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

The relevant section regarding jailbreaking states as follows:

Computer programs that enable wireless telephone handsets to execute software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications, when they have been lawfully obtained, with computer programs on the telephone handset.

The exemption is applies only to instances, “where circumvention is accomplished for the sole purpose of enabling interoperability of such applications.” Thus, to be exempt, the user must prove that their jailbreaking activity is being performed to ensure interoperability of the phone’s copyrighted material with the unauthorized third-party material.

While the newly granted exemption may be welcomed news to some smartphone users, it should be noted that it is only effective for the ensuing 3-year period or until the next rulemaking. In addition, although the exemption does not make jailbreaking illegal, it also does not prevent smartphone manufacturers from seeking technological countermeasures to prevent jailbreaking.

Lisa H. Wang is an Associate in the Gibbons Intellectual Property Department.

With regard to copyright, Judge Cote was persuaded by seventeen examples of verbatim copying from the research reports. Plaintiffs elected the minimum statutory damages award, so the court entered judgment in the amount of $6,750 for Barclays and $6,000 for Morgan Stanley, plus prejudgment interest from the date of publication to entry of judgment. The court also awarded attorney's fees for the copyright portion of the case, which could be reduced following a hearing on Fly's financial condition.

With regard to hot news misappropriation, Judge Cote reviewed the development of case law regarding hot news, with emphasis on Supreme Court and Second Circuit decisions. She then found that the plaintiff's satisfied the five element test set forth by the Second Circuit in National Basketball Association v. Motorola Inc., 105 F.3d 841 (2d Cir. 1997):

• The cost of generating information was undisputed.
• On timeliness, the court found the recommendations were clearly time sensitive, and noted the Second Circuit's holding in FII that the tort encompasses only those situations where the defendant published time sensitive information "before [the plaintiff] has been able to utilize his competitive edge."
• As for free-riding, the court found the accused acts were Fly's "core business" and discounted publication of the news by others.
• Regarding competition, the court noted that the firms and Fly were in direct competition regarding disseminating recommendations to investors for their use in making investment decisions, and that Fly's use was undertaken "with the obvious intent, if not the effect, of fulfilling the demand for the original work." In particular, she noted that some investors will place trades based solely on the buy, sell or hold recommendation, without reading an entire research report. Judge Cote also noted that the firms and Fly used similar and sometimes identical channels of distribution and that Fly took steps to compete even more directly by aligning itself with discount brokerages.
• Lastly, the court found that Fly's conduct would be likely to substantially threaten the firms' ability to continue to participate in the market for monetizing their research.

The court next discussed the scope and temporal length of injunctive relief, noting that under International News Service v. Associated Press, 248 U.S. 215 (1918) the lead time for exploitation of the news was the period "until its commercial value as news to the complainant and all of its members had passed away." Judge Cote declined the firms' request for four hours or until 12:00 noon, whichever is later, instead issuing a more limited injunction as follows:

• For recommendations released prior to the market opening, Fly was enjoined for 1.5 hours or until 10:00 a.m., whichever is later.
• For recommendations released while the market is open, the injunction is for two hours after the release.

In addition to the temporal limitations, there are two additional provisions of interest: First, the court provided an exception for factual analysis by Fly of market movements that refers on occasion after the market opens to a firm's recommendation in the context of independent analytical reporting on a significant market movement that has already occurred that same day. Second, Judge Cote scheduled a one year reevaluation of the scope of the injunction for Fly to seek relief in the event the firms have not taken reasonable steps to restrain the systematic, unauthorized misappropriation of the recommendations by third parties.

The Supreme Court Distinguishes Claim Processing Rules from Jurisdictional Requirements

At the outset, the Supreme Court noted that jurisdictional rules are generally “prescriptions delineating the classes of cases (subject-matter jurisdiction) and the persons (personal jurisdiction) implicating that authority.” The Court recognized the difficulty of distinguishing “jurisdictional” conditions from claim-processing rules, and cited to its 2006 holding in Arbaugh v. Y & H that a statutory requirement is a jurisdictional requirement only if Congress identifies it as such. Because the registration requirement of §411(a) is not identified as a jurisdictional requirement, it is not, and instead works as a claim-processing rule. The Court continued by noting that the registration requirement in §411(a) has qualities of a claim processing rule:

1. it imposes a precondition to filing a claim that is not clearly labeled jurisdictional,
2. it is not located in a jurisdiction-granting statutory provision, and
3. it admits several congressionally authorized exceptions.

Unanswered Questions

The Supreme Court decision confirmed that courts can adjudicate disputes involving unregistered works. Even so, the Court declined to address the question of whether the registration requirement of §411(a) is satisfied by filing an application, or whether the Copyright Office must either grant or reject the application before a claim for infringement may be brought.

