Posted on April 12, 2013 by James J. Kang

The Laws of Physics and Copyright Law: SDNY Rules that First-Sale Doctrine Does Not Apply to the Resale of "Used" Digital Media

Owners of books and music in physical media form need not fear if ever they decide to sell, rent, or otherwise dispose of these copyright-protected materials. The first-sale doctrine permits such activities by extinguishing a copyright owner’s exclusive right of distribution of copyrighted items that have been lawfully sold or transferred. However, according to a recent federal court ruling, Capitol Records, LLC. v. ReDigi Inc., No. 12 Civ. 95 (S.D.N.Y. March 30, 2012) owners of digital versions of the same works may find it more difficult to sell, rent, or otherwise dispose of their digital files.

ReDigi Inc. (“ReDigi”) is a marketplace for buyers and sellers of “used” digital music files. Users can sell their legally purchased digital music by installing ReDigi’s “Media Manager” software. This software scans the user’s hard drive for digital music files purchased from iTunes, and will mark these as being eligible for sale. To avoid the possibility of copyright infringement, the Media Manager software considers all other digital music files, e.g. files downloaded from CDs or from other file-sharing websites, as ineligible for sale. The seller can then upload the eligible files onto ReDigi’s server. The Media Manager software monitors the seller’s computer to ensure that the uploaded files have not been retained. Other users can then purchase the digital music by downloading the files from the server.

In January 2012, Capitol Records, LLC (“Capitol”) brought suit against ReDigi, accusing ReDigi of violating Capitol’s exclusive rights of reproduction and distribution of many of its sound recordings. In his March 30 ruling, Southern District of New York District Court Judge Richard J. Sullivan agreed with Capitol, granting its summary judgment motion “on its claims for ReDigi’s direct, contributory, and vicarious infringement of [Capitol’s] distribution and reproduction rights.”

Judge Sullivan, citing the laws of physics, noted the impossibility of transferring a “material object” over the Internet. A file sent over the Internet from Point A to Point B is not a simple transfer of the same “material object.” Instead, it is a reproduction of the file from Point A, made at Point B. Therefore, the uploading and downloading of digital media files sold in ReDigi’s marketplace are, in essence, a combination of (unauthorized) reproductions and the distribution of those reproductions. Accordingly, the Court ruled that ReDigi violated Capitol’s digital media reproduction and distribution rights.

Under U.S. copyright law, the first-sale defense can be asserted by owners of a copyrighted item “lawfully made under this title . . . .” 17 U.S.C. § 109(a). This defense only applies against assertions of infringement of a copyright holder’s right of distribution. Because the Court ruled that digital music files sold by ReDigi’s marketplace were not “lawfully made,” but instead were unauthorized reproductions, the first-sale defense could not be asserted.

So what does this mean to owners of lawfully purchased digital media who wish to sell their files? For now, selling the hard drive where the files reside may be the safest option, barring a contractual arrangement with the copyright owner, to avoid infringement.

ReDigi plans to appeal this decision, and has, since June 2012, been implementing ReDigi 2.0, which purportedly does not involve user and seller uploading and downloading.

Gibbons will continue to monitor developments concerning the first-sale doctrine and other copyright issues involving digital media.


James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Catherine M. Clayton, a Director in the Gibbons Intellectual Property Department, co-authored this post.
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Posted on March 27, 2013 by Jillian A. Centanni

Kirtsaeng v. John Wiley & Sons, Inc.: U.S. Supreme Court Reverses Lower Courts and Determines That International Copyright Exhaustion is Now the Rule

Online resellers, used book stores, art galleries, and museums, among others, apparently can now breathe a sigh of relief and continue to display and resell goods originally sold or manufactured outside of the U.S., without the specter of a potential copyright infringement action looming on the horizon.

