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Highlights of the 2013 Copyright Society Annual Meeting II

Here of some highlights from today’s sessions at the annual meeting of the Copyright Society of the USA, Bolton Landing, NY June 11, 2013

Panel on Future of TV and Radio Copyright Litigation: Elenor Lackman, Bruce Joseph, Kelly Klaus, David Leichtman, Fritz Attaway

  • David Leichtman gave overview stating with Sony
  • Bruce Joseph suggest courts get deep in the weeds to understand he nature of technology and suggest that it really matters, is this a good thing? Every defendant raises fair use, courts ask what is the nature of the harm
  • Kelly Klaus suggest services are being designed around judicial system, good guy bad guy matters in these cases, is this critical innovation or attempt to skirt copyright law
  • Fritz Attaway suggests judges are often unfamiliar with new technologies and cases have been mostly correctly decided except Aereo
  • Discussion of rights and wrongs of Cablevision and Aereo cases
  • David Leichtman points out none of these cases have been tried
  • Existing copyright remedy structure may not fit these cases, maybe we should be looking at those
  • Fritz Attaway suggests man of the services at issues never got traction with consumers, consumers are mostly using services where copyright owners are getting paid and service providers are making money, that’s really what we want

Criminal Copyright Enforcement: Joe Demarco, Paul Doda, (Elsevier) Ed McCoyd (AAP), David Szuchman (NY County D.A.)

  • Manhattan DA has cybercrime and identity theft bureau, work extensively with federal investigative agencies
  • NY Failure to disclose origin of recording statute can apply, affects CDs and DVDs, associated laws make criminal manufacture, sale and operation of device
  • NY statute prohibits unlawful use of secret scientific material, unlawful duplication od computer related material
  • Advantages of criminal: deterrence, expanded resources, discovery advantages, additional charges
  • Call DA sooner rather than later
  • Pros: faster, cheaper, gov’t evidence gathering advantage, deterrence
  • Cons: loss of control, no damages, fickle nature of gov’t priorities, inability to pursue civil actions or use criminal to coerce settlement

Panel Regarding Library Digitization of Books: Marybeth Peters, Jan Constantine (Authors Guild); Jack Bernard (U Michigan), Joseph Petersen, Ed Rosenthal

  • Demo of HathiTrust website www.hathitrust.org
  • Orphan works project has been abandoned for now because expensive and poorly implemented
  • Discussion of advantages of digitization for the disabled and for preservation
  • Debate concerning whether new legislation is needed or proper to analyze under existing structure as Supreme Court did in Sony
  • HathiTrust is adamant that digitization project is fair use

Highlights of the 2013 Copyright Society Annual Meeting

Highlights from the first days sessions at the annual meeting of the Copyright Society of the USA, Bolton Landing, NY June 10, 2013.

Maria Pallante, Register of Copyrights gave an update on activities at the Copyright Office.

  • Cell phone unlocking requirements will be continued, likely by reinstating recently expired exemption in the DMCA, although present DMCA exemption is not as effective as consumers think.
  • Hearings regarding review and potential update of copyright law will begin in the fall, areas of interest are: (1) scope of exclusive rights; (2) updating exceptions and limitations; (3) first sale; (4) formalities; (5) orphan works; (6) mass digitization; (7) updating enforcement provisions; (8) review DMCA; (9) statutory damages; (10) small copyright claims; (11) educational use; (12) litigation reform; (13) a few other issues on a slide she went through too fast for me.
  • Copyright Office Budget is 2/3 fees, 1/3 appropriations, Maria feels gov’t should pay, entire copyright system should not be funded by copyright owners because various stakeholder benefit, fees would increase tremendously; reserve fund is important.
  • Copyright Office is reorganizing, adding senior positions:  Director of Repositories; Director of Information and Education.
  • Copyright Office is studying and making recommendations for updating Copyright Office technology and databases.
  • Copyright Office Compendium III is coming.
  • Copyright Office staff training lunches with market participants will be open to the publics
  • Podcasting Nimmer 50th anniversary events, hoping to podcast more events, video will be up on Copyright Office site in 2 weeks
  • Maria’s comments on the utility of reviewing the Copyright Act are available on the Copyright Office website:  www.copyright.gov

