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Copyrights: Lessons and Practice Tips From Recent Cases Kristie Prinz Prinz Law Offices August 5, 2004 © 2004 Kristie Prinz.

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Presentation on theme: "Copyrights: Lessons and Practice Tips From Recent Cases Kristie Prinz Prinz Law Offices August 5, 2004 © 2004 Kristie Prinz."— Presentation transcript:

1 Copyrights: Lessons and Practice Tips From Recent Cases Kristie Prinz Prinz Law Offices August 5, 2004 © 2004 Kristie Prinz

2 2 Issues in Recent Copyright Litigation Ownership of Intellectual Property Ownership of Intellectual Property Reverse Engineering Reverse Engineering Technology Licensing Technology Licensing Circumvention of Technology Circumvention of Technology Contributory Infringement Contributory Infringement

3 3 Ownership of Intellectual Property: Individual v. Joint Ownership Recent cases have looked at what constitutes a work for hire, and how to distinguish between individual and joint ownership. 17 U.S.C. §101 states that a work for hire is either: 17 U.S.C. §101 states that a work for hire is either: A work created by an employee in the scope of employment; OR A work created by an employee in the scope of employment; OR A work specially ordered or commissioned or a work expressly agreed by the parties in signed written agreement to be a work made for hire. A work specially ordered or commissioned or a work expressly agreed by the parties in signed written agreement to be a work made for hire. 17 U.S.C. § 101 states that a joint work is one prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole. 17 U.S.C. § 101 states that a joint work is one prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.

4 4 Ownership of Intellectual Property: Individual v. Joint Ownership Establishing full and independent ownership of copyrighted material is critical to capitalizing on the value of the intellectual property. Establishing full and independent ownership of copyrighted material is critical to capitalizing on the value of the intellectual property. Problems may arise where a question has arisen as to whether intellectual property was created out of a work for hire relationship, and where no clear understanding exists between the parties. Problems may arise where a question has arisen as to whether intellectual property was created out of a work for hire relationship, and where no clear understanding exists between the parties.

5 5 Ownership of Intellectual Property: What Constitutes a Work for Hire? Ownership Issue Addressed in Warren v. Fox Family Worldwide, 66 USPQ2d 1682, 328 F.3d 1136 (9 th Cir. 2003). Warren filed complaint alleging infringement of his copyrights in musical compositions created for use in the series Remington Steele. Warren filed complaint alleging infringement of his copyrights in musical compositions created for use in the series Remington Steele. Defendants argued that agreements entered into with Warren created a work for hire relationship and that he did not own the copyrights. Defendants argued that agreements entered into with Warren created a work for hire relationship and that he did not own the copyrights. Ninth Circuit held that the musical compositions were works for hire, and that, because Warren was not the legal owner of the copyrights, he had no standing to sue for infringement. Ninth Circuit held that the musical compositions were works for hire, and that, because Warren was not the legal owner of the copyrights, he had no standing to sue for infringement.

6 6 Work for Hire: Key Issue in Warren Case Why did the Court conclude a work for hire relationship existed? Work for Hire: Key Issue in Warren Case Why did the Court conclude a work for hire relationship existed? The employment agreements expressly stated that MTM Productions would own all right, title, and interest in Warrens services. The fact that the agreements did not expressly state that the matters were specially ordered or commissioned was not significant. No requirement exists that work for hire agreements include any specific wording. The employment agreements expressly stated that MTM Productions would own all right, title, and interest in Warrens services. The fact that the agreements did not expressly state that the matters were specially ordered or commissioned was not significant. No requirement exists that work for hire agreements include any specific wording. The payment of royalties to Warren in addition to a fixed sum does not demonstrate that the agreements were not works for hire, despite the fact that the payment of royalties may weigh against finding a work for hire relationship. The payment of royalties to Warren in addition to a fixed sum does not demonstrate that the agreements were not works for hire, despite the fact that the payment of royalties may weigh against finding a work for hire relationship. The Court concluded that the plain language of the agreements indicated that any works were created on behalf of MTM Productions, that MTM Productions would have final judgment on all matters, including artistic and creative matters, and that Warrens services would be rendered at the direction of MTM Productions. The Court concluded that the plain language of the agreements indicated that any works were created on behalf of MTM Productions, that MTM Productions would have final judgment on all matters, including artistic and creative matters, and that Warrens services would be rendered at the direction of MTM Productions.

