IP Law Alert : Intellectual Property Lawyers & Attorneys : Gibbons Law Firm : Copyrights, Patent Infringement, Unfair Competition

On January 12, 2012, ICANN, the Internet’s domain name registration watch dog, began accepting applications for new generic Top-Level Domains (gTLDs) to add to those already in existence, including .com, .net, .biz and others. Under the new scheme, any company can apply for a gTLD, thereby expanding the domain name system (DNS). Ultimately, this expansion will change the Internet forever. Each new gTLD poses an incremental risk for trademark owners who are already under heavy assault in cyberspace from cybersquatting (registering, trafficking in, or using a domain name with bad faith intent to profit from the goodwill of a trademark owner), brandjacking (assuming the online identity of another entity for the purposes of trading on another’s brand equity), and typosquatting (registering URLs with common misspellings) by those seeking to generate illicit profits. According to the Coalition Against Domain Name Abuse (CADNA), cybersquatting already costs trademark owners more than $1 billion each year due to lost sales, lost goodwill, and increased enforcement costs. However, with a major increase in gTLDs, many corporations fear an expansion in expensive litigation to enforce their brands and trademarks.

To safeguard its valuable marks, a company should be proactive. Steps to consider are: First, the company should register its service marks or trademarks with the USPTO. Second, the company should consider registering its marks with the newly created Trademark Clearinghouse and Claims Service, which will serve as a central repository for trademark information submitted by trademark owners. Third, the company should monitor the first round of gTLD applications published by ICANN and file a “Legal Rights Objection” to any gTLD that infringes its marks. Fourth, the company should consider a defensive strategy by registering gTLD domain name variants within the 30 days after each new gTLD is launched. Lastly, the company should actively monitor new gTLD registrations as it does existing TLDs for key terms and marks and challenge potentially infringing domain names utilizing the most appropriate means, namely the Federal Trademark Dilution Act (FTDA), the Anticybersquatting Consumer Protection Act (ACPA), the Uniform Domain Name Dispute Resolution Policy (UDRP), or the new Uniform Rapid Suspension System (URS).

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Cybercrime has increased tremendously in the digital economy. “According to the American Society for Industrial Security, American businesses [are] losing $250 billion a year from intellectual property theft since the mid-1990’s.”¹ There is a clear and growing threat of Chinese industrial espionage targeted at American companies. In a recent case, a Michigan couple was accused of stealing $40 million worth of trade secrets from General Motors and selling them to a Chinese car maker. Aside from hackers, the threat also exists within organizations from insiders. A recent study commissioned by Cisco found that “[i]n the hands of uninformed, careless, or disgruntled employees, every device that accesses the network or stores data is a potential risk to intellectual property or sensitive customer data.”

According to the Ponemon Institute, a privacy and information management research firm, incidents of data breach costs U.S. companies $204 per compromised customer record. This can quickly escalate to the millions of dollars, not including penalties and other fees that may be imposed by federal and state regulatory authorities. The high cost of a security breach can have a profound effect on an organization’s profit and loss, market presence and competitive advantage. It can also result in damage to brand and reputation. In light of the above, American companies need to exercise increased vigilance to protect their trade secrets and other valuable intellectual property (IP) that are strategic to organizational success and competitive advantage.

President Obama, recognizing the increasing toll of cybercrime on U.S. commerce, on May 29, 2009 issued a very strong statement titled “On Securing Our Nation’s Cyber Infrastructure.” He warned: “every day we see waves of cyber thieves trolling for sensitive information—the disgruntled employee on the inside, the lone hacker a thousand miles away, organized crime, the industrial spy and, increasingly, foreign intelligence services… . It’s been estimated that last year alone cyber criminals stole intellectual property from businesses worldwide worth up to one trillion dollars. In short, America’s economic prosperity in the 21st century will depend on cybersecurity.”

Stay tuned for an upcoming post on the Fifth Annual Gibbons E-Discovery Conference, where privacy and legal practitioners tackled the subject of cybersecurity . . . .

¹ Hazlewood, Sara. “Tech Firms Watching Trade Secret Trials,” Business Journal Serving San Jose & Silicon Valley, May 14, 1999, 17:2, p. 7.

Luis J. Diaz is a Director in the Gibbons Intellectual Property Department. John J. Cahill, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

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Gibbons is pleased to announce that Catherine M. Clayton, a Director in the firm's Intellectual Property Department, will host a roundtable on Internet privacy and emerging issues relating to on-line and new media enforcement on September 22, 2011 at 12:00 pm. This program is part of the International Trademark Association’s (INTA) roundtable series, and will take place at the firm’s Newark office.

The roundtable will examine a host of emerging issues, including the impact of Internet privacy issues on brand owners; taking action against Internet scams; protesting infringement on social media sites; and the upcoming roll-out of new generic top level domains (gTLDs) for brand names, generic terms and locations. To register, please visit INTA’s website.

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Tory Burch LLC (“Tory Burch”), the makers of women’s apparel, designer shoes and fashion accessories, recently obtained a $164 million damages award against forty-one defendants accused of selling counterfeit versions of its products through numerous websites. This decision confers the largest award ever granted to a fashion company in a counterfeiting action.

In December 2010, Tory Burch brought this action before the United States District Court for the Southern District of New York, after conducting a lengthy investigation of China-based counterfeiters offering counterfeit TORY BURCH branded shoes, clothing and accessories for sale on-line to American consumers. Many of the websites used in this infringement scheme were posted at domain names that included the TORY BURCH mark, or marks of other luxury fashion brands. Among the numerous accused domain names were ToryBurchOutlets.com, DiscountToryBurch.com, CheapToryBurchs.com, Tory-Burch.us, ChristianLouboutinMy.com, The HouseofGucci.com and NikeJordanCenter.com.

