The IP Law Blog Archives - Page 48 of 54

Third Party Trade Secret Misappropriation and the Statute of Limitations

Published: July 29, 2008

A California appellate court was recently faced with the issue of when the statute of limitations runs on a claim for trade secret misappropriation against a third party when the plaintiff’s trade secrets are stolen and sold to that third party. On May 30, 2008, the appellate court issued its opinion in Cypress Semiconductor Corporation v. Superior Court (Silvaco Data Systems) and held that the statute of limitations on a cause of action for trade secret misappropriation begins to run when the plaintiff has reason to suspect that the third party knows or reasonably should know that the information in its possession is a trade secret. The appellate court held that the third party’s actual state of mind did not matter for purposes of the running of the statute of limitations.

Silvaco develops and licenses electronic design automation software. This software allows its customers to design their own software products. Silvaco created a software product known as SmartSpice and maintained that its source code was a trade secret.

In late 1998, a former employee working for a competitor incorporated the SmartSpice trade secrets into a product called DynaSpice. Silvaco began to suspect in 2000 that its trade secrets had been misappropriated and sued both the former employee and the competitor. However, Silvaco did not take any action to notify any of its competitor’s customers who had licensed DynaSpice for their own use.

In August 2003, Silvaco and the competitor entered into a settlement agreement and stipulated judgment. The competitor agreed to stop licensing DynaSpice and to inform its customers that the DynaSpice software contained Silvaco’s trade secrets and that they should terminate their use of DynaSpice. Cypress Semiconductor, one of the competitor’s customers, learned of the judgment in late August 2003.

After entering into the stipulated judgment, Silvaco notified the competitor’s customers that the DynaSpice program contained its trade secrets. Cypress was contacted by Silvaco in September 2003. Despite receiving this notice, Cypress allegedly continued its use of DynaSpice. In May 2004, Silvaco sued Cypress for trade secret misappropriation.

Prior to trial, Silvaco asked the court to exclude evidence related to Cypress’ statute of limitations defense. Silvaco argued that Cypress did not have knowledge of the competitor’s wrongful misappropriation of trade secrets until August 2003 when it received notice of the judgment and therefore, the statute of limitations could not have begun to run until that time. The trial court agreed with Silvaco and concluded as a matter of law that the trade secret misappropriation claim against Cypress did not accrue until August 2003. Therefore, Silvaco had filed suit within the three-year statute of limitations period.

Cypress filed a petition for writ of mandate with the appellate court to challenge the ruling on its statute of limitations defense. The appellate court reversed the trial court’s ruling and found that it was a question of fact for the jury as to when the statute of limitations began to run.

The appellate court began its analysis by considering whether the “single claim” rule contained in section 3426.6 of the California Uniform Trade Secrets Act (“CUTSA”) was applicable. The single claim rule provides that “a continuing misappropriation constitutes a single claim.” Based on this section, Cypress argued that the statute of limitations for trade secret misappropriation began to run as to all third party actions when Silvaco learned of the original misappropriation by its competitor. The appellate court noted that the single claim rule was based on the view that the interest protected by trade secret law is the contractual or confidential relationship within which trade secrets are disclosed, such as between an employer and employee. The single claim rule considers a breach of that confidence to be a single wrong. The appellate court noted that other jurisdictions viewed the interest protected by trade secret law as a “property” right and that each unauthorized use of the property gives rise to a new cause of action with its own statute of limitations.

In holding that the single claim rule did not apply, the appellate court held that “a plaintiff may have more than one claim for misappropriation, each with its own statute of limitations when more than one defendant is involved.” The court noted that although the CUTSA adopted the single claim approach for purposes of statute of limitations, it did not completely reject the property view of trade secret law. Therefore, the court held that “a cause of action for misappropriation against a third party defendant accrues with the plaintiff’s discovery of that defendant’s misappropriation. Any continuing misappropriation by that defendant constitutes a single claim.” The court noted that Silvaco did not allege that Cypress was involved in the original misappropriation. The court concluded that, under those circumstances, Silvaco had a separate claim against Cypress for misappropriation with its own limitations period.

The court then turned its attention as to when the statute of limitations began to run. Silvaco maintained that the limitations period only began when Cypress learned that it possessed Silvaco’s trade secrets in August 2003. The court rejected this argument and reasoned “it is not the law that accrual of a cause of action depends upon the existence as a matter of fact of a winning claim. Accrual does not wait ‘until a plaintiff is in a position to present evidence which will (regardless of what evidence the defense musters) establish facts which make liability a legal certainty.’” Instead, the court, relying upon prior California Supreme Court precedent, held that the statute of limitation begins to run when “a plaintiff has “reason at least to suspect a factual basis . . . the elements of a cause of action, coupled with knowledge of any remaining elements . . . .”

Cypress argued that only Silvaco’s discovery of its alleged misappropriation was pertinent to the statute of limitations analysis. Although the court partially agreed with this argument, the court noted that the defendant’s statement of mind is not irrelevant “since a cause of action for misappropriation incorporates an element of knowledge on the part of a defendant.” However, the court noted that the lower court erred in focusing upon Cypress’s actual innocent mental state prior to August 2003. The court concluded that “the proper focus for purposes of running of the statute of limitations is not upon the defendant’s actual state of mind but upon the plaintiff’s suspicions.” Thus, the court held that the statute of limitations “began to run when Silvaco had any reason to suspect that the [competitor’s] customers knew or should have known that they had acquired Silvaco’s trade secrets.”

Cypress also argued that, if Silvaco knew that its competitor’s customers had its trade secrets, it had a duty to notify the customers of its claim within the statute of limitations period. The court declined to find such a duty within the CUTSA. However, the court noted that the provisions of the CUTSA encourage prompt notice nevertheless. The court recognized that a trade secret loses its protected status if the owner does not undertake reasonable efforts to keep it secret. The court concluded that “the failure of the trade secret owner to take prompt action to protect its trade secrets or to alert good faith acquirers to the existence of its trade secret claims can serve as a defense in the event the trade secret owner eventually decides to pursue a misappropriation claim against a third party. These defenses, however, are separate from the statute of limitations defense.”

The court’s decision in the Cypress Semiconductor case emphasizes the need for any party that believes its trade secrets have been misappropriated to act promptly to identify, notify and, if necessary, file a legal action against anyone it believes has misappropriated its trade secrets. Failure to do so poses a risk that a trade secret owner may be time barred from pursuing its legal options. At the very least, it will raise a question of fact for the jury to resolve.

Viacom V. Youtube: Are Our Internet Privacy Rights Really In Danger?

