I recently moderated a table topics discussion at the INTA annual meeting in Dallas on alternatives available to US mark holders when registering their marks in Europe. One of the issues that came up was the case of Chartered Institute of Patent Attorneys v. The Registrar of Trademarks known as IP Translator (decision here). The case continues to cause problems for Community Trademark fillers seeking a community trademark (CTM) in the European Union (EU).

Stimulated by the discussion and generally aware that IP Translator may not be well known to American practitioners I summarize below its background, the case, the opinion by the Court of Justice of the European Union (CJEU), the response by the Office for Harmonization in the Internal Market (OHIM) and the questions that response raises for mark applicants. Feel free to chime in with reactions, comments and suggestions.

Background

The IP Translator case deals with how specific your goods and services description must be in your CTM application. In the past CTM applicants who sought broad protection had taken advantage of OHIM’s “class-heading-covers-all approach.” Under it OHIM interpreted a goods/services description that covers a complete class heading to mean everything in that class. (A class heading contains a representative selection of goods or services in that class.)

But some of the IP national offices in the EU (including Germany) interpreted the class headings literally. For instance, if an applicant sought protection for music stands under class 15, that item would not be covered under the heading for class 15 which is musical instruments. That’s because music stands are not instruments that play music and therefore the class heading is not literally general enough to cover the stands.

The Case

Now for the IP Translator case. The UK Chartered Institute of Patent Attorneys (CIPA) brought a test case to determine whether OHIM’s class-heading-covers-all approach or the more literal approach adopted by some national IP offices should be the practice in the EU.

CIPA sought to register the trademark IP Translator under class 41 whose class heading is “Education; providing of training; entertainment; sporting and cultural activities.” The UK Intellectual Property Office (IPO) following OHIM’s “everything in the class approach” rejected the application. The IPO stated that, because translation services are included within the alphabetical listing for class 41, the mark IP Translator is descriptive of those services. The WIPO alphabetical lists are found at http://bit.ly/13J0bC3.

CIPA appealed to the appointed person (the appeals tribunal for the IPO) who in turn referred the case to the CJEU.

The CJEU Opinion

The CJEU opinion is internally inconsistent. The court first held that CTM applicants must describe the goods/services covered by the application “with sufficient clarity and precision to enable the competent authorities [the national trademark offices and the courts] and economic operators [third party mark holders and mark applicants] on that basis alone to determine the extent of protection.”

The CJEU then backtracked. It allowed OHIM’s everything in the class approach to continue with some minor tweaks. The court stated that an applicant who uses the class headings to identify the goods or services for which protection is sought “must specify whether its application is intended to cover all the goods or services included in the [WIPO] alphabetical list of the particular class concerned or only some of those goods or services.”

If an applicant explicitly makes clear its intention to cover every item in the class, the application will extend to the entire alphabetical list for that class.

That list can be painfully long. Although the CJEU stated in IP Translator that third-parties examining an application should be able to understand the scope of goods or services protected by the class heading description “on that basis [or from that heading] alone,” third-parties will need more. When examining a potentially problematic application, third-parties must also have in hand the Nice alphabetical list (after checking to ensure that the list was in effect at the time of filing of the application at issue).

OHIM’s Response

OHIM’s response to IP Translator continues to change. At first OHIM required applicants to attach to their applications a “declaration of intention” stating that they either wish the class headings to cover all the goods or services in the alphabetical list of that class or only those expressly specified.

But in October 2012 OHIM switched gears and adopted a tick box scheme. OHIM provides further information regarding that scheme in its FAQs here. Under this scheme when an applicant selects a particular class the field is pre-populated with the class headings. If the applicant then ticks the box confirming that it intends to cover all the goods or services in this category, a warning appears stating:

Any previous indication of goods/services will be replaced by class heading of the selected class and all goods/services of the alphabetical list of this class

Immediately thereafter the full alphabetical list is inserted in the application.

If the applicant does not tick the box, the class headings are given their natural meaning which in some cases may not be apparent. For example the heading for class 9 includes “teaching apparatus and instruments.” Reasonable minds may differ re the meaning of that phrase.

The Applicant’s Dilemma

So what is the applicant to do? By ticking the box (however tempting) an applicant simply increases the likelihood of an opposition, cancellation or an infringement proceeding from an adversely affected mark holder in one of the 27 countries in the EU. In the past trademark holders may have opted to do nothing in response to applications covering class headings when the applicant was engaged in a non-competing business. But when specific goods or services are now expressly part of the application, trademark holders may feel compelled to act.

Further an applicant strains credibility by seeking protection for the alphabetical list if the applicant only requires protection for a few of those items. For example a supplier of amplifiers seeking protection under class 9 who imports the whole alphabetical list (containing about 850 items) will also be attempting to protect fire blankets.

And for those who do not check the box but rely instead on the class headings there may also be confusion depending on the class selected. In certain classes, such as class 25 for clothing, the scope of protection is fairly clear. But for other classes (such as class 9), it may not be.

The best course of action is less is more: narrow your description of goods/services to what you want to protect now and reasonably in the future and you will thereby comply with the CJEU’s direction in IP Translator to draft your description “with sufficient clarity and precision.”

Suggestions about how you are now navigating this system are welcome and will be appreciated by others.

Also for my earlier post explaining the basics of a CTM or a Madrid Protocol application click here.

I recently spoke at a CLE at my firm about how to successfully draft key provisions in an intellectual property license and negotiate them. Here is an edited transcript that I post in two pieces. In this first one I offer suggestions about drafting warranties, indemnities and limitations of liability and I also provider some drafting tips. In my 2d post I offer my top-ten considerations when negotiating an IP license.

Warranties, Indemnities and Limitations of Liability

As Heather Meeker points out in her fine book, Technology Licensing A Practitioner’s Guide, warranties, indemnities and limitations of liability send clients and even some lawyers into a mental tailspin. They are most densely written, the furthest removed from the business deal and the most difficult to understand. Yet they are extremely important and it’s best to analyze and negotiate them together or else you might end up agreeing to points that are not important or miss others that are.

Warranties

Let’s start warranties.

