Omega Can’t Pull Off Copyright Infringement Hat Trick

High end Swiss watch manufacturer Omega decided to take on discount retailer Costco.  Omega registered its Omega Globe Design with the U.S. Copyright Office.  Omega engraved its Omega Globe Design on the back of some of its Seamaster watches.  Costco bought authentic Omega Seamaster watches on the “gray market.”  The gray market is “a market that legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer.”  Costco sold some of the engraved Seamaster watches in California.  Omega then sued Costco for copyright infringement, claiming that Costco imported copyrighted works (the engraved Omega Globe) without the copyright holder’s permission.

This case went all the way to the U.S Supreme Court once.  An equally divided court summarily affirmed the Ninth Circuit’s first decision.  The first time it heard the case, the Ninth Circuit ruled that the first sale doctrine did not apply to copies of copyrighted works produced abroad.  The first sale doctrine states that once the copyright holder sells a copy of a work, the copyright owner cannot claim copyright infringement for unauthorized distribution for any subsequent sales of that particular copy. 

The case was remanded to the district court.  The district court ruled that Omega impermissibly attempted to expand its limited monopoly and therefore misused its copyright of the Omega Globe.  The Ninth Circuit affirmed the district court’s grant of summary judgment to Costco.

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Time for a Copyright Misuse Affirmative Cause of Action?

The Copyright Act protects the rights of copyright owners, but it does not necessarily provide relief to those who believe that a copyright owner abuses copyright law by filing copyright infringement lawsuits as a business model.  For example, some adult film companies have been accused of relying on proceeds from copyright infringement actions as their major source of revenue.  James Dore was an anonymous “Doe” defendant in a copyright infringement case filed by New Sensations, Inc., an adult film producer.  New Sensations filed copyright infringement cases against Does believed to have downloaded or distributed its film over BitTorrent, a peer-to-peer network.  Dore settled with New Sensations.  Dore then sued New Sensations and others involved, alleging that “the lawsuit brought against him was initiated in bad faith, harmed his reputation, and formed the basis for attempted extortion.”  (Opinion pdf page 1).

New Sensation and the other defendants brought a Fed.R.Civ.P. 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted.  The district court granted the defendants’ motion regarding the federal law claims.  “The complaint asserts claims for ‘copyright trolling,’ or in the Amended Complaint, ‘copyright abuse.’  Federal law recognizes a claim of ‘copyright infringement,’ 17 U.S.C. § 501, but not ‘copyright trolling’ or ‘copyright abuse.’”  (Opinion pdf page 7).  While the district court is correct in stating there is no claim for copyright abuse, there is a defense to allegations of copyright infringement called “copyright misuse.”  Copyright owners wield a disproportionate amount of power compared to the average consumer.  Maybe it’s time for the creation of an affirmative copyright misuse claim, so that ordinary consumers won’t feel so powerless when faced with corporate copyright infringement claims.

This case is Dore v. New Sensations, Inc., No. 13-10315-FDS, U.S. District Court, District of Massachusetts.

Apple Successfully Defends Copyright Misuse Claim

When Apple, Inc.brought a copyright infringement lawsuit against computer manufacturer Psystar Corp., Psystar claimed that Apple misused Apple’s copyrights.  Last week, the Ninth Circuit Court of Appeals upheld the district court’s ruling in Apple’s favor (pdf) on the copyright misuse claim.

Facts.  Apple’s Software License Agreement (SLA) for its Mac OS X operating system requires users to run the software only on Apple computers and expressly prohibits running the software on a non-Apple computer.  Apple registered its copyright for each version of its operating system. 

Psystar manufactured and sold computers running Mac OS X.  Psystar created a master image by imaging an Apple computer and adding some software of its own.  It shipped its computers with a copy of the master image installed and an unopened copy of Mac OS X in the box.  Psystar argued that because it purchased a copy of the Mac OS X software for every computer sold, it did not make unauthorized copies or distributions and that the Copyright Act did not apply.

