What’s Happening Now in Technology, Small Business & Contracts – September 2014

Technology News

When is there a “performance” to the “public?” The Aereo case

As with many Supreme Court cases, the Court did not decide what many people thought it did. The Supreme Court rarely issues an opinion which does not require that a lower court apply its interpretation and come up with an answer itself. Many were surprised that it came before the Supreme Court at all – how does it differ from the Sony or Grokster cases? Certainly, Aereo made a copy of a copyright protected television broadcast transmission by capturing the transmission using numerous Aereo-owned antennae, converted the transmission into data which was stored on Aereo-owned hard-drives and re-transmitted to paying subscribers via Internet streaming technology for a commercial purpose. We’re done. But that would be too easy. The question before the Supreme Court was this: Did Aereo perform publicly works owned by broadcasters and others which entitled the petitioners to an injunction? The Supreme Court’s majority responded: Yes.

This case was an appeal from a U.S. Court of Appeals for the Second Circuit decision denying a rehearing of a District Court decision agreeing with Aereo that there was not a performance (transmission) to the public. In 1976, the Copyright Act was updated to accommodate, among other things, changes in technology. Included was the exclusive right to perform a copyright protected work publicly. 17 U.S.C. §106(4). Aereo provided a fee-based service which allowed subscribers to request certain over-the-air broadcasts to be made available on Internet-supported devices, including PCs, tablets, smartphones, etc. The petitioners, which included American Broadcasting Companies, Inc., television producers, marketers, distributors and broadcasters, who may also own the copyrights to several programs which were streamed via Aereo’s devices, sued Aereo for copyright infringement. The petitioners requested a preliminary injunction [a preliminary injunction is equitable relief where the requestor claims that a party is causing harm beyond money damages or something that could not be resolved by money damages, to prevent further harm to the requestor.]

The preliminary injunction request stated that Aereo was infringing on the petitioners’ right to “perform” their copyrighted works “publicly.” The Supreme Court’s majority found that not only did Aereo perform the copyrighted work, but that it was a public performance based on the Copyright Act’s Transmit Clause which says that the exclusive right to perform includes the right to “transmit or otherwise communicate a performance … of the [copyrighted] work … to the public, by means of any device or process, whether the members of the public capable of receiving the performance …receive it in the same place or in separate places and at the same time or at different times.” Aereo stated that they were merely supplying the devices that the subscribers used, which caused a transmission and it was the subscribers who were responsible for the transmission’s performance. In addition, because the transmissions, once converted to data, were stored in a subscriber-specific folder, the subsequent transmission of that particular file was not to the public. The Court used an analogy based on the lawsuit Fortnightly Corp.v. United Artists Television, Inc.,392 U.S. 390 (1968) when the Court investigated whether community antenna television (CATV) systems (before cable) fell outside of the Copyright Act. The Court at that time, found that it did, which lead, in part, to revisions in the Copyright Act in 1976. This Court said that Aereo’s behavior was almost identical to that prohibited under the 1976 Copyright Act. The Court said also that it doesn’t matter whether the transmission occurred by streaming the data from a subscriber-specific folder to attribute such transmission as a transmission to the public. The Court reversed the Second Circuit (meaning that a preliminary injunction should be issued) and remanded (meaning that the case had to go back to the previous court) to continue on with the case consistent with the Court’s decision.

The dissent, headed by Justice Scalia, did not find a public performance. “The Networks sued Aereo for several forms of copyright infringement, but we are here concerned with a single claim: that Aereo violates the Networks’ ‘exclusive righ[t]’ to ‘perform’ their programs ‘publicly’.” The dissent explained that a defendant can either be directly or secondarily liable for copyright infringement. To be found directly liable, it has to do something willfully in violation of the Copyright Act. The issue before the Court was very narrow – whether the petitioners were entitled to a preliminary injunction based “exclusively on the direct-liability portion of the public-performance claim (and further limited to Aereo’s ‘watch’ function, as opposed to its ‘record’ function.)” Indeed “since the Act makes it unlawful to copy or perform copyrighted works, not co copy or perform in general, see §501(a), the volitional-act requirement demands conduct directed to the [petitioners’] copyrighted material.” [Note: The issues before the lower court – including secondary liability for performance infringement – remain unresolved.]

