Microsoft Complaint Against Hagen and BC Tech Gear Survives Motion to Dismiss

Microsoft filed a complaint against Jason W. Hagen, doing business as BC Tech Gear, also known as BCMT, Inc. and Doubletimeit, and other defendants in the Eastern District of California on December 1, 2009.  The case was transferred to the Western District of Washington on August 31, 2010.  The First Amended Complaint was filed on February 16, 2010.

The First Amended Complaint  (pdf) claims copyright infringement; federal trademark infringement; false designation of origin, false description and false representation; common law unfair competition; imposition of constructive trust; and requests an accounting.  Microsoft alleges that Defendants advertise, market and distribute computer software, including purported Microsoft software.  Defendants allegedly do business in Fresno, California and Ridgefield, Washington.

Microsoft alleges that the Defendants distributed counterfeit Windows XP Pro software components numerous times between March and June 2007.  Microsoft sent Defendants a letter in August 2007 notifying Defendants of their infringing activity and asking them to stop.  Defendants distributed the counterfeit products several more times between February 2008 and June 2009.  Microsoft sent a second letter in June 2009, informing Defendants that they may have distributed illegal and/or unlicensed software.  Defendants distributed the counterfeit software to an investigator in October 2009.  Defendants allegedly advertised, marketed and/or distributed reproductions, copies or colorable imitations of Microsoft’s copyrighted materials, trademarks, logos and service mark.

Defendant Jason W. Hagen, appearing pro se, filed a motion to dismiss on June 29, 2010 and an amended motion to dismiss on January 30, 2011.  In his amended motion to dismiss, Hagen argued insufficiency of service of process under Federal Rule of Civil Procedure 12(b)(4) in that he did not receive an Amended Summons naming him as a defendant, the lack of a plain statement showing why Plaintiff is entitled to relief under Rule 8(a)(2) and failure to state a claim upon which relief can be granted under Rule 12(b)(6), as the wrong party was named.  Hagen claimed that there was no evidence connecting him with the activity complained of.  Specifically, Hagen argued that Microsoft was unable to connect his name to the eBay user name “bctechgear,” under which Microsoft alleged some of the infringing sales occurred from Fresno, California.  Hagen argued that the complaint did not meet the standard of Bell Atlantic v. Twombly.

The Court’s Ruling (pdf)

The court stated

A complaint may be dismissed under Rule 12(b)(6) of the Federal Rules of Civil Procedure if it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim that would entitle him to relief.

The court cited Bell Atlantic v. Twombly in declaring “[a] court may dismiss a claim under Rule 12(b)(6) if the plaintiff’s factual allegations are not sufficient ‘to state a claim to relief that is plausible on its face.’”  The court quoted Ashcroft v. Iqbal:  “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”  The court ruled that Microsoft sufficiently put Hagen on notice of its copyright and trademark infringement claims pursuant to Rule 8. 

Hagen argued that he is the wrong party and that some other person misappropriated his name.  The court noted that a Rule 12(b)(6) review is generally limited to a review of the complaint, but that the court may take judicial notice of public records outside of the pleadings.  Microsoft submitted Washington Department of Licensing and Washington State Department of Revenue records showing Hagen doing business as BC Tech Gear.  The court concluded

Whether or not someone stole Defendant’s identity when opening and operating BC Tech Gear is inappropriate for a Rule 12(b)(6) motion to dismiss.  These issues are appropriately left to discovery and further motions.

The court indicated that the same is true regarding insufficient service.  The docket reflects that the summons and complaint were personally served on Hagen and any factual dispute regarding proper service is the subject of further discovery.

Hagen filed a Motion for Reconsideration of Order Denying Motion to Dismiss First Amended Complaint on March 30, 2011.  He argued that the complaint did not meet the Rule 12(b)(6) standard and that some finer points had been overlooked; that there was new evidence that the complaint failed to state a claim under Rule 12(b)(6); and that the complaint did not allege fraud with particularity, as required by Rule 9(b).  The court denied the motion (pdf) on April 4, 2011, citing Western District of Washington Local Civil Rule 7(h)(1) (page 11):

Motions for reconsideration are disfavored.  The court will ordinarily denied [sic] such motions in the absence of a showing of manifest error in the prior ruling or a showing of new facts or legal authority which could not have been brought to its attention earlier with reasonable diligence.

The court found that there was no error in its prior ruling or new facts or legal authority to indicate error in the prior ruling.

The case number is Western District of Washington at Tacoma, No. C10-5621 RJB.

