Intellectual Property

Most everyone knows that federal copyright laws protect an author’s expression of an idea. When someone infringes a protected work, either by copying or distributing it without permission, the copyright owner is generally entitled to damages. In Dream Games of Arizona v. PC Onsite, — F.3d — (April 2, 2009), the Ninth Circuit addressed a question of first impression in the circuit: Whether illegal use or operation of a work by the copyright owner precludes the award of actual or statutory damages for copyright infringement.

Dream Games of Arizona is a company that creates, designs, develops, and sells electronic video bingo games, including a game called Fast Action Bingo. In March 2002, Dream Games entered into negotiations with PC Onsite for a software upgrade to Fast Action Bingo. The parties signed a nondisclosure agreement in which it was clear that Dream Games retained all intellectual property in the game.

PC Onsite created a new version of Dream Game’s Fast Action Bingo, and cleverly called it Fast Action Bingo II. When PC Onsite presented it to Dream Games, however, negotiations for an agreement to go forward with the new game broke down. Immediately thereafter, PC Onsite created Quick Play Bingo I, a game remarkably similar to, and in fact based upon, Fast Action Bingo II. PC Onsite registered the copyright of the source code for its new game, and marketed it through City Entertainment. PC Onsite and City Entertainment agreed to install and operate Quick Play Bingo I in bingo parlors in Utah and Wyoming. Several of the bingo parlors with the Quick Play games already had Fast Action Bingo games, and the two games competed directly.

Dream Games discovered the Quick Play Bingo I games, and not surprisingly, filed suit for copyright infringement, breach of contract, and unjust enrichment. A complicating factor in the case was the fact that gambling is illegal in both Utah and Wyoming. In fact, the Wyoming Supreme Court specifically found that Fast Action Bingo machines were illegal in its state, and several machines had been seized in Utah. During the ensuing jury trial, the district court ruled that Dream Games could not recover actual damages for Fast Action Bingo’s lost profits because the game was offered illegally in Utah and Wyoming. The court did not preclude statutory damages, however, and the jury eventually awarded Dream Games $25,000 in statutory damages. PC Onsite appealed. Dream Games filed a cross-appeal, but apparently did not challenge the ruling that it was not entitled to actual damages.

On appeal PC Onsite first argued that the district court erred when it allowed evidence that included the unprotected elements of the Fast Action Bingo game along with the four elements that were protected by the copyright. The Ninth Circuit had no problem dispensing with this argument, citing case law that held copyright infringement can be based on infringement of a combination of unprotected elements. The court pointed out that in combination, the jury might find these elements protectable, and to allow the possibility of such a finding, the jury must be allowed to see the complete work. It is necessary for the unprotectable elements to be identified to the jury, and the district court did that in its jury instructions. Contrary to PC Onsite’s argument, the Ninth Circuit held that the district judge is not also required to specify the elements which are protectable.

The court then turned to the question of damages. PC Onsite argued, logically, that Dream Games should not be entitled to damages for copyright infringement because the use that it was infringing, bingo parlors in Utah and Wyoming, was illegal. The argument has some initial appeal. If the use by the copyright owner was illegal, then awarding damages for infringement allows the owner to be compensated because the infringer cut into its illegal revenue. This can’t be right, can it?

As it turns out, although it had never addressed the issue before, the Ninth Circuit held that it is right. With a closer look, perhaps that makes sense after all.

The court started by exploring the broad basis for copyright protection, and prior cases holding that fraudulent content of a work was not a basis for denying copyright protection. The court quoted Nimmer on Copyright for “the prevailing view [ ] that no works are excluded from copyright by reason of their content.” It went on to say that “there is nothing in the Copyright Act to suggest that the courts are to pass upon the truth or falsity, the soundness or unsoundness, of the views embodied in a copyrighted work.” Indeed, as the court noted, “the gravity and immensity of the problems, theological, philosophical, economic, and scientific, that would confront a court if this view were adopted are staggering to contemplate.”

