Blog: The IP Law Blog

Last week, a judge for the United States District Court in Arizona has granted a summary judgment in favor of recording companies. The judgment finds the defendant, Jeffrey Howell, liable for copyright infringement for illegally sharing music files. Even though there was no evidence that the defendant actually distributed the music files, the judge found the defendant violated copyright laws by making the files available for distribution. This case is significant because it is the first case that specifically states that “making available” equates to distribution under copyright laws.

This case was brought by several large recording companies against Jeffrey Howell. The recording companies, in an attempt to thwart unauthorized online distributions, hired a company to investigate and detect such activities. The company notified the recording companies that Howell had made available 54 specific sound recordings of musical artists which the record companies owned a valid copyright. Howell had made these files available through a file sharing program named Kazaa in which third parties could access and download Howell’s files. The recording companies filed an action for copyright infringement against Howell and moved for summary judgment on that claim, arguing that there is no disputed material fact that Howell violated their exclusive distribution right for the 54 identified sound recordings. Howell, representing himself, denied these claims and argued that their file-sharing program was “not set up to share” and that the files were for private use and “for transfer to portable devices that is legal for ‘fair use.'”

Title 17, Section 106(3) grants copyright owners the exclusive right to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending. In order to succeed in a copyright infringement claim the plaintiff must satisfy two requirements to win a prima facie case of direct infringement. First, they must show ownership of the allegedly infringed material. Second, they must demonstrate that the alleged infringers violate at least one exclusive right granted to copyright holders under Section 106. The question in this case is whether Howell infringed the recording companies’ copyrights by making available files to be shared by third parties.

The district court held that the owner of a collection of works who makes them available to the public may be deemed to have distributed copies of the works in violation of copyright law. The court noted that in a case involving the online file-sharing program Napster defendants were found to have violated copyright owners’ distribution rights by employing “the Napster software to make their collections available to all other Napster users.” The court also cited several cases that suggest that Kazaa users commit direct infringement by employing the Kazaa program to make their collections of copyrighted sound recordings available to all other Kazaa users.

In one such case,a set of screenshots showing the contents of a defendant’s Kazaa shared folder was found to present a cognizable claim for copyright infringement under 17 U.S.C. § 106(3). In another case cited by the court, a Texas court equated the placement of items in a Kazaa shared folder with “publication” as defined by 17 U.S.C.§ 101 because it is a distribution, or an offer of distribution “in which further distribution, public performance or display is contemplated.” Based on these cases, the court in this case held that it is no defense that a Kazaa user did not directly oversee the unauthorized distribution of copyrighted material.

Howell, on the other hand, argued that the recording companies brought forth no evidence that he participated in the distribution. Howell claimed that when the distribution occurred he was at work. Howell argued that screen shots showing the music files in the shared Kazaa folders were not enough to show copyright infringement. Finally, Howell argued that he owned every music file that he transferred to Kazaa and was using the Kazaa program for personal use.

The court disagreed with Howell’s arguments. The fact that Howell owned the music did not deny the possibility of unauthorized distributions. More importantly, the court held that the mere presence of copyrighted works in a shared folder is enough to trigger liability for copyright infringement.

The court ordered damages in the amount of $40,500 and issued an injunction against Howell to cease the distributions. This ruling is significant because the defendant was found liable for simply “making available” music files for download. The plaintiff in this case brought forth no evidence that files were actually distributed, rather the evidence showed they were only made available for distribution. Because the court found that making available for distribution equates to actual distribution, recording companies will have a much easier time succeeding in future suits against file sharers.

In Magic Kitchen LLC v. Good Things International Ltd., et al., the California Court of Appeal (Second App. Dist., July 30, 2007) was confronted with the issue of whether to apply the statute of limitations or the equitable doctrine of laches to determine whether plaintiffs’ claims for trade dress infringement were barred as a matter of law. The Court held that it was unnecessary to address the split of authority on the issue because it found that plaintiffs’ claims for trade dress infringement were barred by the doctrine of laches. The Court affirmed the trial court’s entry of a directed verdict against plaintiffs as to these claims.

The Pampered Chef, one of the defendants, purchased and distributed a cooking tool from plaintiff, Kitchen Connection, Inc., called the “Tartmaster” from the mid-1980s until 1993. The Tartmaster is a hand-operated metal device used to cut and crimp the edges of dough and bread. Plaintiff sold Tartmasters to The Pampered Chef in two sizes: 3-inch and 4-inch. In 1992, defendant learned that the patent for the Tartmaster design had expired and the design was in the public domain. Defendant stopped purchasing the Tartmaster from plaintiff in early 1993. At about the same time, The Pampered Chef began sourcing 3-inch and 4-inch variations of the Tartmaster product, which it called the “Cut-N-Seal,” from defendants Good Things and Ten Mark in Taiwan. The Cut-N-Seal incorporated the same design as the Tartmaster but was made of stainless steel and used a different type of spring.