A warranty is a promise that a fact is true. There are three warranties that are typically found in IP transactions: a corporate, performance and a noninfringement warranty. In a corporate warranty the licensor warrants it has the right to enter into the transaction. In a performance warranty involving technology the licensor warrants that the software will perform in accordance with the contract specifications. In a noninfringement warranty the licensor warrants that the IP being licensed does not infringe third-party IP rights.

The remedies for breach of warranty may include requiring the party granting the warranty to remedy the defect. The license may also give the party who suffered a breach the right to terminate and be indemnified.

If you are providing a warranty (as you will in almost all IP licenses) you will want to minimize their number and scope and the remedies in case of breach. Whether you are able to minimize depends on your negotiating leverage and the other party’s risk tolerance.

There are several ways to minimize. Use knowledge and materiality qualifiers and time limitations. A knowledge qualifier states that to best of the warrantor’s knowledge its intellectual property does not infringe 3rd-party rights. A materiality qualifier limits the warranty obligation to only material failures of the IP to conform to contract specifications. A time limitation provides that the warranty obligation ends after a stated time period which in software deals is usually 90 days.

There are also a number of implied warranties present in any IP transaction but typically the IP provider will disclaim them by using conspicuous language. The IP licensee will then be limited to the warranty protection expressly provided in the agreement. In other words what you see is what you get.

Indemnities

An indemnity is like an insurance policy; the indemnifying party acts like an insurer; if something goes wrong that party pays money or corrects the wrong.

Indemnity provisions allocate the risk of loss between the parties. They generally require the indemnifying party to defend, indemnify and hold the indemnified party harmless though indemnification and holding another harmless are usually interpreted to mean the same.

In sophisticated IP transactions indemnities are sought because parties want protection against the substantial costs and damages resulting from third-party IP infringement claims are therefore reluctant to commit without indemnity protection from the other party.

With the growth of IP litigation especially in the patent area indemnification provisions have become much more complex. In other words every time you draft an indemnification agreements in a complex transaction it may be different.

Indemnification agreements commonly divide responsibility based on the party who is ultimately responsible for the infringing conduct; there are a number of ways to draft these responsibility clauses. For instance, if the third-party claim arises from the licensee’s use of software outside the scope of the agreement, you can provide for no indemnification. Again in the software context you can provide for no indemnification if the infringement claim arose from the provider’s compliance with the licensee’s specifications.

In trademark licenses both parties will seek indemnity protection. The licensee will be required to indemnity the licensor against product liability claims arising from products made by the licensee bearing the licensor’s mark. The trademark owner-licensor will be required to indemnify the licensee against infringement claims arising from the use of the licensed mark in accordance with the agreement.

Limitations on Liability

The party indemnifying will often want to cap or limit the dollar amount of the indemnity obligation to reduce its risk or lower the incentive for litigation. In software deals the cap may be the license fee paid by the licensee. A $10,000 cap for example effectively wipes out the indemnity because the plaintiff is not going to sue where the most it can recover is $10,000.

And remember in NY you can’t disclaim liability for gross negligence or willful misconduct.

Finally when thinking about risk allocation, do you want to make it one-sided so that liability falls on the other guy. Or do you want to make the liability for all narrow to reduce the incentive to sue. Whatever option you adopt you need to ask whether the benefit you hope to achieve by the deal is worth that risk you are assuming.

Tips for Effective Drafting

Here are a few tips for effective drafting.

The Internet Has Changed the Meaning of Some of the Words We Use In Licenses 

The first is an obvious truism: don’t use a word in your agreement you don’t understand. You might now be thinking I know that; I didn’t wake up at whatever time this am to come here to hear that. But think again; the internet age has created some new definitions.

Here are two examples. In the pre-internet days, TV rights meant distribution of programming content to your TV, maybe even one that had rabbit ears. But a provider of TV programming can now deliver it in a number of ways including by (a) cable; (b) satellite; (c) free streaming; (d) subscription; (e) pay-per-view; (d) video on demand; (f) internet broadband and (g) through your computer via a Slingbox, to name a few. So if you your deal gives you only TV rights you may find yourself in a costly fight trying to determine whether those rights go beyond the traditional means of distribution.

The same for home entertainment products; in the past technology limited your viewing or listening of music and video to your home. But now portable media devices (iPads, tablets, etc.) allow you to be entertained anywhere. So, if you want to license your IP for use on these devices, you should expressly say so.

Suggestions on the Use of Shall

The second tip I also adopt from Heather Meeker’s fine book with respect to the work “shall.” Lawyers love “shall.” They use it in legal documents as a command. I am not going to tell my wife (however much I sometimes might like to) “you shall go to the store tonight.” But you rarely will find an agreement that is without a “shall.”

The problem is that agreements sometime don’t use “shall” all the time. So the agreement might provide: “You shall deliver the source code to Mr. X and you will make it available to Mr. Y.” The obligation with respect to Mr. X is clear but what about with respect to Mr. Y. In other words, are you equally obligated to make the code available to Mr. Y? You probably are but why create any ambiguity. Use “shall” when you are attempting to create a party’s legal obligation and use “will” when the subject is not one of the parties and you are speaking about a future occurrence. For instance, say “the parties shall sign the releases today and the releases will become effective tomorrow.”

Have any other drafting tips you wish to share or any suggestions about warranties, indemnities and limitations of liability. Please pass them on.

Andrew, joined by his colleagues Mark Grossman and Don Prutzman, will speak at the firm on Thursday morning January 24, 2013, on the art of the deal: how to negotiate intellectual property and technology transactions. The seminar will examine the difficult legal and business issues that often arise in software, copyright and trademark licenses, cloud computing and technology agreements. Andrew, Mark and Donald will discuss the norms, must haves, concessions to either negotiate or forgo and the basic terms the parties need in these transactions. We hope to guide a sold-out audience through the initiation and successful completion of these deals  For a fuller program description, please click on the attached PDF.

Sorry at this point there is a waiting list only for this program. For more information please contact the firm’s fine marketing director Nancy Wu at wu.@thsh.com.