Published: July 15, 2008

The IP Law Blog

By: Dale C. Campbell and Serena Crouch, Third Year Law Student at McGeorge School of Law

Internet users and privacy advocates across the nation fear they are losing the continuing battle to protect internet privacy rights. A court decision in a lawsuit between Viacom and YouTube.com is the most recent battlefield regarding data likely to provide the video viewing habits of millions around the world.

In March 2007, Viacom sued YouTube and Google, Inc. in the United States District Court, Southern District of New York, seeking at least $1 billion in damages for alleged copyright infringement. Viacom claims that YouTube built its business by willfully offering Viacom’s copyright protected material such as episodes of “The Daily Show with Jon Stewart” and the cartoon “SpongeBob SquarePants.” Viacom claims that neither YouTube nor its users are licensed to upload its material in the manner it is being used.

Viacom recently sought a court order requiring YouTube to produce various documents, one of which was YouTube’s Logging database. Each time a video is watched, the Logging database records the login ID of the viewer, the IP address of the computer being used, and the time it was watched. Viacom requested this information to prove that Viacom’s protected videos are being watched in a higher proportion than the non-protected videos on YouTube. With this information, Viacom hopes to prove that YouTube is gaining a financial benefit, one prong necessary to prove YouTube is vicariously liable for its users’ infringement of Viacom’s copyrighted material. Viacom also hopes the information can be used to bar YouTube’s defense that its website is capable of substantial non-infringing uses.

YouTube opposed Viacom’s request, claiming the request was unduly burdensome because it would be expensive and time-consuming for YouTube to determine which information in the database is privileged or work product material. However, the Court rejected that argument, holding that YouTube failed to rebut Viacom’s argument that the content of the database does not need to be viewed for privileged information because it simply records the number of times each video was viewed by members of the public. The Court also ruled that production of the database would not be unduly burdensome because the contents, while containing twelve terabytes of information, could be copied onto a few over-the-counter hard drives. Therefore, the burden on YouTube did not outweigh Viacom’s need for the information.

YouTube made a second argument that disclosure of the information violated the rights of third parties because the contents of the database would disclose the viewing habits of its users. YouTube, however, did not provide independent evidence concerning how the database could be used to identify specific users. In response, Viacom argued that the login ID of YouTube’s users is an anonymous pseudonym that users create themselves and could not identify any specific individual without more information. Viacom even cited Google’s own representations on its website that, “[i]n most cases, an IP address without additional information cannot [identify its user].” As a result, the Court found YouTube’s concern regarding privacy rights was speculative and did not outweigh Viacom’s need for the information.

The Court also noted in passing that YouTube had cited the Video Privacy Protection Act (VPPA), which prohibits videotape service providers from disclosing personal information of its customers. However, the Court paid little attention to the law and, in fact, only mentioned it in a single footnote. While some have argued that the Court ignored the VPPA because it narrowly interpreted the statute to apply only to videotape cassette service providers, it seems that even a broad interpretation to encompass videos on the internet would still not have benefited YouTube since YouTube failed to establish that the Logging database actually contained personal information of the viewers.

Internet privacy advocates, such as Electronic Frontier Foundation, argue that this ruling is a “set-back to privacy rights.” The opinion of the Court, however, does not appear to overrule the VPPA nor does it appear to set a new legal precedent for future cases.

For any disclosure of information to fall under the VPPA, the provider must disclose personally identifiable information of its customers. The Court’s ruling is based on a finding that YouTube and Google failed to meets its burden of proving that YouTube’s Logging database contains any personally identifiable information.

Privacy advocates are properly concerned that an IP address is the first step needed to identify a specific person. Once an IP address is obtained, a computer expert can determine the internet service provider and then subpoena the internet service provider to obtain the name of the person assigned the specific IP address. Also, Electronic Frontier Foundation has made the argument that a user’s login ID can identify a specific person if the creator, for example, decides to use their name as their login ID.

While all these arguments are correct, YouTube and Google failed to make these arguments in opposition to Viacom’s request for production of its Logging database. In fact, YouTube failed to refute Viacom’s argument that a user’s login ID is anonymous and, without more information, cannot identify a specific person. YouTube also failed to provide expert information that an IP address in some cases cannot identify a person, while in other cases, with a few simple steps, can be used to identify a specific person.

The Court was mindful of third parties’ rights to privacy, but found, in this case, that the Logging database did not contain such information. The Court never stated that personally identifiable information should not be protected nor did it overrule the VPPA. It simply stated, in its brief discussion, that YouTube and Google failed to prove that their Logging database contains personally identifiable information.

Our internet privacy rights have not been fully eroded . . . yet. Individuals should not fear the possibility of companies suing them individually by using this ruling to obtain their personal information and viewing habits. The Court’s ruling is based on the type of information in YouTube’s Logging database and the arguments (or lack thereof) presented by both sides. Individuals and privacy advocates should not critique the Court for granting Viacom’s motion, rather advocates should be concerned that YouTube and Google did not make a convincing argument that the information stored in their Logging database contains personally identifiable information. The Logging database is being produced because YouTube and Google failed to meet its burden, not because the Court has cut new ground in reducing privacy rights or overruled the VPPA.

Internet Search Adwords: Are Your Trademarks Protected?

Published: July 9, 2008

by Dale C. Campbell
The IP Law Blog

Search engine websites sell keywords as a component of their advertising programs. By purchasing an advertising keyword, a business’s advertisement will appear next to the search results whenever a person enters the advertising keyword as a search term. Trademark questions arise whenever a competitor purchases an advertisement keyword that is confusingly similar to the protected mark of another competitor, thereby causing its advertisement to pop up next to the search results.

The Northern District Court recently addressed this issue in Storus Corp. v. Aroa Marketing (2008) WL 449835 (N.D. Cal.). Storus sells a money clip under the mark “Smart Money Clip.” Defendant Aroa also sells money clips in addition to other luxury personal items. Aroa purchased the advertisement keyword “smart money clip” offered by Google as part of its internet advertising program known as “AdWords.” By typing “smart money clip” in Google’s search engine, Aroa’s advertisement would appear to the right of all other search results. Aroa’s advertisement appeared as:

“Smart money clip

www.steinhouseonline.com Elegant Steinhouse accessories. Perfect to add to any collection.

Storus sued, claiming that Aroa had used a mark that was confusingly similar to Storus’s valid, protectable trademark. Storus claimed that Aroa’s use of its mark created “initial interest confusion.”

“Initial interest confusion occurs when the defendant uses the plaintiff’s trademark in a manner calculated to capture initial customer attention, even though no actual sale was finally completed as a result of the confusion.” (Intrastellar Starship Services Ltd. v. Epix, Inc., 304 F.3d 936, 941 (9th Cir. 2002).) Initial interest confusion does not mean that a customer purchases one product, believing that they are actually purchasing the product of another. This is known as “source confusion.” Rather, initial interest confusion occurs when a defendant uses a plaintiff’s mark to divert people looking for the plaintiff’s product to the defendant’s website, thereby inappropriately benefiting from the goodwill plaintiff had established in its mark. (See Brookfield Communications, Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1058 (9th Cir. 1999).)