Last week, in Kirtsaeng v. John Wiley & Sons, Inc., the U.S. Supreme Court, on a 6-3 vote, held that the “first sale” doctrine applies to copies of a copyright-protected work lawfully made abroad. Under copyright law, the “first sale” doctrine states that “the owner of a particular copy or phonorecord lawfully made under this title . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” 17 U.S.C. § 109(a). If a copy is made abroad and imported into the United States without the copyright owner’s permission, there is copyright infringement under § 106(3). In other words, international copyright exhaustion (once an authorized sale of a U.S. copyright-protected work is made outside of the U.S., the copyright in that work is “exhausted,” so subsequent reselling may occur) is now the rule.

Petitioner Supap Kirtsaeng (“Kirtsaeng”), a citizen of Thailand moved to the United States in 1997 to further his education. While studying in the United States, Kirtsaeng began a side business of purchasing and importing foreign edition English language textbooks from Thailand. These textbooks were authorized foreign editions published by a wholly-owned foreign subsidiary of Respondent John Wiley & Sons (“Wiley”). These textbooks were substantially similar to textbooks meant for the United States market, but were less expensive. Kirtsaeng resold these textbooks in the United States for profit.

In 2008, Wiley sued Kirtsaeng for copyright infringement under 17 U.S.C. §§ 106(3) and 602, as Kirtsaeng imported the books without authorization, and later resold them, allegedly infringing on Wiley’s exclusive right to distribution and related import prohibition. Kirtsaeng argued that the books he acquired were “lawfully made” and since he acquired them legitimately, the “first sale” doctrine permitted him to resell them or dispose of them without the copyright owner’s further permission. The District Court held that the “first sale” defense was unavailable because the “first sale” doctrine did not apply to “foreign-manufactured goods” and the Second Circuit agreed.

The key to the Supreme Court’s holding that the “first sale” doctrine applies to copies of a copyrighted work lawfully made abroad turned on the meaning of the phrase “lawfully made under this title.” The difference between Wiley’s interpretation and Kirtsaeng’s interpretation was whether the phrase imposed a geographical limitation. The Supreme Court agreed with Kirtsaeng that this language imposed a non-geographical limitation made “in accordance with” or “in compliance with” the Copyright Act, thus permitting the doctrine to apply to copies manufactured abroad with the copyright owner’s permission. The Supreme Court looked at the language of 17 U.S.C. § 109(a), its context, and the “first sale” doctrine’s common-law history in determining that Kirtsaeng’s interpretation was correct.

This ruling will have a substantial impact on how the publishing, music, motion picture and other copyright-oriented industries will conduct business overseas. It is likely that these industries will put pressure on Congress to amend the Copyright Act.

In addition, this ruling highlights the dichotomy between the views of international exhaustion in the copyright and patent arenas. International copyright exhaustion is now that law of the land, but this is certainly not the case for patents. The Supreme Court recently denied Ninestar Technology Co. Ltd.’s petition for a writ of certiorari to consider whether an initial authorized sale outside of the United States of a patented item exhausts the patent rights to that item. Furthermore, the Federal Circuit’s recent decisions in patent cases have rejected international exhaustion of patent rights.

Gibbons will continue to monitor developments concerning the “first sale” doctrine and international exhaustion of intellectual property rights.


Jillian A. Centanni is an Associate in the Gibbons Intellectual Property Department. James J. Kang, an Apprentice in the Gibbons Intellectual Property Department, co-authored this post.
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Posted on December 31, 2012 by Ralph A. Dengler

2013: The IP Law Year Ahead

Like 2012, 2013 promises to be a busy and significant year for intellectual property law.

