Not Copyright Infringement to Provide Perpetual Access to Sample

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

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

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Website’s Browsewrap Agreement Inconspicuous and Unenforceable

Brett Long, a California resident, bought Mother’s Day flowers for his mother, living in Kansas, from ProFlowers.com.  Long thought he was buying a completely assembled bouquet, but the flowers arrived as a do-it-yourself-kit.  Long filed suit in California state court against Provide Commerce, Inc., an online retailer and owner of ProFlowers.com.  Long alleged violations of California state statutes and sought to bring a class action. 

Provide moved to compel arbitration, arguing that Long was bound by the ProFlowers.com Terms of Use, which required arbitration.  The trial court ruled that the hyperlinks on the ProFlower.com website were too inconspicuous to put a reasonably prudent Internet consumer on inquiry notice.  On appeal, the Court of Appeal agreed with the trial court.

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Barnes & Noble Browsewrap Terms of Use Get Torched

Barnes & Noble, a bookseller with both an online presence and brick and mortar stores, tried to unload discontinued Hewlett-Packard Touchpad tablet computers through its website.  Barnes & Noble underestimated the demand, resulting in its cancellation of Kevin Khoa Nguyen’s order of two Touchpads.  Nguyen was forced to purchase substitute technology at a higher price.  Nguyen brought a class action suit against Barnes & Noble, alleging deceptive business practices and false advertising under both California and New York law. 

Barnes & Noble argued that its website’s Terms of Use required Nguyen to arbitrate his claim.  The district court ruled that Barnes & Noble did not provide reasonable notice of its Terms of Use to Nguyen and that Nguyen did not unambiguously consent to the arbitration provision.  The Ninth Circuit Court of Appeals agreed.  Website owners cannot rely on Terms of Use hyperlinks posted at the bottom of the page and near the checkout button to put consumers on notice of the content of the Terms of Use.

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Authors’ Case Against Harlequin for Abysmal E-Book Royalties Moves Forward

My post Harlequin Authors File E-Book Class Action Case Against Harlequin Over “Who’s the Publisher?” describes Harlequin authors’ class action complaint against Harlequin and its Swiss registered companies.  Harlequin authors received 3 or 4 percent of the cover price of e-books, when they thought they should be receiving more than 50 percent of the cover price.  The amended complaint claimed breach of contract under agency, assignment and alter ego theories.  The amended complaint also alleged that the license fees paid by Harlequin Enterprises to Harlequin Switzerland did not comply with the terms of the publishing agreements signed by the authors.  The authors’ royalties were calculated based on the amount paid by Harlequin Enterprises to Harlequin Switzerland.

The district court granted the Harlequin companies’ Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted for all claims.  The Second Circuit Court of Appeals affirmed the district court’s decision regarding the authors’ claims for breach of contract under agency, assignment and alter ego theories.  The Second Circuit reversed the district court’s ruling on the authors’ allegation that the license fees paid by Harlequin Enterprises to Harlequin Switzerland did not comply with the terms of the publishing agreements signed by the authors. 

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Hybrid Licensing Agreement Unenforceable Beyond the Patent Expiration Date

This case highlights the importance of separating license grants by the type of intellectual property (IP) right granted and clearly identifying the royalty rates and rights associated with a particular type of IP.  In other words, trademark, copyright and patent rights should be granted in separate sections of an agreement and the rights and obligations associated with each should be clearly identified.  Otherwise, the copyright and trademark rights, which could continue indefinitely or at least extend beyond our lifetimes, will end when the patent expires.  In most instances, patents expire twenty years from the date of the patent application.

In Kimble v. Marvel Enterprises, Inc., the Ninth Circuit recently applied the U.S. Supreme Court’s ruling in Brulotte v. Thys Co., to hold that because the patent royalties in the agreement between Kimble and Marvel were not separated from the non-patent royalties, Marvel’s obligation to pay royalties under the agreement ended when Kimble’s patent expired on May 25, 2010.  Brulotte held that “a patent licensing agreement requiring a licensee to make royalty payments beyond the expiration date of the underlying patent was unenforceable because it represented an improper attempt to extend the patent monopoly.”  (Opinion pdf page 3).  Brulotte has been widely criticized as depriving the patent holder of the benefit of her bargain by preventing her from agreeing to receive a lower rate of royalties over a longer period of time, instead of a higher rate of royalties over a shorter period of time.  In Kimble v. Marvel, the Ninth Circuit felt compelled to apply Brulotte, even though it considers the reasoning in that case to be flawed.