In Storus, the Northern District Court found, without discussion, that Aroa had “used” plaintiff’s mark and focused its analysis on whether there was a likelihood of confusion by utilizing the eight Sleekcraft factors. (See AMF, Inc. v. Sleekcraft, 599 F.2d 341, 348-49 (9th Cir. 1979).) However, in the context of infringing use on the internet, the Court first evaluates what has been termed the “internet trinity”: (1) similarity of the marks; (2) relatedness of the goods or services; and (3) the parties’ simultaneous use of the Web as a marketing channel. If the “internet trinity” analysis suggests confusion, the burden shifts to the defendant to prove that the remaining Sleekcraft factors “weigh strongly against the likelihood of confusion.” (See Perfumebay.com v. eBay, Inc., 506 F.3d 1165, 1174-75 (Fed. Cir. 2007).)

The Storus court found a likelihood of confusion after evaluating the internet trinity. The Court also found that defendant had failed to present any evidence concerning a lack of actual initial interest confusion and failed to present any evidence weighing against the likelihood of confusion.

However, the Court came to a different conclusion with respect to the second defendant sued by Storus – SkyMall. Storus contended that SkyMall’s web page infringed its trademark because when a customer typed in the phrase “smart money clip,” the customer was directed to a page showing the Aroa money clip. However, the Court found a lack of factual evidence that SkyMall actually “used” the mark “smart money clip.” The evidence presented to the Court established that the reason the customer was directed to the Aroa money clip was because the search mark phrase “smart money clip” also included the phrase “money clip.” To prevail at trial, Storus will have to prove that SkyMall’s search engine directs a customer searching for “smart money clip” to a page in SkyMall’s electronic catalog that contains the entire phrase “smart money clip.” The evidence presented was insufficient to draw that conclusion at summary judgment.

The findings in Storus are consistent with prior Ninth Circuit opinions prohibiting a defendant from using a plaintiff’s mark in “metatags” by causing initial customer confusion. Although a customer immediately notices upon entering the website that it is not the website of the trademark holder and, therefore, there is no actual source confusion, the misdirection of the user as a result of the embedded metatags violates the initial confusion doctrine.

However, at least one other circuit court comes to a different conclusion. The Second Circuit Court of Appeals that the use of protected marks in metatags does not infringe another’s trademark. The Second Circuit, rather than focusing on the element of confusion, instead focuses on whether a defendant “uses” a mark in commerce by employing hidden metatags. Courts in the Second Circuit have consistently held that there is no trademark “use” if the mark is not placed on any product, good, or service or where the mark is not used in a way that would indicate source or origin. (See 1-800 Contracts, 14 F.3d 400 and FragranceNet.com, Inc. v. FragranceX.com, Inc., 493 F.2d 545, 550 (E.D.N.Y. 2007).) The Second Circuit Court has criticized the Ninth Circuit, accusing it of jumping to the “likelihood of confusion” prong without first properly analyzing whether the mark is “used in commerce.”

Defendants who find themselves appearing in courts in the Ninth Circuit need to focus on the “use” element of trademark infringement and encourage the court to heed the viewpoints set forth by Circuit Judge Berzone in his concurring opinion in Playboy Enterprises, Inc. v. Netscape Communications, 354 F.3d 1020, 1034 (C.A. 9 2004). Judge Berzon argues that the “initial interest confusion” doctrine should not be expanded into situations where a party is never confused. For example, Judge Berzon felt that a different result would occur if an internet advertisement, such as in Storus, clearly stated that the ad is not for the trademark owner’s product. Judge Berzon analogized the situation to a department store carrying multiple brands of jeans. If a customer asked the store clerk where she can locate Levi’s jeans, no trademark violation occurs when the clerk directs the customer to the area of the store containing Levi’s jeans as well as Calvin Klein jeans. Judge Berzon cautioned that the initial interest confusion doctrine should not expand to internet advertisements where a potential customer is simply advised of alternative competitive products through advertisements that clearly do not identify themselves with the mark of another.

Court Couldn’t Give A Quack About Generic Mark

Published: June 24, 2008

by Scott M. Hervey
The IP Law Blog

The First Circuit recently decided a case that exemplifies the downfall of building a brand around merely generic terms. No matter how long the mark owner may use a mark in commerce, it is going to be next to impossible to prevent competitors from using those generic components, even where the use is part of the competitor’s trademark.

Boston Duck Tours operated a sightseeing tour operation of the Boston area since 1994 and used renovated WWII amphibious vehicles commonly referred to as “ducks.” In 2001, Super Duck Tours began operation of a sightseeing land and water tour. Super Duck Tours originally operated its business solely in Portland, Maine. In 2007, Super Duck Tours expanded its operation and began to offer tours in certain parts of Boston not serviced by Boston Duck Tours.

In July 2008, Boston Duck Tours sued Super Duck Tours for trademark infringement. The district court granted Boston Duck’s motion for a preliminary injunction, finding that the term “duck tours” was non-generic for amphibious sightseeing tours in the Boston area and capable of protection. Super Duck Tours promptly appealed the district court’s decision, arguing that the phrase “duck tours” is generic for amphibious sightseeing tour services. The First Circuit Court of Appeals agreed with Super Duck Tours that the district court places a great an emphasis on the generic “Duck Tours” language.

In reviewing basic trademark principles, the Court of Appeals noted that a mark is entitled to trademark protection if it is capable of functioning as a source identifier of goods or services. Trademark law categorizes proposed marks along a spectrum of distinctiveness, with the most distinctive marks being those that are arbitrary or fanciful and the least being those that are generic or merely descriptive. The court noted that if a brand fails to achieve distinctiveness, either inherently or through the acquisition of secondary meaning, it does not have the legal status of a trademark or service mark.

Descriptive marks are those that convey an immediate idea of the ingredients, qualities or characteristics of the goods to which they are attached. Because descriptive marks are not inherently capable of serving as source-identifiers, such marks may only be registered on the Principal Register after the owner has provided sufficient evidence to establish that the public associates the mark not only with a specific feature or quality, but also with a single commercial source.

A generic term is one that does not have capacity as a source-identifier because it does not distinguish the goods of one from those of another. Instead, it is a term that, either by definition or through common use, has come to be understood as designating a particular class of goods. Because they serve primarily to describe products rather than identify their sources, generic terms are incapable of becoming trademarks, at least in connection with the products that they designate.