Apple filed this case against Psystar in July 2008.  In response, Psystar sought a declaratory judgment of copyright misuse by Apple.  Although Apple initially claimed copyright, trademark, trade dress and state and common law unfair competition violations, Psystar’s copyright misuse defense was the major issue before the Ninth Circuit on appeal.

First Sale Doctrine.  The court discussed the first sale doctrine as a prelude to its copyright misuse discussion.  The distinction between a sale and a license was a key underlying factor in the court’s decision. 

The first sale doctrine allows owners of copies of copyrighted works to resell their copies without restriction.

(Opinion pdf page 9).

Once someone has purchased a copy of a copyrighted work, she is free to transfer that copy to whomever she pleases or publicly display that copy, without violating the copyright owner’s exclusive right to distribute under 17 U.S.C. §106(3) or to publicly display under §106(5).

17 U.S.C. §109 embodies the first sale doctrine.  Under §109(d), the first sale doctrine does not apply to “any person who has acquired possession of the copy or phonorecord from the copyright owner, by rental, lease, loan, or otherwise, without acquiring ownership of it.”  The copyright owner can agree to license the copy, allowing someone else to use that copy, without transferring ownership of that copy to the other person.  The first sale doctrine therefore does not apply to a license.  In Vernor v. Autodesk, Inc., the Ninth Circuit developed a three factor test to distinguish between a software licensee and an owner of a copy:

We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.

(Opinion pdf page 11).

The court ruled that it was clear from Apple’s licensing agreement that purchasers of Mac OS X software were licensees of the software, not owners.

Copyright Misuse.

As defined by the Ninth Circuit,

Copyright misuse involves restraining development of competing products.

(Opinion pdf page 14).

The purpose of the copyright misuse defense is to prevent copyright holders “from leveraging their limited monopoly to allow them control of areas outside the monopoly.”  (Opinion pdf page 13). 

The court indicated that “[a] software licensing agreement may reasonably restrict use of the software as long as it does not prevent the development of competing products.”  (Opinion pdf 15-16).

Psystar argued that Apple’s SLA impermissibly extended the reach of Apple’s copyright by requiring purchasers to run their copies of the Mac OS X only on Apple computers and therefore amounted to copyright misuse.

The court ruled that Psystar’s copyright misuse defense failed because it was an attempt to apply the first sale doctrine to a valid licensing agreement.  The court also indicated that Apple’s licensing agreement did not prevent others from developing their own computers or operating systems and appropriately attempted to prevent infringement and to control the use of the copyrighted material.

This case is Apple Inc., v. Psystar Corporation, No. 10-15113.

Copyright Infringement Suit Regarding Precast Concrete Vault Drawings Yields Summary Judgment Rulings

Western District of Washington Judge Marsha J. Pechman granted in part and denied in part Defendant’s motion for summary judgment, granted Plaintiff’s motion for summary judgment and granted Plaintiff’s motion to amend its complaint in Oldcastle Precast, Inc., v. Granite Precasting & Concrete, Inc. (pdf) on March 2, 2011.

Facts.  Plaintiff Oldcastle Precast, Inc. began manufacturing concrete precast vaults in the 1960s and is considered the leader in the precast concrete vault market.  Defendant Granite Precasting & Concrete, Inc. is a competitor.  In 2006, Plaintiff became aware that Defendant was using drawings similar to those created by Plaintiff.  Plaintiff notified Defendant of the alleged copying, the parties met and Defendant agreed to change 12 sets of its drawings.  Defendant did not sign Plaintiff’s proposed settlement agreement.  Plaintiff did not follow up.

Plaintiff monitored Defendant’s website from 2007 through 2009 and found the continued infringing use of only one product.  Plaintiff believed that Defendant complied with the agreement, except for that one product.  Sometime in mid-2007, Plaintiff became aware that Defendant did not change all of its drawing and product numbers.  In 2009, Defendant submitted a bid for a Seattle City Light project using drawings that Plaintiff believed infringed its copyright.  Plaintiff sued Defendant for copyright infringement on February 24, 2010.

