Game Developer Alleges Copyright and Computer Fraud and Abuse Act Violations in Suit Against Unknown Defendants

Plaintiff Square Enix Limited develops, distributes and markets copyrighted computer video games worldwide.  This case concerns “Deus Ex: Human Revolution” (the Game), the eagerly awaited sequel to Square Enix’s “Deus Ex.”  Square Enix is preparing to commercially release the Game around August 2011.  Square Enix is a British corporation located in London, England.

Square Enix alleges the following facts (pdf):  To generate prerelease publicity, Square Enix created an unpublished version of the Game for limited preview to select video game media representatives.  It distributed the Game preview through Steam.  Steam is an Internet game distribution platform operated by Valve Corporation.  Valve is headquartered in Bellevue, Washington, in the Western District of Washington.  “Steam delivers game content using a proprietary file transfer protocol and protects it with digital rights management software.”  (Complaint pdf page 4).  Steam is believed to collect and store information about user accounts, including IP addresses and hardware identification numbers.

Square Enix authorized a reviewer from the Italian video game review magazine “Giochi per il Mio Computer” (GMC) to preview the Game using Steam.  Media representatives who previewed the Game, including GMC and its reviewer, signed nondisclosure agreements agreeing not to reproduce or disclose the Game preview.  Square Enix preregistered its copyright for the Game with the United States Copyright Office.

On May 29, 2011, one or more of Defendants Does 1-15 used the GMC reviewer username and password to log onto the restricted Steam account from an IP address not associated with GMC or its parent company.  One or more of the Defendants accessed and copied the Game preview from the Steam server without authorization and “distributed it to other Defendants and third parties using the peer-to-peer file sharing protocol BitTorrent.”  (Complaint pdf page 4).  Defendants and others then made unauthorized copies of the Game preview.

Square Enix claimed direct, contributory and vicarious infringements of its copyright by the Defendants.  Direct infringement occurs when someone copies a copyrighted work without authorization.  Contributory infringement occurs when someone who knows of the infringing activity assists in someone else’s infringing activity.  Vicarious infringement occurs when someone who has the right and ability to control the infringer’s conduct receives direct financial benefit from the infringement.  “Defendants copied, distributed, displayed, exhibited, performed, and/or created derivative works of the Game Preview, which consisted of a significant and material portion of the Game.”  (Complaint pdf page 5).  Square Enix alleges that Defendants also participated in each other’s infringing conduct and that some of the Defendants who had the ability to control the infringing conduct of others received direct financial benefits from the infringement.

Square Enix also claimed that Defendants violated the Computer Fraud and Abuse Act (CFAA).  The CFAA (18 U.S.C. §1030) protects against a variety of computer abuses arising out of unauthorized access or exceeding authorized access to a computer.  Square Enix alleges that Valve’s server is the computer which Defendants accessed without authorization and/or exceeded authorized access to obtain information they were not entitled to access.  Square Enix stored its proprietary information on Valve’s computer, limited authorized access to the information and was damaged by Defendants’ unauthorized access and/or access exceeding authorization.

This case is Square Enix Limited v. Does 1-15, C11-1045 MJP, Western District of Washington at Seattle.

Copyright, Lanham Act and Some State Law Claims Survive Motion to Dismiss in Floral Art Case

Plaintiff Susan Tierney Cockburn filed suit (pdf) in the Western District of Washington against five out of state defendants – one manufacturing defendant and four retail defendants.  The defendants filed motions to dismiss the complaint for lack of personal jurisdiction and to dismiss plaintiff’s Lanham Act (federal trademark) and state law claims for failure to state a claim upon which relief can be granted under Fed. R. Civ.P. 12(b)(6).  The defendants also questioned whether plaintiff’s works were copyrighted, although that does not appear to have been part of the formal motion.  Judge Robert S. Lasnik granted the motion to dismiss in part and denied it in part.

Facts.  Plaintiff is a professional author and artist in Redmond, Washington.  She creates floral art with paper and three dimensional paper flowers for use in crafts and hobbies.  She “developed a unique line of paper punches to enhance her paper floral art and three dimensional paper flowers.”  (Order pdf page 2).  Plaintiff registered copyrights for two books:  Paper Bouquet and The Paper Garden – Summer Blooms.

