State Law Can’t Protect Butterfly Valve from the Copyright Preemption Net

Ultraflo Corporation manufactures butterfly valves for use in the transportation industry. Ultraflo redesigned its Model 390 butterfly valve with the help of employee Thomas Mueller. Mueller left Ultraflo to work for Pelican Tank Parts, one of Ultraflo’s competitors. Pelican then produced a valve Ultraflo claimed was strikingly similar to Ultraflo’s own butterfly valve.

Ultraflo pursued its legal remedies, eventually suing Pelican and Mueller in federal court for state tort claims and copyright infringement. At trial, the jury rejected both Ultraflo’s trade secret and copyright claims. Ultraflo appealed the district court’s pretrial dismissal on preemption grounds of Ultraflo’s unfair competition by misappropriation claim. The Fifth Circuit Court of Appeals affirmed the district court’s ruling.

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No New York Common Law Public Performance Right for Sound Recording Creators

We close 2016 with the latest on the Flo & Eddie v. Sirius XM saga. My previous posts on this topic include Unhappy Turtles Take a Bite Out of Sirius XM for Unauthorized Public Performance, Flo and Eddie Goes for the Two Coast Punch Against Sirius XM and Supreme Court of Florida to Weigh in on Common Law Sound Recording Rights.

Sirius XM Radio, a satellite digital radio service, broadcasts pre-1972 sound recordings without licenses and without paying the copyright owners of those sound recordings. Flo & Eddie, Inc., which owns the rights to The Turtles pre-1972 sound recordings, sued Sirius XM in multiple federal courts. Flo & Eddie claimed that Sirius XM’s actions infringe Flo & Eddie’s common law copyrights. Although U.S. copyright law has protected rights to musical compositions since 1831, federal copyright law did not protect rights to sound recordings until 1972, albeit offering limited protection. In 1995, federal copyright law began providing owners of post-1972 sound recordings a right to control public performance of sound recordings for digital audio transmission performances only. The right does not apply to AM/FM radio stations. Flo & Eddie argue that state common law copyrights protect their pre-1972 sound recordings from Sirius XM’s unauthorized satellite digital public performances.

After the federal district court for the Southern District of New York ruled in favor of Flo & Eddie on ownership of the public performance right, Sirius XM appealed. The Second Circuit Court of Appeals asked the New York State Court of Appeals, New York State’s highest court, to authoritatively answer this question:

Is there a right of public performance for creators of sound recordings under New York law and, if so, what is the nature and scope of that right?

The New York Court of Appeals ruled that New York common law copyright does not recognize a right of public performance for creators of sound recordings. I think the dissent presents the more persuasive argument. The majority passed the buck and declined to exercise its common law authority.

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No More One and Done for DMCA Agent Designation Filing

The Digital Millennium Copyright Act (DMCA) shields online service providers from liability for copyright infringement for information uploaded to their networks by users, the “safe harbor,” if the online service providers meet certain requirements. To benefit from the DMCA safe harbor, the online service provider must designate an agent to receive copyright infringement notices. The online service provider must also file the designated agent contact information with the Register of Copyrights. The DMCA requires the Register of Copyrights to maintain a current directory of the designated agents.

Until now, online service providers could comply with the DMCA designated agent filing requirement by filing with the Register of Copyright just once. The U.S. Copyright Office instituted a new rule entitled “Designation of Agent To Receive Notification of Claimed Infringement,” effective December 1, 2016. Beginning December 1, 2016, online service providers must use the Copyright Office’s new online system to provide the required designated agent information. The Copyright Office will no longer accept paper forms. To ensure the accuracy of the designated agent directory, the Copyright Office now states “all service providers seeking to comply with 17 U.S.C. 512(c)(2), including those that have previously designated an agent using the paper process under the Office’s interim regulations, are required to submit new designations through the electronic system by December 31, 2017.” In addition, the online service provider’s agent designation will expire and become invalid after three years unless the online service provider renews the agent designation. Some copyright thought leaders argue that the Copyright Office’s rule changes create a trap for unwary website owners who currently benefit from the DMCA safe harbor.  Eric Goldman explains his objections to the new rule in Copyright Office Gratuitously Kills the DMCA Safe Harbor for Thousands of Websites.