Defendant filed a summary judgment motion, arguing that the statute of limitations had expired on Plaintiff’s copyright and trademark claims, that its state law breach of implied covenant claim was barred by the statute of frauds and that Plaintiff’s copyright and trademark claims failed on the merits.  Plaintiff filed a summary judgment motion, too, to dismiss Defendant’s copyright misuse counterclaim. 

Plaintiff also filed a motion to amend its complaint.  Plaintiff’s previous amended complaint alleged that Defendant downloaded Plaintiff’s drawings electronically and used those drawings to create its own infringing drawings.  Plaintiff’s drawings were registered with the Copyright Office.  Testimony from a September 2010 deposition led Plaintiff to believe that Defendant copied some much older drawings that Plaintiff’s predecessor produced and published and that Defendant obtained from Seattle City Light.  Plaintiff believed that those drawings were registered under the Copyright Act of 1909, not the Copyright Act of 1976. 

Plaintiff undertook a laborious process of inspecting company records for the earliest publication of the documents, preparing the renewal registration and supplementing its registration under the 1976 Act.  Plaintiff submitted its documents to the Copyright Office on November 22, 2010.  On December 9, 2010, the Copyright Office granted the renewal and supplemental registrations.  Plaintiff filed its motion for leave to amend its complaint on December 22, 2010.  Defendant moved for summary judgment on all of Plaintiff’s claims on December 16, 2010, the discovery cut-off was November 26, 2010, the dispositive motion deadline was December 27, 2010 and trial was set for April 25, 2011.

Defendant’s Motion for Summary Judgment.  The court will grant a motion for summary judgment “when the moving party has shown an entitlement to judgment as a matter of law and there is an absence of genuine issues of material fact.”  (Order pdf page 4).

Defendant moved for summary judgment on the following bases:

  • The statute of limitations on the copyright claim expired.
  • The statute of limitations on the Lanham Act (trademark) claim expired.
  • The state breach of implied covenant claim was barred by the statute of frauds.
  • Plaintiff’s works were not copyrightable.
  • The Lanham Act claim fails on the merits.

Copyright Act statute of limitations.  The court found that the three year copyright statute of limitations expired regarding one drawing, but that the Plaintiff could not have discovered the alleged infringements regarding the other drawings through diligent research in the three years prior to the date the complaint was filed.  The court granted Defendant’s motion for one drawing.

Lanham Act statute of limitations.  The court noted that there is no express statute of limitations in the Lanham Act and applied the statute of limitations for the closest analogy under Washington State law – the common law tort of trade name infringement.  The applicable statute of limitations was three years.  The court ruled that Plaintiff’s Lanham Act claims were barred by the statute of limitations for one drawing.

Statute of frauds.  The statute of frauds requires that “any contract that by its terms is not to be performed in one year from the making thereof must be in writing.”  (Order pdf page 8, citing RCW 19.36.010.)  The court ruled that since the contract could not be performed within one year but required Defendant’s forbearance from copying Plaintiff’s work forever, Plaintiff’s breach of implied covenant claim was barred by the statute of frauds.

Defendant argued that Plaintiff’s works were not copyrightable on the following theories:

  • The works are outside the scope of copyright protection.
  • There is insufficient substantial similarity between Defendant’s drawings and Plaintiff’s drawings to establish copyright infringement.
  • Plaintiff’s copyright protection is “thin” and therefore protects only against copies that are virtually identical.
  • The idea of precast concrete vault drawings merges with the expression.
  • Plaintiff’s drawings are scenes a faire (a standard feature).

Scope of protection.  The court ruled that technical drawings such as Plaintiff’s are expressly included as works covered by the Copyright Act.  17 USC §§ 101 and 102(a)(5).  The court also ruled that a technical drawing is not a “useful article” under the Copyright Act.  The technical drawing of a precast concrete vault, a useful article, was not itself a useful article.  Useful articles are not protected by copyright law.