Northwest Home Designing, Inc. Sues to Enforce its Home Design Copyrights in Federal Court

Northwest Home Designing, Inc. filed two complaints alleging copyright infringement in the U.S. District Court for the Western District of Washington on April 15, 2011. 

In the first case, Northwest Home Designing, Inc. (NHD) sued (pdf) Golden Key Construction, Inc., Capstone Land Development, Inc., Cornerstone Brokers, Inc., individuals believed to be associated with the corporate defendants and an architectural designer.  NHD designs and sells home plans.  It alleged that it owns copyrights in original collective works and original and derivative home plans.  NHD publishes its home plans in catalogs and trade publications and makes them available on the Internet.  NHD alleged that (1) the defendants obtained copies of two of its home plans without permission or consent from NHD; (2) the defendants had the NHD home designs redrawn and used the unauthorized copies to build multiple homes; and (3) the defendants marketed and advertised the infringing home plans.  NHD further alleged willful infringement.  NHD also asked the court for an injunction to prevent the defendants from continuing to infringe NHD’s copyrights.

The second case (pdf) names defendants Pioneer Pacific, Inc., Caliber Company Inc., and individuals believed to be associated with the corporate defendants.  NHD alleged that (1) the defendants obtained a copy of one of its home plans without permission or consent from NHD; (2) the defendants redrew the NHD plans and used the unauthorized copies to build multiple homes; and (3) the defendants marketed and advertised the infringing home plans.  NHD again alleged willfulness and asked for an injunction.

In a third case, NHD recently obtained a consent judgment (pdf) against Sound Built Homes, Inc. and other defendants for copyright infringement.  The complaint (pdf) alleged that (1) the defendants purchased copies of NHD home plans and received a limited license to construct a single home with each of the purchased plans, (2) the defendants copied the NHD designs without NHD’s permission or consent and used the unauthorized copies to build multiple homes, and (3) the defendants marketed the infringing home plans in advertising and on their website.  NHD alleged willfulness and asked for an injunction. 

The findings of fact in the consent judgment indicate that the defendants copied NHD’s copyrighted plans and built homes with those plans without permission.  Defendants also created derivative works it used to construct homes, without NHD’s permission.  Defendants infringed NHD’s copyrights.  Damages were NHD’s lost profits and defendants’ realized profits from the sale of homes built using the unauthorized plans.  Defendants were ordered to pay NHD the amount indicated in the settlement agreement and were permanently enjoined from further copying, distributing, making derivative works or otherwise using NHD’s plans without permission or as permitted under the settlement agreement.  Each party was responsible for its own litigation fees and costs.

Many thanks to Michael G. Atkins of Graham & Dunn PC for teaching me how to use PACER to find current copyright cases in the U.S. District Court for the Western District of Washington. Mike publishes Seattle Trademark Lawyer and lectures on trademark law at the University of Washington School of Law.

Privacy Bill Aimed at Protecting Personally Identifiable Information?

Senators Kerry and McCain recently introduced a bill entitled “Commercial Privacy Bill of Rights Act of 2011.”  The purpose of the bill is

To establish a regulatory framework for the comprehensive protection of personal data for individuals under the aegis of the Federal Trade Commission, and for other purposes.

How comprehensive is the privacy protection for individuals when the bill only covers entities collecting, using, transferring or storing personally identifiable information on more than 5,000 individuals in a 12 month period?  What about the personally identifiable information collected by your independent insurance agent or the dealership you take your car to for servicing?  Those businesses probably don’t collect and use personally identifiable information on more than 5,000 individuals in a 12 month period, but they have your personally identifiable information.

The bill makes a number of findings, including

  • Personal privacy should be protected through appropriate legislation.
  • The success of businesses depends on trust in the treatment of personally identifiable information.
  • People have a significant interest in their personal information, especially when interacting with those engaged in interstate commerce, and have a right to control how the information is collected, used, stored or transferred.
  • People engaged in interstate commerce and who collect personally identifiable information are responsible for treating that information with respect and according to a common standard.
  • State regulation of personally identifiable information could lead to inconsistent standards and protections.
  • Federal, state and local governments fail to adequately protect the privacy of individuals interacting with persons engaged in interstate commerce.
  • Industry self-regulation leads to some self-policing schemes that do not adequately protect individuals’ privacy.
  • Many collectors of personally identifiable information do not provide baseline fair information practice protections.
  • Due to advances in technology, information gatherers can effortlessly compile highly detailed personal histories of individuals.
  • Personal information about individuals is collected, combined, sold or transferred to third parties for purposes unknown to the subject individual.
  • Congress has enacted statutes to protect privacy in specific areas, but the Federal Government has an interest in creating protection that covers all collectors of personally identifiable information.
  • The Federal Trade Commission considers current private self-regulation efforts inadequate.  The Commission also thinks first-party data collection practices are distinguishable from third party practices with respect to behavioral advertising.  Consumers may expect to receive recommendations from companies they deal directly with over the Internet.
  • Commerce will be stimulated by the greater consumer confidence created by clear and consistent rules enhancing privacy protection.

