127(d). That Board stated that that comment indicated that PTO “thus explicitly considered — but did not adopt — a rule (or an interpretation of the existing rule) that would have automatically suspended proceedings upon the filing of a potentially-dispositive motion.”

On appeal the Federal Circuit in a precedential opinion affirmed but not for the reasons cited by the Board. The court stated that Rule 2.127(d) is “unqualified in its requirement that” the filing of a “summary judgment motion” suspends the case and bars the filing of any paper not germane to the motion. The court added that the Board was wrong to rely on a PTO comment to the contrary which “is not stated in the rule [2.127(d)].”

Nevertheless the circuit court affirmed the cancellation of Benedict’s mark. The court found it was not an abuse of discretion to default Benedict after “two years of [his] failure to comply with discovery requests and orders.” The Federal Circuit stated that there was no basis to believe that, if Benedict were given additional opportunities, he would comply with his discovery obligations. The court also noted that Benedict “offered no explanation of why no discovery responses had been made over two years” and added that the “possession of a trademark registration places a routine obligation on the possessor to participate in reasonable procedures concerning rights or interests affected by the registration.”

I agree with the Federal Circuit. A party who fails to comply with discovery orders frustrates its adversary (and opposing counsel), lengthens the proceedings, drives up the expense of litigation and prejudices the judicial system by placing an undue burden on the courts. Here the appellate court, in reversing the Board’s initial decision to default Benedict, gave him a second chance to justify his non-compliance with court orders. When Benedict failed to excuse his conduct on remand to the Board and further failed when the case returned to the Federal Circuit, it correctly cancelled his registration.

As I told the National Law Journal in its article published yesterday, “no appellate court wants to affirm a default unless the conduct is egregious.” Appellate courts “always take a more objective look at things but here the disrespect and the prejudice went on for too long.”  The take away here, as simplistic as it is true, is that good faith and timely compliance with reasonable discovery requests will avoid the result in this case.

The safe harbor created by Section 512(c) of the Digital Millennium Copyright Act (DMCA) may now be an Internet service provider’s Bali Hai.

That’s because on December 20, 2011, the Ninth Circuit held in UMG v. Veoh that a webhost will only lose its safe harbor immunity under this section if it has specific knowledge of infringing content on its site and fails to take down that content. Because UMG failed to demonstrate that Veoh had specific knowledge, the Ninth Circuit affirmed the district court’s grant of summary judgment dismissing the action against Veoh.

Is this opinion a death knell for Viacom’s pending appeal in the 2d Circuit? I don’t think so. But first here is some background and analysis of Veoh.

The Safe Harbor at Issue in Veoh and Viacom

Section § 512 of the DMCA creates four statutory “safe harbors” to help Internet service providers (“ISPs”) predict and manage their legal exposure to copyright infringement. The safe harbor at issue in Veoh and Viacom is at § 512(c), dealing with storage of content initiated by a user.

The section shields ISPs from monetary liability for hosting copyright infringing material on their sites if they either

(a) have no “actual knowledge that the material or an activity using the material is infringing” and (b) have no “aware[ness] of facts or circumstances from which infringing activity is apparent” (17 U.S.C. § 512(c)(1)(A)(i) & (ii)) or

(c) expeditiously remove infringing material which they know or are aware of upon receipt of a DMCA-compliant take-down notice (17 U.S.C. § 512(c)(1)(A)(iii)).

Courts refer to the two knowledge standards as actual and red-flag knowledge. The Ninth Circuit held that Veoh lacked either actual or red-flag knowledge.

UMG Fails To Demonstrate that Veoh Had Actual Knowledge

UMG inexplicably chose to forgo what the Ninth Circuit labeled “as the most powerful evidence of a service provider’s [actual] knowledge”—take down notices. UMG never advised Veoh of a single infringement before it filed its action and then failed to identify any infringing videos until Veoh moved to compel that information on the eve of the close of discovery. Veoh’s motion is here. UMG chose to rely on takedown notices sent by the Recording Industry Association of America (“RIAA”); but the notices referred only to the names of the songs and never mentioned UMG.

UMG instead argued before the Ninth Circuit that Veoh knew the music videos it hosted were infringing because Veoh never licensed any of them from the 4 major music companies. But the district court found, and the circuit court agreed, that Veoh had “arrangements” “with major copyright holders, such as Sony/BMG” to display their music videos.

UMG also argued that Veoh must have had actual knowledge of the presence of infringing videos on its system given its general knowledge that its service could be used to share unauthorized content. The Ninth Circuit again disagreed stating that, if merely hosting material that falls within a category of content capable of copyright protection, with the general knowledge that one’s services could be used to share unauthorized copies of copyrighted material, was sufficient to impute knowledge to service providers, the § 512(c) safe harbor would be “a dead letter.”

UMG Also Fails to Show that Veoh Had Red Flag Knowledge

UMG fared no better in its argument that Veoh had red flag knowledge. The circuit court rejected UMG’s assertion that Veoh’s purchase of Google adwords containing the names of some of UMG’s artists demonstrated Veoh’s knowledge of infringing activity. The  Ninth Circuit stated that artists are not always in exclusive relationships with recording companies and “so just because UMG owns the copyright to some of Brittany Spears songs does not mean it owns the copyright for all” of them.

