IPLJ - Fordham Intellectual Property, Media & Entertainment Law Journal Blog

Apr. 23, 2012 // by Bill Crowe

Costs to Third Parties in Battle over Online Copyright Infringement

After file sharing (or “cyberlocker”) website Megaupload was taken down by law enforcement on January 19, 2012, the companies charged with storing data relevant to the case have begun to complain about the costs of letting their servers sit unused. In fact, Carpathia Hosting has petitioned the District Court for the Eastern District of Virginia for emergency protection from the “undue expense and burden” of maintaining the data, claiming $9,000 a day in storage costs and lost profits.

Carpathia isn’t the only one complaining about the files being taken offline; owners of non-infringing data on the same servers are unable to access their own content. ”Cyberlocker” websites are estimated to account for about 7% of all Internet traffic and Megaupload was one of the biggest, so while the Justice Department determined that it needed to be shut down, there are lingering questions about what to do while the case is pending. Who should pay for upkeep of the information? Who should be tasked with determining what data from those servers can be made available? Considering the size of the seized data alone (25 million gigabytes, or about “50 Libraries of Congress“), these questions leave a lot of money, and a lot of information, hanging in the balance.

And for good measure, here’s the Department of Justice statement on the case.

0 Comments // Blogroll, Copyright, Internet

Apr. 22, 2012 // by Elizabeth Marren

Arms Race for Patents

Patent litigations between competing high tech companies have become standard business practice. In recent years, patents have increasingly gained importance in the high-tech industry as tech giants such as Google, Microsoft, Apple, Facebook and others have sought to stockpile patents in order to sue their competitors and to ward off lawsuits. Companies are willing to dish out a tremendous amount of cash for the greatest arsenal of patents for their large portfolios.

Ironically, high tech companies are looking through portfolios of antiquated tech companies in order to find patents that will position them in the forefront of the technological world. One example is Microsoft, which recently purchased 800 AOL patents and negotiated licensing agreements on approximately 300 more.

This $1.06 billion dollar deal between Microsoft and AOL has obvious benefits for AOL, an online service that has spent the past decade attempting to reinvent its obsolete services. The influx of cash and boost of stock prices has already paid off for AOL. As a result of the transaction, AOL shares have risen to their highest level in the past year. Its stock rose $7.83 (43%), to $26.25 in midday trading. This transaction was paramount to AOL’s stockholders, including its largest shareholders, who have been asking for more return on their investment. The loss of patents will probably not hurt AOL in the future because the company has made a clear shift in their focus towards media; they have recently acquired The Huffington Post and TechCrunch.

A Microsoft patent application.

However, at first glance the benefits for Microsoft are not as apparent. The patents they acquired in the transaction appear to have little value. Among the patents that Microsoft bought are patents related to the antiquated browser from the 1990s, Netscape. AOL purchased Netscape in 1999 for 4.2 billion in stock. However, to AOL’s dismay, the browser was short-lived. The obvious question here is then why did Microsoft want this archaic piece of technology? Additionally, why did Microsoft want some of the other patents in the purchased bundle including Secure Socket Layers (SSL), cookies, and Javascript.

The best answer is that those technologies are at the core of the way the Web works. While the particular product may not in itself be a goldmine, the patents purchased relate to particular functions of the web.

High tech products are particularly vulnerable to patent litigation because of their complexity. For example, one smart phone could have hundreds of thousands of patents. Consequently, Microsoft, like its competitors, may have attempted to accumulate as many of these patents as possible in order to prevent litigation.

However, given the current hostilities between the big tech companies, Microsoft may have had additional incentives for these patents. Some argue that the sole purpose for Microsoft’s billion-dollar purchase was to attack Google. Currently, Microsoft and Google are litigating over patent infringements related to Android.

Microsoft has already had run-ins with Android. Threats of recent litigation have even resulted in getting licensing fees from many Android device makers. Just to convey the magnitude of these litigations, it is notable to point out that last year, Microsoft was making more from its suits over patents concerning Android than from Windows Phone 7, their own product. In fact, HTC Corp., makers of Android-compatible cell phones, paid about $5 for every devise sold that uses Android.