The oral argument in WNET et al. v. Aereo before the 2d Circuit panel of Judges Denny Chin and Christopher Droney and Eastern District Judge John Gleeson was long (more than 45 minutes) and spirited. The transcript is here. But the panel’s questions suggest the court may reverse and find that Aereo’s online transmission of live TV performances is an unlicensed public performance violating the Copyright Act.

The stakes are huge. The networks are almost too big to fail in the face of Aereo’s disruptive technology. The networks spend untold millions to create and distribute programming content knowing they can recoup those expenditures through advertising and substantial distribution and license fees. In contrast, Aereo pays the networks nothing. Instead it retransmits unlimited TV network programming to its New York customers for $8 per month. For more on how Aereo operates see my earlier blog post here.

If the 2d Circuit were to affirm the district court’s determination that Aereo’s TV retransmissions are simply the digital equivalent of a set of rabbit ears, Aereo and its clones will severely change the entertainment landscape.

The Second Circuit Must Distinguish Cablevision to Reverse

But reversal requires that Aereo find a way to distinguish the 2d Circuit’s earlier decision in Cartoon Network v. CSC Holdings better known as Cablevision. Aereo modeled its service on Cablevision.

For those unfamiliar with Cablevision here’s a summary. Cablevision offered a Remote Storage Digital Video Recorder system (RS-DVR) that allows subscribers to record live programming on a central hard drive housed at a Cablevision remote location and play it back at a later time. The recording produces a unique copy of the program sent to a consumer on demand. Judge Chin, then on the district court, held that the transmittal of the playback to the subscriber was a public performance. The district court stated that each of Cablevision’s RS-DVR subscribers were being transmitted the same underlying program, who may receive the performance at different times if they view the program a later time as an RS-DVR playback and found that this resulted in a public performance.

The 2d Circuit reversed holding that the playback to the consumer was not a public performance. Cablevision reached that result by treating the terms “transmission” and “performance” in Section 101 of the Copyright Act as synonymous. In other words, the appellate court viewed the transmittal of the playback as the performance: stating “we believe that when Congress speaks of transmitting a performance to the public, it refers to the performance created by the act of transmission.”

The Second Circuit also said the transmit clause “speaks of people capable of receiving a particular ‘transmission’ or ‘performance’ and not of the potential audience of a particular work.” Because the circuit court considered the relevant performance to be the discrete transmission of each user’s unique playback copy, the “universe of people capable of receiving an RS-DVR transmission is the single subscriber whose self-made copy is used to create the transmission.” Under those circumstances each transmittal or performance was necessarily private.

Paul Smith and Bruce Keller, counsel for the networks in Aereo, each attempted to distinguish Cablevision in oral argument before the 2d Circuit.

Counsel for WNET Failed to Distinguish Cablevision

Mr. Smith argued that Cablevision was a licensed retransmission service with the only issue whether it needed a 2d license to provide a personalized copy to its customers. In contrast he urged that “everything” Aereo “does from the moment it receives the programming over its antennas is unlicensed.”

In response Judge Droney asked “how does the fact of a license matter”? Mr. Smith replied somewhat equivocally “[w]ell the license was what confined the attention of the Cablevision panel just to the final end of the transmission.” Judge Droney shot back, “[i]s that the basis for the decision”? Judge Smith said rather weakly, “I think it is.”

But there is nothing in Cablevision indicating that its license to retransmit broadcast content to its subscribers made any difference in the court’s determination that the final individualized playback was a private performance.

Judge Gleeson then jumped in to ask Mr. Smith about a Slingbox that takes a video signal from the TV broadcast source, transcodes it and transmits it over the Internet enabling a consumer to view the program on a computer monitor. When Mr. Smith admitted that a transmission via a Slingbox was a private performance, Judge Gleeson stated “it sure looks like you have a problem with the Cablevision case.”

Mr. Smith finished by arguing that court should limiting the stare decisis impact of Cablevision. That doctrine tasks courts to adhere to decided cases. Mr. Smith argued that Cablevision cannot bind the court with respect to “entirely different” “factual situations.” But the only factual difference Mr. Smith ever referred to was Cablevision’s retransmission license that played no role in that case’s holding.

Counsel for the Other Networks Also Had Difficulty Distinguishing Cablevision

Bruce Keller who followed Mr. Smith also tried to distinguish Cablevision on the grounds that it was a storage service like a VCR not a retransmission service and that the storage service, unlike in Aereo, did not permit consumers to watch TV in real time. But whether the broadcast viewing was simultaneous or time delayed was also not a factor in Cablevision.

The Panel Sharply Questioned Counsel for Aereo

When David Hosp representing Aereo took the lectern, the fireworks began. He was interrupted more than 40 times in a 20-minute presentation. Mr. Hosp first argued, in response to Judge Chin’s question, that Cablevision’s license was irrelevant to the decision there.

Next Judges Chin and Droney asked, if 5,000 Aereo subscribers were watching a Redskins/Giants game at the same time, wouldn’t that be a public performance. Again Hosp disagreed stating that what each would be transmitted might be slightly different than what others saw. That prompted Judge Gleason to quip “”you mean the Redskins might win in DC and lose elsewhere.”

Mr. Hosp did concede that, if Aereo simply streamed the broadcast, as opposed to making an individualized copy available to its subscribers, that stream would be a public performance.

The court then turned to the array of Aereo’s dime-sized antennas it uses to transmit programs to its subscribers. Judge Droney asked whether the result would be the same if Aereo simply had one antenna rather than hundreds. When Mr. Hosp said yes so long as the one antenna was capable of making individualized copies, Judge Droney asked “[s]o why did you build all these antennas”?

Mr. Hosp was at first at a loss how to respond. But after Judge Chin asked if there was “any technological reason” for the antennas, Mr. Hosp conceded that the system was built to follow Cablevision.

That concession prompted Judge Gleeson to comment “you don’t have all these antennas because it makes any sense, it’s kind of like constructing your business affairs to avoid taxes.” He added it’s “a belt and suspenders approach to avoiding public performance.” To which Mr. Hosp replied, “[a]n it follows the law.”