The lower court found that the term “duck tours” was not generic in connection with the services being offered. In reaching this decision, the lower court relied exclusively on a dictionary definition of “duck,” and did not take into account other references. The Court of Appeals noted that a dictionary definition is only one of several factors that should be taken into account when determining whether a brand is generic. Two other types of evidence generally considered in determining whether a designation is generic are uses by the media and other third parties, and uses within the industry generally.

The Court of Appeals considered the above type of evidence submitted by Super Duck Tours in coming to its conclusion that the term “duck tours” is generic for amphibious sightseeing tours. The Court noted the media and third parties in general refer to amphibious sightseeing tours as “duck tours.” The Court also noted the widespread uses of “duck” and “duck tours” by other companies around the country that provide the same amphibious sight-seeing services. The Court found that this evidence indicates that when consumers hear the term “duck tours” they associate it primarily with a product – amphibious sightseeing tours – rather than a source.

What’s the effect of having a generic designation incorporated into a mark? While the presence of a generic term or phrase in a full mark will not render the entire mark invalid, its presence does affect the analysis of whether a competitor’s mark containing the same component is likely to create confusion. Here, the Court of Appeals noted that Boston Duck Tours was a mark comprised of the generic “duck tours” phrase entitled to no trademark protection at all, coupled with “Boston,” a term that is generally entitled to little protection because it is geographically descriptive. (Because of the long running use of the Boston Duck Tours mark, the court noted that the mark as a whole acquired secondary meaning and is reasonably strong overall as an identifier of its services. Nonetheless, the Court made it clear that the generic part of the mark – the phrase “duck tour” – is entitled to no trademark protection at all.)

The Court of Appeals found that in granting the injunction, the lower court placed undue emphasis on the shared use of “duck tours” in the two marks. In determining whether the marks conflict, the lower court should have focused its inquiry on the non-generic words which comprise the remainder of the marks, which in this case are “Boston” and “Super.”

The lesson in this case for mark owners is, if you want a strong brand, resist incorporating terms that are generic into a brand. (I would even caution against incorporating terms that are extremely descriptive as the line between being extremely descriptive and generic can be a very thin one.) No mater how long you use it and no matter how much advertising money you put behind it, you will never be able to prevent a competitor from using it.

Lack of Enablement – A Stronger Tool for Invalidity

Published: June 4, 2008

by Audrey A. Millemann
The IP Law Blog

One of the requirements of a valid patent is enablement. As set forth in 35 U.S.C. section 112, paragraph 1, a patent’s specification must contain “a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same.” The Court of Appeals for the Federal Circuit has explained that the enablement requirement is met “when one skilled in the art, after reading the specification, could practice the claimed invention without undue experimentation.” AK Steel Corp. v. Sollac, 344 F.3d. 1234, 1244 (Fed. Cir. 2003). Although anticipation or obviousness based on the prior art is a more frequently asserted basis for invalidating a patent in patent infringement litigation, the Federal Circuit’s decision in Sitrick v. Dreamworks, LLC, 516 F.3d. 993 (Feb. 1, 2008) suggests that lack of enablement may be becoming a far more powerful tool.

In Sitrick, the plaintiff owned two patents that covered technology that allows integration of a user’s audio signals or visual image into a preexisting video game or movie. The specifications of the two patents described the invention as it was used in video games, but the claims covered both video games and movies. Dreamworks produced DVDs that included a product that permitted users to add their own voice to movies. Sitrick sued Dreamworks for infringement of both patents.

During claim construction, Dreamworks argued that the claims should be narrowed to cover only video games. The plaintiff opposed that construction, and the court construed the claims as plaintiff requested, to cover both video games and movies.

Dreamworks moved for summary judgment, including for invalidity for lack of enablement. The District Court for the Central District of California granted the motion, finding all of the challenged claims invalid for lack of enablement with respect to movies.

The Court of Appeals affirmed. The court explained that in order to satisfy the enablement requirement, “the full scope of the claimed invention must be enabled.” Sitrick, supra, at 999. The court explained its rationale:

“Enabling the full scope of each claim is ‘part of the quid pro quo of the patent bargain.’ AK Steel, supra, 344 F.3d. at 1244. A patentee who chooses broad claim language must make sure the broad claims are fully enabled. ‘The scope of the claims must be less than or equal to the scope of the enablement’ to ‘ensure that the public knowledge is enriched by the specification to a degree at least commensurate with the scope of the claims.’[citation omitted].”

The court found that because the district court had construed the claims to cover both video games and movies (as the plaintiff had argued), the patents had to enable both embodiments. The specifications described the detailed steps required for integrating a visual image into a video game, but these steps were not usable for the same process in movies and the patents did not describe how to integrate an image into a movie.

The court stated that it was irrelevant if the patents were enabled for video games – the enablement requirement was not met unless the patents were enabled for both embodiments of the invention, video games and movies. Sitrick, supra, at 1000.

The court held that Dreamworks’ evidence, consisting of the specifications of the two patents and expert testimony, was clear and convincing evidence of lack of enablement. The patents did not teach how to use, in movies, the technology described for using the invention in video games. In addition, defendants’ experts testified that a person skilled in the art could not use the specifications to utilize the invention in movies because video games and movies differed in many respects.

In an earlier case, Automotive Technologies International, Inc. v. BMW of North America, Inc. 501 F.3d. 1274 (Fed. Cir. 2007), the court reached the same conclusion. In that case, the plaintiff’s patent covered side impact sensors used in airbags. The patent’s specification described mechanical sensors in detail, but also mentioned electronic sensors, and the claims covered both types of sensors. The district court granted a defendant’s motion for summary judgment on invalidity on the grounds that the full scope of the claims covered electronic sensors as well as mechanical sensors, but the specification did not teach a person skilled in the art how to make and use the invention with an electronic sensor.

On appeal, the plaintiff argued that because one embodiment, mechanical sensors, was enabled, the claims were enabled. The Court of Appeals held to the contrary, at 1285:

“…[T]he claim construction of the relevant claim limitation resulted in the scope of the claims including both mechanical and electronic side impact sensors. Disclosure of only mechanical side impact sensors does not permit one skilled in the art to make and use the invention as broadly as it was claimed, which includes electronic side impact sensors. Electronic side impact sensors are not just another known species of a genus consisting of sensors, but are a distinctly different sensor compared with the well-enabled mechanical side impact sensor that is fully discussed in the specification. Thus, in order to fulfill the enablement requirement, the specification must enable the full scope of the claims that includes both electronic and mechanical side impact sensors, which the specification fails to do.”