David Drummond, Google’s Senior Vice President and Chief Legal Officer, has acknowledged that the other tech giants are acquiring arsenal in the form of patents to bring down Google. In a recent blog, he wrote that there is “a hostile, organized campaign against Android by Microsoft, Oracle, Apple and other companies, waged through bogus patents.” Additionally, Christopher Martlett, the CEO of MDB Capital, an investment bank that focuses on intellectual property, says he “believes the AOL deal was driven by the rivalry between Google and Microsoft.” Rob Enderle, a principal analyst with the Enderle Group, agreed with Martlett that competing with Google could have been the primary reason for the transaction when he said, “Google has proven particularly inept when it comes to patents suggesting a deep vulnerability so I expect that will be Microsoft’s primary short term use.”

Google may have a target on its back due to its noteworthy acquisition of 17,000 patents when it bought Motorola Mobility for $12.5 billion last August. In a race for patents, the rest of the tech community certainly could not ignore this very large trove of potential gems.

The director of the United States Patent and Trademark Office, David J. Kappos, noted that patent wars are not new phenomena. In fact, there have been heated patent battles throughout industrial history with regard to steam engines, automobiles, and airplanes. However, he indicated that he believes that the current tech patent battle is different when he said, “[T]hose wars played themselves out in slow motion compared to what we’re seeing now . . . What’s different is the pace of technological change and market development. So the stakes are a lot higher, a lot faster.”

Most likely patent wars will continue and companies like Microsoft will continue to arm themselves with the greatest amount of patents in their portfolios. It is possible, however, that companies may determine that a truce may behoove them and resort to working out patent issues through negotiation of royalty rates.

0 Comments // General, Patents

Apr. 21, 2012 // by Tiffany A. Miao

Tweet tweet! Are Twitter followers a trade secret?

All secrets might not be trade secrets, but apparently trade secrets might not actually have to be secret?

Back in July of 15, 2011, PhoneDog LLC filed suit against its former employee, Noah Kravitz, over the ownership of a Twitter account, “@PhoneDog_Noah.” PhoneDog had hired Kravitz as a phone reviewer and video blogger and gave Kravtiz permission to access and use the Twitter account. When Kravtiz resigned from the company in October 2010, PhoneDog requested that he discontinue his use of the Twitter account and relinquish its access information back to the company. Notably, at that time, “@PhoneDog_Noah” had garnered around 17,000 followers. Kravtiz refused to discontinue the use of the account, and instead changed the Twitter handle to “@noahkravtiz.”

In PhoneDog’s original complaint, the company sued Kravtiz for misappropriation of trade secrets, intentional and negligent interference with prospective economic advantage, and conversion. With regard to its trade secrets claim, PhoneDog alleged Kravtiz misappropriated confidential information that included the password and followers of the Twitter account. In its complaint, PhoneDog claimed it also suffered a total of $340,000 in compensatory damages ($42,500 for the eight months Kravtiz used the account prior to filing this suit), based on the calculation that each Twitter follower is worth $2.50.

Kravtiz moved to dismiss the complaint under Rule 12(b)(1) and 12(b)6). In his Rule 12(b)(1) motion, Kravtiz asserted the amount in controversy could not have been more than $8,000 based on industry standards. In addition, Kravtiz asserted the account’s password and followers were not trade secrets. On November 8, 2011, the District Court denied Kravtiz’ 12(b)(1) motion, finding the amount alleged too intertwined with the merits of PhoneDog’s claims, namely whether the company has any property interest in the Twitter account. The court also denied Kravitz’ 12(b)(6) motion for PhoneDog’s trade secrets and conversion claims while granting his 12(b)(6) motion for PhoneDog’s intentional and negligent interference with prospective economic advantage claims. A few months later, PhoneDog filed an amended complaint for its intentional and negligent interference with prospective economic advantage claims. Kravtiz’ motion to dismiss those claims was denied on January 30, 2012.

The District Court’s determination that PhoneDog sufficiently pled its misappropriation of trade secrets claim suggests that subscribers to a social networking account such as a Twitter account may in fact constitute trade secrets. Kravtiz, in his motion to dismiss, argued that the Twitter followers “are not secret because they are and have been publically available for all to see at all times,” and the Twitter password fails to derive any actual or potential independent economic value. Despite these seemingly obvious reasons, the District Court concluded that whether or not the followers and password constitute trade secrets requires a “fully-developed evidentiary record,” and that such challenges would be more appropriately raised on summary judgment.