The Supreme Court is slated to decide a number of IP cases, including: Already, LLC d/b/a Yums v. Nike, Inc. (addressing the significance of a limited covenant-not-to-sue on declaratory judgment jurisdiction); Bowman v. Monsanto (determining whether the Federal Circuit erred by not finding patent exhaustion in second generation seeds and created an exception to patent exhaustion for self-replicating technologies); Gunn v. Minton (pertaining to whether federal courts have exclusive “arising under” jurisdiction when legal malpractice claims stem from a patent case); Kirtsaeng v. John Wiley & Sons, Inc. (regarding international copyright exhaustion, i.e., how Section 602(a)(1) and Section 109(a) of the Copyright Act apply to a copy that was legally acquired abroad and then imported into the United States); Federal Trade Comm’n v. Watson Pharm., Inc. (involving whether Hatch-Waxman reverse payment settlement agreements are legal); and most recently, Ass’n for Molecular Pathology v. Myriad Genetics, et al. (regarding the patentability of human genes and whether the petitioners have standing to challenge those patents). A pending petition for certiorari is Retractable Techs., Inc. v. Becton, Dickinson and Co. (regarding whether a court may depart from the plain and ordinary meaning of a claim term and whether claim terms are subject to de novo review on appeal). Following the Federal Circuit’s en banc decisions in Akamai and McKesson regarding induced infringement by multiple actors, it is possible that a petition for certiorari will be filed shortly in these cases.

The New Year will also see implementation of the first-to-file rule beginning on March 16, 2013, just as other provisions of the America Invents Act become the norm, such as the amendments to 35 U.S.C. § 102 regarding the definition of prior art.

We are also awaiting the launch of the Intellectual Property Exchange International, Inc. (IPXI) - the first exchange focused on IP.

Gibbons will continue to monitor these and other IP law developments. We wish all our readers a Happy New Year!


Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Jillian A. Centanni, an Associate in the Gibbons Intellectual Property Department, co-authored this post.
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Posted on November 21, 2012 by Ralph A. Dengler

Freelancer of "Live to Ride" Logo and Harley-Davidson Settle Their Dispute

Closing the loop on our previous report, freelance commercial artist Wayne W. Peterson and the Harley-Davidson motorcycle company have reached a confidential settlement in their copyright spat. Peterson had alleged that the iconic motorcycle maker stole his copyrighted “Live to Ride” logo, created in 1985 and the “Harley-Davidson University” logo, created in 1991.

Peterson filed a boilerplate stipulation of dismissal this week, ending the case.


Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

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Posted on November 16, 2012 by Jillian A. Centanni

The Copyright Office Expands DMCA Exemptions to Broaden the Use of Technological Controls

Last week, the U.S. Copyright Office published new exemptions to the Digital Millennium Copyright Act (“DMCA”), making circumvention of certain technological measures for restricting access to copyrighted works legally acceptable. The exemptions took effect on October 28, 2012, and will last until the end of 2015.

Under the new exemptions, for the next three years, one can legally “jailbreak” wireless telephone handsets (e.g., smartphones) purchased before January 2013. Jailbreaking a device is the process by which one bypasses Digital Rights Management (DRM) software installed on a device. Jailbreaking a mobile phone, for example, allows a user to download applications, extensions, and themes that are unavailable through the mobile phone manufacturer’s application store. Further, under the new exemptions, mobile phones purchased between now and January of 2013 can be unlocked (i.e., not tied to a particular service provider) by any party. But, phones purchased after January 2013 can only be unlocked with the cellular carrier’s permission. These exemptions to the DMCA, however, are not applicable to smartphones purchased after January 2013 or to tablet computers (e.g., iPads).

Additionally, the DMCA now contains an exemption to legally rip DVDs “in order to make use of short portions of the motion pictures for the purpose of criticism or comment in the following instances: (i) in noncommercial videos; (ii) in documentary films; (iii) in nonfiction multimedia e-books offering film analysis; and (iv) for educational purposes in film studies or other courses requiring close analysis of film and media excerpts, by college and university facility, college and university faculty, college and university students, and kindergarten through twelfth grade educators.” The DMCA, however, does not contain an exemption to allow circumvention for space-shifting purposes, that is, the act of copying digital content for use on a device other than the one for which it was originally intended.

Last, a DMCA exemption was created to permit people with disabilities “to obtain books through the open market and use screen readers and other assistive technologies to read them, regardless of whether an accessible copy may be available for purchase, but provided the author, publisher, or other rights owners receives remuneration.”