In mid-1993, plaintiff discovered that Pampered Chef was having copies of the Tartmaster made in Asia and sent a letter to The Pampered Chef stating that it was aware that it was selling the Tartmaster design. The letter also stated that The Pampered Chef was selling plaintiffs’ pancake molds in violation of plaintiffs’ patents as to those molds. Importantly, plaintiff did not claim any intellectual property rights to the Tartmaster. During the next decade, The Pampered Chef made substantial investment in its Cut-N-Seal product, including traveling to Asia, promoting the product and, in the late 1990s, developing and marketing a 3½ -inch version of the Cut-N-Seal. This 3½-inch version of the Cut-N-Seal was introduced into the market in 2000 and The Pampered Chef stopped selling the 3-inch and 4-inch versions at that time.

In January 2003, the plaintiffs filed suit against defendants and included claims for trade dress infringement in violation of section 43 of the Lanham Act (15 U.S.C. §1125). The parties tried the case over 17 days in two phases. After the trial court heard argument and the evidence, it granted defendants’ motions for non-suit, or in the alternative, for directed verdict finding that plaintiffs’ claims for trade dress infringement were barred by the statute of limitations and the doctrine of laches. Plaintiffs appealed.

Analyzing plaintiffs’ claims for trade dress infringement, the appellate court began by recognizing that “trade dress `refers to the “total image of a product” and may include features such as size, shape, color, color combinations, texture or graphics.’” Furthermore, “[a] seller’s adoption of a trade dress confusingly similar to a competitor’s constitutes unfair competition that is actionable under section 43(a) of the Lanham Act.”

The appellate court recognized that the purpose of trademark and trade dress protection is to enable a business “to identify itself efficiently as the source of a given product through the adoption of a mark which may in the form of a slogan, symbol, ornamental design or other visual insignia.” The court emphasized, however, that “trade dress protection `is not intended to create patent-like rights in innovative aspects of product design. Thus, trade dress protection unlike patent law . . ., does not foster innovation by preventing reverse engineering or copying of innovative product design features . . . Trade dress protection extends only to incidental, arbitrary or ornamental product features which identify the product’s source.’”

The court turned next to the primary issue whether it should apply the equitable doctrine of laches or the statute of limitation in determining whether plaintiffs’ claims for trade dress infringement were timely. Other courts had found the interplay between these two issues to be “somewhat illusive.” The Lanham Act does not contain an explicit statute of limitations, however, “some federal cases hold that Lanham Act claims are governed by the statute of limitations applicable to analogous state law claims.” Other jurisdictions disagree and hold that since the relief available under section 43(a) of the Lanham Act is primarily equitable, congress might have intended that “laches be the sole time limits bar to suit.” The appellate court held that it was unnecessary to resolve this debate because it found plaintiffs’ claims to be barred by the equitable defense of laches.

After recognizing the well known maxim “equity aids the vigilant, not those who sleep on their rights,” the court ruled that defendant needed to demonstrate three elements to assert a laches defense: “(1) delay in asserting a right or a claim; (2) the delay was not reasonable or excusable; and (3) prejudice to the other party against whom laches is asserted.”

The court recognized that the first element of delay is measured by the period “from when the plaintiff knew (or should have known) of the allegedly infringing conduct until the initiation of the lawsuit in which the defendant seeks to counterpose the laches defense.” The court found that if there is an applicable statute of limitations to an analogous state claim, a Lanham Act claim filed after the expiration of that period is strongly presumed to be barred by the doctrine of laches. The court held that it was undisputed that plaintiffs had learned Pampered Chef was selling 3-inch and 4-inch Cut-N-Seals no later than July 1993 and that its delay in filing the action for nearly 10 years (well after any statute of limitations would have run) made it presumptively untimely. Plaintiffs argued that even if some of their damages for trade dress infringement may have been untimely, they were nevertheless entitled to recover for damages incurred within the limitations period. The court rejected this argument finding that “when evaluating whether laches bars a damages claim, a continuing tort is considered a single act rather than a series of separate acts.”

Plaintiffs argued that even if their claims as to the older versions of the Cut-N-Seal were time-barred, they were timely as to the 3½-inch version because it was not introduced into the marketplace until less than three years before they filed suit. The appellate court rejected this argument and held that “where a family of products is alleged to infringe on a competitor’s trademark or trade dress, courts have held that delay is measured from the time the plaintiff became aware of `the conduct which [it] claims is infringement’ not the introduction of each individual product.” Because the size of the 3½-inch Cut-N-Seal was irrelevant to plaintiffs’ trade dress claim, it was barred on the same grounds as plaintiffs’ other claims.

In examining whether plaintiff’s delay was reasonable, the court recognized that “[d]elay has been held permissible, among other reasons, when it is necessitated by the exhaustion of remedies through the administrative process, when it is `used to evaluate and prepare a complicated claim,’ and when its purpose is `to determine whether the scope of proposed infringement will justify the cost of litigation.’” By contrast, “delay is impermissible when its purpose is to capitalize on the value of the alleged infringer’s labor, by determining whether the infringing conduct will be profitable.” The court rejected plaintiffs’ argument that its delay was reasonable because it was litigating other matters against defendant during the ten-year period. The court found that plaintiffs offered no reason why the litigation of other matters constituted a reasonable delay.