There was a panel discussion on authorship and fixation, focusing on Chapman Kelley v. Chicago Park District (landscaping is not copyrightable)

  • Hillel Parness of Robins Kaplan moderated, Chapman Kelley was on the panel, with Rob Kasunic of the Copyright Office, June Besek and Martin Schaefer
  • Courts ruled against Kelley holding that he did not have a copyright in his landscape design, district court held that wildflower works were not original because natural; court of appeals said not fixed because perishable  Hillel did a nice job using Monty Python and the Holy Grail to set the scene, clearly fair use and the highlight of the day;
  • Discussion of the bowl of food case
  • What about ice sculpture?  Clearly perishable, subject to copyright?
  • Books written by computer?  The Policeman’s Beard
  • Monkey takes a photograph, copyrightable? Does the author have to be human?
  • Chapman Kelley offered the following.  He is a painter. Wildflower works started as a way to make a larger painting than could be done on canvass.  Live material v. dead material was an issue at trial.  He paints on canvas with natural pigments, those degrade over time, so do all paints. Effect of decision on artists is that it has become a damper, artists feel this a limit on art.
  • June Besek gave a historic overview of fixation and authorship issues.
  • Rob Kasunic – courts are struggling with these issues, legislation not entirely clear, offered a number of works for consideration of issues of fixation and originality, would gardens be published or unpublished?
  • Martin Schaefer – fixation typically not required in Europe, works of garden art specifically included in some countries, Russia for example, but not France or Italy, in Germany, moral rights applied to garden works.

Bob Clarida gave his annual update of last year’s copyright highlights.  With respect to substantial similarity he discussed Blehm v. Jacobs and Harney v. Sony Pictures, both discussed and illustrated in Substantial Similarity in Copyright Law.

Making the Digital Deal, panel featuring Lisa Weiss, Stephen Dallas (Warner Chappell), Steve Englund, Elizabeth Moody (YouTube), Alexis Shapiro (The Orchard) focusing on key deal points in digital licenses

  • Scope of grant of rights – defining authorized devices can be complicated, sublicensing rights to have use on third party sites, content owners still trying to limit rights granted to what is actually necessary, service like the Orchard needs to navigate both sides, threshold question is what exactly is the licensee doing and how may that foreseeably change, music publishers reluctant to give “all rights necessary”, service should know the rights it needs, don’t want to have to renegotiate every time service evolves, MDY v. Blizzard re: cheats, condition must go to one of the exclusive rights or involve payment, everything else is a covenant which only give rise to damages for breach
  • Scope of content commitment – licensees want to know they’re getting as much content as competitors, limited exclusives short of most favored nations, if you want all content you have to promise to actively distribute all
  • Holdback and takedown – negotiate takedown when licensor loses rights or if third party claims licensor does not have rights, need time frames for takedown, YouTube allows licensors to block user video
  • Representations, warranties and indemnities – aggregator indemnifies licensed services, gets similar warranties and indemnities from its licensors, for startups can cap liability on indemnity but carve out crucial indemnities from cap, indemnity only as good as indemnitor
  • Data reporting and sharing – seeking uniformity of reporting and maintenance of data, aggregate v. personally identifiable information, U.S. v. international, inconsistent reporting requirements is a problem
  • Transcode – right to change into different formats
  • Window – grant a right for a limited “window” of time
  • Provide for what happens to digital files at the end of the term

There is no lobster dinner this year to the disappointment of many.  Joe Salvo, President CUSA, took the blame and apologized.  Barry Slotnick offered to bean him in the annual softball game.

 

 

Product Manuals and Copyright

Equipment manufacturers can gain a measure of control over distributors and repair shops by registering and enforcing copyrights in their product manuals. Notwithstanding their highly factual and utilitarian purpose, courts typically hold that manuals involve enough creativity to be copyrightable. Such creativity may be comprised of the wording of the text, the creative elements of photographs of the machine’s parts, or the selection, coordination or arrangement of the material in the manual. The Copyright Office willingly allows copyright registration of manuals, and by registering the manufacturer not only positions itself to sue competitors or unauthorized repair shops who copy the manual, the manufacturer gains the added advantage of a presumption that the manual is in fact copyrightable. Court challenges to the copyrightability of manuals generally have failed, even where the manufacturer is engaged in a regulated industry, such as the aircraft industry, and certain aspects of its manuals are required by government regulations.