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Source Code Evidence Required to Establish Computer Game Copyright Infringement

Robin Antonick developed the computer code for the original John Madden Football game for Apple II (Apple II Madden), released by Electronic Arts (EA) in 1988. Antonick also developed Madden games for IBM-compatible computers. Antonick began work on Nintendo and Sega Genesis games, but EA told him to stop work on games for those platforms. EA then hired Park Place Productions to develop Madden games for the Sega Genesis and Super Nintendo platforms. EA agreed in its 1986 contract with Antonick to pay royalties on derivative works of the Apple II Madden game. EA did not pay Antonick royalties on the games Park Place developed and informed Antonick that those games were not derivative works.

Antonick sued EA for breach of contract in 2011 for EA’s refusal to pay Antonick royalties on the Madden games Park Place developed. At trial, neither the source code for the Apple II Madden game nor the source code for the allegedly infringing Park Place Madden games was introduced into evidence. Likewise, no images of the games were introduced into evidence. At the end of the jury trial, the district court granted judgment as a matter of law to EA. The district court determined that Antonick did not provide sufficient evidence of copyright infringement because Antonick did not introduce into evidence either the source code for the Apple II Madden game or the source code for the Sega Madden game developed by Park Place. The Ninth Circuit Court of Appeals affirmed. The jury found that the statute of limitations did not bar Antonick’s claims, but that issue was not appealed and therefore the Ninth Circuit did not discuss it.

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Common Carrier Status Exempts AT&T from FTC Act Enforcement Action

The Federal Trade Commission enforces the FTC Act, which prevents “persons, partnerships, or corporations, except common carriers subject to the Acts to regulate commerce, from using unfair or deceptive acts or practices in or affecting commerce.” Section 5 of the FTC Act. AT&T offered consumers mobile data service, non-common carrier services, and mobile voice service, common carrier services. The FTC filed a complaint against AT&T for “data throttling,” reducing data speeds, on unlimited mobile data plans once the customer’s data usage exceeded a certain threshold during the billing cycle. AT&T brought a motion to dismiss the FTC’s complaint, arguing that it is a common carrier exempt from the FTC Act, even for the non-common carrier services it offers. The Federal Communications Commission (FCC) subsequently reclassified mobile data service as a common carrier service.

The district court denied AT&T’s motion to dismiss. On appeal to the Ninth Circuit, the issue was

Whether the common carrier exemption in Section 5 is status-based, such that an entity is exempt from regulation as long as it has the status of a common carrier under the ‘Acts to regulate commerce,’ or is activity-based, such that an entity with the status of a common carrier is exempt only when the activity the FTC is attempting to regulate is a common carrier activity.

The Ninth Circuit ruled that the common carrier exemption is status-based, so that AT&T, as a common carrier, cannot be sued for violating Section 5 of the FTC Act.

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Factual Decisions Required Before Querying Register of Copyrights

Palmer/Kane LLC sued Gareth Stevens Publishing (Stevens) for infringing the copyrights on a number of photograph copyrights owned by Palmer/Kane. After substantially completing discovery, Stevens informed the district court that it intended to contest the validity of the copyright registration certificate for four photos. Stevens asked the district court to request the advice of the Register of Copyrights on whether it would have refused to register the copyrights due to inaccurate registration.

The district court denied Stevens’ request. On a motion for reconsideration, the district court again denied Stevens’ request. The district court ruled that it could not decide from the facts before it the question of whether Palmer/Kane knowingly provided inaccurate information to the Copyright Office in the registration application.

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Lack of Valid Copyright Throws Out “Who’s on First?” Copyright Claim

Abbott and Costello’s successors-in-interest sued the author and producers of the play Hand to God for copyright infringement. The play used a little over a minute of the Abbott and Costello “Who’s on First?” routine almost verbatim without authorization. The district court ruled that the use of the “Who’s on First?” routine in the play Hand to God was a fair use and not copyright infringement. My post Who’s on First? Copyright Infringement Question as Tangled as the Routine discusses the district court’s ruling.

On appeal, the Second Circuit held that the district court erred in ruling that the use of the routine in the play was a fair use. Nevertheless, the Second Circuit upheld the district court’s ruling in favor of the play’s author and producers on the alternative ground that Abbott and Costello’s successors-in-interest failed to plead a valid copyright interest. Since the play’s creators did not cross appeal the district court’s ruling that the Abbott and Costello successors-in-interest owned a valid copyright, the only issue on appeal was whether the district court correctly ruled that the use of the routine in the play was a fair use. The Second Circuit was obligated to rule on the fair use question before considering whether to uphold the district court’s ruling on an alternative theory. Had the Second Circuit affirmed the district court’s fair use analysis, the Second Circuit would not have considered the copyright validity question.