7 7 Work for Hire: Also Key Issue in Ulloa Case Different Outcome in Ulloa v. Universal Music and Video Distribution, 70 USPQ2d 1835, 303 F. Supp.2d 409 (S.D. N.Y. 2004). Ulloa was invited to the Base-Line Recording Studios by a friend of Carter, known professionally as JayZ, where she created and sang a countermelody to a song that JayZ was recording. JayZ liked the countermelody, and Ulloa recorded it for possible inclusion in the song. Ulloa was invited to the Base-Line Recording Studios by a friend of Carter, known professionally as JayZ, where she created and sang a countermelody to a song that JayZ was recording. JayZ liked the countermelody, and Ulloa recorded it for possible inclusion in the song. When Defendants refused to negotiate with Ulloa for payment for her work on the countermelody, she filed a lawsuit, alleging copyright infringement and joint authorship. When Defendants refused to negotiate with Ulloa for payment for her work on the countermelody, she filed a lawsuit, alleging copyright infringement and joint authorship. Defendants claimed that the sound recording of Ulloas countermelody was a work for hire and that she was an employee at the time it was recorded. Defendants claimed that the sound recording of Ulloas countermelody was a work for hire and that she was an employee at the time it was recorded. Southern District of New York held in favor of Ulloa on the work for hire issue but in favor of Defendants on the joint authorship issue. Southern District of New York held in favor of Ulloa on the work for hire issue but in favor of Defendants on the joint authorship issue.

8 8 Work for Hire: Also Key Issue in Ulloa Case Why did the Court rule against the existence of a work for hire relationship? Southern District of New York applied the five-part Second Circuit test for the existence of a work for hire arrangement: Southern District of New York applied the five-part Second Circuit test for the existence of a work for hire arrangement: Hiring partys right to control the manner and means of creation Hiring partys right to control the manner and means of creation Skill required Skill required Provision of employee benefits Provision of employee benefits Tax treatment of hired party Tax treatment of hired party Whether hiring party has the right to assign additional projects to the hired party. Whether hiring party has the right to assign additional projects to the hired party. Court found in favor of Ulloa on the control, skill, employee benefits, and assignment issue. Court found in favor of Ulloa on the control, skill, employee benefits, and assignment issue. Court conceded that Ulloa completed a W-4 form and Defendants withheld taxes from paychecks to Ulloa through the American Federation of Television and Radio Artists (AFTRA), but found that Ulloa never believed she was an employee of Defendants. Instead, AFTRA required her to complete a W-4 tax form before they would assist her in negotiating with Defendants for payment. The payments were only made after Ulloa began to threaten litigation. Court conceded that Ulloa completed a W-4 form and Defendants withheld taxes from paychecks to Ulloa through the American Federation of Television and Radio Artists (AFTRA), but found that Ulloa never believed she was an employee of Defendants. Instead, AFTRA required her to complete a W-4 tax form before they would assist her in negotiating with Defendants for payment. The payments were only made after Ulloa began to threaten litigation.

9 9 Joint Ownership: Another Key Issue in Ulloa Case Why did the Court rule against the existence of joint ownership? The Court stated that to find joint authorship, an intent must have been shared by Ulloa and JayZ to be co-authors. The Court stated that to find joint authorship, an intent must have been shared by Ulloa and JayZ to be co-authors. The Court found that Ulloa could not demonstrate that JayZ or any Defendants ever intended to share authorship with Ulloa, and therefore granted Defendants motion for summary judgment on this issue. The Court found that Ulloa could not demonstrate that JayZ or any Defendants ever intended to share authorship with Ulloa, and therefore granted Defendants motion for summary judgment on this issue.

10 10 What Are the Lessons To be Learned From These Two Cases? Employers hiring non-employees to perform tasks that may lead to copyrightable material should enter into an written agreement before any intellectual property is created, which defines the terms of the relationship, including the tax treatment of the hired party, and clearly states the parties intentions for ownership of intellectual property. Employers hiring non-employees to perform tasks that may lead to copyrightable material should enter into an written agreement before any intellectual property is created, which defines the terms of the relationship, including the tax treatment of the hired party, and clearly states the parties intentions for ownership of intellectual property. The work for hire agreement need not contain specific language, but it may be helpful for the agreement to specify that the employer will own all right, title, and interest in any copyrightable material, and that the Employer will direct and control what work is performed. The work for hire agreement need not contain specific language, but it may be helpful for the agreement to specify that the employer will own all right, title, and interest in any copyrightable material, and that the Employer will direct and control what work is performed. Non-employees should be paid in a fixed amount (without royalties or other benefits). Non-employees should be paid in a fixed amount (without royalties or other benefits). If parties intend to share ownership in copyrightable material, they should enter into an agreement that expressly states their intentions to jointly own the intellectual property and defines the terms of the joint ownership. If parties intend to share ownership in copyrightable material, they should enter into an agreement that expressly states their intentions to jointly own the intellectual property and defines the terms of the joint ownership.