The Second Circuit Is Likely to Find a Way to Reverse

Mr. Hosp is correct up to a point. Aereo’s system, as Judge Nathan below determined (her opinion here), “is materially identical to that in Cablevision.” But there is deliberately vague language in Cablevision that Aereo will most probably focus on when it finds a way, however plausible, to distinguish Cablevision. That case noted:

This holding, we must emphasize, does not generally permit content delivery networks to avoid all copyright liability by making copies of each item of content and associating one unique copy with each subscriber to the network, or by giving their subscribers the capacity to make their own individual copies.

Cablevision chose not to explain the facts that might result in such “copyright liability.” But as I pointed out in my earlier post, there needs to be some copyright restraints on the retransmission of broadcast content; otherwise why would the networks invest heavily to create programs that we all can watch for next to nothing. Thus, a reversal is likely with an opinion this time more mindful of the unintended consequences any broad permission to copy may create.

Reactions and predictions are welcome.

Innovation breeds copyright litigation. The scenario is often the same. The copyright holder whose market share is eroded by the innovative product claims it infringes its statutory-protected rights. The technologist responds that its innovation is simply another authorized improvement in an evolutionary chain that benefits the public. These arguments are at play in ABC et al. v. Aereo and WNET v. Aereo (the complaints are here and here); but as this latest battle moves to the Second Circuit the stakes are escalating.

To date, the TV and cable industries have squashed all the startups that have tried to wrest control of the delivery, pricing and accessibility of broadcast content. VuVision started a similar service in December 2009. By January 4, 2010, it consented to an injunction ending that service. iCravetv.com tried to stream network broadcasts from Canada into the US in 2000 and again was shut down. The decision is here. More recently FilmOn and ivi, T.V. attempted to stream arguing they were online cable companies. That effort failed.

But Aereo’s internet streaming service, unlike its predecessors, survived the 1^st round of litigation. Judge Alison Nathan denied plaintiffs’ motion for a preliminary injunction even though the Court found that Aereo’s system threatens plaintiffs with irreparable harm.  In response, Aereo immediately ramped up its marketing and intends to go nation-wide by next year. Plaintiffs have successfully moved for an expedited appeal before the Second Circuit. But if Aereo prevails, it will change the entertainment landscape. Thus, Aereo merits careful attention.

Background

Aereo enables consumers to use their internet-enabled devices to access free, live broadcast television through antennas and hard discs located at Aereo’s facilities. The user, after logging into Aereo’s website, activates Aereo’s system by selecting a program to record. In response a remote dime-sized antenna is dedicated to the user and tunes to the broadcast signal of the selected program.

The user records the selected broadcast signal on a cloud-based DVR for live viewing and, if the user chooses, viewing later. All content, whether viewed live or later, is recorded to enable functions such as pause and rewind. The recording created at the request of the user is a unique copy of a broadcast program that is then transmitted back to the user. The playback that follows is similar to that of a standard set-top DVR.

The Litigation

Even before Aereo launched its internet streaming service, big media pounced. 17 TV production, marketing and distribution entities brought two litigations now consolidated before Judge Nathan. After expedited discovery, plaintiffs moved to enjoin Aereo from allowing its users to play back content from their remote DVRs while the programs were being broadcast. Plaintiffs asserted in its pre-hearing memo that the playbacks were public performances within the meaning of the Copyright Act (the Act).

The public performance right is set forth in § 106(4) of the Act. Section 101 of the Act, in turn, broadly defines public performance. It states that to perform a work publicly means to “transmit or otherwise communicate a performance or display of [a] work … to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times” (referred to below as the transmit clause).

Plaintiffs asserted that Aereo’s streaming service violated the transmit clause because its antennas were “any device or process,” to transmit a performance of a work that was “capable” of being received by different members of the public in “separate places” and at “different times.”

Cablevision  

Aereo relied on the Second Circuit’s decision in Cartoon Network v. CSC Holdings (referred to as Cablevision). Aereo asserted that its service was the functional equivalent of the Remote Storage DVR (RS-DVR) Cablevision protected.  Its pre-hearing memo is here. The RS-DVR system in that case allowed customers without a stand-alone DVR to record cable programming on central hard drives remotely maintained by Cablevision. The recording produced a unique copy of the program to be sent to the customer on demand. The Second Circuit held that the transmittal of that playback copy to the subscriber was not a public performance.

Cablevision reached that result by treating the terms transmission and performance in Section 101 of the Act as synonymous. In other words, the appellate court viewed the transmittal as the performance: “we believe that when Congress speaks of transmitting a performance to the public, it refers to the performance created by the act of transmission.”

The Second Circuit also said that the transmit clause “speaks of people capable of receiving a particular ‘transmission’ or ‘performance’ and not of the potential audience of a particular work.” Because the circuit court considered the relevant performance to be the discrete transmission of each user’s unique playback copy, the “universe of people capable of receiving an RS-DVR transmission is the single subscriber whose self-made copy is used to create the transmission.” Under those circumstances each transmittal or performance was necessarily private.

Plaintiffs Not Likely to Prevail on the Merits

Judge Nathan found that plaintiffs were likely to win an injunction “but for” Cablevision. Nevertheless, the Court felt constrained to follow Cablevision finding that Aereo’s system was “materially identical” to Cablevision for 3 reasons. First, Aereo creates a unique copy of each TV program for each subscriber who elects to watch it saved to on a unique directory on Aereo’s hard disks assigned to that user. Second, the transmission Aereo makes from an individually functioning antenna to the subscriber is from that unique copy. Third, Aereo transmits that unique copy solely to the subscriber who requested it. Thus the Court concluded the act of playback, from a unique, user-made copy solely to the user who made that copy was not public performance.

The Court added that the performance remained private even though other users of the Aereo system may have been transmitting their own unique copies of the same performance to themselves. Further, the Court rejected plaintiffs’ argument that a public performance includes each step in the process by which a protected work wends its way to the audience. The Court stated that Cablevision, in determining whether the transmission was public, declined to look back or upstream to the point at which the cable system receives the transmission.