Jillian A. Centanni is an Associate in the Gibbons Intellectual Property Department. William A. Hector, an Associate in the Gibbons Intellectual Property Department, co-authored this post.
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Posted on October 2, 2012 by Owen J. McKeon

Protecting Fashion Designs: The Innovative Design Protection Act of 2012

Just as design patents for smart phones and yoga pants are recently making headlines, the Senate Judiciary Committee has approved a bill, S. 3523, entitled the Innovative Design Protection Act of 2012, which would extend copyright-like protection to fashion designs (the “Act”).

The protection of the proposed Act would extend to “fashion design[s],” defined as the appearance as a whole of an article of apparel including men’s, women’s or children’s clothing, including undergarments, outer wear, gloves, footwear, headgear, handbags, purses, wallets, tote bags, belts and eyeglass frames. Given that many other countries already have laws that provide design protection for fashion design, the passage of the Act has the potential to help encourage and sustain the U.S. fashion industry.

The essence of the bill, which is sponsored by Senator Charles Shumer of New York, is to protect fashion designs from knockoffs that are substantially identical in overall appearance to the original elements of the design. Under the proposed Act, protection would be limited to unique, distinguishable, non-trivial and non-utilitarian variation over prior designs. The protection would not extend to parties that independently came up with the same design, reproduced a single copy of the design for personal or immediate family use (the “Home Sewing Exception”) or shows the fashion design in an illustration or picture. Moreover, while typical copyright protection lasts for the life of the author plus 70 years, the proposed fashion design protection would only last for 3 years. As to enforcement, the proposed Act would require a design owner to provide written notice to an accused infringer 21 days prior to instituting an infringement action, and limit the design owner to prospective damages from the date that the action is instituted.

The bill will amend Title 17, the Copyright Act, Section 1301 of the United States Code. The companion bill in the House of Representatives is H.R. 2511.

Gibbons will continue to track this important development in the area of copyright protection for fashion designs.


Owen J. McKeon is a Director in the Gibbons Intellectual Property Department. Christopher H. Strate, an Associate in the Gibbons Intellectual Property Department, co-authored this post.
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Posted on September 5, 2012 by Ralph A. Dengler

Freelancer Survives "Live to Ride" Logo Dispute with Harley-Davidson -- For Now

A pending action in the Eastern District of Wisconsin serves as a reminder of the need for clarity and specificity in any IP-related deal, and in this case, in a matter involving copyright.

Wayne W. Peterson is a freelance commercial artist who produced various commissioned works for the Harley-Davidson motorcycle company from the mid-1970s through the mid-2000s. Two of Peterson’s works, the “Live to Ride” logo, created in 1985 and the “Harley-Davidson University” logo, created in 1991, are the subject of Peterson’s Complaint.

Peterson asserts that he owns the federally registered copyrights to these works, and that the license he granted to Harley-Davidson for their use was limited; yet Harley-Davidson has used these works without authorization on countless product runs and various packaging and marketing materials since he created them. Peterson is seeking an injunction for this alleged copyright and contributory copyright infringement.

Harley-Davidson responded to the Complaint with a motion to dismiss for failure to state a claim upon which relief can be granted, under Fed. R. Civ. P. 12(b)(6), arguing that Peterson’s action is barred on two dispositive grounds: laches and statute of limitations. As to the former, Harley-Davidson asserted that Peterson’s delay in bringing the suit in 2012 was unreasonable, relative to works created in 1985 and 1991. Regarding the latter, Harley-Davidson argued that the three-year statute of limitations under the Copyright Act of 1976, 17 U.S.C. § 507(b) (“no civil action shall be maintained … unless it is commenced within three years after the claim accrued”) barred any claims by Peterson for alleged acts of infringement occurring before April 25, 2009.