Finally, the court examined the prejudice to defendants as a result of plaintiffs’ delay in bringing the lawsuit. The court cited case law that “found prejudice sufficient to support a finding of laches where, as a result of plaintiffs delay in bring suit, a defendant has invested resources in developing and marketing a product.” The court affirmed the trial court’s finding that the undisputed evidence showed that defendants were prejudiced because The Pampered Chef invested significant resources in developing and selling the Cut-N-Seal which included traveling to Taiwan, producing millions of Cut-N-Seals, developing the 3½-inch version, creating recipes, printing catalogs and promoting the product. The court further noted that had plaintiff brought its claim in a timely manner, The Pampered Chef could have invested “its resources in other areas or altered the Cut-N-Seal in a way that would have avoided the present suit.” Thus, the court found that defendants had established the three elements to warrant a finding that plaintiffs’ claims were barred by the doctrine of laches.

It is important that once a company learns that a competitor is infringing on its trade dress rights, it file suit as soon as possible to protect those rights. Failure to act in a timely manner could result in a court finding that such claims are barred by the doctrine of laches and/or the applicable statute of limitations.

According to the Department of Commerce, losses to U.S. businesses from the counterfeiting of trademarked consumer products are estimated at $200 billion a year. A model trademark law proposed by the International Trademark Association and currently winding its way through the legislative process in California includes a provision which appears to be an attempt to slow this ever growing enterprise.

The proposed new trademark law provides that the owner of a state registered mark may bring an action for infringement against any persons that “knowingly facilitate, enable, or otherwise assist a person to manufacture, use, distribute, display, or sell any goods or services bearing any reproduction, counterfeit, copy, or colorable imitation of a mark registered under this chapter, without the consent of the registrant.” Under the new trademark law, a person is presumed to have acted knowingly if that person continues to engage in the complained of activity following delivery and receipt of a cease and desist demand letter containing certain language and information.

In the case of brick and mortar commerce, this provision appears to be entirely reasonable. If a landlord leasing retail space to a business receives a cease and desist letter from a mark owner, the landlord has the ability to visit the property and investigate the claim. Likewise, a swap meet operator receiving such a cease and desist letter can investigate the claim and, presumably after personally inspecting the complained of goods, would have the ability to determine whether the goods are infringing or legitimate. Given the ability to reasonably investigate any such infringement claims, it is reasonable that persons akin to landlords and swap meet operators bear some responsibility for merchandise sold on their premises. However, the question being posed now by Internet activists such as the Electronic Frontier Foundation is how such a provision will play out in cyberspace.

While companies such as Google, Yahoo and eBay have a large enough legal department to handle the predicted onslaught of cease and desist letters, smaller providers would be hard pressed to deal with the receipt a significant number of cease and desist letters in a cost efficient manner. Rather than face litigation and any possible adverse judgment, its likely that a smaller provider would rather terminate service to the alleged infringer.

Cease and desist letters sent under California’s proposed new trademark law appear somewhat related in function to the “takedown notices” under the Digital Millennium Copyright Act. The takedown provisions of the DMCA essentially compels an internet service provider to disable access to material allegedly infringing the complainant’s copyright or otherwise face the loss of immunity from claims of contributory infringement. Similarly, under the proposed trademark law, an ISP who receives a cease and desist demand could face a trademark infringement claim if it continues to provide access for the infringer or otherwise continues to facilitate the infringing activity.

What about if the alleged infringer is not engaged in any infringing activity, or the complaining party is compelled by a desire to hobble its competition? Under the DMCA, the alleged infringer may send the ISP a counter notice claiming non-infringement. If the ISP receives a proper counter notice the ISP is prevented from disabling access to the complained of material and maintains its immunity from contributory infringement. However, under the proposed trademark law if the alleged infringer insists that it is not engaged in any infringing activity the ISP is stuck between the proverbial rock and a hard place; the ISP is left to decide what it must do. If the ISP believes the alleged infringer, who may also be the ISP’s customer, but later turns out to be wrong, the ISP could face infringement liability. If the ISP terminates service to its customer and it is later determined that its customer was not engaging in any infringing activity, the ISP could possibly face a breach of contract claim. Even if the ISP has language in its contract which allows it to terminate the customer’s contract, firing a customer is not good for business.

Given the prospect of litigation or the fallout from firing a customer, ISPs and other service providers would rather terminate a contract then face litigation. An unscrupulous brand owner could take advantage of this by sending cease and desist letters to end truthful but unfavorable comparative advertising or other non-infringing uses of its marks. Unless the California legislature further amends its proposed trademark law to address the untenable position ISPs and service providers would be placed in, brand owner bullying is certain to occur.

On May 15, 2007, the 9th U.S. Circuit Court of Appeals created a significant exception to the immunity granted to a website operator under 47 U.S.C. § 230 “The Communications Decency Act” (“CDA”). The court held that Roommate.com can be held liable for publishing content from member questionnaires created by using drop-down menus and distributing member profiles, but is immune from liability for publishing users’ responses to open-ended fields or questions. (Fair Housing Council of San Fernando Valley v. Roommate.com, LLC, 2007 WL 1412650 (9th Cir.). With this recent ruling, website operators will need to determine when the protection provided by the CDA for Internet services applies to its site.