Defendant SWS Industries, Inc. is an Illinois corporation that manufactures punches used in office products, industrial supply/hardware and crafts.  An SWS representative contacted plaintiff in 2009, asking whether plaintiff would work with it on augmenting its existing paper punches.  SWS later presented plaintiff with a contract to purchase and manufacture her floral designs, but the parties failed to come to an agreement.  Plaintiff alleges that SWS created infringing works which it sold to Internet and retail customers all over the United States.  Plaintiff alleges that the retail defendants sold SWS’s infringing products either online or through retail stores.  The retail defendants are Archiver’s, a Minnesota corporation, Notions, a Michigan corporation, Moore, a Florida corporation, and CreateForLess, LLC, an Oregon limited liability company.  The defendants are not licensed to do business in Washington state and do not have employees or a physical presence in Washington.

Plaintiff claimed copyright infringement, violation of the Lanham Act, 15 USC §1125(a), violation of Washington’s Consumer Protection Act, and violation of Washington trade dress and trade name protection.  She sought a constructive trust and an accounting, both of which are state law claims.

Personal Jurisdiction.  The court undertook the same analysis described in my June 1, 2011, post Personal Jurisdiction Found Lacking in Copyright Infringement Action.  Washington State’s long arm statute extends to the limit of the Due Process Clause. 

For a forum state to have personal jurisdiction over an out-of-state defendant, that defendant must have certain minimum contacts with the forum state, such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.

(Order pdf page 5).

The court set out the three-part test used in the Ninth Circuit to analyze specific jurisdiction:

  1. The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws;
  2. the claim must be one which arises out of or relates to the defendant’s forum-related activities; and
  3. the exercise of jurisdiction must comport with fair play and substantial justice, i.e. it must be reasonable.

(Order pdf page 5).

The court indicated that “[i]n tort cases, courts typically inquire whether a defendant purposefully directs his activities at the forum state, applying an ‘effects’ test that focuses on the forum in which the defendant’s actions were felt, whether or not the actions themselves occurred within the forum.”  (Order pdf page 6).  Tort claims include a claim for willful copyright infringement. 

The first part of the above three-part test, purposeful availment, has its own three part test:  “the defendant allegedly must have (1) committed an intentional act, which was (2) expressly aimed at the forum state, and (3) caused harm, the brunt of which is suffered and which the defendant knows is likely to be suffered in the forum state.”  (Order pdf page 6). 

The Ninth Circuit has approved a sliding scale analysis in addition to the effects test:  “[T]he likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet.”  (Order pdf page 6). 

The court ruled that the defendant retailers conduct with Washington involved the sale of a small number of non-infringing products and was “insufficient to show that they directed their activity towards Washington in a substantial way.”  (Order pdf page 7).  The retail defendants’ conduct was also found not to have been expressly aimed at the forum, as the retail defendants did not previously know of plaintiff’s existence, her dispute with SWS or her residence in Washington state.  The court granted the retail defendants’ motion to dismiss for lack of personal jurisdiction.

SWS argued that exercising personal jurisdiction over it would be unreasonable.  “Defendant must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.”  (Order pdf page 8).  The seven factors for determining reasonableness are:

  1. the extent of the defendants’ purposeful contacts;
  2. the burden on defendant of having to defend in Washington;
  3. the extent to which jurisdiction conflicts with the sovereignty of the defendant’s resident state;
  4. Washington’s interest in adjudicating the dispute;
  5. which forum is the most efficient for resolution of the dispute;
  6. plaintiff’s interest in choosing the Washington forum; and
  7. the existence of an alternative forum to adjudicate plaintiff’s claims.

The court discussed the factors one by one.  It found that factors one, three, four and six weigh in favor of the plaintiff and factors two, five and seven weigh in favor of the defendant.  SWS did not present a compelling case that jurisdiction in Washington State is unreasonable.  The court denied SWS’s request to dismiss for lack of personal jurisdiction.