UMG also argued that Veoh should have used search and indexing tools to locate and remove any other content by the artists identified in the RIAA notices. But the Ninth Circuit stated that § 512(m) of the DMCA did not impose investigative obligations on ISP. UMG finally pointed to news articles exposing the availability of copyrighted materials on Veoh. The appellate court was not persuaded stating that, if Veoh’s awareness of these news reports “was enough to remove a service provides from DMCA safe harbor eligibility, the notice and takedown procedures would make little sense and the safe harbors would be effectively nullified.”

The Ninth Circuit did suggest that Veoh might have gained red flag knowledge if third party users had notified it of “specific particular infringing material” on the Veoh site. In that instance Veoh would then lose its safe harbor immunity if it failed to expeditiously take down the infringing material.

Webhosts May Remain Passive But Still Avoid Liability

The Ninth Circuit’s opinion thus places the burden of policing copyright infringement on the owners of the copyrighted material. Content owners must constantly monitor the entire and ever-changing repertoire of every webhosting site on the Internet, in every file format, to locate infringing content. That is a burden that many individual authors cannot sustain.

Although webhosts are better able with advances in filtering technology to automatically identify and block materials as they are loaded, Veoh allows webhosts to remain passive and abstain from taking any affirmative measures to protect against infringement.

This result seems counter intuitive. If a mall owner knows from press and police reports of criminal activity on its property, would the owner still be immune from liability if it failed to investigate and at least attempted to work with law enforcement to end that criminal activity? Yet Veoh holds that ISPs need only quickly respond to takedown notices to avoid liability.

Should the Interests of Copyright Holders Be Policed by Third Parties?

Equally problematic is the Ninth Circuit’s suggestion that a third party user’s notice of infringement could act as a red flag under §512 (c)(1)(A)(ii). How will a third party user who clicks onto a webhost know that the music video she is enjoying contains infringing content? License agreements between webhosts and music companies are not public information. Even absent a license, the music may be protected by fair use. Will Veoh create a regime where the interests of copyright holders on websites are policed by third party trolls? The potential for third-party abuse (whether intentional or not) is substantial.

Now let’s turn to Viacom’s pending appeal in the 2d Circuit raising identical issues of actual and red flag knowledge.

YouTube was quick to advise the 2d Circuit of Veoh’s victory in the Ninth Circuit. YouTube’s post-argument letter re Veoh is here.

Some Reasons Why the 2d Circuit May Reverse

Nevertheless, I think there is a reasonable chance that Judge Stanton’s thinly-reason decision in favor of YouTube will be reversed. First, Judge Cabranes during the oral argument in Viacom raised five questions of material fact that could have possibly defeated summary judgment. See the New York Law Journal’s account of the oral argument here.

Second, the appellate court following oral argument was apparently troubled by YouTube’s argument that specific knowledge of infringement is all that is required for actual and red flag knowledge. The appellate court therefore ordered the parties to provide supplemental briefs on the issue “whether and how the red-flag knowledge provision would apply” if only specific knowledge of infringement triggers a red flag.  The responses from YouTube and Viacom are here and here.

Here is what Viacom said:

Because awareness of “infringing activity” requires less specificity than “actual knowledge” of “infringing material,” a website operator who “welcome[s]” and is aware of infringing activity on its site – here in the range of 75-80% of views according to YouTube’s own analyses – clearly satisfies § 512(c)(1)(A)(ii) even if it avoids knowing most of the specifics. And though operators do not have an independent obligation to monitor their sites for  infringement, once they have this kind of awareness of infringing activity they have a duty to act to address the problem under § 512(c)(1)(A)(iii).

I side here with Viacom. The district court, by holding that knowledge of specific infringing clips satisfies the actual and red flag standards, effectively jettisoned the red flag standard. When Congress enacted the two standards of knowledge it must have intended they be different and that the red flag standard be a separate basis for imposing liability on a service provider.

Why else have two standards? Further, the legislative history and the face of § 512 (c)(1) indicate that the red flag standard requires something less than actual knowledge of infringement. But the district court in Viacom held both standards require the same specificity. Therefore, if a service provider has red flag knowledge, it also must have actual knowledge. As a result, Judge Stanton read the red flag standard out of the DMCA.  The Second Circuit may not do the same.

A third reason why the Second Circuit may reverse is that the district court had determined that YouTube was “not only generally aware of, but welcomed copyright-infringing material being placed on their website,” which “enhanced defendants’ income.” Isn’t that enough to at least raise a triable question regarding red flag knowledge? In other words, as I told the Wall Street Journal in its fine article about the pending appeal  (subscription required), “When you welcome a thief in your house, you probably know he’s there.”

The copyright industry now awaits the 2d Circuit; your predictions on what may happen are welcome. My earlier posts on Viacom are on the Viacom litigation home page here.