The dissent concluded, as the Court concluded in the Sony case: “It may well be that Congress will take a fresh look at this new technology, just as it so often has examined other innovations in the past. But it is not our job to apply laws that have not yet been written. Applying the copyright statute, as it now reads, to the facts as they have been developed in this case, the judgment of the Court of Appeals must be [affirmed].” Sony, 464 U.S., at 456.

This is a difficult case to grasp. In order for it to make sense, one has to think of the transmission never changing its initial “public” character. Hence, since it was initially a public over-the-air transmission, despite it being converted to data, saved and then sent over the internet to an individual subscriber, the transmission, via whatever means is a public transmission, as if there was no intervening event. The Copyright Act allows injunctive relief for purposes other than protecting public performance rights – so it is hard to understand why the petitioners insisted on this convoluted approach. However, petitioners got what they wanted!

Comi-Con and the Holograms

As many of you know, Comi-Con is a well-attended and popular event held in San Diego annually. This year, to celebrate the television program The Simpsons’ 25th anniversary, there was a panel discussion on July 26, which included a hologram projection of the character Homer Simpson who engaged in a conversation with its creator, Matt Groening. On August 14, 2014, Hologram USA, Inc., Musion Das Hologram Limited (“MDH”) and Uwe Maass filed a patent infringement lawsuit against Twentieth Century Fox, Corporation,Gracie Films and Does (unknown persons). There are two U.S. patents at issue, one held by an individual, Uwe Maase (the ‘519 patent), and the other owned by MDH (the ‘212 patent). According to the complaint the patents comprise a “proprietary projection system that allows moving images, which can appear within a stage-like setting. It creates the illusion of moving, three-dimensional images through use of a patented system that projects a two-dimensional image onto a reflecting surface which projects the image onto a thin transparent foil arranged on stage at an angle. From the audience’s perspective, the image appears as a life-like three-dimensional moving image.”

Hologram USA has exclusive licenses to exploit both of these patents and has permission to use and sublicense their use to 3rd parties. The defendants did not secure a license to use the technology, unlike the 2012 Coachella Music Festival organizers who famously created the Tupac Shakur hologram. The plaintiffs’ allege that the defendants’ infringed upon the patents and are requesting that the court prevent the defendants from further infringement claiming that irreparable harm will result against the plaintiffs if the defendants do not stop infringing, and that the defendants are responsible for indirect infringement by others. They seek an injunction, damages and attorneys’ fees to which they are usually entitled under patent law.

This is a new case and, therefore, no court decision yet. This is not the first time that an event has relied upon a service provider to secure technology, software or music to be used for entertainment purposes. However, performance contracts should include language about which party is responsible for securing licenses and other permissions to use or create products which may infringe on patent rights, licenses to use music or software, or any other relevant intellectual property. Gayton Law can help you create contracts that will allocate the risk related to contract performance and ensure the right party is responsible for the right deliverable, including licenses.


Terms of Use and Arbitration Clauses

On August 18, 2014, the United States Court of Appeals for the Ninth Circuit decided in the case Nguyen, et al. v. Barnes & Noble, Inc. that the named plaintiff, Nguyen, along with a putative class of consumers, had insufficient notice of Barnes & Noble’s (“B&N”) Terms of Use (“TOU”) which contained a binding arbitration clause, and therefore did not enter into an agreement with B&N to arbitrate its claims. In August 2011, B&N along with several other retailers, offered heavily discounted HP Touchpads as a result of disappointing sales of the product as compared to the competitor, Apple iPad. Nguyen purchased 2 Touchpads from the B&N website and received an email confirming the purchase. The next day, he received another email stating that his order was canceled due to high demand for the Touchpads. Nguyen claimed that as a result of the cancelation, he was unable to take advantage of the discounted price elsewhere and had to purchase a substitute product at a higher price. In April 2012, Nguyen filed a class action lawsuit in California on behalf of himself and other consumers whose orders were canceled. The lawsuit alleged, among other claims, deceptive trade practices and false advertising in violation of NY and California law. B&N had the case removed to Federal Court and requested that the court compel arbitration (instead of litigation) arguing that Nguyen was bound to an arbitration agreement contained in its website’s TOU page. B&N’s TOU indicated that any claim or controversy arising out of any B&N service will be resolved through binding arbitration administered by the American Arbitration Association.