The court also pointed out that the Fast Action Bingo machine, while illegal in Wyoming or Utah, was not illegal in other geographical areas. In the court’s view, “it would be absurd to deny a work the protection of a federal copyright because it is capable of illegal use in one or more states, but capable of perfectly legal use in other states.” One of the purposes of copyright protection is to deter infringement. To preclude damages based on the content of the work would be contrary to this goal, and provide no incentive to avoid copying another’s work.

The court held that “an award of either type of damages available under the Copyright Act – actual or statutory – is not precluded by evidence of illegal operation of the copyrighted work, at least where the illegality did not injure the infringer.” With this holding, it is interesting that Dream Games did not appeal the denial of actual damages. Had it done so, it is likely that a new trial on damages would be necessary given the ruling. Assuming more than $25,000 in actual damages was at issue, this seems like a costly mistake for Dream Games.

Finally, during the trial the court did not allow PC Onsite to present evidence of illegality to the jury. It ruled that the jury should focus on PC Onsite, and that any possible illegal activity by Dream Games was irrelevant to the willfulness or innocence of PC Onsite’s conduct. PC Onsite objected to the district court’s exclusion of evidence of the illegality of Dream Games’ activity in determining the amount of statutory damages to award, and appealed that ruling as well. The Ninth Circuit seemed to have little trouble dismissing this argument, also, holding that the evidence was properly excluded under Rule 403 due to the possibility of unfair prejudice. “Here, because of the district court’s familiarity with the details of the case and its greater experience in evidentiary matters, it was not an abuse of discretion to exclude evidence of illegal operations.”

Recent news reports tell of an impending legal battle between the artist of the painting at left and the Associated Press who owns the photograph upon which the painting was based. The legal battle will determine whether the ubiquitous painting of the 44th President is an original piece of artwork, or one that improperly misappropriated a photograph protected by copyright laws.

But what of President Obama’s rights in his own likeness? Can any artist commandeer the President’s likeness for his/her own commercial purposes without fear of legal repercussions? Could President Obama stop such commercial use of his likeness if he was so inclined? The answer depends on how “transformative” of President Obama’s likeness the work of art is.

The California Supreme Court case Comedy III Productions, Inc. v. Gary Saderup, Inc. (2001) 25 Cal.4th 387 speaks directly to this issue. In Comedy III Productions, the registered owner of all publicity rights in The Three Stooges filed a lawsuit for damages and injunctive relief against an artist who sold lithographs and t-shirts that reproduced a charcoal drawing by the same artist that depicted the deceased members of The Three Stooges. The depiction in question appeared as follows:

Without securing the owner’s consent, the artist sold lithographs and t-shirts bearing the above likeness of the Three Stooges. The lithographs and t-shirts did not constitute an advertisement, endorsement, or sponsorship of any other product. The image of the Three Stooges merely appeared on the lithographs and t-shirts being sold.

The Comedy III Productions Court resolved an inherent conflict between the right of publicity under California Civil Code Section 3344.1 and free speech rights under the First Amendment of the United States Constitution. To do so, the Court formulated “what is essentially a balancing test between the First Amendment and the right of publicity based on whether the work in question adds significant creative elements so as to be transformed into something more than a mere celebrity likeness or imitation.” Id. at 391.

According to the Comedy III Productions Court, “(1) state law may validly safeguard forms of intellectual property not covered under federal copyright and patent law as a means of protecting the fruits of a performing artist’s labor; and (2) the state’s interest in preventing the outright misappropriation of such intellectual property by others is not automatically trumped by the interest in free expression or dissemination of information; rather, as in the case of defamation, the state law interest and the interest in free expression must be balanced, according to the interests at stake.” Id. at 401.

The balancing test adopted by the Comedy III Productions Court hinged on “whether a work is ‘transformative.’” Id. at 404. “When a work contains significant transformative elements, it is not only especially worthy of First Amendment protection, but it is also less likely to interfere with the economic interest protected by the right of publicity.” Id. at 405. To determine whether the work is “transformative” the Court stated: “We ask, in other words, whether a product containing a celebrity’s likeness is so transformed that it has become primarily the defendant’s own expression rather than the celebrity’s likeness. And when we use the word ‘expression,’ we mean expression of something other than the likeness of the celebrity.” Id. at 406. “Furthermore, in determining whether a work is sufficiently transformative, courts may find useful a subsidiary inquiry, particularly in close cases: does the marketability and economic value of the challenged work derive primarily from the fame of the celebrity depicted? If this question is answered in the negative, then there would generally be no actionable right of publicity. When the value of the work comes principally from some source other than the fame of the celebrity – from the creativity, skill, and reputation of the artist – it may be presumed that sufficient transformative elements are present to warrant First Amendment protection.” Id. at 407.