In a recent Decision and Order, Judge Lynn Adelman denied Harley-Davidson’s motion, finding that while laches and the statute of limitations are affirmative defenses, the Complaint alone, while sufficiently pled, did not plead all the ingredients of laches or statute of limitations. That is, the Complaint did not admit all the elements necessary for Harley-Davidson to prevail on its defenses. In particular, the Court found that it was unclear whether Peterson’s delay was unreasonable as a matter of law. In addition, under the “continuing-violation doctrine” as presently applied by the Seventh Circuit to copyright, the statute of limitations does not begin to run on a copyright claim regarding a series of infringements until the entire series is done. At this juncture, the Court viewed Harley-Davidson’s alleged transgressions as a single course of infringement, albeit beginning in the mid-1980s, but left the door open for Harley-Davidson to develop the factual record to counter this and to distinguish the Seventh Circuits governing law.

With this denial, next up procedurally will be Harley-Davidson’s Answer. Recent copyright decisions that were reported here and here, involving Marvel Comics and copyright disputes regarding characters made on a “work for hire” basis, may provide a factual roadmap for Harley-Davidson to consider in its defense of the case. A scheduling conference is set for early September.


Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.
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Posted on June 11, 2012 by Ralph A. Dengler

USPTO Offers IP Awareness Assessment

Under the joint auspices of the US Patent and Trademark Office and the National Institute of Standards and Technology/Manufacturing Extension Partnership, the IP Awareness Assessment is now in the beta stage and available for businesses and inventors to assess their intellectual property awareness. Dubbed “a business and inventor’s IP education tool,” this web-based offering is designed to assess IP knowledge and provide personalized training resources for businesses and inventors.

The full assessment, made up of 62 questions and taking about 20-30 minutes to complete, includes questions in specific IP protection categories, such as Utility Patents, Trademarks, Copyrights, Trade Secrets and Design Patents, as well as general IP categories, like IP Strategies & Best Practices, Using Technology of Others, Licensing Technology to Others, International IP Rights and IP Asset Tracking. A shorter pre-assessment also is available, comprised of five questions, which takes about three minutes to complete and which allows a user to then choose a customized assessment specific to one of the above IP protection areas.

Once an assessment is completed, the program displays the results along with links for suggested training material resources. To access the IP Awareness Assessment, click here.


Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department.

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Posted on February 1, 2012 by Lisa H. Wang

SOPA and PIPA Have Been Shelved

On Wednesday, January 18, 2012, thousands of internet companies including Google and Wikipedia protested against the Stop Online Piracy Act (SOPA) proposed by the House and its counterpart in the Senate, the Protect IP Act (PIPA). For example, Wikipedia blacked out its website while Google collected over 7 million signatures for its anti SOPA and PIPA petition. Since the high profile protests, key House and Senate supporters have withdrawn their support, questioning the viability of both bills.

SOPA and PIPA are supported by original content providers such as the movie and music industry. The bills target “rogue” overseas internet sites trafficking copyright material and counterfeit goods. One example is the streaming of movies or television shows for free without the permission of the copyright holder thereby violating the intellectual property held by the music and movie industry. This type of piracy has been ongoing for years since the days of Napster, but avoid U.S. prosecution because the rogue sites are located outside of the country where U.S. laws cannot reach them. The goal of the proposed bills therefore is to starve the rogue sites by barring advertisers, payment facilities, and internet service providers from conducting business with these sites. Harsher criminal penalties are also proposed with a maximum of five years in prison for anyone involved with unauthorized streaming of copyright material.

While both sides agree that rogue sites violating U.S. laws should be stopped, the bills’ detractors argue that SOPA and PIPA also promote censorship and have the unintended consequences of implicating legitimate internet companies within its broad provisions. One particular concern was that user generated websites like YouTube, may be held liable under SOPA and PIPA for the content that its users upload on the site. Other concerns involve implications of an entire website even when only a minor portion link to the infringing content. Critics of SOPA and PIPA also claim that the bills weaken the safe harbor protections available under the DCMA by shifting the burden to the website owner to actively monitor its content for infringing activity.

Alternative bills like the Online Protection and Enforcement of Digital Trade Act (OPEN) have been proposed. OPEN is supported by the internet companies because it offers more protection to those sites accused of hosting infringing content. OPEN also allows copyright holders to bring suits against the accused infringers before the International Trade Commission (ITC). Detractors of this bill argue that OPEN fails to offer sufficient protection. It remains to be seen whether a consensus will be reached in the upcoming weeks.