Roommate.com (“Roommate”) operates an online roommate matching website which helps people find roommates based on the descriptions and living preferences they provide. Roommate offers free membership, and members must simply provide answers to drop-down menus about themselves and the characteristics they are looking for in a potential roommate. The website also allows for “Additional Comments” by members in an open-ended box. The website then creates member profiles and sends e-mails to potential matches which then allows for members to view each other’s profiles and “Additional Comments.”

The Fair Housing Council of San Fernando Valley sued Roommate for violating the Fair Housing Act (“FHA”) and other state laws because it requires individuals to complete its questionnaires in order to qualify for its housing service, and allows individuals to state housing preference based on age, sex, sexual orientation, and presence of children in its drop-down menus (and presumably any other qualification the user posts in its “Additional Comments” about race, religion, etc.). The U.S. District Court for the Central District of California ruled that the protection given by the CDA barred the plaintiff’s claim of FHA violations, and granted summary judgment to Roommate.

On appeal, the Court reviewed whether Roommate qualified for CDA immunity from liability for publishing its membership questionnaires; for publishing and distributing member profiles; and for publishing content provided by members in the “Additional Comments” portion of the profiles. (The Court noted that at this stage of the proceedings it was not ruling on whether Roommate violated FHA, but whether it was immune from liability.) For each category, the question is “whether Roommate is ‘responsible, in whole or in part, for the creation or development of the information.’” Under the CDA, Congress provided immunity for website operators who passively publish content provided by others when the party would otherwise face liability under state or federal laws as a result of publishing the material. However, if an operator is “responsible, in whole or in part, for the creation or development of the information”, the operator moves from being an interactive computer service to an information content provider and loses immunity.

The Court held that Roommate does not qualify for CDA immunity for the publication of the questionnaires and member profiles, but is immune under the CDA from liability for publishing the content members provide in “Additional Comments.” The Court easily disposed of the questionnaire issue, finding that because Roommate created or developed the questionnaire and its answer choices, it was an information content provider under the CDA and could potentially be liable for their publication. The Court had a more lengthy debate about whether Roommate qualified for CDA immunity for publishing and distributing the member profiles. Ultimately the Court focused on how Roommate did not “merely publish information it solicits from its members. . . [but] also categorizes, channels and limits the distribution of users’ profiles.” Roommate “created or developed an additional layer of information” by allowing members to search only the profiles of members who have compatible living preferences, and therefore it loses immunity under the CDA from liability for publishing such information.

On the third issue of immunity for publishing the material in members’ “Additional Comments”, the Court held that Roommate was not involved enough to make it information content provider under the CDA and lose immunity. Because this section has an open-ended question, Roommate did not “prompt, encourage or solicit any of the inflammatory information provided by some of its members, [nor] does Roommate use the information in the ‘Additional Comments’ section to limit or channel access to listings.” Therefore, Roommate is immune from liability for publishing any response by members in “Additional Comments.” The Court reversed and remanded to the District Court to determine whether Roommate violated FHA by publishing the questionnaire and member profiles since the website was not immune under the CDA for that material.

Because of its wide reach, this decision will likely make many websites apprehensive about whether they may be liable for content published on their sites. As it is read now, any search engine or website that channels a user’s data to produce search results, such as Google or Monster, loses immunity under the CDA from liability. As a result, some website operators may choose to provide open-ended questions or fields for users, which will make searches less efficient but which are squarely in the Court’s analysis of conduct that does not lose CDA immunity.

This decision also presents more questions as to the scope of liability immunity under the CDA. The 9th Circuit previously decided Carafano v. Metrosplash.com, Inc. in which an individual created a fraudulent profile for Carafano, an actress, on an on-line dating service with defamatory statements in the profile. Similar to Roommate, the dating website required users to answer questionnaires using drop-down menus with prepared responses and open-ended essay questions. There, the Court held that the dating service was immune under the CDA from liability for publishing this false information. In Roommate, the Court distinguished Carafano by stating that the dating service requested information about the user and not a third party (i.e. a potential roommate) and that the dating service did not request the untrue information that the party submitted about Carafano. Lower courts and website operators may have a difficult time determining when a dispute fits into the Carafano analysis or the Roommate analysis. Additionally, many analysts have argued the 9th Circuit erred in not following what appeared to be precedent in Carafano when it decided Roommate.

Does this decision mean the Internet has to restrict information previously available to users because of increased liability? It appears the answer is no. However, the decision does put pressure on Internet service providers to structure their websites appropriately in order to avoid liability for publishing its users’ content.

Under contemporary Copyright Law, a database is a “compilation.” A compilation is defined under the Copyright Act as “a work formed by the collection and assembling of preexisting materials or of data….” While the inclusion of a compilation as a protectable work was statutorily introduced in The Copyright Act of 1976, compilations were protected as “books” as early as the Copyright Act of 1790.

In 1991 in Feist Publications, Inc. v. Rural Tel. Serv. Co, the Supreme Court resolved a split among the circuits regarding the elements of a compilation that entitle it protection under the Copyright Act. Certain circuits had adopted what was known as the “sweat of the brow” doctrine which looked at the compiler’s effort – his own expense, skill, labor or money – as the critical contribution justifying protection. Other circuits moved away from the labor/investment approach of the sweat of the brow doctrine, and granted protection to those compilations that were sufficiently original to be considered protectable works of authorship.