Cases subsequent to Comedy III Productions have reiterated this “transformative” test. In Winter v. DC Comics (2003) 30 Cal.4th 881, the California Supreme Court stated that “an artist depicting a celebrity must contribute something more than a merely trivial variation [but must create] something recognizably his own in order to qualify for legal protection.” Id. at 889 (in the context of comic book depictions of half-worm, half-human characters based on musicians Edgar and Johnny Winter). The comic book characters were “fanciful, creative characters, not pictures of the Winter brothers” and therefore, sufficiently transformative to qualify for First Amendment protection. Id. at 892. Likewise, in Kirby v. Sega of America, Inc. (2006) 144 Cal.App.4th 47 the Second District Court of Appeal recited the “transformative” standards set forth in Comedy III Productions and Winter, and found that a video game character based upon a celebrity was more than a mere likeness or literal depiction of the celebrity, and therefore, sufficiently transformative to qualify for First Amendment protection.

Under the facts of the Comedy III Productions case, the Court found that the artistic work in question was not sufficiently “transformative” to be protected under the First Amendment. In sum, the Court felt the artist’s drawing of The Three Stooges, although skillful, contributed nothing other than a trivial variation of the likenesses of The Three Stooges. As such, the artist was not permitted to continue selling the lithographs and t-shirts with his depiction of The Three Stooges, absent a license from the right of publicity holder.

The question remains whether the President Obama painting is sufficiently “transformative” so as to protect the artist from any potential liability. Does the painting primarily represent the President’s likeness, or the unique transformative expression of the President’s likeness by the artist? This question is difficult to answer, with strong arguments to be made on both sides. However, the marketability and economic value of the painting appear to derive primarily, if not solely, from the fame of the individual depicted. According to the Comedy III Productions Court, this tends to indicate that an actionable right of publicity exists in favor of President Obama. Thankfully for the artist, this legal theory was never tested, and instead the painting was readily embraced throughout the Obama campaign.

The Federal Circuit Court of Appeals has redefined the test for the patentability of business methods and computer software. In In re Bilski, 545 F. 3d 943 (Fed. Cir. 2008), an en banc decision, the court discarded the current test, which it established in its 1998 decision in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) for a test set forth in a Supreme Court case decided in 1972, Gottschalk v. Benson, 409 U.S. 63 (1972).

Bilski sought to patent a method for hedging risks in commodities trading. Claim 1 required three steps, the essence of which were: (1) initiating a series of transactions between a commodity provider and consumers; (2) identifying market participants for the commodity; and (3) initiating a series of transactions the between the commodity provider and the market participants. The U.S.P.T.O. rejected Bilski’s claims on the grounds that they were not a patentable subject matter under 35 U.S.C. § 101.

On appeal, the Board of Patent Appeals and Interferences affirmed the PTO’s rejections. The Board held that Bilski’s claims were not patentable because they did not involve a transformation of physical subject matter from one state to another; they constituted an abstract idea, and did not produce a useful, concrete, and tangible result.

Bilski then appealed to the Federal Circuit. In 2007, the case was argued before a panel of the Federal Circuit. The court then ordered an en banc review, and oral argument was held in May 2008.

The Court of Appeals affirmed the Board’s decision rejecting all claims, and set forth a new test to determine whether a process is statutory subject matter under § 101.

The Federal Circuit reviewed past cases addressing the patentability of processes. The court discussed the Supreme Court’s decision in Diamond v. Diehr, 450 U.S. 175 (1981), stating that the Supreme Court had held that a fundamental principle was not patentable but that “an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection. [citation omitted.]” Bilski, supra, at 953. The fundamental principle was a mathematical algorithm called the Arrhenius equation, while the application was the use of the equation in a process for curing synthetic rubber. The Court of Appeals explained that in Diehr, the Supreme Court had distinguished between “those claims that ‘seek to pre-empt the use of’ a fundamental principle, on the one hand, and claims that seek only to foreclose others from using a particular ‘application’ of that fundamental principle, on the other.” Id.