 Lisa H. Wang is an Associate in the Gibbons Intellectual Property Department.
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Posted on January 11, 2012 by Ralph A. Dengler

Caveat Author: Understanding Copyrights, Revisited ....

We previously reviewed a copyright case involving Marvel and a comic book author’s relinquishment of any copyrights in the iconic characters Hulk, Spiderman, the X-Men and others because the works were determined to be “for hire.” Marvel Worldwide v. Kirby.

In an unrelated action, Judge Forrest of the Southern District of New York recently found in favor of Marvel, in Gary Friedrich Enters., LLC v. Marvel Enters., Inc. The court ruled that the plaintiff writer, Gary Friedrich, although he indisputably conceived of the character, “Ghost Rider,” and wrote the initial comic book, had ceded all rights in the character to Marvel.

The decision turned on two defining moments where the court found plaintiff conveyed his rights by contract: 1) at the time of plaintiff’s payment for the initial creation of the character in 1971 and 1972; and 2) in a separate contract signed by the parties in 1978, when plaintiff was a freelancer for Marvel.

Regarding the former, the court found that in the course of conduct between the parties in 1971 and 1972, when the work was created, plaintiff was paid by a check which bore a legend on the back of it indicating that by endorsing the check, plaintiff was assigning all rights to Marvel. The court noted that when an individual endorses a check subject to a condition, he accepts that condition. As to the 1978 contract, the court determined that plaintiff relinquished all rights to the character in consideration for future freelance work. And although the parties extensively briefed “works for hire” as well, the court did not need to consider this theory since the foregoing findings were dispositive.

Of note, plaintiff had testified that his understanding during the freelance period when he created Ghost Rider was that Marvel would own the rights to Ghost Rider for comic books, but that he would personally retain rights to exploit the character in non-comic media. The court found no record evidence whatsoever to support this contention.

As a practical takeaway, authors need to ensure they fully understand and can document what they believe their copyrights are, before contractually binding themselves.


Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.
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Posted on August 26, 2011 by Ralph A. Dengler

Copyrights in Works For Hire

What can the Hulk, Spiderman and the X-Men teach us about copyrights? Well, artists and authors alike must understand the terms under which they are creating their works, or potentially lose any copyrights they, and their heirs, might otherwise enjoy. IP Law360 recently reported on Marvel Worldwide v. Kirby from the Southern District of New York, which underscores the importance of such understanding.

In short, a “work for hire” exists when an artist or author creates a work on behalf of, or commissioned by, another. Typically, this arises in an employer-employee situation when an artist or author creates a work in the regular course of employment. Copyrights under such circumstances generally belong to the employer.

The Marvel case concerned legendary comic book artist Jack Kirby, who in 1972 assigned to Marvel all rights he “may have or control” in any of the works he created for Marvel. Importantly, Kirby acknowledged that he had created the subject works “as an employee for hire” of Marvel in the 1960’s (when the Copyright Act of 1909 was in force). In 2009, Kirby’s heirs attempted to terminate these assignments based on the Copyright Act of 1976, which gives authors or heirs the right to terminate a prior copyright assignment 56 years after the date of the original copyright. Of note, the 1976 Act was enacted, inter alia, to address apparent flaws in the 1909 Act. While the heirs gave timely notice to Marvel, the Court ruled that the 1976 Act specifically excluded copyrights in a work for hire, which is what the Court determined Jack Kirby’s creations were pursuant to the 1909 Act.

The Court thus concluded that Kirby’s heirs cannot claim rights to these creations, because they were works for hire, and specifically exempted from the 1976 Act.

The Intellectual Property Department at Gibbons P.C. is available to counsel on copyrights and all other intellectual property matters.


Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.
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Posted on August 3, 2010 by Lisa H. Wang

Library of Congress Says You Can Jailbreak Your Smartphone

On July 26, 2010, the Library of Congress ruled that “jailbreaking” of smartphones is a fair use under the Copyright Act. Under the Copyright Act, the Librarian of Congress is required to review classes of works every three years for exemptions to the ban against circumventing technological measures that control access to copyrighted materials. The purpose for the triennial review is to determine whether users of copyrighted works are adversely affected by the anti circumventing ban in their ability to make noninfringing uses of copyrighted work. As part of its decision making process, the Copyright Office provides notice of its rulemaking, solicits input from the public and makes a final recommendation to the Library of Congress.

This year, the Library of Congress granted exemptions to six of the 19 submitted classes of works. One of the interesting exemptions is the ability to “jailbreak” or circumvent the technological measures contained on smartphones and in particular Apple’s iPhone, to prevent unapproved software from being installed and run on such phones. In other words, it is now permissible as fair use to “jailbreak” Apple’s iPhone in order to make the operating system on that phone interoperable with a third-party’s software that has not been approved by Apple.

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.
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Posted on April 1, 2010 by Gibbons P.C.

Hot News Misappropriation Injunction Issued Against TheFlyOnTheWall.com

In Barclays Capital Inc. v. TheFlyOnTheWall.com, 06 Civ. 4908 (S.D.N.Y. March 18, 2010), Judge Denise Cote issued a narrowly tailored injunction against republication of financial services firms stock recommendations.

FlyOnTheWall.com (Fly) collected and published summaries of stock analyst reports within minutes after they were released by financial institutions to their clients. FlyOnTheWall sometimes included summaries of the research reports, but following commencement of the suit it only published headlines such as "EQIX: Equinox initiated with a Buy at BofA/Merrill." Three financial institutions filed suit against Fly for hot news misappropriation and copyright infringement.

After denying the parties' cross motions for summary judgment, Judge Cote held a bench trial. She made extensive findings regarding the business models of the financial institutions, including how each one devotes substantial efforts to developing original research and provides its research to clients at no charge in the hope the client will place trades with the firm based on the recommendations. She described how each institution conducts a morning call at roughly 7:15 am, and the substantial efforts by the institutions to reach their clients beginning at 8 am and continuing to mid-day and sometimes over two days. She also made findings about the firms' efforts to restrict access to the research, to control press coverage for 4 hours or until 2 pm, and their surveillance programs. The court also credited evidence that the unauthorized redistribution of recommendations was a major contributor to the decline in the resources each firm devotes to equity research.

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.
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Posted on March 10, 2010 by Gibbons P.C.

Reed Elsevier v. Muchnick: Copyright Registration is Not a Jurisdictional Requirement

Last week, the Supreme Court issued its highly-anticipated decision in Reed Elsevier v. Muchnick. The decision arose out of a class action settlement between publishers and authors following the Supreme Court’s holding affirming copyright infringement in New York Times, Co. v. Tasini. The Southern District of New York certified the settlement, but the Second Circuit reversed, holding that pursuant to §411(a) of the Copyright Act, the Court lacked subject-matter jurisdiction to approve the settlement because the settlement covered both registered and unregistered works. The Supreme Court reversed, holding that the registration requirement of §411(a) was a claim processing rule and not a jurisdictional requirement. It left open, however, the question of how strictly §411(a) should be applied.

The Second Circuit Decision

During proceedings before the Second Circuit in Reed Elsevier, the court sua sponte asked the parties to brief the issue of whether §411(a) was a jurisdictional requirement. In response, all parties filed briefs asserting that the district court had subject-matter jurisdiction to approve the settlement. The Second Circuit ruled that the district court lacked the subject-matter jurisdiction necessary to certify the settlement because some of the works at issue were unregistered. Certiorari was granted to resolve the question of whether §411(a) restricts the subject-matter jurisdiction of federal courts. Because no party’s brief supported the Second Circuit’s holding that the court lacked subject-matter jurisdiction, the Supreme Court assigned an amicus to draft the brief in support of the Second Circuit’s holding.

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.
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Posted on January 6, 2010 by Gibbons P.C.

Copy Machine or Copy Service? "Volitional Conduct" and Direct Copyright Infringement

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.

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.
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