Football Scouting Organization Files Suit for Copyright Infringement and Trade Secret Misappropriation Over Leaked Scouting Reports

National Football Scouting, Inc. (NFS) recently filed a complaint (pdf) in the Western District of Washington, Tacoma, for copyright infringement and misappropriation and dissemination of trade secrets against The Sports Xchange, Inc., (TSX) and Rob Rang, one of TSX’s employees.

The parties.  NFS is a scouting organization owned by nineteen National Football League clubs.  NFS prepares scouting reports for the clubs that own its shares.  The scouting reports “are proprietary and copyrighted trade secrets that belong exclusively to NFS.”  (Complaint pdf page 2).  NFS’s principal place of business is in Indianapolis, Indiana.

TSX is a corporation that publishes football scouting information and does business as NFLDraftScout.com.  TSX’s principal place of business is Sacramento, California.

Rob Rang is a sportswriter and employee of TSX.  He lives in Gig Harbor, Washington.

The alleged facts.  NFS institutes a number of measures to protect its trade secrets, including requiring the clubs that own shares to enter into written agreements acknowledging that the scouting reports are proprietary information and trade secrets belonging to NFS; prohibiting the shareholder clubs from disseminating the information to anyone other than employees who need access to it to do their work; posting terms of use on its website that come up after log on; requiring agreement to a confidentiality provision before a shareholder employee can download content; and requiring its own employees and technology vendor employees to sign confidentiality agreements.  “NFS takes every reasonable step to maintain and keep the Scouting Information confidential.”  (Complaint pdf page 4).  See my blog post entitled Not All Organizational Secrets are Trade Secrets for a more complete discussion of trade secrets. 

The information contained in the scouting reports is obtained by scouts who travel to college campuses throughout the country, then organized, evaluated and analyzed by NFS.  This is done at great expense to the shareholder clubs.  The scouting reports prepared by NFS give the shareholder clubs a competitive advantage over non-member clubs.

NFS registered its scouting reports with the Copyright Office as unpublished works.  This allowed NFS to register the works without disclosing their contents to the Copyright Office and without disclosing NFS’s proprietary information.  17 U.S.C. §408 and 37 C.F.R. §202.20 address registering unpublished works.

Even though NFS makes substantial efforts to protect its trade secrets, TSX and Rang have repeatedly obtained and published information in NFS’ scouting reports through cbssports.com.  TSX and Rang have received compensation for knowingly and willfully disseminating NFS’s trade secrets.  NFS has informed TSX and Rang that the scouting reports are confidential and proprietary, has demanded that TSX and Rang cease and desist from disclosing NFS’s scouting reports in publications and has demanded that TSX and Rang remove the offending material and return any copies of the materials to NFS.  TSX and Rang have not complied with NFS’s demands.  TSX and Rang continued to publish NFS’s scouting information on such college football players as Prince Amukamara, Dontay Moch, Jake Locker, Christian Ponder, Nick Foles, Juron Criner, Chris Owusu and Terrell Pryor. 

Trade secret count.  NFS alleged that “Defendants’ continued knowing publication of NFS’s trade secrets constitutes deliberate, intentional, and outrageous conduct, warranting an award of exemplary damages.”  (Complaint pdf page 9).  NFS alleged that, based on TSX’s and Rang’s past conduct, they will continue to unlawfully disseminate NFS’s trade secrets and that NFS has been irreparably harmed.

NFS requested a temporary and a permanent injunction,

  • Ordering the defendants to cease and desist publication or dissemination of NFS’s scouting information;
  • Ordering the defendants to remove the content from the Internet, weblogs and other media;
  • Ordering the defendants to return any copies of NFS’s materials;
  • Ordering the defendants to preserve all electronic data in their control, so that NFS can have computer forensics technicians remove NFS’s trade secrets found in it;
  • Order the defendants to allow NFS to inspect defendant’s email accounts so that NFS can investigate defendants’ sources of NFS’s information; and
  • Enjoin the defendants from engaging in such conduct in the future.

Trade secrets are protected by state law, not federal law.  Kewanee Oil Co. v. Bicron.  Washington State adopted the Uniform Trade Secrets Act, codified under Chapter 19.108.

Copyright count.  NFS alleged that the scouting reports prepared by it are original works that are owned by NFS.  NFS alleged that the defendants published portions of NFS’s scouting reports, without authorization, and in violation of the Copyright Act.  NFS alleged that the defendants deliberately and willfully infringed its copyrights in the scouting reports. 

NFS requested the court to require defendants to disgorge all of their profits from the infringements and award actual damages or statutory damages up to $150,000 for each copyright infringed.