Although the copyright in a manual does not prevent third parties from disseminating the facts contained in the manual, by gaining control over dissemination of the manual itself, the manufacturer makes it difficult for unauthorized personnel to access those facts. Manufacturers can strengthen their control by licensing their manuals to authorized distributors and repair shops only, and including in those licenses prohibitions on further copying or dissemination, or even limiting access to password protected Web sites, typically without running afoul of antitrust laws. Manufacturers can go even further by identifying information necessary for repair as trade secrets, and even further restricting its dissemination. Whatever degree of control the manufacturer chooses, exercising such control makes it difficult for unauthorized repair shops to compete with authorized ones, because the unauthorized cannot access the information needed to make the repairs without reverse engineering the product. That, in turn, may make licensed franchises more valuable, although it may ultimately harm sales because consumers will want to purchase products that can readily be fixed by numerous repair shops.

Manufacturers must make economic choices concerning the appropriate control to exercise over information necessary to repair their products. Copyright registration offers a cheap and easy way to enable reliable enforcement of that control. Manufacturers should consider sharply delineating versions of their manuals and securing copyright registration for each version.

New York Office

On the one year anniversary of Osterberg LLC, I’m pleased to announce the opening of a New York office at 112 West 34th Street, 18th Floor, New York, NY 10120.

2013 Substantial Similarity Shipped

I sent the 2013 update of Substantial Similarity in Copyright Law to the publisher PLI earlier this week.  This will be the tenth anniversary edition.  We’ve included more illustrations of the works at issue in the cases discussed, a significant revision of the chapter on useful articles, and more.  Look for it in on the PLI website and Amazon around May or June.

Work For Hire Part II – Scope of Employment

Following up on my last post concerning works made for hire, this post tackles the question: When is a work “prepared by an employee within the scope of his or her employment?”

The answer is determined based on common law principles as set forth in the Restatement (Second) of Agency. The three criteria are: (1) whether the work is of the kind of work the employee is employed to perform; (2) whether the work occurs substantially within authorized work hours; (3) whether it is motivated, at least in part, by a purpose to serve the employer.

When evaluating whether the work is of the kind the employee is employed to perform, courts generally have defined the scope of the employee’s work very broadly, holding that it encompasses work that is “incidental” to the employee’s work. Courts typically refer to comment b of Section 229 of the Restatement (2d) of Agency, which reads:

An act may be incidental to an authorized act, although considered separately it is an entirely different kind of act. To be incidental, however, it must be one which the servant is employed to perform. It must be within the ultimate objective of the principal and an act which it is not unlikely that such a servant might do. The fact that a particular employer has no reason to expect the particular servant to perform the act is not conclusive.

Applying that principle, one court held that software development work performed by a doctor employed as a research fellow was incidental to the work he was hired to do because his job description recited: “The fellows will acquire skills required to organize, administer, and direct a critical care unit, and to work effectively as a member of a multidisciplinary team.” The software, the court explained, helped organize and administer the critical care unit. In another case, a court found that computer programs developed by the supervisor of a quality control laboratory qualified as a work for hire because the supervisor was responsible for the organization and updating of the laboratory. The court held that “development of the computer programs was at least incidental to his job responsibilities because it was within the ultimate objective of the principal and an act which it is not unlikely that such a servant might do. ”

Of the three factors, the second, whether the work occurs substantially within authorized work hours, typically is the least important. Plenty of courts have found works created after hours to be works for hire. With respect to the third factor, it is important to remember that it is not necessary that the servant’s only motivation be to help his or her employer; the motivation only needs to be partial.