Nguyen argued that he cannot be bound to arbitration for two reasons: 1) No notice and 2) Did not assent to website’s TOU. Under the Federal Arbitration Act 9 U.S.C. § 1, a federal district court must stay judicial proceedings and compel arbitration of claims covered by a written and enforceable arbitration agreement. However, the district court may determine whether a valid arbitration agreement exists and whether the dispute is covered. To determine whether there is an enforceable arbitration agreement, federal courts apply relevant state law principles governing contracts. In this case, NY law governed. The court’s opinion described two Internet contract types: 1. Clickwrap – where there is an assent requirement by the user; 2. Browsewrap – where assent is assumed just by a visitor using the website. With browsewrap agreements, like the B&N TOU, the user is not required to review or assent before going to the website. Because of this, it was important for the court to determine whether Nguyen or other members of the class had “actual notice” of the TOU or was required to affirmatively acknowledge the TOU before making an online purchase. If Nguyen had known, the court’s decision would have been different. [Note: The necessary elements of a contract include: An offer, an acceptance of that offer, competent parties, consideration and legal form. The TOU failed on the acceptance portion because there was no affirmative requirement that the user assent to the terms, nor could B&N prove that Nguyen read or assented to the TOU.]

Although B&N put the link to its TOU on each website page and the link appeared close to the “purchase” button, this fact was insufficient to show that the purchaser had “constructive notice” of the terms to which it would be bound. “While failure to read a contract before agreeing to its terms does not relieve a party of its obligations under the contract [citation omitted], the onus must be on the website owners to put users on notice of the terms to which they wish to bind consumers.”

 This case was decided in a Federal Court in California. However, this case is instructive for purposes of advising companies that rely on communicating important website use terms using a link to save “white space” on a page. Courts are concerned about companies that intentionally hide important terms which are intended to bind users in ways not known by them. Please contact Gayton Law to draft TOUs for your website.

On the Gayton Law Blog

Amazon: Bully or Not? Guest Post By Theodore A. Gebhard, J.D., Ph.D.

Several articles in the business press during recent months have reported on a dispute between book publisher, Hachette, and book distributor, Amazon.  The dispute centers on the pricing of e-books.  Amazon wants a larger slice of the profits on e-book sales, and to obtain that larger slice, it wants Hachette to lower its wholesale prices.  See the rest of the post here.

What’s in a name? Blackhorse v. Pro-Football, Inc. by Cynthia M. Gayton, Esq.

The United States Patent and Trademark Office (USPTO) canceled six trademark registrations for the Washington Redskins. The plaintiffs in the case are five Native Americans who wanted to cancel registrations filed by, and issued to, the organization from 1967 and 1990. The 2-1 decision in Blackhorse, et al. v. Pro-Football, Inc. was announced today (June 18, 2014). See the rest of the post here.

Thank you to Artomatic and WALA

There’s a story behind about how two DC-based arts organizations – Artomatic and Washington Area Lawyers for the Arts (WALA) – and their respective leadership and volunteers came together to make a difference in the predominantly rural community of Jefferson County, West Virginia. It is not often that pro bono attorneys, or any volunteers for that matter, get to hear “the rest of the story” after they organize, speak, teach, or provide advice. Volunteers make a difference, and due to these organizations’ efforts, a new arts-focused community is becoming a reality. Please see the rest of the post here.

Programs and Publications

Cynthia Gayton will teach a class on Contracts and Licensing as part of WALA’s Creative Entrepreneurship programming on October 16, 2014. This two-hour program covers basic contract formation and general IP licensing issues. Register for the program here.

The “Guide to Creating and Protecting Fictional Characters” Second Edition by Cynthia Gayton was released in May 2014 and is now available for the Kindle.

Legal Aspects of Engineering. 9th edition by Cynthia Gayton is available through the publisher, Kendall-Hunt publishers and on Amazon.com. This book is used in several engineering courses and is a useful reference for anyone interested in contracting, intellectual property, engineering practice, and other general legal issues.

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