Circuit courts are divided on this issue. For example, the Fifth Circuit held in Positive Black Talk v. Cash Money Records that simply filing an application is adequate, as long as all required elements are deposited with the Copyright Office. This view has been called the “Application Approach.” Conversely, the Tenth Circuit in La Resolana Architects, PA v. Clay Realtors Angel Fire held that simply filing all the required elements of an application is not enough to satisfy §411(a), and that either a rejection or an acceptance must be received by applicant in order for a party to bring an infringement claim. This has been called the “Registration Approach.”

While the Second Circuit has yet to address the issue, three recent district court cases in the Southern District of New York have applied the Registration Approach. In Do Denim v. Fried Denim, Judge Swain granted defendant’s motion to dismiss the copyright infringement claim for lack of subject matter jurisdiction under §411. Do Denim had filed its deposit, application, and fee with the Copyright Office prior to filing suit, but it had yet to receive either a grant or refusal. Two other Southern District decisions have followed Do Denim in support of dismissal of the claim of infringement of an unregistered copyright: DMBJ Productions v. TMZ TV, and Lewinson v. Henry Holt and Company, LLC.

Inconsistent application of §411(a) has been a concern of copyright litigators for some time, and other blogs have addressed the split between circuits. In fact, the ABA Section of Intellectual Property Law recently wrote to the Senate suggesting legislation adopting the Application Approach.

While Muchnick abrogates cases describing §411(a) as “jurisdictional,” calling the section a claim-processing rule does not provide instruction on how strictly courts should apply the rule. As such, filing an infringement suit based solely on a pending application may risk dismissal in courts inclined to apply the Registration Approach. Even in a jurisdiction that adopted the Application Approach, obtaining a registration first may be advantageous, particularly in a preliminary injunction case where the presumptions flowing from registration may be important.

The Cablevision decision was rooted in Religious Technology Center v. Netcom On-Line Communications Services, Inc., 907 F. Supp. 1361 (N.D. Cal. 1995), which held a bulletin board operator and internet service provider were not liable for direct copyright infringement where they provided access to a Usenet newsgroup containing infringing material:
 

These parties who are liable under plaintiffs’ theory, do no more than operate or implement a system that is essential if Usenet messages are to be widely distributed. There is no need to construe the Act to make all of these parties infringers. Although copyright is a strict liability statute, there should still be some element of volition or causation which is lacking where a defendants’ system is merely used to create a copy by a third party.

The Netcom court seemed troubled with the fact that under plaintiff’s theory of direct infringement, the entire internet would commit an act of direct infringement when a unauthorized copyrighted work was transmitted through its interconnected network of computers. The court did not believe that such a result was warranted by the Copyright Act. Netcom was followed by the Fourth Circuit in CoStar Group, Inc. v. LoopNet, Inc., 373 F.3d 544 (4th cir. 2004).

Cellco
The Cellco decision followed the Netcom and Cablevision line of cases to hold that Verizon was not liable for direct infringement of the public performance right when users downloaded ringtones, or when ringtones were played on users’ phones. As in the Cablevision case, when attempting to determine if there was requisite volitional conduct, the court analyzed the manner in which a ringtone is activated:
 

Once the customer has downloaded the ringtone onto her telephone, she controls the telephone and makes the decisions that determine whether the ringtone will be triggered by an incoming call signal. And of course, it is someone else entirely -- the caller -- who has initiated this entire process.

Usenet.com
In Arista Records LLC v. Usenet.com, the court held that the owners and operators of the Usenet.com website directly liable for facilitating the posting and downloading of unauthorized copies of plaintiffs’ sound recordings. In finding the volitional conduct requirement satisfied, the court relied upon the facts that defendants were aware that digital music files were among the most popular articles on their service and took active measures to create special servers dedicated to MP3 files. The defendants also took active steps, including both automated filtering and human review, to remove access to certain other categories of content (such as adult material), and to block certain users. Such activities, the court held, transformed defendants from a passive conduit where infringing activities happened to occur, to active participants in the process of copyright infringement.

The Takeaway
It’s not easy to reconcile Usenet.com with Cablevision and Netcom. The defendants in Usenet.com certainly did not aid their case by engaging in spoliation of evidence and discovery misconduct. The district court was clearly correct in finding secondary liability for inducing infringement, contributory infringement and vicarious infringement. Instead of stopping there, the court went further, finding defendants sufficiently actively engaged in the process to be directly liable. Perhaps the analogy is to the proprietor of a high speed copy machine standing outside a bookstore inviting people to reproduce their newly purchased books. The district court decision suggests that, in such situations, the door remains open to a finding of direct infringement.


Thomas R. DeSimone, an Associate in the Gibbons Intellectual Property Department, assisted in the preparation of this post.