The plaintiff also argued that a person skilled in the art would be able to figure out how to use an electronic sensor in the invention. The court disagreed. “‘It is the specification, not the knowledge of one skilled in the art, that must supply the novel aspects of an invention in order to constitute adequate enablement.’ Although the knowledge of one skilled in the art is indeed relevant, the novel aspect of an invention must be enabled in the patent.” Id. at 1283. The court explained that “when there is no disclosure of any specific starting material or of any of the conditions under which a process can be carried out, undue experimentation is required.” Id. at 1284.

Thus in both Strick and Automotive Technologies, the plaintiffs had sought and obtained a broad claim construction, but had lost the case on summary judgment due to their failure to show that the scope of the claims was enabled.

Some commentators have questioned whether the Federal Circuit is setting the enablement standard too high. That remains to be seen. At this point, however, it is clear that patent litigation plaintiffs should carefully consider the specification in seeking a broad claim construction, and defendants should scrutinize the broad claims to see if invalidity based on lack of enablement can be asserted.

Intentional Interference Claims and Preemption by the California Uniform Trade Secrets Act

Published: May 22, 2008

by James Kachmar
The IP Law Blog

On March 5, 2008, the United States District Court for the Northern District of California (“District Court”) in First Advantage Background Services Corp. v. PrivateEyes, Inc., (“First Advantage”) found, inter alia, that the California Uniform Trade Secrets Act, California Civil Code section 3426, et seq. (“CUTSA”) preempts common law claims for intentional interference that are based on wrongful acts amounting to misappropriation of trade secrets. The First Advantage opinion holds that claims for intentional interference that are based on wrongful acts amounting to misappropriation of trade secrets may be preempted by CUTSA.

PrivateEyes, a California corporation who conducts background checks for employers, entered into an agreement with First Advantage’s predecessor, whose duties First Advantage assumed. First Advantage agreed not to use confidential information received from PrivateEyes to solicit business from vendors with whom PrivateEyes was in contract. First Advantage solicited business despite the agreement not to, and also disclosed PrivateEyes’ confidential and proprietary information to the same vendor. After First Advantage sued PrivateEyes alleging a number of claims related to their agreement, PrivateEyes filed a counterclaim asserting various causes of action. First Advantage filed a motion to dismiss some causes of action found in PrivateEyes’ counterclaim. The District Court granted First Advantage’s motion in part, allowing PrivateEyes leave to amend some of the claims, which PrivateEyes did when it filed its First Amended Counterclaim. Thereafter, the District Court entertained First Advantage’s motion to dismiss.

The District Court began its discussion by addressing First Advantage’s motion to dismiss PrivateEyes’ fifth cause of action: intentional interference with prospective economic advantage. Citing Korea Supply Co. v. Lockheed Martin Corp., the District Court noted that PrivateEyes would need to satisfy the following elements in order to prevail: “(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.”

In dismissing PrivateEyes’ intentional interference claim in PrivateEyes’ initial counterclaim, the District Court found that the intentional interference claim failed to “allege an independently wrongful act outside a simple breach of contract,” a necessary requirement to satisfy the intentional interference claim’s third element. To survive a motion to dismiss, PrivateEyes would have to “plead and prove that the defendant’s acts are wrongful apart from the interference itself.” An independently wrongful act is one that “is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” PrivateEyes’ amended counterclaim alleged three specific independently wrongful acts in an attempt to satisfy the third element of the intentional interference claim: misappropriation of trade secrets, breach of confidence, and trade libel.

PrivateEyes alleged that First Advantage misappropriated trade secrets in violation of CUTSA because it improperly disclosed PrivateEyes’ confidential information, including PrivateEyes’ profit margins. First Advantage argued, however, that CUTSA preempted PrivateEyes’ intentional interference claim because CUTSA preempts any common law claim based on conduct which could support a trade secret claim. Relying on Reeves v. Hanlon, a California Supreme Court case, PrivateEyes argued that trade secrets misappropriation can form the basis of an intentional interference claim.

In Reeves, the court found the defendants “violated CUTSA for stealing a confidential client list, and found to have committed intentional interference based on wrongful acts including destruction of the plaintiffs’ computer files, misappropriation of confidential information, and improper solicitation of plaintiffs’ clients.” The District Court disagreed with PrivateEyes’ reading of Reeves. Specifically, the District Court stated that although Reeves discussed misappropriation in its analysis of the intentional interference claim, that discussion in and of itself did not “foreclose preemption” for a number of reasons. First, the District Court noted that the defendant in Reeves had not raised the issue of preemption. This was important because in San Jose Constr., Inc. v. S.B.C.C., Inc., the appellate court refused to rule on CUTSA preemption because the issue of preemption had not been raised below. Second, Reeves is distinguishable as it was specifically limited to whether an employer could bring an intentional interference claim against a competitor that hired the employer’s former at-will employees. Lastly, because there was no dispute as to the wrongful acts beyond misappropriation, the preemption analysis would have had no impact on the court’s decision. The District Court recognized that in Cadence Design Sys., Inc. v. Avant! Corp., the only other California Supreme Court decision on point, the court suggested that CUTSA preempted all common law claims based on trade secret misappropriation.

The District Court also discussed California Civil Code section 3426.7(b), which identified the three categories of cases not preempted by CUTSA. Specifically, in addition to cases based on breach of contract and criminal remedies, any claims not based on trade secret misappropriation are not preempted by CUTSA. As a result, courts have interpreted this statute to mean that all claims which are based on trade secret misappropriation are preempted by CUTSA.

Applying this rule to PrivateEyes’ allegations in their First Amended Counterclaim, the District Court recognized that PrivateEyes had specifically alleged a CUTSA violation. Because the intentional interference claim was a common law claim based on trade secret misappropriation, the District Court held that CUTSA preempted the claim.

The District Court also addressed PrivateEyes’ additional support of its intentional interference claim. Specifically, PrivateEyes alleged that First Advantage had engaged in a common law breach of confidence because it had improperly disclosed PrivateEyes’ “confidential and proprietary information to CCE in violation of its agreement to maintain the confidential nature of this information.” However, the District Court was critical of PrivateEyes’ breach of confidence claim because the language and facts used “in support of its allegation of breach of confidence are identical to those [PrivateEyes] offered in support of its misappropriation claim.” Further, the District Court noted that the only other difference between the two claims was the existence of a contract, which by itself is inadequate to avoid preemption. Thus, the District Court held that CUTSA preempted the intentional interference claim based on breach of confidence because this was “still a common law claim based on facts which would amount to the misappropriation of trade secrets.”

The District Court’s decision in the First Advantage case suggests that CUTSA will preempt any claims for intentional interference that are based on wrongful acts amounting to misappropriation of trade secrets. Although the plaintiff in First Advantage attempted to avoid preemption by CUTSA by basing its intentional interference claim on misappropriation of trade secrets and breach of confidence, the District Court followed an increasing body of authority holding that any common law claims based on trade secret misappropriation are preempted by CUTSA.