In Feist, the United States Supreme Court held that an alphabetical telephone directory of all people living in a particular area lacks sufficient originality and, therefore, was not copyrightable. This decision ended grants of protection based solely on the compiler’s own effort. In addressing the issue of the protectability of compilations of facts, understanding the practical implications of its decision, the court stated:

“[This decision] inevitably means that the copyright of a factual compilation is thin, not withstanding a valid copyright, a subsequent compiler remains free to use the facts compiled in another’s publication to aid in preparing a competing work, so long as the competing work does not feature the same selection and arrangement.”

Although copyright protection for a database may be “thin,” protection still exists. While the data itself, in most cases, escapes protection under copyright, protection is granted to the selection and arrangement of the data. The 11th Circuit recently reminded us that, although thin, copyright protection for a compilation of factual data is alive and well.

In BUC International Corp., v International Yacht Council Limited, the 11th Circuit addressed the plaintiff’s claim that the defendant infringed certain elements of its yacht listing service. The plaintiff obtained information about yachts for sale from yacht brokers, who would fill out a form which plaintiff had created. This information was then compiled into a listing database, searchable by a variety of yacht characteristics and features. The plaintiff made the yacht listing database available to brokers pursuant to a license.

In June of 2000, the defendant began taking steps to create an online multiple listing service which would compete with plaintiff’s service. Like the plaintiff, the defendant solicited listings from brokers. Many of these brokers were licensees of plaintiff’s service. In sending listings to the defendant, many of the brokers would simply copy the listing they had submitted to the plaintiff and the defendant would, in turn, place the listing on its website. Additionally, the defendant had surreptitiously secured passwords to the plaintiff’s service and culled and posted listings, word for word, directly from plaintiff’s service.

On appeal from a district court’s judgment of infringement, the 11th Circuit, discussed Feist and its progeny, and its application to the instant case. With regard to compilations of fact, the court noted that it is the “creatively original selection of facts” that garners protection; the standard for copyright infringement of factual compilations hinges on distinguishing original elements of creative authorship from components in the public domain.

Not all changes or additions to a public domain work is substantial enough to be considered original. In the 2nd Circuit case of Matthew Bender and Company v. West Publishing Company, the court addressed whether the changes West made to the text of federal judicial opinions, namely the “star pagination” feature, was copyrightable. The court found that the changes were insubstantial, unoriginal and uncreative and, therefore, not copyrightable. In coming to this conclusion, the court noted that most of West’s choices were “inevitable, typical, dictated by legal convention, or at best, binary.”

In BUC International, the 11th Circuit considered the way in which the plaintiff selected, categorized, and presented certain factual information about yachts listed for sale, and determined that this was entitled to protection under the Copyright Act. And while the defendant may have been entitled to the underlying information, it could not arrange, organize or display this information in a manner that was substantially similar to the way in which plaintiff arranged, organized and displayed the same information. Because the defendant listed the data in the exact same way, and in the exact same manner as plaintiff, the 11th Circuit upheld the trial courts finding of infringement and a damage award in excess of one million dollars.

While this case does not offer a new twist on Feist, it does serve as a good reminder of the extent of protectability of factual complications. Under Feist a third party may copy and freely use any factual information contained in a database, as long as the third party does not use the same selection and arrangement.

By Andrea Anapolsky

On May 16, 2007, the 9th U.S. Circuit Court of Appeals sent a mixed message to search engines everywhere – publishing thumbnail images is legal, but a search engine may still be liable if it links customers to other sites that publish certain thumbnail images without authorization. (Perfect 10, Inc. v. Amazon.com, Inc., CV-05-04753-AHM (9th Cir. May 16, 2007) With this ruling, what’s next in the battle between advocating for the free flow of information on the Internet and protecting copyrighted material?

Perfect 10, Inc. (“Perfect 10”) an adult entertainment company that allows subscribers access to nude photos on-line, sued Google, Inc. (“Google”) in 2004 for publishing its photos as tiny images known as “thumbnails” which appear in a user’s search results. When a Google user types in a search and clicks on the resulting thumbnail, the page splits into two frames – the top of the page has the thumbnail with a warning it may be subject to copyright, and the bottom of the page has a full-size image from a third-party website. Perfect 10 alleged Google infringed its copyrights by using its images in thumbnails and by linking users to websites that re-published their photos without authorization.

A U.S. District Court judge last year issued a preliminary injunction against Google, finding that the search engine directly violated Perfect 10’s copyrights by displaying the thumbnail, but noted that Google could not be held liable for a user who is directed to a site that contains illegal copies of Perfect 10’s photos. The 9th Circuit’s opinion overturned this earlier ruling. The Court ruled the display of a thumbnail was considered “fair use” under copyright law, but that search engines could possible be held liable when they act as a intermediary between a user and a website that contains illegal copies. The Court remanded the case on this second issue.