Introduction by Andrew Berger

Negotiating tech deals is a bit like trying to navigate through uncharted waters. There are no statutes or regulations to guide the voyage. Instead as my colleague Mark Grossman in his guest post explains below, negotiating a tech deal requires an understanding of unwritten industry norms. Armed with that understanding, you can push in those areas where you may have an impact and, as Mark aptly says “choreographing your concessions around areas where you’re not likely to win the battle anyway.”

Mark explains a number of invaluable “How Tos,” including how to draft a warranty to protect against the unexpected; how to protect against a loss when the unexpected occurs; how to limit the limitations on liability and how to avoid the tendency to see the deal’s starting point as the vendor’s form. Mark’s candid and clear advice is worth reading. But first some brief background about Mark.

Mark Grossman

Mark began focusing his practice on technology over 20 years ago. Hi’s clients have ranged from clients selling technology-related goods and services who needed a lawyer who understood their industry to working with clients on the buying side of a transaction. Those clients include banks, insurance companies, and medium and large sized businesses in many diverse industries.

Since the mid-1990′s, Mark has spoken to groups domestically and internationally including multiple appearances at Georgetown University Law Center’s Advanced Computer Law Institute, COMDEX in Las Vegas, and seminars offered by the American Corporate Counsel Association.  He has also been a guest on many television and radio shows including ABC’s “Nightline.” His “TechLaw” column is published by CIO Magazine. Mark also authored the book Technology Law – What Every Business (and Business-Minded Person) Needs to Know and released a revised edition in 2009. Currently, he is a member of the Board of Directors of the South Florida Technology Alliance, the Advisory Board of BNA’s Electronic Commerce & Law Newsletter, and the Board of Editors of “Internet Law and Strategy,” a publication of Law Journal Newsletters.

We welcomed Mark to Tannenbaum Helpern a few months ago. Here is Mark’s guide.

A How-To Guide for Negotiating Tech Deals

I started my career in a mid-sized law firm doing sophisticated corporate deals about 28 years ago. Just over 20 years ago, my practice evolved into doing sophisticated tech, telecom and outsourcing deals. With this evolution, I found new contracting norms. The most significant was that I went from a world of good first drafts of agreements prepared by competent lawyers to a world where first drafts often came from illiterates. This article is a how-to guide to get you from illiteracy to a workable and fair agreement.

Unfortunately, sales teams dominate my tech deal world and they think a good contract is the last one they did with just the names changed. After all, that’s the easiest path to a commission check this quarter.

I would comment that most first drafts from tech vendors (including brand-name vendors) are atrociously written. They arrive on thoughtlessly used templates modified by the incompetent. They are not so much one-sided in favor of the vendor as simply not an expression of the deal.

The norm in my world is that after my first pass on a proposed agreement I will have 5 to 15 comments and redlines per page. Now, consider a hypothetical 30-page agreement (without attachments), and simple arithmetic tells you that we have 150 to 450 issues to discuss with the vendor.

Some of the discussion is substantive like discussing intellectual property, indemnification, or carve-outs to the limitation of liability. Much of the discussion is about defining core business terms like what the buyer is buying and what it will cost. (If you think tech agreements couldn’t possibly leave out core terms like this, you don’t live in my tech deal world.) Finally, a lot of the discussion is about rewriting our way through the illiteracy of the first draft. In this category, many of my comments consist of, “What does this mean?”

What are the Goals?

I think that it is important that we define the goals for the negotiation of our hypothetical deal. For most deals, I define the goals this way. Let’s start by imagining that everyone sitting at the negotiating table is not available to interpret the agreement when a question arises. The written document has to be good enough to stand on its own. It must explain the deal sufficiently such that a substitute team with the same training as the original negotiating team can understand the intention of the parties.

The underlying point, beyond the obvious goal of avoiding the need for parol evidence to foster interpretation, is that tech contracts don’t need to define every complex tech concept in such a way that a hypothetical high school educated juror could interpret it. Rather, the assumption is that interpretation would be by a team capable of understanding a technical contract and could dumb down the explanation as needed.

Another goal is simply to use the contracting process to ensure communication between the parties. I still find it amazing when I start probing a description of services only to discover that the parties have so few overlapping ideas on what the contract is about. Then, when they do agree, I find myself often saying: “That’s great and we agree, but the contract does not say that. Can we reword it to simply say when you just said?” (All the while, I can feel the sales team seething at me because of my absurd requirement that the contract accurately state the deal.)

Lastly, I think another goal should be to pull those one sided vendor terms back to the middle. Thus, you need to focus on things like limitations of liability, indemnity, choice of law, acceptance testing procedure, and so on.

Norms in the Industry

The tech world has some rather firmly established deal norms. It’s important to know those so you don’t push where pushing is not likely to garner meaningful concessions. Knowing the norms allows you to effectively focus on the areas where you can have impact while choreographing your concessions around areas where you’re not likely to win the battle anyway. You simply cannot negotiate these deals effectively unless you understand the norms.