Google Loses Initial Cybersquatting Battle

Published: May 7, 2008

by Jeffrey Pietsch
The IP Law Blog

Google may soon be facing an expensive and damaging class action lawsuit. A federal court ruled last month that Google can be sued for its role in serving ads on websites that use domain names that violate trademark and cybersquatting laws. This case is significant because Google is not the owner or user of the infringing domain names. Google is simply providing advertising services to these domain names. Google, seeking dismissal of the case, argued along these lines. The court, however, held that Google may be liable for cybersquatting.

This case was brought against Google by Vulcan Golf, a golf club manufacturer. Vulcan Golf claims that Google is encouraging and profiting from owners and users of domain names that violate cybersquatting laws. Vulcan Golf has sued Google on the basis that Google is benefitting from and encouraging cybersquatters by capitalizing on valid trademarks, such as Vulcan Golf.

The Anticybersquatting Consumer Protection Act (ACPA), established in 1999, provides trademark holders protection from cybersquatters. Cybersquatting is registering and using a domain name in bad faith with the intent of profiting from the goodwill created by another’s trademark. Cybersquatters often seek to sell the domain name to the trademark holder at an inflated price. In the early days of the internet, who ever registered a domain first had rights to that domain name. Many individuals bought names hoping to later sell them for exorbitant sums of money. For example, the generic domain name business.com sold for 7.5 million dollars in 1999. Concerned about this environment as it relates to federally registered trademarks, Congress passed the ACPA. The ACPA gives trademark owners legal remedies against defendants who cybersquat.

In this case, Vulcan Golf is not concerned with cybersquatters who seek to sell domain names, but, rather, they are concerned with cybersquatters who are providing empty sites that feature advertisements from Google’s AdSense program. For example, a cybersquatter may own a web address that is similar to the trademark but slightly misspelled. When a user mistakenly types in the wrong web address, an empty page appears featuring ads from Google. These ads will be targeted to the audience that typed in the incorrect domain name. If the user clicks on the ads, the domain name owner and Google earn money. Vulcan Golf claims since Google is benefiting from the illegal domain names, they are violating the ACPA.

In order to show a violation of the ACPA, the plaintiff must show that the defendant:

1. has a bad faith intent to profit from the registered trademark; and

2. registers, traffics in, or uses a domain name that is identical, confusingly similar, or, in cases of famous marks, dilutive of a mark that is distinctive or famous at the time the domain name was registered.

Google requested that the case be dismissed because the plaintiffs failed to show these two elements. Google’s main defense was that they can’t be found liable for violations under the ACPA because Google did not register, own or use the infringing domain names. Google argued that their role was merely providing advertising through their AdSense programs.

Despite these arguments, the court ruled that Google may be liable under the ACPA even if they do not own, register or use the infringing domain names. The court found it is plausible that Google participated in the “trafficking in” of an infringing domain name. The Court stated, “Google pays registrants for its use of the purportedly deceptive domain names, provides domain performance reporting, participates in the testing of domain names, uses semantics technology to analyze the meaning of domain names and select revenue maximizing advertisements and controls and maintains that advertising.”

It is this broad interpretation of “trafficking in” that may lead to a flood of lawsuits under the ACPA. Before this ruling, only owners and users of domain names were held liable under the ACPA. If Google, with its deep pockets, is now liable under the ACPA, expect to see many more lawsuits filed against them under the ACPA.

Superman and a Super Copyright Battle

Published: April 2, 2008

by Scott M. Hervey
The IP Law Blog

On March 26, 2008, the District Court for the Central District of California issued an order closing one chapter to a long running battle between the heirs of one of the original creators of the iconic comic book superhero, Superman, and DC Comics. The court’s order addressed the heirs’ attempt to exercise their rights under the termination provision contained in the Copyright Act of 1976; a formalistic and complex statutory scheme which allows authors and their heirs to terminate a prior grant of copyright in a creation.

At issue in the case was a 1938 grant (and other purported grants) by Jerome Siegel and his creative partner Joseph Shuster, of the copyright in the first edition of Superman published by DC Comics. The court’s order is a detailed 72 page ruling which devotes great consideration to the story behind the creation of Superman. As the court notes, “any discussion about the termination of the initial grant to the copyright in a work begins with the story of the creation of the work itself.”

In 1932 Jerome Siegel and Joseph Shuster were teenagers at Glenville High School in Cleveland, Ohio. Siegel was an aspiring writer and Shuster an aspiring artist. The two men met while working on their high school newspaper and discovered a shared passion for science fiction and comics.

In January, 1933, Siegel and Shuster first introduced the Superman character in a short story, The Reign of the Superman. The story told of a mad scientist’s experiment with a “deprived man from the bread lines,” and the creation of a villain with superhuman powers. A short time later, inspired to introduce a literary character which would bring hope amidst the general despair felt by most as a result of the Depression, Siegel revised the Superman character from a villain to a hero.

Siegel and Shuster made numerous attempts to get their current version of Superman published. The comic book publisher Detective Dan was the first potential publisher. However, Detective Dan later rescinded its offer. Undaunted rejections, Siegel and Shuster continued to work on Superman. They enhanced his powers and modified the format from comic book to newspaper comic strip.

By 1934, Siegel and Shuster had transformed the Superman character to its present day incarnation. Dressed in its now well known cape and outfit, complete with the “S” crest on its chest, Superman possessed superhuman strength, had the ability to jump an eight of a mile and leap a twenty story building; the character could run faster than an express train and was impervious to gunfire. Siegel and Shuster had also developed the concept of Superman’s secret identity and humanized this character by giving it an “ordinary person” alter ego in the form of Clark Kent.

The two shopped Superman for a number of years to numerous publishers but were unsuccessful. During that time, Siegel and Shuster wrote other comic strips that were sold to Nickelson Publishing Company. When Nickelson closed up in 1937, Detective Comics acquired some of the comic properties that Siegel and Shuster had written. On December 4, 1937, Siegel and Shuster entered into an agreement with Detective Comics and agreed to continue to furnish these comics for the next two years. The agreement also gave Detective Comics a sixty day option to publish any new material created by Siegel and Shuster.

Soon thereafter, Detective Comics decided to issue a new comic book magazine entitled Action Comic and became interested in Siegel and Shuster’s Superman material. With Detective Comics intending to publish Superman in an expanded thirteen page format, Siegel and Shuster began work on revising and expanding the existing Superman newspaper material into a format suitable for a comic book. In February, 1938 Siegel and Shuster resubmitted their Superman material to Detective Comics. On March 1, 1938, prior to the printing of the first issue of Action Comics, Detective Comics sent Siegel a check for $130.00 (representing the per page rate for the thirteen page Superman comic book) and a written agreement for Siegel and Shuster’s signature. The agreement assigned to Detective Comics “[all] the goodwill attached…and exclusive right[s]” to Superman “to have and hold forever.” Siegel and Shuster signed and returned the written assignment to Detective Comics.