This case is National Football Scouting, Inc., v. Rob Rang and The Sports Xchange, Inc., Case No. 11-05762-RBL, Western District of Washington, Tacoma.

Marybeth Peters Speaks About Ongoing Copyright Issues

This week I had the opportunity to hear former United States Register of Copyrights Marybeth Peters speak about ongoing copyright issues in the United States.  Her talk was entitled “Looking Back and Moving Forward:  Copyright’s Biggest Issues.”  Ms. Peters spoke at a Lewis & Clark Law School lunch in Portland, Oregon.  The lunch was co-sponsored by the Intellectual Property Section of the Oregon State Bar and the Copyright Society of the U.S.A., Northwest Chapter.  Lewis & Clark Law School is nationally recognized for its intellectual property law program, something I did not realize until I heard Dean Robert Klonoff’s remarks.

Ms. Peters must be the ultimate authority on events occurring at the Copyright Office since 1966, when she began working there.  It was fascinating to hear her speak about copyright issues.  Anyone who has a chance to hear Ms. Peters speak should jump at the opportunity.

Ms. Peters was the Register of Copyrights from 1994 to 2010.  The Register of Copyrights is the director of the Copyright Office of the Library of Congress. 17 U.S.C. §701

Ms. Peters stressed that copyright is a balance of interests and that compromise is essential in reaching that balance.  Here are some of the major issues she sees moving forward:

  • Recording artists’ public performance rights in the non-digital broadcasts of their sound recordings
  • Orphan works
  • Section 108 Reproduction by libraries and archives
  • Termination of rights
  • Section 104A restoration of copyrights for foreign works
  • Registration of photographic works by photograph licensing companies

Musical recordings are complicated because there are a number of independent copyrights associated with a single song.  Currently, recording artists and companies have no public performance right in non-digital broadcasts of their sound recordings.  17 U.S.C. §114.  Royalties for music broadcasts by a radio station, for example, go to the copyright owners of the musical compositions, but not to the recording artist or production company.  Recording artists and production companies are compensated through the sale of their recordings, but since there are now many ways to listen to a song without buying it, the possible revenue streams for recording artists are shrinking.  The Administration’s White Paper on Intellectual Property Enforcement Legislative Recommendations that I discussed in my post entitled “Illegal Streaming” a Felony? White House White Paper Directed at Activity that is Already Criminal proposes creating a right of public performance for copyright owners for sound recordings transmitted by over-the-air broadcast stations.

Orphan works are works for which the copyright owner cannot be located.  The problem is that these works are still protected by copyright law, even though their owners cannot be found, and are protected to the same extent as works for which the copyright owner is known.  The Importance of Orphan Works Legislation further describes the magnitude of the orphan works problem.

17 U.S.C. §108 allows libraries to reproduce copyrighted works under limited circumstances.  The problem is that the statute was designed to address reproduction by photocopying and does not adequately address the prevailing practice of making digital copies.

Termination of rights under 17 U.S.C.§203 was the subject of my blog post entitled Termination of Transfers Provision Applies to All Authors, Not Just Musicians.  This statute provides a mechanism for authors to terminate transfers or licenses granted on or after January 1, 1978, thirty five years from the date the grant was made.  Ms. Peters’ questions included:  What is an author?  What law governs works created after January 1, 1978, for contracts signed before that date?  Are the rights granted when a contract is executed or when the works are created?  The answers to the two previous questions determine whether the 1909 Act or the 1976 Act applies.  The Acts differ in important respects, so it matters which Act applies.

Section 104A restores lost copyrights to foreign authors under certain conditions.  In essence, it removes works from the public domain and gives foreign authors back their copyrights in those works.  It was enacted to bring the U.S. into compliance with the agreement on Trade Related Aspects of Intellectual Property (TRIPs).  Golan v. Holder challenges the restoration of copyrights to foreign authors under the Copyright Clause and on First Amendment grounds.  It is currently set for review before the U.S. Supreme Court.

The issue regarding the registration of photographic works by photograph licensing companies, such as Corbis Images, is that these companies were allowed to register photographs in batches, without listing each photographer individually.  The validity of some of these registrations is now being challenged.  Many of these photographers did not independently register their works.  Copyright exists from the moment a work is fixed in a tangible medium (17 U.S.C. §102), so these photographers still have their copyrights in these photographs.  Statutory damages are what is at stake in this issue.  17 U.S.C. §412(2) provides that statutory damages are not available unless the work was registered within three months after the first publication of the work.  If statutory damages are not available, the copyright owner must prove her actual damages and the infringer’s profits (17 U.S.C. §504), a fact intensive and extremely expensive process.