Work For Hire – Eligible Works

One commonly misunderstood aspect of IP law is the limited scope of work for hire. The broad concept of work for hire is that one can hire another person to create something, and the hiring party will own the copyright. What many layman and attorneys either do not realize or forget, however, is that unless the work is created by an employee as part of their job (the subject of my next post on this topic), only certain types of works can ever qualify as works for hire, and the list does not include many of the types of works most businesses typically hire outside personnel to create.

Most fundamentally, work for hire is strictly a creature of copyright law. It cannot ever apply to patents. If a business wants to own an invention, it needs to get an assignment.

Even with the respect to copyright, the class of eligible works is small. The list comes right from the definition of work made for hire in the Copyright Law. Here it is.

A “work made for hire” is— (1) a work prepared by an employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

As one can see, the list does not include many things a business might hire someone outside to create, such as: software; advertising copy; a jingle or theme song; or a drawing or logo. Moreover, for even the permissible classes of works to qualify as works made for hire, there must be a written agreement.

When your business hires an outside source to create material for it, one should always be wary when someone proposes that the parties just execute a work for hire agreement. One must ask, can the work actually qualify as work made for hire? If not, you’ll need an assignment. Consider the type of work involved and if an assignment is required, get it.

In my next post I will discuss what it means to for a work to be prepared by an employee “within the scope of his or her employment.”

Injunctions in Patent Cases – Still Usually the Right Thing to Do

Notwithstanding a series of cases that seemed to tip the scales against enjoining infringers from continuing to infringe, the patentee’s right to enjoin infringing conduct remains not only alive and well, but presumptive.  That is the teaching of the Federal Circuit in the recent case of Edwards Lifesciences v. Corevalve.

In eBay v. MercExchange, the Supreme Court reminded us that injunctions in patent cases were not to be granted automatically, but rather subject to principles of equity.  Several subsequent cases seemed to further tilt the pendulum toward the infringer, notably ActiveVideo Networks, Inc. v. Verizon Communications, in which the Federal Circuit vacated a permanent injunction after a jury verdict of infringement.

In Edwards Lifesciences, the Federal Circuit seems to have righted the ship.  The Court explained:

A patentee’s right to exclude is a fundamental tenet of patent law.  The innovation incentive of the patent is grounded on the market exclusivity whereby the inventor profits from his invention. Absent adverse equitable considerations, the winner of a judgment of validity and infringement may normally expect to regain the exclusivity that was lost with the infringement…The Court in eBay did not hold that there is a presumption against exclusivity on successful infringement litigation.  The Court did not cancel 35 U.S.C. §154, which states that “Every patent shall contain . . . a grant . . . of the right to exclude others from making, using, offering for sale, or selling the invention,” nor did the Court overrule Article I section 8 of the Constitution, which grants Congress the power to “secur[e] for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” The Court held that equitable aspects should always be considered, stating: “We hold only that the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.” eBay, 547 U.S. at 394. Statutory and historical as well as commercial considerations impinge on every equitable determination.  Precedent illustrates the variety of equitable considerations, and responsive equitable remedy in patent cases: for example, the grant of a royalty-bearing license instead of imposing an injunction in situations where the patentee would experience no competitive injury, or where there is an overriding public interest in continued provision of the infringing product.

This is as it should be.  The most fundamental of intellectual property rights, like other property rights, is the right to exclude.  It is only in un-ordinary circumstances that the patentee’s right yield to some other equitable consideration.  What remains questionable in my mind is whether such circumstances should include a case like ActiveVideo v. Verizon.  By refusing the injunction and imposing a license fee, doesn’t the court substitute its wisdom as to the appropriate fee for that of the parties, who would likely negotiate a license if the injunction were granted?

Three Things You Should Have in Your NDA, But May Not

1. A requirement that the party receiving confidential information identify all personnel who are given access to the information, make them aware of the NDA and insure that they are bound by it. Identification is particularly important, in case you wind up in litigation with the receiving party, or if personnel leave. If an employee leaves the receiving company and his new company seems to be using your confidential information, you’re going to want to know that the employee had access to it at his former company.

2. A requirement that the receiving party preserve all materials pertaining to the confidential information that are generated or received by all personnel who are given access to the confidential information. If you wind up in litigation, you’re going to want those materials in discovery.