Personally identifiable information includes only an individual’s first and last name, the address of her physical place of residence, her email address, her telephone number, her social security number, her credit card account number, unique identifier information that alone can be used to identify her specifically, and her biometric data.  If used, transferred or stored in connection with one or more of the above pieces of information, the following items are also personally identifiable information:  date of birth, the number on a certificate of birth or adoption, place of birth, unique identifier information that cannot alone be used to identify a specific individual, precise geographical location equivalent to a global positioning system, detailed information about the uses of voice services, and any other information that may reasonably be used by a collecting, using or storing party to identify an individual.  There is a difference between covered information under the Act and personally identifiable information.  In this summary I refer to personally identifiable information to keep things from becoming overly complicated.

The bill is divided into 7 titles:

  • Right to Security and Accountability
  • Right to Notice and Individual Participation
  • Rights Relating to Data Minimization, Constraints on Distribution, and Data Integrity
  • Enforcement
  • Co-Regulatory Safe Harbor Programs
  • Application with Other Federal Laws
  • Development of Commercial Data Privacy Policy in the Department of Commerce

Right to Security and Accountability.  The Commission is charged with making rules for security measures applicable to covered entities (described under Enforcement) to protect the personally identifiable information they collect and maintain.  Every covered entity must have managerial accountability for implementing the Act and have a process for responding to non-frivolous inquiries from individuals regarding the collection, use, transfer or storage of their personally identifiable information.  Covered entities must design their products to protect personally identifiable information and implement managerial processes and practices designed to comply with the Act. 

Right to Notice and Individual Participation.  Each covered entity must provide clear, concise and timely notice to individuals of the entity’s practices regarding the collection, use, transfer, and storage of personally identifiable information and the specific purposes of those practices.  Covered entities must also provide notice of material changes and make notices easily accessible to individuals. 

Covered entities must offer a clear and conspicuous mechanism for opting out of consent for any use of their personally identifiable information that would otherwise be a use not specifically authorized and for use of their personally identifiable information by third parties.  Covered entities must offer a clear and conspicuous mechanism for opting in for the collection, use or transfer of personally identifiable information other than for processing the transaction, fraud enforcement or providing a secure environment.  Covered entities must also offer an opt-in mechanism for previously collected data when there is a material change in the covered entity’s stated practices and such a change creates a risk of harm to an individual. 

Covered entities must provide individuals with access to their information and a way to correct errors.  Covered entities must provide a mechanism for individuals to request that their information be rendered not personally identifiable in the event of the covered entity’s bankruptcy or the termination of the relationship.

Third parties can use personally identifiable information only to the extent of the opt-in consent.

Rights Relating to Data Minimization, Constraints on Distribution, and Data Integrity.  Covered entities may collect personally identifiable information only to the extent necessary to process the transaction, prevent fraud, investigate a possible crime, comply with the law, for the covered entity to market to an individual if the information used was directly collected by the covered entity, for research and development for product improvement or for internal operations, such as customer satisfaction surveys and improving website navigation.

Covered entities can retain personally identifiable information only for the duration necessary to provide the service, necessary for research and development or required by law.

Covered entities must provide in contracts with third parties to whom the information is transferred that the third parties may use the information consistent with the Act, as specified by contract, and may not combine information that is not personally identifiable with other information to determine the identity of an individual unless opt-in consent is obtained.

Covered entities may not transfer information to unreliable third parties.

Third parties receiving information from covered entities are subject to the Act’s provisions to the same extent as covered entities.

Covered entities must attempt to establish and maintain reasonable procedures to ensure that personally identifiable information is accurate when the information could be used to deny consumers benefits and cause significant harm.

Enforcement.  A covered entity is any person who collects, uses, transfers or stores personally identifiable information on more than 5,000 individuals during a 12 month period and is someone the FTC has authority over under 15 USC 45(a)(2) regarding unfair methods of competition or deceptive acts or practices affecting commerce, a common carrier or a non-profit organization.  Knowing or repetitive violations of the Act will be treated as unfair or deceptive acts or practices in violation of the Federal Trade Commission Act, 15 USC 57a(a)(1)(B).