Ms. Peters discussed the Google book settlement case in the context of the orphan works and the §108 library reproduction issues.  She stated that the Google book settlement case has changed the way people view copyright throughout the world.  See my blog post entitled Google Book Settlement Rejected – For Good Reason for the highlights of the Google book settlement case.  Related to the Google book settlement case, but not directly involving Google, is a lawsuit filed by author groups against the HathiTrust and several universities for creating digital copies of books without the permission of the authors or other copyright holders.  Ms. Peters pointed in particular to the part of the lawsuit that objects to the HathiTrust’s plans regarding orphan works.  Authors, Copyright, and HathiTrust by Kenneth Crews briefly summarizes the issues involved in the litigation and provides numerous relevant links.

Ms. Peters obviously enjoys discussing copyright issues and is an entertaining speaker.  It was well worth my trip to Portland from the Seattle area to hear her speak.

Louis Vuitton Jury Verdict Reduced When Ninth Circuit Clarifies Damages Calculation

Louis Vuitton was awarded $21,000,000 in statutory damages for willful contributory trademark infringement and $600,000 in statutory damages for willful copyright infringement by the district court against two defendants following a jury trial.  On appeal in Louis Vuitton Malletier v. Akanoc Solutions, the Ninth Circuit affirmed the district court’s rulings on liability, but disagreed with the district court’s damages calculations and vacated and remanded the judgment.

Facts.  Louis Vuitton distributes luxury merchandise displaying its trademarks and copyrighted designs.  It discovered websites it believed were selling goods that infringed its trademarks and copyrights.  The websites listed email addresses that prospective customers could contact, but the websites did not sell merchandise directly.  Louis Vuitton determined that the Internet Protocol (IP) addresses used by the websites were assigned to Managed Solutions Group, Inc., (MSG) and Akanoc Solutions, Inc., based in San Jose, California. 

MSG leased servers, bandwidth and IP addresses to Akanoc Solutions, Inc.  Akanoc ran a web hosting business with these resources.  Both companies were managed by Steven Chen.  Louis Vuitton sent MSG, Akanoc and Chen at least eighteen Notices of Infringement, describing the trademark and copyright infringements and demanding the removal of the infringing content.  Louis Vuitton received no response and sued MSG, Akanoc and Chen for contributory copyright and trademark infringement.  Louis Vuitton determined that the direct infringers were in China.  From the court’s description of the facts, the website owners were the initial contributory infringers and the defendants were a second tier of contributory infringers.  The people who used their email addresses to conduct the infringing sales were the direct infringers.

The case went to a jury trial.  The jury found in favor of Louis Vuitton, awarding $10,500,000 against each of the three defendants for statutory damages for willful contributory trademark infringement of thirteen trademarks ($31,500,000 total on trademark) and $300,000 against each defendant for statutory damages for willful copyright infringement of two copyrights ($900,000 total copyright). 

Defendants moved for judgment as a matter of law following the verdict.  The district court granted MSG’s motion.  It concluded that the evidence did not show that MSG sold domain names or operated the servers.  The district court denied Akanoc’s and Chen’s motions, awarded statutory damages against them and permanently enjoined them from participating in similar conduct.  Akanoc and Chen appealed.  Louis Vuitton cross-appealed the district court’s order granting MSG’s motion for judgment as a matter of law.

The Ninth Circuit’s opinion addressed the cross-appeal, Akanoc’s and Chen’s motion for judgment as a matter of law, jury instructions and damages.  This blog post discusses the damages calculations.

Copyright Damages Calculation.    17 U.S.C. §504(c)(1) describes statutory damages:

[T]he copyright owner may elect, at any time before final judgment is rendered, to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally, in a sum of not less than $750 or more than $30,000 as the court considers just.

The statutory maximum for willful copyright infringement under 17 U.S.C. §504(c)(2) is $150,000, but the jury awarded $300,000 per defendant for willful contributory copyright infringement on two Louis Vuitton copyrights.  The district court did not think this award violated the statutory maximum, since it worked out to $150,000 per copyright per defendant.  The district court did not specify whether the defendants were separately liable or jointly and severally liable.

The Ninth Circuit stated:

[W]hen statutory damages are assessed against one defendant or a group of defendants held to be jointly and severally liable, each work infringed may form the basis of only one award, regardless of the number of separate infringements of that work.

(Opinion pdf page 15).

The Ninth Circuit pointed out that “there was no legal basis for multiplying the award by the number of defendants.”  (Opinion pdf page 16).  Copyright statutory damages maximums are calculated based on the number of protected works, not the number of defendants.  The district court’s award was $600,000 for two works, twice the $150,000 per work statutory maximum.

Trademark Damages Calculation15 U.S.C. §1117(c)(2) sets out the statutory maximum for willful trademark infringement involving counterfeit marks.

if the court finds that the use of the counterfeit mark was willful, not more than $2,000,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just.