3. A bright line test for what constitutes confidential information. It can be everything disclosed, or only what is labeled, so long as its clear. You don’t want to litigate whether about whether the information was appropriately identified.

The Latest From the Federal Circuit on Injunctions, Sunset Royalties, and Future Royalty Rates

Even if you win your patent infringement case, you still may not get an injunction prohibiting ongoing infringement.  In a case decided last month by the Federal Circuit, ActiveVideo v. Verizon, a jury found that Verizon infringed ActiveVideo’s method patents pertaining to video-on-demand technology, but the Federal Circuit held that the district court erred by imposing a permanent injunction prohibiting Verizon from future infringement.  This is a stark example of the impact of the Supreme Court’s 2006 ruling in Ebay v. MercExchange that injunctions should not automatically issue in patent infringement cases, and worthy of analysis.  Also worthy of scrutiny is what Federal Circuit wrote concerning the appropriate royalty Verizon should be required to pay for future use.

I.               Injunction

There are four elements courts must consider when deciding whether to impose an injunction after liability has been established:  (1) whether the harm to the patent owner is irreparable; (2) whether the harm is compensable with money damages; (3) the balance of the hardships on each of the parties depending on whether the court issues the injunction; and (4) the public interest.

A.             Irreparable Harm/Efficacy of Money Damages

The Court determined that the injury suffered by ActiveVideo as a result of Verizon’s infringement would be compensable by money damages, and would not be irreparable.  The following chart depicting the manner in which the court weighed facts pertaining to irreparable injury.

Factors Favoring Irreparable Harm Factors Weighing Against Irreparable Injury Non-Factors
The parties are not direct competitors Litigation costs – the Federal Circuit held that litigation costs cannot constitute irreparable harm
License non-exclusive – ActiveVideo could maintain its existing license to Cablevision and also license Verzion Loss of market share by ActiveVideo’s licensee Cablevision – the Federal Circuit held that if Verizon takes a customer away from ActiveVideo’s licensee Cablevision, the only harm ActiveVideo suffers is loss of a license fee from Verizon
Ease of quantifying a license fee – Cablevision paid ActiveVideo 17 cents a month per subscriber, Verizon could be required to pay monthly per subscriber also Loss of business opportunity or brand recognition could constitute irreparable injury, but neither was proven
Verizon is able to pay the license fee – the Federal Circuit distinguished the Bosch v. Pylon Mfg. case, in which the Federal Circuit held that the fact that the defendant might not be able to pay a license fee contributed to irreparable injury
No evidence of damage to ActiveVideo’s brand name because Cablevision markets its service using the “io” name, not the Activevision name, so retail customers are unlikely to associate Activision with the service
Verizon’s service increases demand for VOD overall and therefore increases opportunities for ActiveVideo
No evidence of price erosion
ActiveVideo sought to broadly license its patents, including to Verizon
ActiveVideo wiling to extend sunset licensing period

B.             Balance of Hardships

The Federal Circuit held that the balance of hardships favored the infringer.  It analyzed the factors as follows.

Factors Favoring Patent Owner Factors Favoring Infringer Non-factors
Sunset licensing fee alone would generate, in one month, 70% of what patent owner earned in its entire 23 year history Patent owner’s small size
Patent owner would only suffer if not compensated

C.            Public Interest

The Federal Circuit upheld the district court’s finding that the public interest in enforcing the patent owner’s right to exclude outweighed the interest the infringer’s customers may have in maintaining their access to entertainment.  But the court held that the public interest factor could not outweigh the other two, explaining:

If the general public interest in upholding patent rights alone was sufficient to mandate injunctive relief when none of the other three factors support injunctive relief, then we would be back to the general rule that a patentee should always receive an injunction against infringement. But the Supreme Court rejected the idea that there is a general rule that courts should issue permanent injunctions against patent infringement. eBay, 547 U.S. at 393-94. We vacate the grant of a permanent injunction in this case and remand for the district court to consider an appropriate ongoing royalty rate for future infringement by Verizon.