11 11 Ownership of Intellectual Property Is the right to sue for copyright infringement transferable? Silvers v. Sony Pictures Entertainment, 66 USPQ2d 1951, 330 F.3d 1304 (9 th Cir. 2003). Silvers wrote a script called The Other Woman pursuant to a work for hire arrangement for Frank and Bob Films II, aka Von Zerneck/Sertner Films, which was made into a CBS movie. Silvers wrote a script called The Other Woman pursuant to a work for hire arrangement for Frank and Bob Films II, aka Von Zerneck/Sertner Films, which was made into a CBS movie. Sony released the motion picture Stepmom. Sony released the motion picture Stepmom. After the release of Stepmom, Von Zerneck/Sertner Films assigned to Silvers the right to sue for copyright infringement on her script but retained ownership of all other rights. After the release of Stepmom, Von Zerneck/Sertner Films assigned to Silvers the right to sue for copyright infringement on her script but retained ownership of all other rights. Silvers filed a complaint against Sony for copyright infringement and unfair competition. Silvers filed a complaint against Sony for copyright infringement and unfair competition. District court ruled that an accrued cause of action for copyright infringement may be assigned to a third party. District court ruled that an accrued cause of action for copyright infringement may be assigned to a third party. Ninth Circuit upheld the District Courts ruling. Ninth Circuit upheld the District Courts ruling.

12 12 Assignment of a Right to Sue: Key Issue in Silvers Case Ninth Circuit cited Nimmer on Copyright for the proposition that an assignee of a cause of action for accrued infringement has standing to sue even if the assignor retains ownership of all other copyright rights. Ninth Circuit cited Nimmer on Copyright for the proposition that an assignee of a cause of action for accrued infringement has standing to sue even if the assignor retains ownership of all other copyright rights. Court found that the legal or beneficial owner of a copyright is not the only party entitled to bring an action for copyright infringement. Court found that the legal or beneficial owner of a copyright is not the only party entitled to bring an action for copyright infringement. Court found that Congress did not intend to preclude the subdivision, separate ownership, and/or separate enforcement of any copyright owners exclusive rights. Court found that Congress did not intend to preclude the subdivision, separate ownership, and/or separate enforcement of any copyright owners exclusive rights. The Court relied in part on the law of the Fifth Circuit to state that an express assignment after the occurrence of infringement for actions that may have accrued from copyright infringement was not against public policy. The Court relied in part on the law of the Fifth Circuit to state that an express assignment after the occurrence of infringement for actions that may have accrued from copyright infringement was not against public policy.

13 13 What are the Lessons to be Learned from Silvers? The parties of a work for hire agreement should consider whether the hiring party may seek to assign back to the hired party the right to sue for infringement of her/his copyrighted materials, and if so, should draft any such agreement accordingly. The parties of a work for hire agreement should consider whether the hiring party may seek to assign back to the hired party the right to sue for infringement of her/his copyrighted materials, and if so, should draft any such agreement accordingly. If an employer having a work for hire relationship with the creator of copyrighted materials elects not to sue for copyright infringement, then the employer should consider whether or not the hired party may be interested in pursuing the legal action against the copyright infringer, and may want to consider assigning. If an employer having a work for hire relationship with the creator of copyrighted materials elects not to sue for copyright infringement, then the employer should consider whether or not the hired party may be interested in pursuing the legal action against the copyright infringer, and may want to consider assigning.

14 14 Practice Tips on Addressing Ownership Issues Address intellectual property issues at the beginning of any working relationship, prior to the creation of intellectual property, and get the understanding in writing. Address intellectual property issues at the beginning of any working relationship, prior to the creation of intellectual property, and get the understanding in writing. Structure any work for hire agreements very carefullynot only does the amount of compensation to be paid matterbut it also is important to include in the agreements carefully drafted provisions on (a) the ownership, protection, and infringement of intellectual property; (b) the performance of services; (c) the treatment of tax and benefit issues; and (d) the assignment of rights. Structure any work for hire agreements very carefullynot only does the amount of compensation to be paid matterbut it also is important to include in the agreements carefully drafted provisions on (a) the ownership, protection, and infringement of intellectual property; (b) the performance of services; (c) the treatment of tax and benefit issues; and (d) the assignment of rights. If the parties seek joint ownership of any intellectual property arising from a relationship, address up front the parties understandings as to how joint ownership is going to work, particularly with respect to intellectual property ownership, protection, and infringement issues, and enter into a written agreement that reflects those understandings. If the parties seek joint ownership of any intellectual property arising from a relationship, address up front the parties understandings as to how joint ownership is going to work, particularly with respect to intellectual property ownership, protection, and infringement issues, and enter into a written agreement that reflects those understandings.