The statutory maximum changed from $1,000,000 to $2,000,000 while the case was pending and the parties agreed that the $1,000,000 maximum would apply.  The jury award of $10,500,000 per defendant was for the willful contributory infringement of thirteen marks.  The district court did not think this award violated the statutory maximum, either, as it worked out to $807,692 per trademark per defendant.

The Ninth Circuit applied the same reasoning to the trademark award as it did the copyright award, indicating that “15 U.S.C. §1117(c) entitles a plaintiff to anaward, not multiple awards.”  (Opinion pdf page 16).  The award of $10,500,000 per defendant exceeded the statutory maximum.

The Ninth Circuit determined that a new trial on the issue of damages was not necessary, as the jury intended each defendant to be liable for the same amount of damages.  The court ruled that the jury award should be enforced against Akanoc and Chen by making them jointly and severally liable for a single trademark damages award and a single copyright damages award.

This case is Louis Vuitton Malletier v. Akanoc Solutions, Inc., No. 10-15909.

Termination of Transfers Provision Applies to All Authors, Not Just Musicians

The New York Times recently published an article entitled Record Industry Braces for Artists’ Battles Over Song Rights, by Larry Rohter.  The article describes how, “thanks to a little-noted provision in United State copyright law,” artists with 1978 hit albums “now have the right to reclaim ownership of their recordings, potentially leaving the labels out in the cold.”

That “little-noted” provision is 17 U.S.C. §203, Termination of transfers and licenses granted by the author.  For grants made on or after January 1, 1978, §203 allows an author, or her surviving family or estate if the author is dead, to terminate a copyright grant after 35 years from the date the grant was made, if a certain procedure is followed.  The word “author” is not defined in the Copyright Act of 1976.  Merriam-Webster defines “author” as “one that originates or creates.”  Thus, a broad range of creators is covered by the word “author,” including writers, composers, photographers and software developers.

The effect of the termination is that the rights granted go back to, and become the property of, the author, her surviving family or her estate.  Authors’ termination rights are becoming an issue now, not in 2013, because the statute requires that the terminating author give the grantee at least a two year notice of the effective date of termination.  §203(a)(4)(A).  This termination right does not apply to works made for hire, for example, a work created by an employee within the scope of her employment.

Why does this provision exist?  The Copyright Act of 1976 is a major reform of the Copyright Act of 1909.  One of the 1976 Act reforms is the creation of a single term, ending the 1909 Act scheme of an initial term and a renewal term.  According to Gorman and Ginsburg:

Under the 1909 Copyright Act and its predecessors, the principal purpose of the renewal format was to assure that a transferred copyright, when the transfer was made in the initial term, could be recaptured by the author (or his surviving family, or legatee, or next of kin) after a reasonable time.  The economic rewards during the renewal term could thus be fully enjoyed by the author, unencumbered by any rights, interests, or licenses previously contracted away.  The author, or her statutory successors, was to have a “new estate,” a second chance to license or assign for a new consideration.

Copyright Cases and Materials, Robert A. Gorman and Jane C. Ginsburg, 7th Edition, 2006, page 447. 

The Gorman and Ginsburg discussion of this topic refers the reader to House Report No. 94-1476, 94thCong., 2d Sess. 124-28 (1976).  Essentially, §203 is a recognition of the unequal bargaining power of authors.  This inequality is partially caused by “the impossibility of determining a work’s value until it has been exploited.”  (H.R. Rep. No 94-1476, 124.)  Section 203 is a compromise that attempts to further the objectives of copyright law and address the interests of all stakeholders. 

Getting back to the New York Times article, this transfer termination provision was enacted in 1976 and went into effect on January 1, 1978.  Record labels and publishers in general have had 3 decades to make any necessary adjustments and preparations.  Two different thoughts come to my mind.  The first is how studios will respond to artists seeking to reclaim their copyrights.  It seems to me that the grant terminations must be dealt with on a case by case basis and even a song by song basis.  I think the recording labels’ approaches to this issue will have a direct impact on the second issue:  Given the rise of viable alternatives to the traditional author/publisher model, what will recording labels and traditional publishers do to keep their businesses relevant?  I think recording labels have an opportunity to further alienate recording artists with their approaches to this copyright termination issue.  The copyright termination issue is relevant to all right grants made after January 1, 1978.  This issue will not go away until the law is changed.

Many thanks to Gil Price for suggesting this blog topic.  Gil is the Principal of Price Management Group.  Gil’s firm provides lawyers with business development, marketing, finance and accounting, human resources, IT development, and facilities and operations services so that lawyers can spend more time practicing law and less time on law firm administration.