For example, the IT world has developed some unusual norms with warranties and allocating risk. In other industries, these might seem absurd, but not in IT world.

As a preliminary matter, let’s clarify that I’m using the broad term “IT” in a broad sense. The same principles would apply whether we’re discussing outsourcing your entire IT department, hiring somebody to design a website for your company, buying hardware, or just having some software customized for your company. Whatever it is, many of the same contracting norms apply.

Warranties

If your new car doesn’t work, you take it to the dealer for repair. Knowing what it’s supposed to do is easy. After all, it’s a car. Everybody knows what a car’s supposed to do.

It’s rarely that easy with IT-related contracts. Certainly, it could be that the computer doesn’t turn on or that all network communication is down. These would be easy cases. As long as you have anything that looks or smells like a warranty in your agreement, you should be covered. The problem arises because it’s just never that simple. Typical IT problems are more like “the computers are too slow,” “the network is too slow,” “the system crashes too often,” or “the website doesn’t have some of the functionality we expected.” Moreover, these are the types of problems that can lead to ugly disputes.

There is no magic after the problem arises. The solution is careful contracting at the front-end. For example, if you don’t take the time to quantify the speed you expect from your network, where do you go with “it’s too slow” when the other side says “no, it is not too slow.” If you lack an objective standard, you may just have a loser on your hands.

While, there is no doubt that taking the time to carefully contract for IT services slows the date of the contract’s signature, the only other choice would seem to be a wing and a prayer. Contracting, like any other process, simply takes time. Still, it can save your company if things go less than perfectly.

Using the custom development of a complex software product as an example, the norm in the IT industry is a vaguely worded warranty that says that the software will function according to its specifications, or some other vague document or attachment to your contract. The point is that the standard the software must meet is this “other document.”

It’s the norm because it’s easy and provides at least some guidance. It’s also often a poor way to go because this other document was not written to define your warranty and thus often doesn’t have the objective standards against which you’ll later want to judge your software. Having said all this, have I ever had contracts where I’ve used some vague specifications as the benchmark for the warranty? I must confess that the answer is yes, I have.

The reasons are actually quite simple – it’s all about time and money. Quite frequently, the parties don’t want to take the time or spend the money necessary to prepare a more meaningful specifications document that was designed to serve as a benchmark for the warranty. We all know what a car should do. There’s no similar common sense benchmark by which we can judge IT work. If you don’t specify things in your contract, you may find yourself staring into the face of a bad situation.

IT contracting is often a time consuming and resource draining project. It takes effort to negotiate a deal and develop things like performance standards and acceptance testing procedures.

You could choose to march ahead with a contract that has as much definitive and clear material as a politician’s stump speech. If all goes well, you’ll feel like you made the correct judgment. However, in reality, you were just lucky. This method is okay for the desperate and those who like to play in the dark.

Who Takes the Loss?

When things go wrong in the world of IT, they can have far-reaching consequences. If your office network goes down, you have all the losses that go with the lack of productivity of your employees. If you’re an airline and your reservation system crashes and burns, it’s obvious how disastrous that could be. Who pays for these losses?

In IT, the answer is that the customer usually bears these risks. We can argue about how fair it is. The airline could say something like, “Let me get this straight. I pay you $5 million to update our reservation’s software. It stops functioning, I lose millions of dollars, and you think that you shouldn’t be responsible for that loss?”

The standard IT vendor’s answer to the question is “That’s right!” The vendor’s perspective may not be obvious to many customers, but it does ring of legitimacy in many cases. As the customer, you must build mission critical systems with enough redundancy and over capacity to prevent catastrophic mishaps. The argument would be that it was the fault of the airline in our scenario, which decided that running a parallel reservation’s network or providing for more capacity was too expensive.

Similar arguments are made when other IT disasters happen. If you lose data, the vendor says that you should have had better backups. I could create other examples, but the point remains the same. It’s up to the purchaser of IT services to create enough redundancy to protect against unacceptable losses.

The vendor’s answer to legitimately broken or poorly performing IT products is we’ll improve our “response time” in dealing with the issue, but we will never, ever, ever, write you a check for your losses. You must largely accept this fundamental norm. Yes, there are exceptions. I have seen and negotiated contracts with real teeth against vendors, but they are the exceptions.

So, as a buyer of IT goods and services, focus on what you can get. You should always negotiate for better response time guarantees than are first being offered. Follow this up by requesting specific escalation provisions, which helps to insure that if level one support can’t get the job done in a reasonable amount of time, it will move up through the vendor’s chain of command quickly. Good response time and escalation provisions can be worth their weight in gold when you’re in crisis.

Some Red Flags–Damage Limitations

One of the things you should always focus on is damage limitations. Be leery of clauses like, “Vendor’s liability for any loss, damage or expense of any kind, resulting from the products or services, negligence, or any other cause whatsoever, regardless of the form of action, whether in tort or in contract, shall be limited to the selling price of the products or services.” Variations on this type of clause may limit you to six months of service charges or some predetermined, and usually low, dollar figure.