Siegel and Shuster’s grant of worldwide ownership rights in Superman was later confirmed in a September 22, 1938 employment agreement in which Siegel and Shuster acknowledged that Detective Comics was “the exclusive owner of Superman.” This agreement also provided for Siegel and Shuster to continue to supply the artwork and storyline for Superman at a per page rate for the next five years.

Superman was published by Detective Comics on April 19, 1938 in Volume One of Action Comics. The comic was highly successful. However, while Superman continued to grow in popularity, a rift developed between the two creators, and Detective Comics. The parties engaged in legal bouts and disputes beginning in 1947, when Siegel and Shuster brought an action against Detective Comics seeking, among other things, to rescind their previous agreements with Detective Comics based lack of mutuality and consideration. The parties litigated again in 1969 as a result of the expiration of the initial copyright term for Superman. Siegel and Shuster brought suit seeking a declaration that they, not Detective Comics, were the owners of the renewal rights to the Superman copyrights. The results were not fruitful, and in 1970 the Federal District Court in New York ruled that the March 1, 1938 grant to Detective Comics (which was reconfirmed in a 1948 stipulation) had transferred and assigned to Detective Comics not only the initial copyright term, but the renewal term in the Superman copyrights as well.

In 1976, Congress made substantial changes to the Copyright Act, and these changes would have a great and profound affect on Siegel and Shuster and their grant of rights to Detective Comics. The 1976 Act expanded the duration of the renewal term for works like Volume One of Action Comics that were already in their renewal term at the time of the Act’s passage. Additionally, the Act gave artists and their heirs the ability to terminate any prior grant of rights to their creation where the grants were executed before January 1, 1978. The purpose was to protect authors, given their lack of bargaining power. Specifically, Section 304(c) of the Act provided that any copyright subsisting in either its first or renewal term on January 1, 1978, other than a copyright in a work for hire, the exclusive or non-exclusive transfer or license executed before January 1, 1978 is subject to termination notwithstanding any agreement to the contrary. It was this right of termination that spurred ten years of negotiation and litigation between the heirs of Jerome Siegel and Detective Comics, its parent company Time Warner, and their affiliated entities.

While the 1976 Act created a new right allowing authors and their heirs to terminate a prior grant of copyright, the Act also set forth specific steps concerning the timing and contents of the termination notice that must be served in order to effectuate termination. The termination of a grant may be effective “at any time during a period of five years beginning of the end of 56 years from the date the copyright was originally secured” and the notice of termination must by served “not less than two or more than ten years” before its effective date. These statutory requirements, along with regulations promulgated by the Register of Copyright made the termination process difficult, complex and extremely technical. However, through assistance of able counsel, the Siegel heirs were able to serve seven separate notices of termination on April 3, 1997, purporting to terminate several of Siegel’s grants in the Superman copyright. The parties negotiated until February, 2002 but were unable to come to terms. Litigation commenced in 2004.

Detective Comics attacked the enforceability of the termination notices and claimed that certain portions of the Superman comic in Volume one of Action Comics were in the nature of a work for hire and not subject to termination. Detective Comics raised other technical challenges to the claims made by Siegel’s heirs. Although highly technical and intricate, the court essentially ruled in favor of Siegel’s heirs and returned to them the copyright in the Superman material that was published in Volume one of Action Comics. Left undecided was how to apportion the profits from the exploitation of new derivative works on a going forward basis. (A termination of rights does not affect the post termination utilization and exploitation of derivative work prepared before termination.) The Court noted that section 304(c)(6)(E) would appear to exclude the Siegel heirs from sharing in profits derived from the foreign exploitation of the Superman material. Additionally, the Court noted that profits derived form the use of the Superman trademarks need not be shared with the Siegel heirs. Also left open is the issue of an accounting for profits resulting from the exploitations of the works by Detective Comics’ corporate siblings, Warner Brothers Entertainment and its corporate parent Time Warner Inc. The genesis of this claim stems from certain inter-corporate transactions concerning the Superman copyright. In noting that summary judgment was inappropriate (and surely ensuring another ten years of litigation), the court noted that “whether the license fees paid represents the fair market value…or whether the license for the works was a sweetheart deal…” are questions of fact that are not answered on summary judgments.

Trademark Infringement: Factors Considered in Consumer Confusion

Published: March 26, 2008

by Jeffrey Pietsch
The IP Law Blog

Trademark infringement occurs when a third party uses a mark in a way that infringes upon a trademark owner’s exclusive right and use of a trademark. Often, the third party will use a similar mark in a way that confuses consumers as to the source of the goods and services. For example, a fast food restaurant named “Wendi’s” would likely cause confusion with “Wendy’s.” Trademark infringement can occur only when it is likely that consumers will be confused as to the source of the goods. The purpose of this article is to examine the test and factors that courts use to determine if such infringement exists.

Many courts have developed a balancing test to determine if a mark infringes on another. This balancing test has largely grown from the seminal case Polaroid Corp. v. Polarad Elect. Corp., 287 F.2d 492 (2nd Cir. 1961). In that case, the court identified several variables to consider when assessing if a mark is infringing on another mark. This balancing test seeks to determine if consumers would likely be confused as to the source of the marks. If the test favors that confusion would likely result, then the court will likely rule that infringement exists. On the other hand, if confusion is unlikely or minimal, the court will likely rule against infringement.

The following are factors used by courts to assess the possibility of trademark infringement by looking at the likelihood of consumer confusion. Not one of these factors is dispositive to the issue of consumer confusion, and each factor must be examined in the context of the ultimate likelihood of confusion.

The first factor the court will look at is the strength of the marks in question. The strength of the marks is determined by distinctiveness of the mark. The more unique and distinct the mark, the more likely the mark will be protected against junior users. On the hand, the more descriptive and generic the mark, the less protection courts will provide to these marks. For example, the mark KODAK will receive more protection than a similar product that uses the mark FAST PHOTO.

Another factor examined is the similarity between the marks. Similarity of marks is tested based on sight, sound and meaning. The marks will be considered in their entirety to determine any similarities. A mark that looks different from another but gives off a similar commercial impression might be considered similar and thus weigh in favor of confusion. For example, a trademark that consisted of the word MONEY might be confused with the mark $$$ because the marks have similar commercial impressions.

The courts will also look at the proximity of the goods in the marketplace. This test relates to the channels of trade used by the goods. The more related the goods the greater the likelihood that they would exist together in the marketplace. Similar marks that are also are related would likely cause confusion as to the source of those goods. Highly related goods are more likely to cause confusion compared to unrelated goods.