At this point it still seems obvious that Twitter followers cannot be trade secrets, and Twitter accounts as whole are not trade secrets. How can something so public be a secret? A common trade secrets claim that may be analogized to that of Twitter followers is one over customer or client lists. Customer lists have long been recognized as “information” that qualifies for trade secret protection. The proprietary information in customer lists may vary, but most claims tend to include the names of customers, specific customer preferences, and pricing strategies. Moreover, for such a customer list to be a protectable trade secret, the secrecy of the information needs to give the trade secret owner some sort of competitive advantage over its competitors. When a company spends years developing its customer list, reaching out to selected clients, and establishing strategic relationships with those clients, the customer list will be protected as a trade secret. Of course, the company would also maintain the list’s secrecy.

In comparison, it is hard to see how Twitter followers can be a trade secret. Aside from the obvious fact that the followers are not a secret, there is also a strong argument that the followers are not even “information” eligible for trade secret protection. The list of followers on a Twitter account merely displays the Twitter handles of other Twitter accounts, which are not always actually even a real name. Furthermore, for a competitor to possibly gain any more information, that competitor would have to click on the individual Twitter account to see if the account holder provided any valuable information. And, in most instances, an individual’s Twitter account fails to even offer contact information or anything more of value to the business. Just on this basis, it would be a stretch to label a list of Twitter followers as “information.”

Another important element of a trade secret is that it needs to derive independent economic value, actual or potential. Generally, if a company can show that its customer list is the but-for cause of its success or provides similar evidence that the list gives the company a competitive advantage over its competitors, this factor would weigh in favor of finding the list is a valid trade secret. Sure social media plays an important role in a company’s business, and in particular its brand awareness, but its economic value to the company is questionable. In essence, PhoneDog would have to prove that without those Twitter followers, it loses the competitive advantage of its business. Although PhoneDog did argue that the followers were pivotal to its “economic relations with its advertisers,” the possible increase in traffic to its website, the company’s actual business, merely reflects a potential revenue stream rather than a competitive advantage. Ultimately, Twitter followers can follow whomever they want and however many businesses they want—one follower may follow PhoneDog while also following the company’s competitor—effectively eliminating any advantage.

The essence of a trade secret is “the secrecy of the information” that gives the owner a competitive advantage over its competitors. Just looking at Twitter account, nothing is secret. The content posted and the followers are clearly not a secret. Arguably, the benefit of a Twitter account is the visibility of its followers, because the number of followers and perhaps who some of the followers are contribute to the reputation of the company. As such, it actually makes less sense for a business to claim that its Twitter followers are trade secrets.

0 Comments // Internet, Technology, Trade Secret

Apr. 19, 2012 // by Darius Samerotte

With YouTube in its Cites, the Second Circuit Hands Viacom a BB Gun

While SOPA and SOPA 2.0 have been getting all the attention, the Digital Millennium Copyright Act (DMCA) is still very much alive, and the Second Circuit recently handed down an important decision interpreting the statute. Unfortunately for YouTube, which had been granted summary judgment, the decision revives the litigation, and the decision has been called a major defeat for the site and user-generated content sites in general. While it is hard not to call it a loss, it is not a bad one, with the Court of Appeals generally agreeing with the district court. However, the court did give content providers a couple of new avenues of attack, which may make the Second Circuit a slightly more popular venue for future infringement suits.

Background

As we wrote previously, Viacom, a major content provider, sued YouTube in 2007, alleging that clips hosted on the site violated its copyrights. YouTube argued that the site was protected by the safe harbor provisions of the DMCA (§512(c)), and Judge Louis Stanton in the Southern District of New York agreed, granting summary judgment. Of course, with over a billion dollars on the table and important precedent on the line, the story was not going to end there.

Knowledge of Infringing Material

The main question on appeal was how much could YouTube know about the existence of infringing content and still be protected by the safe harbor provision? Clearly, having actual knowledge of specific infringing material would disqualify the site. The statute is clear on this point: “does not have actual knowledge that the material . . . is infringing,” §512(c)(1)(A)(i). However, the statute contains a second, related provision: “in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent,” §512(c)(1)(A)(ii). The controversy revolved around this second, “red flag” test. A couple of surveys suggested to the court that YouTube was generally aware that there were a significant number of infringing videos. However, because the statute requires removing the infringing material, the court, affirming the district court on this point, held that only knowledge indicating specific instances of infringement will disqualify a service provider. Otherwise, it would be impossible for a service provider to comply (i.e., to take down the content).