Thus, according to the Court of Appeals, the issue before it was whether Bilski’s “claim recites a fundamental principle, and, if so, whether it would pre-empt substantially all uses of that fundamental principle if allowed.” Bilski, supra, at 954. The court held that the Supreme Court had already resolved the issue and set forth “a definitive test.” The test, as stated by the Supreme Court in Gottschalk v. Benson, 409 U.S. 63, 70 (1972), is that a process is patentable if: “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” Bilski, at id. The Court of Appeals’ rationale for adopting the test was that:

“A claimed process involving a fundamental principle that uses a particular machine or apparatus would not pre-empt uses of the principle that do not also use the specified machine or apparatus in the manner claimed. And a claimed process that transforms the particular article to a specified different state or thing by applying a fundamental principle would not pre-empt the use of the principle to transform any other article, to transform the same article but in a manner not covered by the claim, or to do anything other than transform the specified article.”

Id. at 954.

In response to arguments that the “machine-or-transformation” test was not intended by the Supreme Court to be the only test for determining whether a process is patentable, the appellate court stated, at 956:

“Thus, we recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies. And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied.”

The court noted that “insignificant postsolution activity will not transform an unpatentable principle into a patentable process.” Id. at 957; quoting Diehr, supra, 450 U.S. at 191-92. Thus, the court has clarified that superficial attempts to get around the machine-or- transformation test will fail.

The court overruled two prior tests that it has used. The first, known as the Freeman-Walter-Abele test, required a determination of whether: (1) the claim included an algorithm, and (2) the algorithm was applied to physical elements or steps. The second, set forth in the Alappat and State Street Bank cases, was referred to as the “useful, concrete, and tangible result” test. Under that test, a process was patentable if it produced a useful, concrete, and tangible result. Both tests, however, were “inadequate.” Bilski at 959-960.

The court considered the “technological arts” test which some of the amici curiae advocated. The court rejected this test on the grounds that the phrase “technological arts” was too vague and constantly evolving. Id. at 960.

The court next discussed how to apply the machine-or-transformation test. Unfortunately for patent practitioners, however, because Bilski’s claims did not use a specific machine, the court did not address the “machine” prong of the test. The court stated, at 962:

“We leave to future cases the elaborations of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.”

As to the application of the “transformation” prong of the test, the court did provide some guidance. The court said that the transformation “must be central to the purpose of the claimed process.” Id. The court then tried to explain what kinds of “articles,” when transformed, would be patentable subject matter. The “chemical or physical transformation of physical objects or substances” is clearly patentable subject matter. Id. Electronic signals and data fall into a somewhat less clear area. The patentability of business methods, especially those that “involve the manipulation of even more abstract constructs such as legal obligations, organizational relationships, and business risks,” is even less clear. Id.

In analyzing Bilski’s claims, the court held that they were not patentable because they did not transform any article. “Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.” Id. at 963.

The dissenting opinions cover the spectrum. Some judges thought that the new test was too narrow and excluded patentable subject matter. Other judges argued that business methods should not be patentable at all.

Many commentators believe that under Bilski, pending patent applications and issued patents for business methods may be at risk, and that software patents may also be harder to obtain. Until the court clarifies the rule in future cases, however, patent applications for these types of patents will be more challenging to write and prosecute, and litigation over issued patents may well increase.

The Grand Theft Auto (“GTA”) video game series is one of the most successful video games of all time. In April 2005, the maker of GTA was sued for trademark infringement as a result of its inclusion of a fictional strip club in its game that bore a resemblance to a real strip club in East Los Angeles. On November 5, 2008, the Ninth Circuit in the case E.S.S. Entertainment 20002, Inc. v. Rockstar Videos, Inc., et al. issued its opinion in this case involving video games and virtual strip clubs and reaffirmed the protections of the First Amendment as a defense to trademark infringement claims.