Copyright.  The defendants questioned whether plaintiff’s works were copyrighted, but did not provide support for that argument.  Defendants next argued that plaintiff’s designs become a useful article when used with a paper punch.  However, the designs can be cut with scissors or drawn.  The court did not think they were useful articles.  Defendants also argued that plaintiff’s floral designs are scenes a faire, since their origins are objects of nature.  The court ruled that this doctrine is inapplicable, since plaintiff did not claim copyright protection for the shape of certain flowers, but only for the designs of those flowers as rendered in her books. 

Lanham Act claim.  Plaintiff argued that SWS’s products used a trade dress confusingly similar to her products, in violation of the Lanham Act, 15 U.S.C. §1125(a).  Defendants argued that plaintiff’s Lanham Act claims duplicated her copyright claims and failed as a matter of law.  The court stated that “parallel copyright and Lanham Act claims are not per se improper” and that courts limit the application of trademark law when copyright laws “provide an adequate remedy.”  (Order pdf page 12).  The court indicated that plaintiff’s Lanham Act claim includes other elements that are not necessarily compensable under copyright law, such as a false designation of origin and/or sponsorship and SWS passing off its products as plaintiff’s.  The court stated that “courts typically resolve the issue of whether the Lanham Act and copyright claims overlap at the summary judgment stage rather than on a motion to dismiss.”  (Order pdf page 13).  The court denied defendants’ motion to dismiss the Lanham Act claim.

State law claims.  The defendants argued that plaintiff’s state law claims are preempted by the Copyright Act.  Preemption was discussed in my May 10, 2011, post Ninth Circuit Upholds Script Writer’s Implied Contract Claim under California State Law.  The two part preemption test adopted by the Ninth Circuit is

  • courts must first determine whether the subject matter of the state law claim falls within the subject matter of copyright as described by 17 U.S.C. §§102 and 103, and
  • courts must determine whether the rights asserted under state law are equivalent to the rights contained in 17 U.S.C. §106.

To survive preemption, the state law claim must include an extra element that is not protected by the Copyright Act.  The court ruled that plaintiff’s Consumer Protection Act (CPA) claim does not include the required extra element and dismissed that claim as preempted.  Of note to attorneys practicing in the Western District of Washington, the court stated that

[P]laintiff’s response does not address her CPA claim, which the Court construes, pursuant to Local Rule 7, as a concession that defendants’ arguments regarding that claim have merit.

The court found that plaintiff’s Washington State trade dress claims are not preempted, for the same reason the Lanham Act claims are not preempted.

The court found that plaintiff’s state law trade name claim based on words used by plaintiff in her copyrighted works is preempted by copyright law. 

Plaintiff’s state law trade name claim based on the alleged misuse of her name by the defendants is not preempted by copyright law.  “A person’s name or likeness is not a work of authorship within the meaning of 17 U.S.C. §102.”  (Order pdf page 15).

Plaintiff’s state law constructive trust claim was dismissed as preempted, as it was based on defendants’ violation of plaintiff’s copyrights. 

This case is Susan Tierney Cockburn v. SWS Industries, Inc., et al., Case No. C10-1566 RSL, Western District of Washington at Seattle.

Washington Shoe Seeks to Enforce Copyrights on Boot Designs

Washington Shoe Company manufactures, designs, distributes and sells footwear.  Its territory covers the U.S. and some foreign countries.  It sells both directly and through licensees.

Academy Ltd. does business as Academy Sports + Outdoors.  Academy sells a variety of sports and outdoor merchandise through its website,  Academy offers footwear for sale through its website.

Washington Shoe sued Academy for copyright infringement (pdf) in the Western District of Washington on May 5, 2011.  Washington Shoe alleges that it has registered copyrights in two different boot designs, Magic Carpet and Zebra Supreme.  It alleges that Academy infringes its copyrights by reproducing, adapting, distributing, selling, performing or displaying its copyrighted works without authorization.  Academy is specifically alleged to offer for sale, display and distribute unauthorized copies in interstate commerce for financial gain.

Washington Shoe’s Exhibit A (pdf) to its complaint is a copy of the copyright certificate and deposit for the Magic Carpet design.  Exhibit B contains photographs of the boots offered for sale by Academy.