The Second Circuit did not discuss whether it was even appropriate for the district court to consider fair use on a Rule 12(b)(6) motion to dismiss for failure to state a claim. Fair use is an affirmative defense and is the defendant’s burden to prove, not the plaintiff’s. Fair use should not be decided on a motion to dismiss the plaintiff’s complaint for failure to state a claim. 

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Not Copyright Infringement to Provide Perpetual Access to Sample

Louis K. Smith wrote The Hardscrabble Zone, a book that he marketed through online ebook distributor Smashwords, Inc. Smith’s agreement with Smashwords allowed Smashwords to distribute samples of Smith’s book. One customer stored a sample of Smith’s book in the customer’s Barnes & Noble digital locker system.  Barnes & Noble’s digital locker system operates as an online bookshelf that a customer with an account can populate with that customer’s ebook purchases and free samples. 

Smith terminated his agreement with Smashwords, but the sample of his book remained in the customer’s Barnes & Noble digital locker. The customer accessed the sample twice after Smith terminated his agreement with Smashwords. Smith’s widow sued Barnes & Noble for copyright infringement, arguing that Barnes & Noble was not allowed to provide customer access to the sample after Smith terminated his agreement with Smashwords. The district court granted summary judgment in favor of Barnes & Noble. The Second Circuit affirmed.

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Enforceability of Foreign Law More Complex Than Mere Translation

Yves Sicre de Fontbrune owns the copyright in the Zervos Catalog, considered a complete photographic catalog of Pablo Picasso’s artworks and containing more than 16,000 photographs. De Fontbrune successfully sued American art editor Alan Wofsy in France for copyright infringement for reproducing some of the images in two volumes on Picasso. Wofsy continued to use the copyrighted photographs, despite being ordered by the Paris Court of Appeal to stop. De Fontbrune later sued Wofsy to enforce the Paris Court of Appeal astreinte in California under the California Uniform Foreign-Court Monetary Judgment Recognition Act.  After the district court granted Wofsy’s Rule 12(b)(6) motion to dismiss for failure to state a claim, de Fontbrune appealed to the Ninth Circuit Court of Appeals.

The Ninth Circuit framed the issues:

The enforceability of the French award turns on whether, in this case, the astreinte functions as a fine or penalty—which the Uniform Recognition Act does not recognize—or as a grant of monetary recovery—which is statutorily cognizable. The answer to this question is not a simple matter of translation, but, as we explain, requires a broader look at French law to understand the nature of the astreinte remedy in this case, in conjunction with an analysis of California law regarding the enforcement of foreign judgments.

(Opinion pdf page 5).

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Trade Secret Misappropriation Defeats Maze of Copyright Preemption Claims

GlobeRanger is a software company that specializes in radio frequency identification (RFID) technology.  GlobeRanger RFID solutions focus on inventory management, allowing users to filter, process and store inventory information in real time.  Pursuant to a contract through the Department of Defense, GlobeRanger installed RFID technology solutions at three Navy bases.  The Navy then decided to consolidate into an enterprise-wide RFID solution to be run from one location.  The Navy awarded the contract to Software AG and ordered GlobeRanger to stop its work.  GlobeRanger sued Software AG for misappropriating its trade secrets, alleging that Software AG accessed some of GlobeRanger’s data, manuals and software while working on the Navy contract.

GlobeRanger initially filed its lawsuit against Software AG in federal court.  Software AG objected, arguing lack of federal court jurisdiction, so GlobeRanger dismissed its federal lawsuit and filed in state court.  Software AG then decided that the lawsuit belonged in federal court and removed the case to federal court.  The district court denied GlobeRanger’s motion to remand and ruled that GlobeRanger’s misappropriation claims were preempted by the Copyright Act.  GlobeRanger appealed that decision to the Fifth Circuit, which reversed and remanded the case to the district court. (GlobeRanger I).  Software AG appealed to the Fifth Circuit in the second appeal after a $15 million jury verdict in GlobeRanger’s favor.  Software AG argued that GlobeRanger’s trade secret claim was preempted by federal copyright right law, but that even if the trade secret claim was not preempted, the federal court lacked jurisdiction due to the lack of a federal law claim.  The Fifth Circuit ruled that GlobeRanger’s trade secret claim was not preempted, but that GlobeRanger’s dropped conversion claim was preempted and supported the required federal jurisdiction.

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