Rockstar Games, Inc. (“Rockstar”) manufactures the GTA video game series, which includes Grand Theft Auto: San Andreas. The games take place in fictional cities resembling actual American urban areas. Each game is accompanied by a disclaimer stating that the locations depicted are fictional. GTA: San Andreas was created to emulate the West Coast “gangster” culture and depicts the virtual city of Los Santos, which is intended to imitate actual Los Angeles neighborhoods.

In creating the Los Santos portion of the game, some of the computer artists visited Los Angeles to take reference photographs. They then returned to their studios in Scotland where they changed the images from the photographs as necessary to fit into the fictional Los Santos city. One of the computer artists testified that they did not seek to “re-creat[e] a realistic depiction of Los Angeles; rather, [they] were creating `Los Santos’ a fictional city that lampooned the seedy underbelly of Los Angeles and the people, business and places [that] comprise it. “ One of the businesses depicted in Los Santos was a cartoon-style strip club called the “Pig Pen.”

E.S.S. Entertainment 2000, Inc. (“ESS”) operates a strip club featuring nude females in East Los Angeles called the Play Pen Gentlemen’s Club (“Play Pen”). ESS claims that Rockstar’s depiction of a fictional strip club called the “Pig Pen” infringed its trademark and trade dress associated with its “Play Pen” club.

Although the video game artists took some inspiration from their photographs of the Play Pen, they also used photographs of other East Los Angeles locations to design other aspects of the fictional “Pig Pen.” These aspects included different characteristics of the “Pig Pen” building and different signage.

In April 2005, ESS sued Rockstar for various claims, including trademark infringement and unfair competition. ESS claimed that Rockstar used the Play Pen’s distinctive logo and trade dress without its authorization and created a likelihood of confusion among consumers as to whether ESS endorsed or was otherwise associated with the GTA video game. The U.S. District Court granted Rockstar’s summary judgment against all of ESS claims and held that the First Amendment protected Rockstar against liability. [The court also addressed and rejected Rockstar’s defense of the nominative fair use doctrine which is not discussed in this article.]

In considering Rockstar’s First Amendment defense, the Ninth Circuit began by recognizing that it had adopted the Second Circuit’s approach from Rogers v. Grimaldi (2d Cir. 1989) 875 F.2d 994, which “requires courts to construe the Lanham Act `to apply to artistic works only where the public interest in avoiding consumer confusion outweighs the public interest in free expression.’” Furthermore, an artistic work’s use of a trademark that otherwise would constitute trademark infringement under the Lanham Act is not actionable “unless the [use of the mark] has no artistic relevance to the underlying work whatsoever or if it has some artistic relevance unless [it] explicitly misleads as to the source or the content of the work.” The Ninth Circuit recognized that although the test was traditionally applied to the use of a trademark in the title of an artistic work, it found no reason why it should not also apply to the use of a trademark in the body of an artistic work.

The Ninth Circuit continued by recognizing that it had adopted the Rogers approach in the case, Mattel, Inc. v. MCA Records, Inc. (9th Cir. 2002) 296 F.3d 894. There, Mattel, the maker of “Barbie” dolls, sued MCA for trademark infringement with regard to the title of a song the company released called “Barbie Girl.” The court recognized that the song was a commentary “about Barbie and the values … she [supposedly] represents.” In considering the two prongs of the Rogers test, the court recognized that the first prong was straightforward because the song was about Barbie and the use of Barbie in the title was clearly relevant to the underlying work. As to the second prong, the Ninth Circuit made an important point in observing “the only indication that Mattel might be associated with the song is the use of Barbie in the title. If this were enough to satisfy this prong of the Rogers test, it would render Rogers a nullity.”

In turning to the GTA matter, the Ninth Circuit noted that ESS conceded that the GTA game was artistic and, therefore, the Rogers test would apply. ESS argued, however, that the incorporation of the “Pig Pen” into the game had no artistic relevance and that it was explicitly misleading. ESS argued that its claim was distinguishable from that in Mattel in that (1) the game was not “about” the Play Pen in the way the “Barbie Girl” song was “about” the Barbie doll and (2) unlike Barbie, the Play Pen was not a cultural icon.