Washington Shoe’s Exhibit D (pdf) contains photographs of its Zebra Supreme design.  Exhibit E is a copy of the copyright certificate and deposit for the Zebra Supreme design.  Exhibit F contains photographs of the boots offered for sale by Academy.

Washington Shoe alleges that it sent cease and desist letters to Academy’s counsel with respect to both designs.  Washington Shoe claims willful infringement, irreparable injury, loss and damage and entitlement to gains, profits and advantages obtained by Academy resulting from its infringing acts.



VendNovation Sues to Enforce Copyrights and Protect Trade Secrets in Vending Machine Software

VendNovation, LLC, filed a complaint (pdf) claiming copyright infringement, breach of contract, misappropriation of trade secrets, unfair business practices and other causes of action against Apex Industrial Technologies LLC, on April 26, 2011, in the Western District of Washington.  VendNovation developed “Web Management Software,” a server-hosted software program that allows the user to remotely control vending machines through an Internet connection.  Special control boards programmed by VendNovation are installed in the vending machines.  VendNovation claims trade secrets in the design of the software and the know-how to make it work.  It licensed its software, but did not license the source code.  VendNovation also protected its trade secrets by using a secure procedure to register its software copyrights.  Apex markets and sells vending machines.

VendNovation alleges that it, Apex and a vending machine manufacturer formed a three-way venture to manufacture, market and license vending machines with VendNovation’s Web Management Software and control boards.  The parties operated under an oral agreement for about two years. 

VendNovation alleges that in April 2008, Apex wanted to acquire VendNovation’s assets or become an exclusive licensee and obtain access to VendNovation’s source code so that it could pursue an opportunity with a large customer (Fastenal).  VendNovation declined, but Apex started selling vending machines with VendNovation’s Web Management Software and control boards to Fastenal without an exclusive license from VendNovation or access to its source code.  The Web Management Software used by Fastenal was hosted on VendNovation’s servers.

Users must agree to VendNovation’s End User License Agreement (EULA) before they can access its website.  The EULA is a “click through” license in which users must acknowledge reading the EULA by clicking a button.  The EULA contains language claiming VendNovation’s copyright and intellectual property rights in the software, including the software’s look and feel.  The EULA prohibits reverse engineering, modification or de-compiling the software.

VendNovation alleges that it entered into a written licensing contract with Apex in February 2009.  The license reiterates VendNovation’s ownership in the software, control boards and derivative works.  The license provides that Apex can access VendNovation’s source code and produce derivative works only if VendNovation becomes insolvent. 

VendNovation allegedly learned in January 2011 that Apex ordered vending machines from the manufacturer without VendNovation’s control boards.  It alleges that Apex developed its own competing control board and an inferior substitute for VendNovation’s Web Management Software.  Some people installing Apex’s competing software believed that VendNovation designed the software and contacted VendNovation for technical support.  VendNovation alleges that Apex sold vending machines with Apex’s competing control board and access to Apex’s competing software to Fastenal.  Apex also sold a desktop vending machine model incorporating VendNovation’s control board and Apex’s competing web management software to Fastenal and others.

Apex’s competing works allegedly use VendNovation’s trade secrets and copyrighted works, without VendNovation’s authorization.  VendNovation has not received compensation from Apex for using VendNovation’s copyrighted works or trade secrets.

VendNovation’s cause of action for copyright infringement includes claims against Apex of willful infringement and Apex’s unauthorized copying, distributing and creation of derivative works.  VendNovation requests injunctive relief under 17 USC §502 and impounding and destruction of infringing materials pursuant to 17 USC §503

The number for this case is Case 2:11-cv-00700-JLR, Western District of Washington at Seattle.

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.

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.

Zediva DVD Streaming Service Infringing or Not?

Zediva recently captured the attention of copyright commentators with its new streaming movie service.  Zediva Streams New Releases Through Copyright Loophole, by Ryan Singel, captures the essence of what the service is about.  As soon as a movie is released on DVD, Zediva buys it, then rents it and a DVD player to you.  The DVD and DVD player remain in Zediva’s data center and the movie is streamed to you over the Internet so that you can see it on PC, Mac or Google TV devices with Adobe Flash.  You can’t download or copy the DVD – that’s a violation of Zediva’s Terms of Use.  The service is designed to allow movie watchers to see DVD releases sooner than they could on Nexflix, which has agreed not to rent out movies in the first month they are available on DVD.  According to Singel, Zediva doesn’t have any licensing agreements with the studios and does not intend to seek any.