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Bare Right to Sue for Copyright Infringement Not Enough for Standing

Righthaven LLC’s business model is identifying copyright infringements on behalf of third parties, obtaining limited, revocable copyright assignments from the third parties, and then suing the infringers.  Righthaven received such copyright assignments from Stephens Media LLC, the owner of the Las Vegas Review-Journal.  Righthaven separately sued Wayne Hoehn and Thomas DiBiase for copyright infringement for posting Las Vegas Review-Journal articles online without authorization.  The cases were consolidated for appeal.  In both cases, the district court ruled that Righthaven lacked standing to sue for copyright infringement because Righthaven did not own any of the exclusive rights, as required by the Copyright Act.

The Ninth Circuit affirmed the district court’s decisions:

Abraham Lincoln told a story about a lawyer who tried to establish that a calf had five legs by calling its tail a leg. But the calf had only four legs, Lincoln observed, because calling a tail a leg does not make it so. Before us is a case about a lawyer who tried to establish that a company owned a copyright by drafting a contract calling the company the copyright owner, even though the company lacked the rights associated with copyright ownership. Heeding Lincoln’s wisdom, and the requirements of the Copyright Act, we conclude that merely calling someone a copyright owner does not make it so.

(Opinion pdf pages 3-4).

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After-the-Fact Email Notification of Online Contract Terms Insufficient

Trilegiant Corp. markets and sells online membership fee programs offering discounts on goods and services.  Brian Schnabel became enrolled in Great Fun, one of Trilegiant’s services, when he made a purchase through Priceline.com, an online travel site.  Edward Schnabel, Brian’s father, became enrolled in Great Fun when he made a purchase through Beckett.com, a sports memorabilia site.  Both Brian and Edward discovered that their credit cards were being billed a monthly fee from Great Fun.  They sought refunds from Trilegiant for every month that they were charged for Great Fun, a service which neither used.  When Trilegiant failed to issue full refunds, Brian and Edward brought suit against Trilegiant on behalf of a class of themselves and similarly situated plaintiffs.

Trilegiant moved to compel arbitration under the Federal Arbitration Act (FAA), asserting that Brian and Edward agreed to an arbitration provision.  The district court denied Trilegiant’s motion.  The Second Circuit Court of Appeals affirmed.  The Second Circuit ruled that Brian and Edward did not assent to an arbitration provision in an email Trilegiant sent to them after they enrolled in the Great Fun program.

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Photographer Alleges Copyright Infringement Over U.S. Fund for UNICEF’s Use of Photographs

Plaintiff William Anthony Photography, Inc. (WAP) specializes in portrait and editorial photography.  WAP filed suit for copyright infringement against United States Fund for UNICEF (U.S. Fund for UNICEF) in the Western District of Washington.  The dispute centers on whether U.S. Fund for UNICEF exceeded the scope of its license from WAP in its use of WAP’s copyrighted photographs.

WAP’s complaint (pdf) alleges the following:  U.S. Fund for UNICEF’s nationwide BELIEVE IN ZERO campaign began in approximately 2008 and features numerous celebrities.  UNICEF enlisted The Matale Line LLC (Matale Line), a Seattle-based advertising agency, to assist with the campaign.  Matale Line then enlisted WAP to take photographs for the BELIEVE IN ZERO campaign.  WAP was based in Seattle at the time.  “WAP licensed the images to UNICEF for the BELIEVE IN ZERO campaign at a grossly reduced rate because of the limited scope of the license and because of the philanthropic mission of the BELIEVE IN ZERO campaign.”  (Complaint pdf page 2).  The invoices to U.S. Fund for UNICEF for the images limited their use to the BELIEVE IN ZERO “print campaign.”  U.S. Fund for UNICEF paid the invoices without disputing them.  WAP took photos of Nicole Ritchie, Joel Madden, Amare Stoudemire, Lucy Liu, Laurence Fishburne and Alyssa Milano for the campaign.  WAP registered the images with the Copyright Office

After paying the invoices, U.S. Fund for UNICEF unilaterally expanded its scope of use of WAP’s copyrighted images beyond use in the print campaign.  WAP alleges that U.S. Fund for UNICEF’s nationwide use of the images for billboards, bus and train displays and airport video displays (pdf) was unauthorized and exceeded the parties’ agreement for use of the photos only in the print campaign.  WAP further alleges that U.S. Fund for UNICEF’s use of the images for illuminated displays (pdf) in train stations and on the Internet (pdf) was unauthorized and exceeded the parties’ agreement for use of the photos only in the print campaign.  