Limitations of liability are negotiable and since a one sided damage limitation could emasculate much of what you gained in other aspects of your negotiation, I would suggest that you must focus on damage limits.

Here are some tips that can to some extent function as a partial checklist for you.

• Make the damage limitation mutual. What’s good for the goose should be good for the gander. There is no justification for a limitation of liability that only benefits the vendor.
• Exclude third party indemnity claims from the limitation. If a third party sues your company due to your vendor’s misconduct, the limitation of liability should not limit your indemnity claim.
• Seek more than a refund as the damage limit. It just seems fundamentally unfair that the vendor has no skin in the game beyond a refund.
• Exclude willful repudiation of the contract from the damage limit. This is designed to prevent the vendor from repudiating your contract and damaging you because the vendor acquired a more lucrative customer. In that scenario, you really should be getting at least your expectation damages.
• Exclude breaches of the confidentiality provisions from the limitation of liability. I can just imagine a scenario where your confidential information is more valuable than the damage cap so they thoughtfully decide that theft of your information is profitable.

Final Tips from the Trenches

In negotiating your agreements, you must avoid that natural tendency to see the deal’s starting point as being the vendor’s form. You should first see the deal from your one-sided perspective. What do you want and need?

In a negotiation, you’re not likely to get everything you want either, but you must work to pull contracts back to the middle, i.e., back to what’s fair. You shouldn’t ask for changes in a vendor’s form only after asking yourself whether the change is significant. If it’s one sided in favor of the vendor, ask that the provision be made neutral.

If the vendor asks that you indemnify them for your wrongdoing, you should ask that they indemnify you for their wrongdoing. If they get attorney’s fees if they’re the prevailing party, then you should if you’re the prevailing party. If they can terminate the agreement if you sell your company, the reverse should be true. After you’ve put every unfair provision on the table, you can use the issue of “significance” to decide which points to give up. Certainly, not every point has equal importance to you.

Just remember, what’s good for them is good for you. That’s fairness. Don’t walk into a deal thinking about how big they are. They want your business or they wouldn’t be talking to you. Sure, the Microsofts of the world budge less than the local vendor down the road, but they all bend. The only way to find out how far is to push back.

******************

Thanks Mark very useful and helpful information. For those who wish to contact him directly please write him at Grossman@thsh.com.

Introduction by Andrew Berger

Wondering where to litigate your IP disputes abroad? One of the firm’s new partners, Albert L. Jacobs, Jr., recently summarized for our litigation group two friendly venues IP practitioners may not be aware of:  the Irish Commercial Court and the Dubai International Financial Center Courts. Below is Albert’s summary. But first here is some background about Albert.

With more than 30 years of experience in patent law, Albert concentrates his practice in the areas of life sciences, especially pharmaceutical and biotechnology, medical, chemical and health care, and business method intellectual property law and litigation.  In addition, he has extensive experience in intellectual property cases before the International Trade Commission.  He has also successfully represented semiconductors and business method patent litigation, at the trial level and at the Court of Appeals for the Federal Circuit and has successfully reversed several Markman rulings for his clients. He is author of Patent and Trademark Forms in Four Volumes, and co-authored Patent and Trademark Forms. Albert is a graduate of Harvard and Columbia Law School where he was a Harlan Fiske Stone Scholar.

Here is Albert’s summary of these two venues:

The Irish Commercial Court

The Irish Commercial Court is a division of the Irish High Court and was established in 2004.  It provides very efficient and effective dispute resolution in commercial cases.  While the minimum value of the dispute must be at least 1MM Euros the Court is fairly liberal in construing this threshold amount.

The Court uses a hands on case management system which streamlines the preparation of the case of the case for trial and minimizes the opportunity for either side to run up unnecessary cost or to stall.  The procedure also ensures a relatively full and fair pre-trial disclosure.

At the current time, disputes are often adjudicated within 27-30 weeks from the date of filing.

This court can be particularly useful in Transborder Agreements.  Such agreements can specify that any disputes under the agreement should be adjudicated before the Commercial Court of Ireland and that fully vests the court was sufficient jurisdiction.  The law applied would be essentially that of the U.K. For more information about this court, click here.

The Dubai International Financial Center Courts (DIFC)

The DIFC Courts are a court system within a court system in Dubai.  The ability of the DIFC Courts to hear disputes was recently broadened from oversight over civil and commercial disputes related to companies in the tax-free business area to allow both regional and foreign firms to file disputes with the English language DIFC rather than the Arabic-language civil courts.  British common law is applied.

The expansion of the court’s jurisdiction beyond commercial disputes related to companies in the tax-free business part offers an alternative of forum for fairly rapid resolution of disputes under Transborder Agreements.  As was the case with the Commercial Court in Ireland it would be necessary for the agreement between the parties to specify that disputes under the agreement would be adjudicated by the DIFC courts and that would be sufficient to confer jurisdiction. For more information about the Dubai International Financial Center Courts click here.

Thanks Albert. If you wish further information about these venues or have a questions about patent prosecution or protection, please contact Albert directly at jacobs@thsh.com. For more information about Albert, click here.