The Ninth Circuit reasoned that ESS missed the point. Under past cases, courts have held that the use of a trademark with “no artistic relevance to the underlying work whatsoever” does not merit First Amendment protection. The court reasoned “in other words, the level of relevance merely must be above zero. It is true that the game is not `about’ the Play Pen the way that Barbie Girl was about Barbie, but given the low threshold the game must surmount, that fact is hardly dispositive.” The Ninth Circuit also recognized that while the Play Pen has little cultural significance, the same could be said about many East Los Angeles individual establishments. However, its distinctiveness lay in the “look and feel” of the neighborhood and that characterization is relevant to Rockstar’s artistic goal, which was to develop a cartoon-style parody of East Los Angeles. The Ninth Circuit concluded that to include a strip club that is similar in look and feel to the Play Pen did indeed have at least “some artistic relevance.”

Turning to the second prong, the Ninth Circuit recognized that this prong is directly aimed at the purpose of trademark law, namely, to “avoid confusion in the marketplace by allowing a trademark owner to prevent others from duping consumers into buying a product they mistakenly believe is sponsored by the trademark owner.” The Ninth Circuit held that the only relevant issue was whether GTA would confuse its players into thinking that the Play Pen was somehow behind the Pig Pen or that it sponsors the GTA game. The Ninth Circuit recognized that the mere use of the trademark alone cannot suffice to make it explicitly misleading and that the GTA game was not complimentary to the Play Pen strip club in that video games and strip clubs do not go together “like a horse and carriage.” The Ninth Circuit did not find any evidence that the buying public would “reasonably have believed that ESS produced the video game or, for that matter, that Rockstar operated a strip club.” Furthermore, there was no evidence that a player would be misled into believing that ESS had provided whatever expertise, support or unique strip club knowledge it possesses to the production of GTA.

The Ninth Circuit concluded that Rockstar’s modification of ESS’ trademark was not explicitly misleading and was thus protected by the First Amendment against ESS’ trademark infringement claim. Since the First Amendment defense applied equally to all of ESS’s state claims, the Ninth Circuit held that the district court had properly dismissed the entire case against Rockstar.

Given the Ninth Circuit’s ruling in the ESS case, defendants in trademark infringement cases should keep in mind whether First Amendment protections can provide an affirmative defense to the plaintiff’s claims.

Sometimes a law is passed which tackles incredibly complex issues and causes seismic shifts in entire industries. Unfortunately, nothing like that happened in time for this article. However, early this month President Bush signed into law Senate Bill 3325 – the Enforcement of Intellectual Property Rights Act of 2008. This new law amends existing federal intellectual property laws to enhance remedies for violations of intellectual property rights and creates a Cabinet level position to coordinate protection of intellectual property, both domestically and abroad, to promote education and to facilitate criminal prosecution of infringers. This bill was backed heavily by the RIAA, MPAA and other organizations who represent content owners. A summary of the changes implanted by the act are as follows.

Enhancements to Civil Intellectual Property Laws

The first section of Title I of the Act makes some modifications to the requirement that prior to instituting copyright infringement action a plaintiff must have registered the work being infringed. First, the Act limits the registration requirements for civil actions, meaning that the government can pursue criminal copyright infringement actions without the copyright owner having ever filed and obtained a copyright registration for the work being infringed. Second, the Act introduces a harmless error provision to the registration requirement. An infringer can no longer avoid liability if the registration covering the work allegedly infringed contains inaccurate information.

The second section of Title I of the Act introduces a new tool for copyright owners combating infringement. Under the newly revised Section 503(a) of the Copyright Act, a court may now impound all of allegedly infringing copies or phonorecords, all plates, molds, masters, and other means or methods of which the allegedly infringing copies or phonorecords were made, and all records documenting the manufacture and sale of the allegedly infringing copies or phonorecords. These new tools were previously only enjoyed by trademark owners who sought to impound counterfeit goods under the Lanham Act.