Plaintiffs Established Most of the Other Elements Necessary for an Injunction

Although Aereo thwarted plaintiffs’ attempt to establish a likelihood of success on the merits, the Court found that Aereo’s service threatened plaintiffs with irreparable harm. But the Court concluded that plaintiffs would not suffer the full magnitude of that harm during the pendency of the litigation. Further although the balance of hardships did not tip “decidedly” for plaintiffs, the Court found that public interest “would not be disserved” by an injunction. The Court suggested that Aereo’s system might dampen the motivation of copyright holders to make their creative works available to others.

Thus Aereo won, but barely. The Court felt it had no choice but to follow Cablevision even though the Court exposed plaintiffs to continuing irreparable harm and in the face of the public interest which the Court suggested would be served by the grant of the motion.

What’s Next?

The networks now face an unprecedented problem: Aereo is free until the Second Circuit rules to legally retransmit broadcast content without payment. Aereo is also not hampered by any licensing restraints nor does it have to share revenue with anyone. Aereo can therefore vastly underprice the networks thereby diminishing the value of their broadcast content they spent millions to create. Aereo has already announced a one-dollar, one-day pass. See the Wall Street’s Journal article (subscription may be required) outlining Aereo’s marketing options.

Further, Aereo is likely to encourage imitators to build similar transmission systems that track the business model Aereo approved. Improvements in technology and ease of use have sparked the growth of video streaming and with 50 million iPads in the hands of consumers the desire to cut the cord and watch TV from wherever is ever stronger.

The networks will argue before the Second Circuit (as they have in their motion to expedite) that there are significant differences between Cablevision and Aereo’s system. For one Cablevision was paying the networks for the broadcast content it allowed its subscribers to copy. Here Aereo is monetizing content it receives for free. Nevertheless, Aereo’s functionality mirrors a system Cablevision approved.

The Second Circuit will then be faced with a problem it has had before—whether to apply precedent that has led to unexpected consequences. I think the appellate court will reverse the denial of the injunction. There needs to be some copyright restrictions on the retransmission of broadcast content; otherwise why invest heavily to create it if we all can watch it for nothing. But what those restrictions will be remains to be seen. Stay tuned.

For my earlier take on the FilmOn and ivi, T.V. litigations click here and here. For some good analysis by Jessica McKinney at Bloomberg re the issues raised in Aereo click here. Do you have some predictions about where this will go and how it will turn out? Share them below.

.

Introduction by Andrew Berger

I am pleased to introduce Michael A. Einhorn to IP In BRIEF. Michael is an economic consultant and expert witness in the areas of intellectual property, media, entertainment, and product design. He is the author of Media, Technology, and Copyright: Integrating Law and Economics (2004) and over seventy related professional articles in intellectual property and economic analysis. He is also a former professor of economics at Rutgers University. Dr. Einhorn may be reached at 973-618-1212; his LinkedIn profile is here.

Section 504of the Copyright Act provides that the copyright owner may recover the profits made by the infringer resulting from its use of the copyrighted work. To establish the infringer’s profits, the copyright owner must present proof only of the infringer’s gross revenue arising from the infringement. The burden then shits to the infringer. It must prove its deductible expenses and the elements of profit attributable to factors other than the copyrighted work.

Where defendant appropriates the copyrighted work and sells it, a court will assume that the work triggered the purchase. The court then focuses on how much of the gross revenue generated by the sale is actually profit.

But how do you determine a defendant’s profits where it never sells the work it has appropriated and instead incorporates that work into another product, like a movie, a musical or an advertisement, which generates profits. Michael Einhorn, a noted economist and expert provides some guidance below.

Guest Post by Michael Einhorn

Imagine you are a young photographer and you’ve just taken a wonderfully creative shot and are selling it in a gallery. A prominent soft drink company buys the photo and modifies it with a new mission – in a commercial to promote a new brand of soft drinks.  The company then registers the copyright in its unauthorized derivative work in its name, thereby enhancing its control over their infringing photo.

When the commercial reaches national attention, you find shoppers in every supermarket now recognize your dramatic photo, but that photo seems lost irretrievably to you.

When you hire an attorney to recover copyright damages, your infringing soft drink company generously offers you $3,000, which an expert presents as a reasonable royalty that covers the actual damages lost by a non-distinguished person (you).  Because you failed to timely register your copyright with the Copyright Office, you cannot recover statutory damages of $30,000 (or more) that would be otherwise payable for a willful infringement, nor can you recover your attorney’s fees.

When you seek to recover the soft drink company’s profits arising from the sale of the drink, you are faced with the reality that your photo generated only indirect profits; that is, no consumer actually paid for the photo itself or for its use in any composite product (such as an album or movie). Instead, the photo was incorporated and used to sell another product, the new brand of soft drinks. Are you out of luck?

Thankfully, the answer is you no. You can still recover a portion of the profits from the sales of the soft drink if you can demonstrate that the photo contributed to those profits. Here are some suggestions for how you might do so.

Causation is Key

The critical element you must prove is causality — that the infringement caused or contributed to at least a portion of the profits defendant made. You will most effectively demonstrate causality through circumstantial evidence showing that the infringing use has such a secure nexus to the sales that a court may reasonably infer that the infringement actually enhanced or contributed to those sales.

Examples of Indirect Profits Attributable to the Infringement

Here are two examples where courts were able to make the reasonable inference between infringement and sales. In Andreas v. Volkswagen, plaintiff demonstrated a casual nexus between defendant’s use of his infringing text in an Audi commercial for a new coupe and Audi’s profits. The court noted that the infringement was the centerpiece of the commercial which essentially showed only the coupe with the copyrighted text in voiceover; Audi promoted the commercial as an integral part of the launch of the coupe and sales of the coupe during the period the commercial aired so exceeded Audi’s expectations that it paid a bonus to its ad agency.

Frank Music v. Metro-Goldwyn-Mayer  is another example where a court was able to draw the reasonable inference. There defendant infringed plaintiff’s musical composition by including it in a revue performed in its Las Vegas hotel. The appellate court held the defendant liable for a portion of the increased profits from its hotel and gaming operations that may have resulted from the increased patronage generated by the infringing show.

No Nexus Established

The Estate of Vane v. The Fair is an example of failure by plaintiff to show the required nexus. In that case defendant used plaintiff’s photographs without permission in defendant’s advertising campaign. But the court awarded plaintiff no portion of the profits that campaign may have produced.