Authors: want some help in protecting your works? Here is the text of a talk I will give to the Cornell Entrepreneur Network on November 17 on how authors can protect their intellectual property. This post is long and ignores conventional wisdom that blog readers stop reading after 1,000 words.

But you may find some useful tips here. Included below is a discussion of the 8 key clauses you need to understand in your publishing agreement, suggestions about how to monitor your work to avoid infringement and a discussion of when your work will be infringed. At the end of this post is a link to the PowerPoint that will illustrate this talk.  With that into here is the talk:

A. What is Protectible; Some Examples

The title of this program is “Protecting your IP” so let’s 1^st define what is protectible. Ideas are not protectible only their expression can be protected. If you started to roll your eyes when I said this you are not alone. Understanding the distinction between an idea and its expression is not easy

The case of Rogers v Koons helps explain the distinction. In Rogers the photographer, Art Rogers, created a wonderful photo of eight puppies sitting on a bench. Jeff Koons, a self-styled “appropriation artist,”  sent the photo to an Italian craftsman and told him to create a sculpture that copied the photo.

The Second Circuit Court of Appeals found that Koons copied not simply the idea of the puppies photo but its expression, stating:

We recognize that ideas, concepts, and the like found in the common domain are the inheritance of everyone. What is protected is the original or unique way that an author expresses those ideas, concepts, principles or processes.

It is not therefore the idea of a couple with eight small puppies seated on a bench that is protected, but rather Roger’s expression of this idea—as caught in the placement, in the particular light and in the expressions of the subjects–that gives the photograph its charming and unique character, that is to say, makes it original and copyrightable.

Here are the two works, with Rogers’ photo on the left:

That case was settled by Mr. Koons after he was unable to get the Supreme Court to review the 2d Circuit decision. Kudos to my colleague at the firm, Donald Prutzman for skillfully handling it on behalf of the plaintiff.

Let’s now focus on literary works. In that genre, unprotected ideas include indispensable, standard or naturally occurring elements in the treatment of a given topic.

What are some examples of unprotected standard or naturally occurring events? The Walker v. Time Life Films case presents some useful examples. That case focused on a film staring Paul Newman and his exploits at the 41^st Precinct in the South Bronx also known as Fort Apache. Walker sued Time Life claiming that the film copied the creative elements of his book.

The court disagreed. It stated that the elements in both the book and the film, such as drunks, prostitutes, vermin and derelict cars, would appear in any realistic work about the work of policemen in the South Bronx. Because these elements are commonplace and inevitable, the court said they were unprotectible.  The court added that only if these elements are given unique expression will they be protectible.

These cases where one author claims that another has appropriated his or her work are common and in most cases turn out badly for the plaintiff. Why is that? There are two reasons. First good defense counsel is often able to show that what the plaintiff claims is unique is really commonplace in a work of this type. That is the Walker/Time Life situation. Second defense counsel is often able to show subtle but significant differences between the plot/sequence and characters in the two works. So my advice to authors who believe they have been infringed is to understand the road ahead to a litigation victory will not be easy.

B. Forms of Copyrighted Expression

So what forms of copyrightable expressions are protected?

Copyright protects “original works of authorship,” whether or not published so long as they are fixed in a tangible medium. Protected works include music, books, magazines, photographs, movies, paintings, sculptures, phonograph records and choreography,

Originality means independent creation, not novelty. Courts will protect your work even though it is only slightly different from an earlier work so long as it reflect some minimal level of creativity

C. When a Work Is Protected

A work is protected by copyright as soon as it is fixed in a tangible medium for more than a few seconds. You don’t have to do anything more to gain protection but I will talk a bit later about some added steps you should take to increase your protection.

D. Your Publishing Agreement

Let’s now assume you have created a copyrightable work, how do you monetize and protect that work.

I begin with your publishing contract and will focus on 8 key provisions in that agreement.

1. Grant of Rights from You to the Publisher

The grant of rights you give to your publisher is probably the most important provision in your agreement.

Here is the context in which you will exercise that grant. You own the copyright to your manuscript and you should always retain that copyright. Your copyright consists of a bundle of rights. You can give the publisher some or all of those rights. Most publishers will insist on having exclusive US print and electronic or e-book rights for at least for a reasonable period of time. All other rights are negotiable.

Your other rights include foreign, paperback, book club, web,  film, reprint, audio, video, drama, rental, pay-per-view and derivative.

Your decision which rights to keep and which to transfer to your publisher is an economic one. You need to ask yourself, if I retain certain rights, can I exploit them. For example, there may be no reason for you to keep foreign rights if you have no existing foreign publishing relationships.

With the rise of CDs, DVDs, iPods, iPads, iPhones and e-books publishers will also want you to agree to a new use clause. It provides that your publisher may use your work in all media now known or later developed. But that clause has a long tail and will allow the publisher to include your work in whatever new digital products Silicon Valley creates for years to come.

You can parcel these rights out to different entities but you may confuse consumers if they have to buy the audio of your play from one vendor and the video of the play from another. And because you will retain the copyright to your work, once your publishing agreement ends or you terminate it, you will be free to enter into any other agreement with any other publisher you wish.