Due to Google’s worldwide reputation, this case received substantial attention; however, it is clear that the 9th Circuit was simply following precedent. In 2003, the 9th Circuit decided Kelly v. Arriba Soft Corporation, a similar case to Perfect 10 v. Google. (Kelly v. Arriba Soft Corporation, 280 F.3d 934 (CA9 2002)) In the Kelly case, the plaintiff (Kelly) was a photographer who had copyrighted many of his photos; the defendant (Arriba Soft Corporation) was an internet search engine. Arriba displayed its results in the form of thumbnails and Kelly sued when he discovered that his photographs were part of the search engine’s database. The Court held that Arriba’s thumbnails were considered fair use and that Arriba did not violate Kelly’s copyright.

The 9th Circuit used much of its reasoning and analysis from Kelly in the Perfect 10 v. Google decision. In determining that Google did not infringe on Perfect 10’s copyrights, the Court stated that Google’s images fell under the fair use defense, which allows for the use of copyrighted works without the copyright owner’s permission in certain situations. Using the statutory factors for fair use set out in 17 U.S.C. § 107, the Court emphasized that the use of thumbnails was “highly transformative” and that the search engine provides important social and public benefits. The Court further held that Google did not directly infringe on Perfect 10’s copyrights by displaying full-size images – Google simply provides HTML instructions to a user’s browser that direct the browser to the images on the third party website. “[P]roviding these HTML instructions is not equivalent to showing and housing a copy.” The Court leaves no doubt that the use of such full-size images and thumbnails on websites is legal and permissible under the United States Copyright Act, Title 17, United States Code.

However, the ruling does leave open the possibility that search engines could be liable for linking users to websites that illegally display full-size images of copyrighted works. The Court remanded the case for determination of whether Google could be held liable for infringement on Perfect 10’s full-size images. The Court, drawing on its rulings in previous cases, held that “a computer system operator can be held contributorily liable if it ‘has actual knowledge that specific infringing materials are available using its system’, and can ‘take simple measures to prevent further damage’ to copyrighted works, yet continues to provide access to infringing works.” While the District Court is charged with determining Google’s liability, the 9th Circuit may have suggested its preference by stating that “there is no dispute that Google substantially assists web sites to distribute their infringing copies to a worldwide market and assists a worldwide audience of users to access infringing material. . . and we cannot discount the effect of such a service on copyright owners.”

A decision in favor of Perfect 10 would significantly alter the manner in which search engines operate, and could easily expose other websites to similar liability issues. Due to the popularity of Google and other search engines, it is possible that the U.S. Supreme Court may have the final word on this matter. In the meantime, search engines may consider taking preventative measures by adding additional warnings in its search results when a search engine includes protected thumbnail images that link to third-party websites.

Custom and customized computer programs create unique challenges under the Copyright Act. More and more companies have custom software written by outside programmers to automate the company’s unique business processes. Great care should be taken when a company uses outside vendors, rather than its own employees, to create the custom computer programs. Written agreements are essential. Many companies have been surprised to discover, after spending dearly for a custom software program, that the outside programmer retained the copyrights in the software and could repackage the software for sale to others simply because there was no written copyright assignment. Custom programming contracts must be carefully negotiated in order to protect a company’s investment in the newly created computer program as well as its proprietary business processes and trade secrets.

Copyright laws were designed to protect the authors of creative works from having those works stolen or misused by others. An author’s copyright ownership of the work cannot be transferred to another, absent a written agreement. Oral agreements to transfer copyright ownership are unenforceable and the traditional concepts of estoppel or waiver do not apply.

Outside software programmers are becoming very sophisticated and often desire to retain all copyrights in any of the work they create. Those who use outside programmers must become equally sophisticated to protect their rights. One critical way to facilitate protection is to insist that the written engagement agreement specifically provide that all copyrights in the custom or customized software are expressly assigned to the company. Outside consultants and programmers often do not readily agree to a blanket assignment of all copyrights to a customer because much of the source code to be utilized in the project may have existed before the engagement, or may relate to the consultant’s fundamental ability to write code for others. This tension between the programmer’s interests and the client’s interests can be especially problematic if the custom software project is part of a business reengineering process and the consultant believes he contributes unique elements to the reengineered business processes.

Computer programs contain both literal and non-literal aspects. The literal component of computer software is the actual source code itself, which provides instructions to the computer. The non-literal aspects of the copyright include components such as screen design and the structure, sequence and engagement of the user interface. Non-literal elements of the program must be reduced to some tangible expression – not just a concept – to be copyrightable. Although source code itself is generally recognized to be copyrightable because it is normally an original and tangible work, non-literal elements of the program are more difficult to establish. Most likely, non-literal program aspects are supplied by the company as a result of active participation in defining and designing the user interface and actually outlining the steps and processes that the software is to complete. The absence of a clear written copyright assignment in the software will result in a confusing mix of multiple “authors” of the program, all of whom would theoretically have equal rights to use and sell the program with only a duty of accounting to other co-authors. Even though the company would have some authorship rights in the program, the outside programmer could still use, modify and resell the program to others to the detriment of the company that originally contracted for the work.

Computer consultants will often use outside independent contractors to perform the actual coding of the source code. Care must be taken to ensure that the outside consultant has obtained written assignments from any independent contractors used on the project. If not, a company may be confronted with a future problem where a programmer who was an independent contractor to the prime computer consultant appears seemingly out of nowhere and begins to market similar software in which the company believed it had the sole and exclusive right. Absent written copyright assignments from all programmers utilized by the outside consultant, there is a risk that the work for which the company has clearly paid will soon be available off the shelf to its competitors.