The court noted that the photos, as a component in the advertisement, may indeed have helped generate interest in the defendant’s product. But the expert could not prove that the use of the work within the advertisement actually increased defendant’s revenues. The Court stated that “a lump sum figure for profits attributable to the television commercials that contained infringed material as a whole without accounting for the fact that the infringed material constituted only a fraction of the given commercial” was too speculative to compel the disgorgement of defendant’s profits. In fact, sales may have been no less had there been no infringement.

In other words, the photographer in my opening hypothetical can’t simply give a court the soft drink company’s annual report and demand the profits disclosed there arising from the sales of the new brand of drinks. Revenues result from many factors; the copyright holder and its expert need to show that at least one of those factors was defendant’s use of the infringing photo.

But once you jump this hurdle and establish the required causal nexus, the burden then shits to defendant to show its deductible expenses and any portion of its profits that defendant claims are attributable to factors other than the infringement.  So plan your strategy accordingly and your reward may justify your effort.

Thanks Michael; want to read more about proving damages in copyright litigation? Click here to read about why it is so difficult to predict an award of statutory damages in copyright litigation. And click here for a primer for non lawyers interested in learning more the availability and amount of statutory damages in copyright litigation.

Faced with a copyright infringement suit where your defense is fair use? Chances are you wouldn’t consider making a motion to dismiss at the outset. Instead, you will most likely contemplate  extensive discovery and an expensive summary judgment motion. Well, think again. The 7^th Circuit in Brownmark_Films_LLC_v_Comedy latest recently affirmed the district court’s grant of a motion to dismiss a copyright infringement suit based solely on a side-by-side comparison of the videos in question before the parties had engaged in any discovery.

The appellate court in tossing out the case notably took a swipe at “copyright trolls” whose “baseless shakedowns” incur “ruinous discovery.” Brownmark gives defendants with a fair use defense a useful road map for nipping litigation in the bud.

Background

Brownmark is a co-owner of a music video entitled What What (in the Butt) (“WWITB”) that features an adult male dancing and repeatedly singing the same cryptic phrase, “I said what what, in the butt” and “you want to do it in my but, in my but.” Its video is here.

South Park is an animated sitcom on Comedy Central that centers on the happenings of foul-mouthed fourth graders. South Park decided to parody WWITB to make fun of the popularity of viral videos on YouTube with little social value. On one South Park episode, entitled Canada on Strike, a character named Butters Stotch, dressed successively as a teddy bear, astronaut and a daisy, sings the central lines of the bawdy WWITB video. The South Park video also uses the same angles, framing, dance moves and visual elements as the Brownmark original. The South Park video is here.

The District Court Grants the Motion to Dismiss

Brownmark sued South Park and others for copyright infringement. The complaint referred to both versions of the WWITB video but attached neither. South Park moved to dismiss under Federal Rule of Civil Procedure 12(b)(6) claiming fair use and attaching both works to its motion. Brownmark responded that the district court could not consider fair use on a dismissal motion.

The district court disagreed. It found fair use, stating “[o]ne only needs to take a fleeting glance at the South Park episode” to determine that its use of the WWITB video is meant “to lampoon the recent craze in our society of watching video clips on the internet . . . of rather low artistic sophistication and quality.” The opinion is here.

On appeal, Brownmark again argued that fair use is a fact-based defense which therefore cannot be decided on a 12(b)(6) motion. The 7^th Circuit expressed sympathy for this argument noting that affirmative defenses “typically turn on facts not before the court at that [initial] stage of the proceedings.”

The Appellate Court Affirms Treating the Motion as one for Summary Judgment

But here the appellate court felt comfortable deciding fair use. That’s because the complaint alleged defendants had infringed only one South Park episode and did not further asset that defendants had made other infringing uses of plaintiff’s work.  Thus the circuit court had before it all it needed to decide the issue: “the [videos of the] original version of WWITB and the episode at issue.”

The 7^th Circuit was, however, concerned that the district court had used a motion to dismiss to end the case. Defendants argued that the incorporation-by-reference doctrine permitted them to submit the videos to support their motion without turning the motion into one for summary judgment. Although the appellate court stated it made “good sense” to apply that incorporation doctrine beyond documents to videos or television programs, no other appellate court had reached that issue. Under those circumstances, the appellate court felt no need to enlarge “the role” of a 12(b)(6) motion when the court could just as easily “treat” the motion to dismiss as one for summary judgment.

Plaintiff argued that, if it were now faced with a summary judgment motion, it would be disadvantaged by a lack of opportunity for discovery. It stated that, when the case was before the district court on a motion to dismiss, it could not have asked for discovery. The appellate court responded, “that is hard to believe. The caption on a motion does not have some independent authority that litigants or courts must respect.”

The appellate court found no disadvantage because it was “confident” that the district court would have “refused to grant” the types of discovery that plaintiff now claimed it would have sought below. The 7^th Circuit signaled the district courts they “need not, and indeed ought not, allow discovery when it is clear that the case turns on facts already in evidence.” The circuit court, mindful that “the expense of discovery” “looms over this suit,” added that plaintiff’s belated “broad discovery request, surely entailing expensive e-discovery of emails or other internal communications, gives Brownmark the appearance of a ‘copyright troll.’”

A Clear Case of Fair Use

Turning to the merits, the court found this an “obvious case of fair use,” stating that the “South Park episode is clearly a parody of the original WWITB video, providing commentary on the ridiculousness of the original video and the viral nature of certain YouTube videos.”

Some Lessons Going Forward

This case is a welcome judicial response to meritless copyright infringement litigation. When the defendant can demonstrate fair use through the court’s side-by-side comparison of the two works at issue, defendant should resist discovery and move either by motion to dismiss or for summary judgment attaching the works to its motion papers. The court, with all the facts needed for resolution before it, may follow Brownmark and make a determination. An early dismissal of a copyright infringement claim on fair use grounds has a public benefit as well. It will avoid choking protected, parodic speech with what Brownmark refers to as “ruinous discovery.”