2. Term of Grant

Most publishers will want print rights “during the full term of copyright and any extensions.” What does that mean?

The term of copyright is long: the life of the author plus 70 years after the author’s death. That period will most likely be longer than the book will ever be in print.

Therefore you may want to negotiate a much shorter term; maybe one that automatically renews but that you can terminate after a few years of sales when the publisher has had a chance to recoup its investment.

3. The Author’s Responsibilities

Make sure the contract clearly spells out your responsibilities as author; the contract should contain language such as this: “author must submit a final manuscript of ___ words by ___ date plus the following supplementary or illustrative material.”

4. Publication Date

The date should also be spelled out. You should set a time limit for publication so that your publisher does not let your book sit on its shelf unpublished The clause should read something like this: Publisher shall publish the book within ___ months after publisher approves final manuscript or all rights revert back to the author.

5. Royalties

They are usually a % of either retail price or some other number sometimes defined as dollar receipts; royalties vary depending on the rights sold; for example the hardback version of your book will generate a royalty of approximately 15% compared with a 7.5% royalty for the paperback version.

E-book royalties are higher than print because e-book publishing costs are so much lower. There are, for example, no delivery or storage costs associated with e-books. Therefore, publishers of e-books are now offering royalties of 25% or higher of retail receipts.

Because of the fluidity of the e-book marketplace, you may want to reserve the right to renegotiate your e-book royalty every few years.

6. The Advance

Advances, especially for a 1^st time author are much harder to obtain these days. If you are fortunate to negotiate one, your publisher will recoup the advance first from your royalty stream before you receive your 1^st royalty check. The advance depends on several factors, including the size of the publisher, the market for the book and the track record of the author. It is usually paid in three installments, the 1^st on signing the agreement, the second when you submit your rough draft and the balance when your publisher publishes your manuscript.

7. Warranties

The publisher will require that you agree or “warrant” that your work is your own and does not infringe anyone else’s work. If you have included others’ copyrighted excerpts, illustrations or graphics, you will 1^s need to obtain their permission and you will need to warrant that you have done so.

The only instance when you do not need permission to incorporate another’s copyrighted work into your own is when you are making fair use of another’s work. But predicting a fair use outcome is not for the faint of heart. That is because fair use is highly fact-specific and context-dependent. The likelihood of fair use increases if you use another’s work in your own for certain favored purposes like criticism, comment, parody, news reporting, scholarship or research.

Here is an example of a fair use parody draw from the case of Mattel v. Walking Mountain. Mr. Forsythe created some photos called Food Chain Barbie to criticize the objectification of women. His photos show the dolls in imaginative and often sexualized positions. The photos generated only $3,600 in revenues but Mattel sued his company Walking Mountain anyway. Mattel lost, the court finding his photos fair use parody. Mattel was then ordered to pay Mr. Forsythe’s legal fees of $1.8 million. I talked with him; he proudly told me he was paid

You will also warrant in your agreement that your work does not infringe the trademark rights of another; that it does not violate the privacy rights or publicity rights of others and that it is not defamatory.

Even if you are writing fiction, it’s important that you respect the rights of individuals or corporations who may be identifiable in your manuscript. If your book harms their reputation, they have the right to sue you for defamation.

8. Indemnification

In publishing, the “indemnities” clause always follows a “warranties” clause. The indemnities clause means that, should someone claim that your work infringes their rights, is defamatory or injures them in any way, you will be responsible for paying whatever damages are assessed and legal fees incurred. The damages and fees could be substantial.

E. Protecting Your Work

Now let’s talk about protecting your work; here are some suggestions.

First, you should place a copyright notice on all your works. That notice consists of 3 elements: the copyright symbol, the year you created the work and your name. The notice is like the nameplate on the door of your house or apartment; the copyright notice tells the world that this property is yours and prevents an infringer from later claiming it copied your work innocently.

Second, you should register your work with the Copyright Office. You can register online and the fee is only $35. The forms are available on the Copyright Office’s website at http://www.copyright.gov. See the Copyright Office website for more details or call the Copyright Office’s Helpline at (202) 707-5959.

Registration gives you the right to increased or what are called statutory damages if your work has been infringed. That right can be a powerful negotiation club when dealing with an infringer and can help lead to a quick settlement. But you have to register your copyrighted work either before it was infringed or, if infringed, within 3 months from the 1^st publication of your work.

Third you may be able to enlist your publisher to sue infringers as John Wiley has recently done when it sued some 27 Bit Torrent users last month. Bit Torrent is a peer-to-peer communications protocol for file sharing that is a favorite of infringers.  John Wiley’s complaint is here.

F. Suggestions for Monitoring Your Work to Avoid Infringement

You also need to monitor your work to insure that it has not been infringed. With new social media sites created nearly every week, monitoring your work is difficult if not impossible. But here are some suggestions.

There are certain sites that welcome pirated material. Aptly named Pirate Bay is one. You need to visit those sites periodically to ensure they do not contain your works.