The above three factors weigh heavily in determining likelihood of confusion. A mark will not be found confusingly similar with another mark if the two are not found similar in one of these areas, and the complaining mark is considered a weak mark.

After reviewing these, the courts will examine the likelihood that the prior owner will “bridge the gap” in the marketplace. This factor addresses the possibility that a mark will expand into other product lines. The more likely expansion will occur, the more likely consumer confusion will exist.

Next the courts examine evidence of actual confusion. When a case is brought to trial, the evidence is usually in the form of consumer surveys done by the parties. Survey evidence of this nature is often critical in determining likelihood of confusion in infringement cases.

The courts will also look to the sophistication of the buyers of the goods or services to determine likelihood of confusion. Courts have found that sophisticated buyers, such as those who have expertise in a specific area, are less likely to be confused by similarities in marks. In addition, courts have held that consumers of goods and services that are expensive exercise a higher degree of care in making these expensive purchasers. For example, a consumer would exercise a higher degree of care when purchasing a car compared to when that consumer purchases a piece of candy.

The last factor courts examine in a trademark infringement case is the intent of the defendant. If the defendant copies an existing trademark in bad faith to capitalize on that trademark’s goodwill, the courts will lean in favor of finding infringement. The likelihood of confusion, however, is the main consideration in determining infringement regardless of intent. If an individual copies a mark that does not lead to consumer confusion, the courts will likely not find infringement.

The above are not a rigid set of factors used by the courts. Most jurisdictions use some form of the above factors to determine if a likelihood of confusion exists. Regardless of the different variations, courts ultimately are seeking to discover if marks, as they are used in commerce, cause consumer confusion and lead to trademark infringement.

The Ninth Circuit Just Doesn’t Like Karaoke

Published: March 19, 2008

The IP Law Blog

The Ninth Circuit just doesn’t like karaoke. At least, that’s what plaintiffs, manufacturers of karaoke machines, in two recent opinions involving copyright law would likely say. In both decisions, the Ninth Circuit affirmed the district courts’ dismissal of the complaints without leave to amend. Both of these decisions discussed the various copyrights that are implicated in a karaoke device, including the copyright of the performance of the song itself, the song lyrics, and the synchronization of the two. Both decisions also involved the licenses required by karaoke device manufacturers.

In the first, Leadsinger, Inc. v. BMG Music Publishing, 512 F3d 522 (9th Cir. 2008), the court addressed a matter of first impression in the Circuit: How does the Copyright Act apply to karaoke devices? Plaintiff Leadsinger is a karaoke device manufacturer. The device it manufactures is “an all-in-one microphone player” that connects directly to a television and has recorded songs imbedded in a microchip in the microphone. While playing, the Leadsinger device, like most karaoke devices, plays music and projects the song lyrics visually on the screen synchronized with the music.

Copyright law grants the copyright owner the exclusive rights reproduce and distribute the copyrighted work in “phonorecords.” However, as the Leadsinger court noted these exclusive rights are subject to a compulsory license under section 115, which “subjects phonorecords to a compulsory licensing scheme that authorizes any person who complies with its provisions to obtain a license to make and distribute phonorecords of a nondramatic musical work.” If, as Leadsinger argued, its karaoke device was a “phonorecord,” then the compulsory license under section 115 would allow the use of the songs and lyrics.

The gravamen of the dispute involved license fees that BMG demanded of Leadsinger. As the court explained, “in addition to the mechanical fee required under to secure a compulsory license, BMG has demanded that Leadsinger and other karaoke companies pay a ‘lyric reprint’ fee and a ‘synchronization fee.’ Leadsinger has refused to pay these additional fees and filed for declaratory judgment to resolve whether it has the right to visually display song lyrics in real time with song recordings….” In essence, Leadsinger believes that the compulsory mechanical license under 17 U.S.C. § 115 should cover everything, and it should not be required to pay a separate fee to show the lyrics or to synchronize the lyrics with the music.

The Copyright Act defines “phonorecords” as “material objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” 17 U.S.C. § 101. “Audiovisual works” are defined as “works that consist of a series of related images which are intrinsically intended to be shown by the use of machines, or devices such as projectors, viewers, or electronic equipment, together with accompanying sounds, if any….” Id.

The Ninth Circuit found that the use of the lyrics, in projecting them on the screen synchronized with the music, met every element of an “audiovisual work,” and therefore was not a phonorecord. The court found that the “images of successive portions of song lyrics are ‘intrinsically intended to be shown by the use of machine [sic] … together with accompanying sounds.’” As an audiovisual work, it was excluded from the compulsory licensing scheme in § 115.

The end result was that Leadsinger could not rely just on the compulsory license fees it paid to BMG to make and distribute copies of phonorecords, it also had to pay BMG fees for synchronization licenses and reprint licenses to display the song lyrics.

In the second case, Sybersound Records, Inc. v. UAV Corp. et al., — F3d —, 2008 WL 509245 (9th Cir. 2008), the Ninth Circuit continued its apparent disdain for karaoke. In that case, Plaintiff Sybersound Records, another karaoke device manufacturer, sued several of its competitors over the same licenses that were at issue in Leadsinger. In Sybersound, however, the complaint was that the other manufacturer defendants were not paying the license fees, therefore they were able to undercut Sybersound’s prices and compete unfairly. Sybersound claimed it was injured because it did pay all required license fees, and therefore its costs were higher than his competitors.

Sybersound’s problem, however, is that they didn’t own the copyrights on which they claimed the license fees were due. Because it didn’t own the copyrights, Sybersound did not have standing to complain about the actual infringement due to failure to pay the license fees. Apparently recognizing this problem, Sybersound sued instead for violations of California’s unfair competition law, RICO violations, and intentional interference. But all of these claims rested on one alleged wrong – the infringement of the copyrights Sybersound lacked standing to address. The court held that because Sybersound lacked standing to sue for copyright infringement, it also lacked standing to sue for related claims that required the copyright claims to be decided. The court also held that the unfair competition claim was preempted by the federal Copyright Act. Therefore, the court affirmed the dismissal of the complaint without leave to amend.

Thus, for the second time in two months, the Ninth Circuit pulled the plug on karaoke plaintiffs. However, in so doing, it left us with a few reminders of what should probably be obvious points. First, karaoke devices, and the recordings that are played on them, contain more than one copyright. Each of these rights is separate and requires a separate license. Second, a plaintiff can only complain of the infringement of rights it owns. And third, a plaintiff cannot easily plead around this standing requirement by recasting its complaint in terms of other related claims. Or perhaps it’s really as simple as the Ninth Circuit just doesn’t like karaoke.