Zediva’s FAQs draw analogies between its service and brick and mortar DVD rental stores. Perhaps Zediva’s founders and attorneys think Zediva’s service is noninfringing for the same reason a brick and mortar store’s service is noninfringing.  The first sale doctrine (17 USC §109)  allows the owner of a particular copy of a copyrighted work to sell or dispose of that particular copy without regard to the copyright owner.  That is why lending libraries and DVD rental stores are noninfringing uses of works.  Section 109 specifically excludes sound recordings and computer programs from the first sale doctrine and that is why you can’t rent a music CD or a computer program.  A software license can seem like a rental, but it is not.  You get a license because the copyright holder or someone authorized by the copyright holder grants you one.  With a rental, a third party rents something to you without the authorization of the copyright holder.

James Grimmelmann argues against Zediva’s success in That Zediva Thing? It’s So Not Going to Work. Grimmelmann makes the point that the first sale doctrine is a defense only to distribution and display rights and is irrelevant to a performance right claim.  The Copyright Act gives the copyright owner the right to perform the copyrighted work publicly.   

To perform or display a work “publicly” means —

(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or

(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

17 USC §101 

Grimmelmann compares two cases, Columbia Pictures Industries v. Redd Horne  and Cartoon Network LP, LLLP v. CSC Holdings, Inc. In Redd Horne, a video store rented video tapes together with private viewing rooms where its customers could view the videos.  The court held that was a public performance that could be prohibited by movie studio copyright owners.  In Cartoon Network, Cablevision offered a “cloud” DVR service in which a customer could record a TV show to a remote DVR system and have it played back to her TV set later on.  The court in Cartoon Network held that this was not a public performance.

Grimmelmann explains that the distinguishing factor in the two cases is that in Cartoon Network, each customer viewed a distinct copy, whereas in Redd Horne, the video store owner kept showing the same copy over and over again to different people.  So long as the customer views her own distinct copy, it is not a public performance.  There is certainly support for this interpretation in the Copyright Act, in which members of the public can “receive it [the performance] in the same place or in separate places and at the same time or at different times.”  Grimmelmann also thinks it’s significant that Zediva keeps physical control of its DVDs at all times, just as the video store in Redd Horne kept physical control of the videos at all times.  The customers in Cartoon Network controlled their viewing times.  Netflix and video store customers physically control the DVDs they rent.

Can Zediva get around these distinct copy and viewing in different places at different times predicaments?  A unique feature of the Zediva service is that once a customer starts watching a movie, that particular DVD of the movie is not available for other customers to use.  Zediva buys its DVDs and does not copy them.  A Zediva customer has up to two weeks to finish watching her movie.  She can even watch the movie again during those two weeks.  If she wants to stop in the middle and continue the next day at the same place in the movie, she can.  Are these differences enough to take Zediva from the Redd Horne result to the Cartoon Network result?

Even if Zediva clears the above hurdles, lack of control over the end users could turn a streamed DVD into an unauthorized public performance of that DVD.  How will Zediva police its users so that they do not publicly perform the streamed movies by playing them on screens in places open to the public, such as bars or other retail establishments?  Zediva’s Terms & Conditions of Use indicate that “public performance of any kind” is not allowed, but does not define “public performance.”  That language seems inadequate for anyone trying to prevent unauthorized public performances.

Finally, could this be the same kind of streaming as the illegal streaming that was targeted by the Obama Administration’s white paper and was the subject of last week’s post?  No, it could not.  Criminal streaming under the Copyright Act requires that the infringement occur after the motion picture has been released and before “copies for sale to the general public in the United States in a format intended to permit viewing outside a motion picture exhibition facility” are made available.  17 USC §506(a)(3)(B). Zediva streams DVDs it purchases after the movie has been released on DVD.