What are your strategies for resolving fair use controversies? What’s your reactions to this opinion? Please share them below.

Want more on fair use. See my article entitled Is This Legal Alchemy? When A Copy of Another’s Work May Become Transformative For Fair Use Purposes. And for an explanation when a parody may be protected by fair use click here.

Those caught in costly trademark opposition and cancellation proceedings before the Trademark Trial and Appeal Board may be wondering how they might streamline their TTAB practice and achieve faster resolution on the merits. A webinar sponsored by the ABA Section of Litigation on July 26th may help.

The focus will be on more efficiently achieving a merits determinations in inter partes proceedings before the TTAB. Mary Margaret O’Donnell of the Blue Filament law firm (and co-chair of the Trademark Subcommittee of the IP Litigation Committee) has organized and will moderate what looks to be a fine program.

The panel consists of Hon. Peter W. Cataldo, Administrative Trademark Judge, Trademark Trial and Appeal Board  and  TTAB Interlocutory Attorneys Cheryl Goodman and George Pologeorgis.

Hope you can make it; and there is a substantial discount for Section of Litigation persons. For more information and to register please click here.

Sometime in 2013 we may experience the largest expansion of the Internet namespace in history. On June 13, 2012, ICANN (the Internet Corporation for Assigned Numbers and Names) announced the receipt of 1,930 applications from 60 countries for 1,409 new generic top-level domains or gTLDs. (A gTLD is part of the domain name or string to the right of the dot, such as .com., .biz or .org.) A list of applicants is here.

Owning a piece of the internet is expensive. The registration fee per application was $185,000. Plus applicants spent an estimated $75,000 to $150,000 in fees to the application. And those granted new gTLDs will assume the substantial costs of running a registry for their chosen domain.

Challenges for Brands

This expansion raises a number of challenges for brands, including

a. whether any of the new TLDs may infringe their marks;

b. whether brands for enhancement or defensive reasons should register 2^nd level domains in any prospective TLD;

c. whether brands should comment or file a formal objection attempting to block any proposed TLDs, including some generics that will be closed to all except the applicant;

d. what is the procedure brands should follow to comment or object to an application;

e. how will ICANN resolve disputes between mark holders; and

f. what safeguards will ICANN put in place to reduce infringement.

Some answers follow. But first a little warning and then some background.  Warning: this is a long post, despite some heavy editing. That’s because this expansion is a complicated many-step process filled with new concepts that need some explanation. Now to some background regarding who applied; why they did; and how they intend to use their gTLD:

Who Applied?

Donuts, Inc., a newly-formed company, filed the most, submitting 307 applications for generic names, including .academy, agency, .bargains and .beauty. Google was next submitting 101 applications; Amazon was third submitting 76 applications.

Why Did They Apply?

The intent varied. Many mark holders not surprisingly applied to protect their brands, including Apple (.apple), Coach (.coach.) and Google (.google). More than 60 cities and geographic regions applied to secure geographic domain names including .berlin, and .istanbul. 116 applicants sought internationalized domain names for various strings including in Arabic, Chinese and Japanese. Others like AAA applied for defensive reasons to prevent others from securing their marks.

How Will Applicants Use their Domains?

Some domains will be open; others restricted and still others locked to all except the applicants. Entrepreneurs like Donuts will open its domains hoping to recoup its substantial investment of some $56 million in application fees alone through sales of second-level domains.

Brands like Gallo and Fox will restrict their domains to increase brand equity. Thus Gallo Wine will operate .barefoot as a restricted registry to promote brand identity. Similarly, Fox may use .fox to highlight its characters and news anchors such as billoreilly.fox.

Google and Amazon will lock even generic domains and throw away the key. For example, Google will operate .cloud as “sole registrar and registrant.” Amazon intends to bar all but it from access to the 76 domains for which it applied, including 57 generics such as .drive and .search. So much for ICANN’s desire to increase consumer choice on the Internet.

Public Comments

Brands have until August 12 to submit a public comment regarding any application. The comment may be based on any of the four formal objection grounds ICANN established in the Applicant Guide. The two objection grounds brands are likely to raise are what ICANN refers to as “string confusion” and “legal rights.”

A string confusion objection alleges that a proposed string is confusingly similar to an existing TLD or another applied-for gTLD. A legal rights objection alleges the “potential use of the applied-for gTLD by the applicant takes unfair advantage of the distinctive character or the reputation of the objector’s registered or unregistered trademark or service mark.”

ICANN’s evaluators will give whatever weight they wish to the comments; none will block an application. For more on the form and substance of public comments click here.

To date, although the comment period is nearly over, brands have been silent filing no comments. Why? My guess is that they have concluded that comments have limited value. Instead, only individuals have filed substantive comments based on string confusion or a legal rights objection. One person noted that American Broadcasting Company’s application for .abc. conflicts with the Australian Broadcasting Corporation’s domain abc.net.au. Another commented that .kiwi is a common term for New Zealanders already served by the country code TLD, .nz. And another advised that under Australian law only that country’s Royal Navy may use .navy and .oldnavy. For all comments posted click here.

Formal Objections

ICANN’s announcement of its receipt of applications on June 13 also triggered an approximate seven-month window for certain parties to submit formal objections to an application.

One objecting must direct the objection to one of the four dispute resolution service providers (DRSPs) with whom ICANN has contracted. Filing a formal objection then initiates a dispute resolution. Further, unlike public comments that anyone can make, those objecting need standing.

As mentioned above, brands are likely to raise two objections: string confusion and legal rights.

String Confusion

Only an existing TLD operator or gTLD applicant may raise a string confusion objection which it must direct to International Centre for Dispute Resolution, a division of the American Arbitration Association. String confusion abounds. There are at least two applicants for 231 gTLDs accounting for 751 applications or nearly 40 % of the applicant pool.

How will the International Centre resolve a string confusion objection; here are the possibilities:

a. If a TLD operator successfully asserts string confusion with an applicant, the application will be rejected.

b. If a string confusion objection by one gTLD applicant to another gTLD application is unsuccessful, both move forward in the process without being considered in direct contention with one another.

c. If a gTLD applicant successfully asserts string confusion with another applicant, the only possible outcome is for both applicants to be placed in what ICANN refers to as a contention set.