WAP alleges that U.S. Fund for UNICEF’s acts infringe its copyrights, in violation of 17 U.S.C. §106(a).  U.S. Fund for UNICEF allegedly failed to contact WAP to use the images outside of the print campaign.  WAP alleges willful infringement and requests statutory damages (17 U.S.C. §504(c)), injunctive relief (17 U.S.C. §502), impounding and destruction of the infringing articles (17 U.S.C. §503) and attorney’s fees and costs (17 U.S.C. §505).

This case is William Anthony Photography, Inc. v. United States Fund for UNICEF, Case No. C11-1121 MJP, Western District of Washington at Seattle.

Forum Selection Clause and FACTA Electronically Printed Receipt Issues Determined by Ninth Circuit

The Ninth Circuit resolved two issues when it released its opinion in Simonoff v. Expedia, Inc.,(pdf) on May 24, 2011:

  • Whether the forum selection clause limited jurisdiction to Washington state courts; and
  • Whether an email receipt displayed on a computer screen is an electronically printed receipt under the Fair and Accurate Credit Transactions Act (FACTA).

This case does not involve copyright issues per se, but does present two interesting issues.  The first issue provides information to licensing attorneys on how to draft a forum selection clause.  The second provides information on the definitions of the words “print” and “electronically printed.”  Although the court’s ruling is specific to FACTA, neither FACTA nor the Copyright Act defines the word “print.”

Facts.  Expedia is an online travel arrangement service that accepts credit or debit cards.  As such, it must comply with FACTA.  The portion of FACTA that is relevant to this case states:

no person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.

15 USC §1681c(g)(1).

Dimitriy Simonoff used Expedia’s website to purchase travel arrangements.  Expedia emailed him a receipt that included the expiration date of his credit card.  Simonoff claims that the email receipt he received from Expedia violates FACTA.

Forum Selection Clause.  Simonoff originally filed this case in Illinois state court.  Expedia removed it to federal court.  Under 28 USC §1441, a defendant can remove to federal court any civil action brought in state court which the federal district court has the power to hear and decide.  In Illinois federal court, Expedia filed a motion to dismiss pursuant to the user agreement’s forum selection clause.  A “forum selection clause” allows contract parties to choose in advance the location in which disputes will be resolved.  Simonoff voluntarily dismissed his case and refiled it in state court in King County, Washington.  Expedia then removed the King County case to federal court.  The federal district court judge denied Simonoff’s motion to remand the case (send it back) to state court.

Simonoff argued that the wording of Expedia’s user agreement limited jurisdiction to state court.  Expedia’s agreement stated that “You hereby consent to the exclusive jurisdiction and venue of courts in King County, Washington.”  (Opinion, pdf page 4).

In Doe 1 v. AOL LLC, the Ninth Circuit ruled that only state courts had jurisdiction under that user agreement.  That user agreement provided for “exclusive jurisdiction for any claim or dispute…in the courts of Virginia.”  (Opinion, pdf page 4).  The Doe 1 court thought the phrase “the courts of” a state meant “courts that derive their power from the state—i.e., only state courts.”  (Opinion, pdf page 4).  In contrast, the phrase “courts in” a state imposes a geographical limitation, but not a limitation on sovereignty.

In short, the rule we adopted in Doe 1 is that a forum selection clause that specifies “courts of” a state limits jurisdiction to state courts, but specification of “courts in” a state includes both state and federal courts.

The court applied its rule from Doe 1 in Simonoff.  This rule is consistent with Fifth, Fourth, Tenth, Eleventh, Sixth and First Circuit opinions, but inconsistent with one other Tenth Circuit opinion.

Emailed Receipts Not Covered by FACTA.  The court begins its analysis with the text of the statute.  It determined that FACTA “prohibits merchants from printing credit card expiration dates and non-truncated credit card numbers on ‘electronically printed’ receipts” and that the meanings of “print” and “electronically printed” determine the outcome of the case.  (Opinion, pdf page 8).

Neither “print” nor “electronically printed” is defined in the statute.  The court looked at the ordinary meaning of “print”: 

The ordinary meaning of “print” is clear:  printing involves a physical imprint onto paper or another tangible medium….A printed receipt is thus a receipt that exists in physical form, not one electronically displayed on a screen.

(Opinion, pdf page 9).