State Attorneys General may enforce the Act in U.S. District Court.

Civil penalties range from $16,500 for each day of noncompliance to $16,500 for each individual whose consent was not obtained.  The maximum total civil penalty is $3,000,000.

Co-Regulatory Safe Harbor Programs.  The Commission shall establish requirements for safe harbor programs.  The safe harbor programs cover uses that offer consumers an opt-out for the transfer of information to a third party for behavior advertising purposes, location-based advertising purposes or for uses not authorized by the individual.  Safe harbor programs must protect the privacy of individuals at least to the same extent as the requirements of the provision from which the covered entity seeks a safe harbor.

Application with Other Federal Laws.  Other federal privacy laws continue to apply and the Act does not modify, limit or supersede them.

Development of Commercial Data Privacy Policy in the Department of Commerce.  The Secretary of Commerce has the responsibility of developing commercial data privacy policy by convening forums of stakeholders to develop codes of conduct, expanding interoperability of the U.S. commercial data privacy framework with other national and regional privacy frameworks, conducting research to improve privacy protection under the Act and conducting research on improving data sharing practices.

The bill only covers entities collecting, using, transferring or storing personally identifiable information on more than 5,000 individuals in a 12 month period.  Quite a bit of personally identifiable information is not covered by the bill.  While it is a step in the right direction to recognize the problems articulated in the bill’s findings, the bill falls short of the goal of creating protection that covers all collectors of personally identifiable information.

Zediva Owners Promptly Sued for Copyright Infringement

Several major motion picture studios sued Zediva’s parent companies and CEO Venkatesh Srinivasan just weeks after the launch of Zediva’s website from beta.  The Motion Picture Association of America (MPAA) posted the complaint on its website.  Most of the major U.S. motion picture studios, Warner Brothers Entertainment, Inc., Disney Enterprises, Inc., Paramount Pictures Corporation, Twentieth Century Fox Film Corporation, and Universal City Studios Productions, LLLP, are named plaintiffs.  Sony Pictures Entertainment, Inc., identified as one of the six major U.S studios on the MPAA website, is not a plaintiff, while Columbia Pictures Industries, Inc., not identified as a major studio, is.

To quickly refresh your memories, Zediva is the online movie rental service that streams movies over the Internet from a DVD and DVD player located in its data center to your PC, Mac or Google TV device with Adobe Flash.  My March 23, 2011, Zediva post describes the service in greater detail.

The complaint states one cause of action, copyright infringement under 17 USC §§106(4) and 501. Plaintiffs allege that “Defendants’ business is based on infringing Plaintiffs’ rights.  Defendants transmit performances of Plaintiffs’ copyrighted works to members of the public without Plaintiffs’ authorization.”  The Plaintiffs allege that they invest billions of dollars to create copyrighted motion pictures and that the Defendants are exploiting Plaintiffs’ investments without authorization, keeping all of the money they charge Zediva users for performing Plaintiffs’ works.

According to the Plaintiffs,

Defendants’ comparison of the Zediva service to a rental store is disingenuous, and Defendants are attempting to rely on technical gimmicks in an effort to avoid complying with U.S. Copyright Law….Unlike Zediva, rental stores do not transmit performances of movies to the public ‘over the Internet using streaming technologies.’  A rental store or any other establishment would also need a license to do so.

Plaintiffs accuse Defendants of flagrantly violating Plaintiffs’ exclusive rights and vehemently object to being cut out of the equation.

The complaint also mentions Srinivasan’s patent application for the technology the Zediva services are based on.  That patent application is for Remote Rental of Digital Content Peripheral Storage Entities.  Could this patent application be for a technology that is a game changer, like the Sony Betamax video tape recorder in Sony Corp. of America v. Universal City Studios?  Not even the U.S. Supreme Court can agree on what Sony means in a larger context (e.g. MGM v. Grokster), but the end result was that Sony was not held liable for contributory copyright infringement even though the Betamax could be used to build a library of infringing videos.  I’m curious to hear the Zediva defendants’ arguments and whether they will point to the patent application to support their arguments of non-infringement.

A significant difference between Sony and the Zediva case is that Sony could be held liable only as a contributory infringer.  Sony’s actions did not infringe – it provided the means for end users to make infringing copies.  Zediva is allegedly a direct infringer – infringing the copyright holders’ rights of public performance.  Even if Zediva developed a potentially game changing technology, that may not make a difference if it is a direct infringer.

There could be more to Zediva’s business model than meets the eye.  The Zediva litigation promises to be both interesting and entertaining.