There are in turn four ways out of a contention set: (i) withdrawal of the application; (ii) private resolution; (iii) determination based on what ICANN refers to as community priority (which applicant has the closest nexus and support from the community associated with the string); and (iv) as a last resort, auction.

Legal Rights Objection

Only the holder of a registered or unregistered mark may raise a legal rights objection. The mark holder must direct the objection to the World Intellectual Property Organization (WIPO). If a legal rights objection is successful, the gTLD application will be terminated. For more on WIPO’s practices click here.

The DRSP panel may only determine the merits of the objection and cannot award damages. The party objecting has the burden of proof and in almost all cases the panel will decide the objection based on the pleadings.

To date, no formal objections have reported on the websites of the DRSPs.

Suggestions for Brand Holders

With this background in mind, what should mark holders be doing to protect their interests? Here are some suggestions.

1. The first and most obvious is brands should scan the list of applicant strings to determine whether any raise infringement issues. Thankfully, there appear to be few such issues. Here are some:

a. Guardian Media v. Guardian Life competing for .guardian;

b. Coach (the handbag maker) v. Donuts over .coach;

c. Citigroup seeking .citi v. the three applicants seeking .city;

d. Merck KGaA v. Merck & Co. Inc. over .merck;

e. Chanel Intern. seeking .chanel v. Google seeking .channel; and

f. Desi Networks v. Afilias Domains over .desi.

Further, although the Australian Broadcasting Company did not apply, it may have a legal rights objection with respect to ABC’s application for .abc.

Brands must file a legal rights objection to block a perceived infringement; a comment will not do. But how will WIPO adjudicate an objection where both parties have been legitimately using the domain name albeit in different parts of the world?

Could for instance the Australian Broadcasting Co. block ABC’s attempt to obtain a gTLD for .abc? I doubt it.

The Australian Broadcasting Co as objector would have to show that the ABC Network was planning to use the mark to take unfair advantage of objector’s mark. Such a showing is unlikely. Further the objector would be unable to show that ABC Network had not used .abc with a bona fide offering of goods or services. And ABC Network will argue that it is simply making a new use of the .abc mark, which is one of the anticipated results of the domain expansion.

And what about the possible battle between Coach and Donut’s application for .coach? I rate that a toss-up. Coach is the trademark holder and therefore would seem to have a leg up. But Donuts will argue it is not taking unfair advantage of the Coach mark. The word “coach” has a number of common law uses including sports and business coach; and Donuts will claim it intends to use this domain to highlight those non-infringing uses. This one will likely go to auction if the parties cannot resolve it.

A word about auctions. The winner to prevail may have to increase its costs dramatically. Some speculate that if Google and Amazon square off in an auction the winning bid may be in 7 figures. And the loser will have spent thousands for nothing.

2. Next brands should again scan the list of gTLDS and determine where they wish to register second-level domains either for brand enhancement or defensive reasons. But keep in mind that almost all brand TLDs will be closed to competitors and even some attractive generic TLDs will be restricted. For example, if L’Oréal is granted the .beauty TLD, L’Oréal will delay and possibly deny third-party registrations in that domain.

3. Brands may find that some of the registries where they wish to register second-level domains will be locked up. For instance, if Google wins .cloud, it will retain ownership of all domains in that registry. In that case brands should consider making public comments regarding the restrictive or exclusionary policies of some of the generic TLDs.  Public comments, despite their lack of clout, are the only way for brands to complain about these policies. Brands cannot make a formal legal rights objection because a generic domain does not raise an infringement issue.

Trademark Clearinghouse

4. Further, brands may take steps to protect their marks by registering them with the Trademark Clearinghouse that ICANN intends to establish. The Clearinghouse will be a central depository and database that will contain a list of marks deposited by trademark owners.  Brands may register their marks with the Clearinghouse even if they are not registered with the Trademark Office.

Registration will give brands two benefits: the Clearinghouse will notify a brand if others seek to register a second-level domain whose string is identical to the brand’s mark. The clearinghouse will also give the brands the opportunity to file “sunrise applications” or new second-level registrations during a minimum of 30 days in the pre-launch phase of the   registry, thereby preventing 3rd-parties from registering the identical domain. But brands will not be notified if others attempt to register second-level domains to take advantage of possibly typographical errors. Thus Apple will not be notified if someone attempts to register iipad.Apple.  The fee for Clearinghouse protection is expected to be about $150 per year. For more on the Clearinghouse click here.

What’s Next?

Will this new namespace draw the growing Internet community? Certainly the applicants who collectively spent more than $350 million in application fees think it was worth it. But as search engines grow in sophistication, domain names become less important. Only time will tell if the new domains (whenever they launch) gain traction.

Do you have any ICANN-gTLD experiences you would like to share or comments about this expansion. Please post them below.

Want more information on this domain name expansion; there is much material; here is where you might want to start:

See my earlier piece here raising the pros and cons in applying for a gTLD; see also BrandShield’s comprehensive gTLD Application Report for Trademark Owners; it places all the applications in categories for easy review; further see my colleague Don Prutzman’s fine piece on the gTLDs here. In addition, for a useful collection of comments from other attorneys re brand protect see Amy Bivin’s piece in Bloomberg here; and for a comprehensive and clear discussion of all the issues relating to the domain name expansion see the article by Dennis Prahl and Eric Null in the Trademark Reporter here.

I will speak at a GOAL (Global Outsourcing Association of Lawyers) webinar on July 10, 2012 re one of the  most significant changes to the Internet, ICANN’s expansion of the namespace to include an unlimited new number of generic top-level domains (gTLDS) in any language.

I will cover the following:

a. Who applied for a gTLD  and why

b. How will ICANN handle contention sets

c. What three entities submitted the most applications

d. How do the applicants intend to use their domains

e. The public comment period and the comments received to date

f.  What is a formal objection and to whom must it be submitted

g.  How will the dispute resolution service providers handle formal objections

h.  How will the auctions be run if those applicants with the same or similar strings fail to compromise

i.  Some guidance for  brand owners going forward

For more information and to register click here.