Viacom argued that if the “red flag” test requires knowledge of specific infringing activity, it is superfluous, since the actual knowledge test requires the same. However, the Second Circuit distinguished the two based not on specific versus general knowledge but rather on subjective versus objective standards. That is, the “red flag” test is really asking whether a service provider was aware of facts that would lead a reasonable person to find specific infringement (i.e., an objective standard).

Without an obligation to followup on a general awareness of infringement, sites effectively put the burden of policing content on copyright holders. With courts being consistently unwilling to shift some of this burden to the sites, it seems likely that content providers will continue to lobby Congress for SOPA-like legislation.

So why is YouTube not celebrating? The court points to a few emails leftover from their startup days that discuss specific, infringing material. The district court has been charged with determining on remand whether any of the mentioned videos are part of the suit.

Lastly, the court touched on the common law doctrine of willful blindness, holding that it is applicable in copyright cases and should be analyzed by the district court on remand. However, there was little discussion of how the doctrine should be applied, which may leave many UCG sites wondering how to deal with the issue moving forward. (The court only cites In re Aimster, 343 F.3d 643, where the online service provider intentionally encrypted all communications, such that it would be impossible to ever determine the identity of an infringer.)

Vicarious Liability

Going back to the Second Circuit’s decision in Shapiro, Bernstein & Co. v. H. L. Green Co., 316 F.2d 304, the common law has recognized the doctrine of vicarious liability. The DMCA codifies it by stating that a service provider cannot “receive a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity,” §512(c)(1)(B).

Courts have struggled in applying the doctrine in the Internet context though. The district court, as well as the Ninth Circuit in UMG Recordings v. Shelter Capital Partners, 667 F.3d 1022, responded by reading in a knowledge component, but the Second Circuit rejected this approach, reversing and remanding, as it would be duplicative of the knowledge prong if so interpreted. The court also rejected Viacom’s approach, where having the ability to block a user’s access constitutes control over. Because the statute presumes such an ability, this interpretation would leave the statute internally inconsistent.

Instead, the court, like several before it, adopted a “something more” standard, something beyond just being able to remove or block access to a user. There is little guidance given beyond that though, and only one example of qualifying behavior is discussed: a provider exercising a high-degree of editorial control, directing layout, appearance, and content, as in Perfect 10, Inc. v. Cybernet Ventures, 213 F. Supp. 2d 1146.

Part of what seems lost in the discussion is the inability of the doctrine to scale along with the ever-increasing size of the Internet. Where a department store could police a kiosk with which it shares profits, how could one argue that YouTube has the right and ability to control the 8 years of content uploaded every day? After all, ability is not just having the power to control; exercising that control must also be feasible.

“By Reason of” Storage

The court also confirmed that the safe harbor covered more than just digital, storage lockers, including YouTube’s conversion, playback, and “related videos” features. This result is very reassuring for YouTube and other UGC sites, even if it was somewhat expected. However, once again, YouTube may have stepped slightly over the line when it “syndicated” a number of videos to Verizon Wireless. While none of these videos were part of the present suit, the court remanded to determine whether any of the clips that are in the suit were syndicated to any third party.

Conclusion

As far as reversals go, YouTube fared quite well. Affirming the district court’s holding that knowledge of specific instances of infringement is required for liability is an important win for UGC sites. The court also makes it clear that the safe harbor protects against “all affirmative claims for monetary relief,” leaving only injunctive relief available. On the other hand, copyright holders were given a willful blindness doctrine, but it remains to be seen how effective this will be in practice. They also have a vicarious liability test that does not require knowledge, but this is hardly a victory, given that it just follows the common law test in this regard but now has a heightened standard. Nevertheless, this formulation seems preferable to the plus-knowledge test adopted by the Ninth Circuit and may make the Second Circuit the preferred venue.

In short, little has changed; however, some of this ambiguity may translate into lengthier (i.e., more expensive) trials as there are now more ways to survive summary judgment. This may leave UGC startups with less to celebrate, but it seems likely that YouTube, even in the worst case, will avoid most liability.

0 Comments // Copyright, Entertainment, Google, Internet

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Apr. 18, 2012 // by Marissa Stamler

No more fakes?

The U.S. International Trade Commission has ruled in favor of Louis Vuitton in a counterfeiting lawsuit after 15 months of investigation. Could this landmark ruling really mean the end to the fake bags on Canal street?

Read more about it here, here, and here.

0 Comments // Blogroll, Counterfeit