A company does have additional legal tools available to prevent the unwarranted disclosure or use of the custom program, even if there was no written assignment of the copyrights. Trade secret law continues to protect trade secrets that are incorporated into the program even without a written agreement. If the software contains the company’s trade secrets, effectively protecting those trade secrets may essentially prevent the author of the software from ever commercializing the program. The company will have the burden of establishing all the traditional elements of trade secret protection including that: the information constitutes knowledge not generally known in the industry; reasonable efforts were taken to maintain secrecy; the programmer had knowledge that the trade secrets were to remain confidential; and that the trade secrets had actual economic value.

Custom and customized computer programming issues are pushing the envelope of copyright law. Blending literal and non-literal aspects of custom computer software programs makes it difficult to identify the actual author of various components of the work. Alternative methods of writing source code to accomplish the same step or process, plus the various programming tools used by the programmers, makes isolating the author of each software component even more confusing and complicated. The only way to effectively protect the interests of both sides is to execute a complete and thoughtful written agreement clearly setting forth copyright ownership rights in the final product. As outside programmers and their clients continue to work together to create custom and customized software programs, the need for a clear written understanding of the rights and expectations of both parties must be established at the beginning of the relationship and continually evaluated as the relationship unfolds.

In Jarvis v. K2 Inc. (April 30, 2007), the Ninth Circuit held that a retailer’s use of collage advertisements containing copyrighted photos was not covered by the “collective works” privilege and, thus, the retailer could be liable for copyright infringement.

Jarvis, a professional photographer, and K2, a sporting goods maker, entered into a series of agreements from 1999 to 2002. Under these agreements, Jarvis submitted photographs to K2 in exchange for compensation. K2 could publish the images provided by Jarvis in its marketing materials and on its website so as to market its business. The agreement called for K2 to include an attribution credit for each use of Jarvis’ images. Under the last agreement between Jarvis and K2, K2’s rights to use the photos expired in May 2003.

Jarvis provided more than 4,000 slides to K2, the bulk of them during 2000-2001. 24 of Jarvis’ images were incorporated into four “collage” advertisements that were initially published as magazine inserts prior to May 2003. These collage ads combined edited versions of Jarvis’ images with other images, marketing graphics and promotional slogans.

The relationship between Jarvis and K2 eventually soured and K2’s contractual rights to use Jarvis’ images expired. Nevertheless, K2 scanned the previously used collage ads and displayed them on its website after May 2003. Jarvis filed a lawsuit against K2 alleging, among other things, copyright infringement for the use on its website of the 24 photographs in K2’s collage advertisements.

The trial court granted summary judgment in Jarvis’ favor as to most of his other claims and awarded him damages. However, the trial court ruled that the collage advertisements, which contained 24 images that would have otherwise infringed on Jarvis’ copyrights, constituted “collective works” and thus were privileged under 17 U.S.C. section 201(c). Jarvis appealed this finding to the Ninth Circuit.

Jarvis argued that a 2001 agreement with K2 applied to the images in the collage ads and did not permit the images to be used in any way by K2 after May 2003. He argued that the trial court erred in ruling that the collage ads were protected as “collective works.”

The Ninth Circuit recognized that the 2001 agreement authorized K2 to “publish” Jarvis’ images and that K2 acted within its rights when it first used the collage ads prior to May 2003 for the magazine inserts. Although K2 conceded that its display of the collage ads after the May 2003 termination date was not authorized by the agreement, K2 argued that the collage ads fell under the “collective works” privilege of section 201(c).

Section 201(c) provides in pertinent part: “In the absence of an express transfer of the copyright or of any rights under it, the owner of copyright in the collective work is presumed to have acquired only the privilege of reproducing and distributing the contribution as part of that particular collective work, any revision of that collective work, and any later collective work in the same series.” The Ninth Circuit, however, rejected K2’s argument (and the finding of the trial court) and held that the ads were not “collective works,” but rather, improper “derivative works.”

The Ninth Circuit recognized that section 201(c) protects only collective works. A “collective work” is defined as “a work, such as a periodical issue, anthology, or encyclopedia, in which a number of contributions, constituting separate and independent works in themselves, are assembled into a collective whole.” (See 17 U.S.C. §101.) A “derivative work,” on the other hand, is defined as “a work based upon one or more preexisting works, such as a translation, musical arrangement . . . art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adopted. A work consisting of editorial revisions, annotations, elaborations, and other modifications which, as a whole, represent an original work of authorship, is a `derivative work’.” (Id.)

Using these statutory definitions, the Ninth Circuit found that the collage ads were derivative in nature rather than collective works. Jarvis delivered all of his images to K2 in the form of identical square slides. K2’s collage ads did not merely compile these slides as a typical album might. Rather, K2 “shrank, expanded, distorted, overlaid and otherwise edited the original images, while also combining them with photos taken by other photographers, additional graphics, the K2 logo and marketing slogans.”