II.             Sunset Royalties

A sunset royalty is, as its name implies, a royalty an infringer must pay while it phases out its infringing product.  The district court imposed a sunset royalty far greater than the amount paid by ActiveMedia’s licensee, Cablevision.  The Federal Circuit upheld the higher royalty amount, explaining:

The district court accepted ActiveVideo’s expert testimony that Verizon received an incremental profit of $6.86 per FiOS-TV subscriber per month. The court analyzed the respective bargaining positions of the parties post-verdict, and concluded that “it would have been reasonable for the parties to make an agreement whereby Verizon would receive 60% of the profits and ActiveVideo would receive 40% of the profits.”  This results in the $2.74 per subscriber per month royalty. The district court rejected Verizon’s suggestion that it should pay the same rate as Cablevision. The district court found that after the patent is held not invalid and infringed by Verizon, ActiveVideo is in a much better bargaining position with Verizon than it was with Cablevision in 2009. Based on the fact that Verizon may be able to design around, but does not know precisely how effective such a design around might be, the court discounted the profit split from the 50/50 to 60/40 (in favor of Verizon).

This may seem high, and while it is likely true that Verizon would not have agreed to that amount prior to litigation, Verizon has been adjudicated to infringe and the patent has been held not invalid after a substantial challenge by Verizon. See Paice [LLC v. Toyota Motor Corp.], 504 F.3d at 1317 (Rader, J., concurring) (“[P]re-suit and post-judgment acts of infringement are distinct, and may warrant different royalty rates given the change in the parties’ legal relationship and other factors.”); Amado [v. Microsoft], 517 F.3d at 1362 (“Prior to judgment, liability for infringement, as well as the validity of the patent, is uncertain, and damages are determined in the context of that uncertainty. Once a judgment of validity and infringement has been entered, however, the calculus is markedly different because different economic factors are involved.”). The district court is correct; there has been a substantial shift in the bargaining position of the parties. See Amado, 517 F.3d at 1362 (“There is a fundamental difference, however, between a reasonable royalty for pre-verdict infringement and damages for post-verdict infringement.”). We reject Verizon’s argument that the district court erred in concluding that the jury verdict placed ActiveVideo in a stronger bargaining position.

III.           Future Royalties

Because the Federal Circuit vacated the injunction, it now becomes necessary for the district court to fix a royalty for the infringer to pay going forward.  The court offered the following comparison of sunset and ongoing royalties, and guidance for the district court on remand:

We held in Amado that an assessment of prospective damages for ongoing infringement should “take into account the change in the parties’ bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability.” Amado, 517 F.3d at 1362. And, although Amado dealt with the imposition of royalty damages while an injunction was stayed during appeal, this holding applies with equal force in the ongoing royalty context.  Though we vacate the district court’s injunction, we see no error in its post-verdict royalty calculation. The district court, on remand, should determine an appropriate ongoing royalty, an inquiry that is much the same as its sunset royalty analysis. The district court may wish to consider on remand additional evidence of changes in the parties’ bargaining positions and other economic circumstances that may be of value in determining an appropriate ongoing royalty. See Paice, 504 F.3d at 1315 (“Upon remand, the court may take additional evidence if necessary to account for any additional economic factors arising out of the imposition of an ongoing royalty.”). Indeed, ActiveVideo’s bargaining position is even stronger after this appeal. We leave the procedural aspects of how to proceed on the issue of prospective damages to the discretion of the district court.

The Federal Circuit further explained that some of the Amado factors considered by the district court in its sunset royalty analysis might not be appropriate to consider when calculating an ongoing royalty. Those might include the defendant’s likelihood of success on appeal, the ability of the defendant to immediately comply with the injunction, and the evidence and arguments found material to granting the permanent injunction.

IV.           Effect on Apple v. Samsung

The Federal Circuit’s teachings in the ActiveVideo case are likely to have significant influence on Judge Koh’s upcoming decision on Apple’s request for an injunction prohibiting future sales of infringing smartphones in the Apple v. Samsung case.  In the fist instance, she is likely to be guided by the ActiveVideo opinion in determining whether to impose the injunction Apple wants.  If she decides not to impose the injunction, then she will likely refer to it if she needs to impose an ongoing royalty.

 

 

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