Next you may want to create a Google alert for all your book titles so that you are notified whenever one of your titles appears on a site where it does not belong.

In addition, you may also want to take advantage of the terms of service that each site offers. The home page of most sites contains links to those terms that almost no one ever reads. But Facebook and most of the rest of the social media sites don’t want to host infringing material and will take it down on request. So use the online forms those sites provide to notify them if an infringing copy of your book appears on that site. See for instance http://www.facebook.com/legal/copyright.php?howto_report.

Further, create a form take down notice that you can send to any Internet Service Providers like YouTube or Amazon that is hosting an infringing copy of your work.

That notice should contain the name of the sender, the name of the copyright holder, the url where the work may be found, your statement that the use on the ISP’s site is not authorized, a description of the work (photo, book, etc.) and a signed statement that you believe the information on the take down notice to be accurate. The ISP who receives that notice is required to expeditiously take down your work.

But there is one more consideration to be aware of in the digital world we now live in. We are all publishers; we can reach a global audience with a 140 character tweet. So you may want to pick your fights. If you are seen are overreacting in response to infringement, others could use the power of the Internet to turn the attack against you as a former Congressman from NY recently experienced. And once an attack goes viral it is almost impossible to stop it.

G. Dealing with E-book Piracy

E-book publishing is soaring. In 2010, publishers reported that 8.3 % of domestic net sales came from e-books; in 2011, Simon and Schuster’s e-book sales climbed to 17 percent of revenue and at Hachette, the parent company of Little, Brown, the figure was 22 percent. It is quite possible that e-book sales will overtake print sales in a few years.

Why will e-book piracy also grow? First e-book piracy is easy; all you have do is buy a single printed copy of the book, disassemble it and scan the individual pages into a computer and you have made a pirated copy which you can then sell online to others at a fraction of its retail price. Second a significant percentage of the population believes there is nothing wrong with piracy. Third the Bit Torrent sites, where copyrighted works are freely shared, are becoming even more popular.

So how do you protect yourself?  There is no panacea. You may want to try to protect your works with digital rights management or DRM. DRM describes technology that controls access to copyrighted material. For instance, DRM software will allow you to program your e-book server so that it restricts access, copying and printing of your material based on conditions you create. The problem with DRM is that it often sets up an adversarial relationship between digital-content providers and digital-content consumers who are frustrated at the controls imposed on their use of your copyrighted works.

H. Has Your Work Been Infringed?

Lastly let’s focus on what is infringement. Your work will be infringed if another with access to your work creates a new work that is substantially similar to yours.

What do I mean by substantially similar? That is another fact specific inquiry. Without referring to the works in question, it is almost always impossible to say whether the defendant took too much of the plaintiff’s work.

But here are some guidelines. Courts when determining whether two literary works are substantially similar generally analyze seven elements: plot/sequence of events, dialogue, characters, theme, mood, setting and pace as well as the overall impression created by the works. No one element will control but plot/sequence, dialogue and characters often seem to be the most influential.

But even though two works can have similar plot lines a court will not necessarily find them to be substantially similar. For example, as Eric Osterberg suggests in his fine book, Substantial Similarity in Copyright Litigation, Shakespeare’s play Romeo and Juliet and Leonard Bernstein’s West Side Story both tell a story of forbidden love with parallel obstacles that lead to the death of one of the lovers. But their different plot details end any possibility of a substantially similar finding.

Let me give you one other example involving photographs so you can see strong evidence of substantial similarity sufficient to deny defendant’s motion for summary judgment.

The example is drawn from the case of Fournier v McCann Erickson . In this case, McCann on behalf of Microsoft conceived an ad campaign for Windows 2000 with the tag line “the old rules of business no longer apply.” McCann then asked Mr. Fournier to create some photos reflecting that idea. He submitted about 200 shots to McCann. When he and McCann could not come to terms on the price he was to be paid, McCann turned to another photographer who created what Fournier considered to be a similar photo embodying Fournier’s expression of the idea underlying the photos. Fournier then sued and in response the defendants asked the court to dismiss the court. The court refused finding a number of similarities in the two photos. Here are the photos with Fournier’s on the left:

a. both photos use a background bordered by structures with imposing columns on one side and buildings on the other;

b. the poses of the models are similar; plaintiff’s photo depicts a commuter casually dressed in a reddish-orange polo shirt with border

stripes on the sleeves and collar; defendant also shows a young man in a slightly brighter orange polo shirt with marginally different stripe patterns;

c. the models carry similar leather bags that are variants of the traditional briefcase;

d. the models are tightly flanked, although in varying degrees, by businessmen in traditional suits.

e. A balding, well-dressed businessman appears in both pictures directly to the right of the model; and

e. the angles, although not identical, are also similar. The casually dressed commuter is the central figure in both works, occupying the position closest to the photographer. The other models are situated slightly ahead of the central figure.

IP protection is not easily attained; but consider the alternative. Please share your stories/experiences in protecting your work and in negotiating publishing agreements.  For my PowerPoint for this talk, click here.