The Ninth Circuit found that the changes K2 made to Jarvis’ images were examples of “recasting, transforming or adopting” and “editorial revisions, annotations, elaborations or other modifications” that define “derivative works.” The Ninth Circuit recognized that Jarvis delivered the images to K2 in one form and they were subsequently used in the collage ads in a different (though still recognizable) form. K2’s ads did not simply compile or collect Jarvis’ images, but rather, altered and infused them with other images and artistic elements into new works that were based on, i.e., derivative, of Jarvis’ original images.

K2 attempted to argue that its collage ads “in no way transformed or altered [Jarvis’] preexisting photographs.” The Ninth Circuit rejected this argument by finding that “even a cursory look at the ads which `transformed or altered’ Jarvis’ photographs in a variety of ways, demonstrates the weakness of this claim.”

K2 also argued that the collage ads that appeared on its website were the same ones that had been used as original magazine inserts. The Ninth Circuit found this to be irrelevant since “a derivative work remains derivative when it is scanned and placed on line just as a collective work would remain collective if it were transferred from one medium to another.”

Having found that K2’s four collage ads were derivative rather than collective works, the Ninth Circuit ruled that K2 had infringed on Jarvis’ copyrights as to the 24 images that were used in K2’s collage ads. The Court remanded the matter to the trial court to determine the amount of Jarvis’ damages. The Ninth Circuit further noted that because some of the images used in the collage ads appeared to have been registered by Jarvis before their infringement, Jarvis may be entitled to statutory damages and attorney’s fees under sections 412 and 504(c)(1). Jarvis could also show that K2’s infringement was “willful” under section 504(c)(2) thereby increasing the amount of available statutory damages.

The Ninth Circuit’s ruling in the Jarvis case requires that advertisers pay special attention to their use of copyrighted images in “collage” type advertisements. If copyrighted images are modified, transformed or included with other artists images, the advertiser may be unable to take advantage of the collective works privilege of section 201(c). This could expose the advertiser to substantial damages for copyright infringement.

Its that time again; time to upgrade your computer operating system and associated programs. Microsoft’s new operating system, Vista, is coming pre-installed on new computers and laptops, along with new versions of Microsoft Word, Excel and Outlook. Along with Vista, other business software manufactures are taking this opportunity to roll out upgrades and offer entirely new programs.

Anytime a company decides to upgrade or purchase a new program which has to be rolled out to a significant number of users, the company’s IT department faces a very big task – to install numerous copies of the program in as time efficient manner as possible. The IT department may face even greater challenges where users of a particular program are not assigned to one specific computer workstation but need to have access to the program on multiple computer work stations. To deal with this situation, instead of individually installing the program onto each machine, the IT department may use hard drive imaging-copying the complete content of a master hard drive on to the hard drive of individual computers. Where a company has purchased a limited number of licenses to a program, but must install it on a larger number of computer stations, an IT department may configure access to the program such that only a particular number of users have access to it at any one time. Depending on the type of software license the company acquired, this could be the prelude to a Copyright infringement lawsuit.

Software can be licensed to users in a variety of different manners. Some software companies license software for a flat fee and allow for an unlimited number of users on an unlimited number of computers. Others may supply the software for free but require the licensee to subscribe to a service contract. Others grant a license on a per user or per computer station basis. Where a company has acquired a license which allows the software to be installed on an unlimited number of computers, over installation is not an issue. Likewise, where a company has acquired a license which allows use by no more than a particular number of users at any one time, regardless of the number of computer stations on which the software is installed, as long as the software is configured to limit access accordingly, over installation may not be an issue. However, where a company is granted a license on a per computer station basis, over installation, regardless whether or not the program is configured to limit access, can be very problematic.

In Wall Data Incorporated v. Los Angeles County Sheriff’s Department the L.A. county Sheriff’s department faced a similar problem. It had acquired 3,663 licenses to a particular computer program for use in the jail facility. Because of the mobility of the officers working in the jail facility, the Sheriff’s department determined it needed to have the program installed on 6,007 computer stations. The Sheriff’s department configured the program such that only 3,663 users were allowed to access the program at any one time.

The license grant in the Sheriff’s license agreement provided as follows:

Wall Data … grants you (“You”), the end user, a non-exclusive license to use the enclosed software program … on a single Designated Computer for which the software has been activated. A “Designated Computer” is either (i) a stand-alone workstation, or (ii) a networked workstation which does not permit the Software to be shared with other networked workstations. You may not use the Software in any other multiple computer or multiple user arrangement. You may not use the Software other than on a Designated Computer, except that You may transfer the Software to another Designated Computer and reactivate it for use with such other Designated Computer not more than once every 30 days, provided that the Software is removed from the Designated Computer from which it is transferred.

On appeal, the Ninth Circuit upheld the lower court’s trial verdict of copyright infringement in favor of Wall Data. The Court found the license agreement to be very specific regarding the number of computers on which the program could be installed and that it did not allow for over installation. The Court stated that the Sheriff’s department should have negotiated for the flexibility it desired rather than buying a few licenses and installing the program on practically all its computers. The over installation of the program in violation of the terms of the license grant constituted indefensible copyright infringement.

The lesson to be learned is not to brush aside the shrink wrap license agreement that comes with pre-packaged computer software, or click “OK” on the click wrap license agreement that comes with downloadable software. Be sure to read and understand them first before you take any action which you may later regret.