The complaint included causes of action for trademark infringement, counterfeiting and cybersquatting and sought both monetary damages and permanent injunctive relief. At the time of filing, the company also sought and was granted a temporary restraining order enjoining the defendants from offering the counterfeit goods. In direct violation of the court-ordered temporary restraints, the defendants continued to operate by offering and selling the counterfeit Tory Burch goods as the lawsuit proceeded.

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On October 14, 2010, the U.S. District Court for the Southern District of Texas granted what is reportedly the largest judgment ever awarded in an action involving on-line counterfeiting. In Farouk Systems, Inc. v. Eyou Int’l Trading Co., Judge Kenneth M. Hoyt entered a default judgment and permanent injunction against more than seventy defendants, who were operating an Internet counterfeiting ring out of China. The judgment required that each of the defendants pay Farouk statutory damages of $4 million, resulting in an award of approximately $300 million. In addition to being significant because of the amount of the damages awarded, this decision is noteworthy for the pragmatic approach that the Court took to ensure that the relief awarded to the plaintiff would be meaningful.

In Farouk, the Court found the defendants guilty of operating an on-line counterfeiting ring that distributed spurious CHI® and FAROUK® branded hair care products, including straightening irons and hairdryers. Judge Hoyt noted that the defendants had gone to “great lengths to conceal and/or move themselves and their ill-gotten proceeds from Plaintiff’s and [the] Court’s detection and reach, including by using multiple false identities and addresses associated with their operations and purposely-deceptive contact information.” To give teeth to the decision, Judge Hoyt required that PayPal, Inc. release money in the defendants’ PayPal accounts to Farouk, in partial payment of the judgment. He also enjoined a broad array of third parties from providing services that would assist any defendant with its infringing activities. Among those enjoined are Internet Service Providers, sponsored search engine and ad word providers, banks, payment processing services, and entities such as Alibaba.com and DIYtrade.com, which provide on-line B2B (business to business) selling platforms.

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With the U.S. economy still reeling from the aftershock of what is now known as the “Great Recession,” companies large and small are evaluating cloud computing as a means of reducing IT costs. The National Institute of Standards and Technologies (“NIST”) and the Cloud Security Alliance have defined cloud computing as a model for on-demand network access to a shared pool of computing resources over the internet, namely software applications, data servers, networks and other services. Just as businesses and consumers now pay for gas, electricity and other utilities, cloud enthusiasts predict that the cloud will be sold on demand as a pure IT service.

The Silver Lining

Industry groups like ISACA recognize the silver lining in the cloud. For example, there are potential cost savings in the economies of scale that are achievable in a shared computing environment. The cloud also allows companies to scale without any major software or hardware investment. Thus, cloud users are able to deploy new services more rapidly than they could in a traditional IT model. Cloud computing also can accommodate changing business requirements in a flexible and scalable format. By relocating IT services to the cloud, moreover, companies are freed to focus on their core businesses, improve processes, innovate and increase productivity. In short, the promise of cloud computing is compelling – convert IT private networks to an on-demand, pay-as-you-go IT utility service that produces substantial savings for users.

Storm Clouds Gathering

While the benefits of the cloud are clear, the recent security breaches reported by Google highlight just some of the attendant risks. Google notified users that it inadvertently shared private Document and Spreadsheet materials with contacts that were never granted access to them. In response to cloud computing risks, The Electronic Privacy Information Center, an industry watchdog, has filed an FTC complaint to investigate the privacy and security measures of Gmail, Google Docs and Google’s other “cloud computing” services. Even John Chambers, Cisco Systems’ Chairman and CEO, has conceded that the computing industry’s move to an on-demand IT service on the Internet was “a security nightmare.” And, Microsoft now has joined the bandwagon and called on U.S. legislators to enact a “Cloud Computing Advancement Act.”

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Is a technology provider liable for direct copyright infringement when it provides the means for infringement instructed by its users? In the Cablevision case, Cartoon Network, LP LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008), the Second Circuit endorsed a line of cases holding that the provider is not liable absent “volitional conduct” that causes the copying to take place. Two recent district court decisions in the Southern District of New York appear to have applied this rule in seemingly inconsistent fashion.

Most recently, in Cellco P'ship v. Am. Soc'y of Composers, 2009 U.S. Dist. (S.D.N.Y. Oct. 14, 2009), the court held that Verizon was not liable for direct copyright infringement where it provided the technology that allowed cell phone users to play ringtones. The opposite result was reached a few months earlier in Arista Records LLC v. Usenet.com (PDF), 633 F. Supp. 2d 124 (S.D.N.Y. 2009), in which the court found the defendants were directly liable where they provided the technology that allowed users to download infringing sound recordings. How can we make sense of these outcomes?

Cablevision
We begin with a quick overview of Cablevision, in which the Second Circuit held that Cablevision’s Remote Storage DVR System (“RS-DVR”) technology did not directly infringe the plaintiffs’ content. The Second Circuit noted that direct infringement could not be proven unless “volitional conduct” could be established. The Second Circuit found Cablevision’s conduct was analogous to a store proprietor who charges customers to use a photocopier on his premises, and unlike that of a copy service that makes copies at the customer’s request. As such, Cablevision was not directly liable.

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