Substantial similarity.  Plaintiff has the burden of showing 1) access to the copyrighted work and 2) substantial similarity between the copyrighted work and the infringing work.  “Substantial similarity” has both an extrinsic test and an intrinsic test.  The court rules only on the extrinsic test on summary judgment, as the intrinsic test is for the jury to determine at trial.  The court found “Plaintiff to have shown adequate articulable similarities between the expressive elements of the drawings to satisfy the extrinsic test.”  (Order pdf page 12). 

Thin copyright protection.  Defendant argued that there is only a limited range of ways to express the idea of a precast vault, requiring Plaintiff to show “virtual identity” between its drawings and Defendant’s.  The court found that Defendant did not present enough evidence on this point to prevail.  The court also stated that “there is nothing inherent in the notion of precast concrete vaults that limits their range of expression.”  (Order pdf page 13).

Merger doctrine.  “When an idea and its expression are indistinguishable, or ‘merged,’ the expression will only be protected against nearly identical copying…..Merger means there is practically only one way to express an idea.”  (Order pdf page 14).  The court ruled that evidence that Plaintiff’s vault drawings are the industry standard does not satisfy the merger doctrine.

Scenes a faire.  “Scenes a faire holds that when similar features in the item claimed to be copyrighted are as a practical matter indispensable, or at least standard, in the treatment of a given idea, they are treated like ideas and are therefore not protected by copyright.”  (Order pdf page 14).  The court ruled that the scenes a faire doctrine did not apply, as Plaintiff sought protection for only specific expressions of vaults, not for the expression of utility vaults in general.

Lanham Act claim merits.  Plaintiff claimed trade dress violations under 15 USC §1125(a)Trade dress is some physical aspect of the product that identifies it as coming from a particular source.  Plaintiff has the burden of proving “(1) that its claimed dress is nonfunctional; (2) that its claimed dress serves a source-identifying role either because it is inherently distinctive or has acquired secondary meaning; and (3) that the defendant’s product or service creates a likelihood of consumer confusion.” (Order pdf page 16).  The court granted Defendant’s motion for summary judgment on this claim, as Plaintiff did not argue the first two points and did not provide competent evidence on the third point.

Plaintiff’s Motion for Summary Judgment.  The court granted Plaintiff’s motion for summary judgment on Defendant’s copyright misuse counterclaim.  “The party pursuing a copyright misuse claim must prove that the holder of the copyright is using its monopoly secured by the copyright to extend to areas not covered by the copyright itself.”  (Order pdf page 18).  “[T]here must be facts tending to show efforts to expand and extend rights secured by the Copyright Act beyond their proper scope.”  (Order pdf page 19). 

The court ruled that Defendant did not articulate a public policy reason to invalidate Plaintiff’s copyright and that it did not provide sufficient facts to support its claim of copyright misuse.  The court rejected Plaintiff’s argument that copyright misuse is a defense and not a cause of action and that therefore it was improperly pled as a counterclaim.  Plaintiff’s argument that Defendant’s copyright misuse counterclaim was barred by the statute of limitations was also rejected by the court, as the claim was based on Plaintiff filing the lawsuit in 2010 and not on Plaintiff’s actions in 2006.  The court ruled that Defendant could reassert its copyright misuse counterclaim in response to Plaintiff’s second amended complaint.

Plaintiff’s Motion to Amend its Complaint.  The factors to consider in granting a motion to amend are “(1) undue delay, (2) bad faith, (3) futility in amendment and (4) prejudice to the non-moving party.” (Order pdf page 20).  The court granted Plaintiff’s motion to amend, as it did not find evidence to establish any of these factors.  The court ruled that the amendment focused only on clarifying what copyrights apply and how Defendant obtained the drawings.  Plaintiff’s timing in filing its motion was not undue delay.

Plaintiff’s motion for reconsideration on the breach of implied covenant claim was denied on April 11, 2011.

This case is Oldcastle Precast, Inc., v. Granite Precasting & Concrete, Inc., Case No. C10-322 MJP, Western District of Washington at Seattle.