The court indicated that the use of “electronically printed” in FACTA versus just “print” does not change its analysis.  Under FACTA, full credit card numbers are allowed to be printed on handwritten or manually imprinted receipts, while they are not allowed to be printed on electronically printed receipts.  The use of the word “electronic” makes that distinction clear.

Congress used the phrase “electronically printed,” not “electronically printable” in drafting the statute, another indication that the act was not meant to apply to emailed receipts.  In addition, by its own terms, FACTA “excludes machines that do no more than electronically display information.”  (Opinion pdf page 11).  Another point made by the court is that FACTA’s staggered implementation schedule is based on when the merchant got the machine that prints the receipts.  That provision would become nonsensical if a display on the customer’s computer screen were deemed to “print” a receipt.  The court’s final point is that the statute uses the phrase “at the point of the sale or transaction,” which contemplates a face-to-face transaction at a physical location at which the consumer is handed a receipt.

I think the best part of this opinion is in the third paragraph:

“Print” refers to many different technologies—from Mesopotamian cuneiform writing on clay cylinders to the Gutenberg press in the fifteenth century, Xerography in the early twentieth century, and modern digital printing—but all of those technologies involve the making of a tangible impression on paper or other tangible medium….Although computer technology has significantly advanced in recent years, we commonly still speak of printing to paper and not to, say, iPad screens.  Nobody says, “Turn on your Droid (or iPhone or iPad or Blackberry) and print a map of downtown San Francisco on your screen.”

The court’s comment highlights the difference between printing a document and displaying it on a computer screen.

EULA Awareness

A EULA is an End User License Agreement.  It is the agreement that you are supposed to read, but don’t, before you click “I agree,” so that you can download software onto your computer from the Internet.  People don’t like to read EULAs because they’re tedious, especially when you’re anxious to download and use your software.  Another reason people don’t like to read EULAs is that EULAs tend to be long and complicated.  Someone recently wanted to save time and money and asked me to use an Internet legal document service to draft a EULA.  I declined.  I didn’t feel comfortable using agreement language when I had no way of verifying the reliability of the source.

All license agreements are contracts.  Contracts can be known by different names, such as commercial real estate leases or software licenses.  A EULA is a particular type of software license.  Licenses allow a rights holder to let other people use those rights without giving up complete control of the rights.

Every license covers an imaginary universe of what that license is about and things included in it.  This is called the “scope.”  The scope includes at least seven essential aspects:

  1. subject matter;
  2. activities permitted;
  3. field of use;
  4. exclusivity;
  5. territory;
  6. time; and
  7. sublicensing.

(Source:  Kenneth L. Port, Jay Dratler, Jr., Faye M. Hammersley, Terence P. McElwee, Charles R. McManis, Barbara A. Wrigley, Licensing Intellectual Property in the Information Age, Second Edition, Carolina Academic Press, 2005, pp. 12-14.)

It takes time to thoroughly discuss these seven areas of contract scope with a software developer.  Using shortcuts like stock forms available on the Internet does not do away with the need to discuss this important information.

Do lawyers use forms or model agreements to draft contracts?  You bet.  It happens all of the time.  For me, the reliability of the source is an important consideration in deciding what contract language to use.  When I am drafting a technology contract, I like to start with The Tech Contracts Handbook, by David W. Tollen, ABA Publishing, 2010.  This book does an outstanding job of describing various contract clauses and when to use them.  It is also written in plain English.  Non-lawyers appreciate that, but lawyers appreciate it, too.  The Tech Contracts Handbook website contains downloadable form contracts that aren’t in the book.

Someone also told me that EULAs have been around for awhile and that it should be a simple matter to get one off of the Internet.  EULAs have probably been around for a couple of decades.  What about commercial real estate leases?  Those have been around for hundreds of years.  It seems unlikely that anyone involved in negotiating a commercial real estate lease would suggest that her attorney just download one from the Internet.

Stuart A. Heller, a Seattle area attorney who calls himself, “The Leasing Lawyer,” recently gave an excellent presentation to the Solo & Small Firm Section of the King County Bar Association.  His presentation was called “Six Keys to Successful Lease Negotiation from Tenant’s Viewpoint.”  One of his main points was that the lease terms that are important to the tenant must be individually negotiated so that the tenant gets what she wants and needs to successfully operate her business from the leased premises.  The same is true for EULAs.  Each EULA must be individually tailored to the software provider’s unique situation to ensure that the software provider’s intellectual property is adequately protected.  An improperly drafted EULA is unlikely to achieve its objectives and is a wasted effort.