The third and fourth sections of the Act address the civil penalties that may be imposed in counterfeiting cases under the Lanham Act. Section 35(b) of the Lanham Act has been amended to impose treble damages not only against individuals who engage in the sale or distribution of counterfeit goods, but also against those who provide the goods or services necessary for the sale or distribution of counterfeit goods. The Act also doubles statutory damages available under the Lanham act in counterfeiting cases. Now, in cases involving use of a counterfeit mark, the plaintiff is entitled to an award of statutory damages of not less than $1,000 (up from $500) but no more than $200,000 (up from $100,000) per counterfeit mark per type of goods or services sold or distributed. If the court finds that the use of the counterfeit mark was willful, the court may now award up to $2,000,000 (up from $1,000,000) per counterfeit mark per type of goods or services sold or distributed.

The Act also amends Section 602 of the Copyright Act which previously addressed the importation of infringing copies or phonorecords. The Act now provides that the importation into the United States, and now the exportation from the United States, of copies or phonorecords which, if sold within the United States would be infringing goods, shall constitute copyright infringement.

New Forfeiture Laws

Title II of the Act adds a new forfeiture provision for civil and criminal infringement. Under the new forfeiture provisions not only are infringing copies or counterfeit items subject to forfeiture and destruction, but also any property used or intended to be used in any manner to commit or facilitate the infringement. Also subject to forfeiture are the proceeds from the infringing activities. The new forfeiture provision also provides for the forfeiture and destruction of property involved in the unauthorized recording of live musical performances or motion pictures.

Creation Of An Intellectual Property Enforcement Coordinator and Budget Appropriations

Title III contains the most controversial provision of the Act; the creation of a Cabinet level position to oversee and coordinate the enforcement of intellectual property. The “IP Czar” has quite a job description. This person shall be responsible for coordinating the development of a strategic plan to combat and reduce counterfeit and infringing goods in the domestic and international markets, disrupting and eliminating domestic and international counterfeiting and infringing networks, working with foreign nations to establish international standards and policies for the protection and enforcement of intellectual property rights, and taking active steps to protect United States Intellectual Property rights in foreign nations.

Also included in the Act are appropriations totaling $275,000,000 ($55,000,000 per fiscal year beginning in 2009 and continuing through 2013) for the Department of Justice and FBI to combat intellectual property infringement. The Department of Justice shall have access to $25,000,000 per year to make grants available to the states and local law enforcement entities for training, prevention, enforcement, and prosecution of intellectual property theft and infringement crimes. The FBI and the Attorney General for the Criminal Division of the DOJ get a total of $30,000,000 per year in appropriations for the investigation and prosecution of intellectual property crimes, including adding 10 additional operational agents of the BBI designated to support the Computer Crime and Intellectual Property Section of the Criminal Division of the DOJ in the investigation and coordination of intellectual property crimes; ensuring that at least one FBI agent provides support to the Computer Hacking and Intellectual Property Crime Unit in the DOJ for investigating and prosecuting computer hacking or intellectual property crimes; for FBI training in investigating and prosecuting intellectual property crime; and for the assignment of at least two assistant United States attorneys to each United States Attorneys Office who shall be responsible for investigating and prosecuting computer hacking and intellectual property crimes.

Senator Lahey who sponsored the bill stated that “intellectual property makes up some of the most valuable, and most vulnerable, property we have” and that we “need to do more to protect it from theft and abuse if we hope to continue being a world leader in innovation.” According to Lahey, the protection of intellectual property has an impact on the U.S. economy. “If we make better and stronger efforts to combat counterfeiting and piracy”, Lahey stated “we will also enjoy more jobs, greater returns, productivity, and more taxes being paid rather than having infringers and thieves enjoy the financial gains of wrong doing.” According to the Recording Industry Association of America (RIAA) “global piracy of copyrighted material costs the U.S. economy $58 billion per year and more than 370,000 jobs and $16 billion in earnings for U.S. workers.”

As a lawyer who represents business engaged in the creation and exploitation of copyrighted content and branded products, I concur that intellectual property are incredibly valuable assets and that companies in the content creation and exploitation business contribute significantly to the economy. But given the current economic situation, should the government spend $275,000,000 to help the RIAA and MPAA members combat global privacy? Do we really want Jack Bauer hunting down DVD pirates in China?