15 15 Key Decision Impacting Reverse Engineering in the Software Industry Bowers v. Baystate Technologies, 320 F.3d 1317 (Fed. Cir. 2003). Reverse engineeringthe process of decompiling object code and using the source code to develop a compatible producthas historically been permitted as a Fair Use under U.S. Copyright Law and is a common practice in the industry. Reverse engineeringthe process of decompiling object code and using the source code to develop a compatible producthas historically been permitted as a Fair Use under U.S. Copyright Law and is a common practice in the industry. Tension has always existed between large software companies seeking to secure their investment and smaller software companies or developers seeking interoperability of software. Tension has always existed between large software companies seeking to secure their investment and smaller software companies or developers seeking interoperability of software. Federal Circuits decision in Bowers establishes for the first time that a company can prohibit reverse engineering of their products through a shrink-wrap license. Federal Circuits decision in Bowers establishes for the first time that a company can prohibit reverse engineering of their products through a shrink-wrap license.

16 16 Bowers v. Baystate Technologies Bowers sold a bundled software product with a shrink-wrap license prohibiting reverse engineering. Bowers sold a bundled software product with a shrink-wrap license prohibiting reverse engineering. Baystate obtained copies of the Bowers product and introduced its own product incorporating many of the features of Bowers product. Baystate obtained copies of the Bowers product and introduced its own product incorporating many of the features of Bowers product. Bowers sued Baystate for copyright and patent infringement and for breach of contract. Bowers sued Baystate for copyright and patent infringement and for breach of contract. A jury found for Bowers and awarded damages on all three claims, but the district court set aside the copyright damages as duplicative of the copyright damages. Both parties appealed. A jury found for Bowers and awarded damages on all three claims, but the district court set aside the copyright damages as duplicative of the copyright damages. Both parties appealed.

17 17 Bowers v. Baystate Technologies Federal Circuit held that the Copyright Act does not preempt the state contract law action for breach of a prohibition against reverse engineering in a shrink-wrap license. Federal Circuit held that the Copyright Act does not preempt the state contract law action for breach of a prohibition against reverse engineering in a shrink-wrap license. Court applied First Circuit case law indicating that private parties are free to forego contractually the ability to reverse engineer a software product and are likewise free to breach the agreement and pay damages accruing from the breach. Court applied First Circuit case law indicating that private parties are free to forego contractually the ability to reverse engineer a software product and are likewise free to breach the agreement and pay damages accruing from the breach. Federal Circuit found that the Bowers shrink-wrap agreement unambiguously prohibits reverse engineering and that the evidence clearly supports that Baystate breached its contract with Bowers. Federal Circuit found that the Bowers shrink-wrap agreement unambiguously prohibits reverse engineering and that the evidence clearly supports that Baystate breached its contract with Bowers. Baystate filed a petition for a writ of certiorari on April 29, 2003, but the Supreme Court declined to hear the case. Baystate filed a petition for a writ of certiorari on April 29, 2003, but the Supreme Court declined to hear the case.

18 18 Consequences of Bowers Decision Federal Circuits decision that private parties can contract to protect their trade secrets through reverse engineering remains intact. Federal Circuits decision that private parties can contract to protect their trade secrets through reverse engineering remains intact. The decision may limit the ability of the software industry to achieve interoperability between programs. The decision may limit the ability of the software industry to achieve interoperability between programs.

19 19 Lessons from Bowers Decision Companies worried about losing their market share and/or trade secrets as a result of reverse engineering should include with their products shrink-wrap agreements prohibiting reverse engineering. Companies worried about losing their market share and/or trade secrets as a result of reverse engineering should include with their products shrink-wrap agreements prohibiting reverse engineering. Companies buying products that contain shrink-wrap licenses prohibiting reverse engineering should carefully review and adhere to the terms of those licenses, which may be enforceable against them. Companies buying products that contain shrink-wrap licenses prohibiting reverse engineering should carefully review and adhere to the terms of those licenses, which may be enforceable against them. Engineers reverse engineering any software program should verify to make certain that they do not reverse engineer a product that was purchased with a shrink-wrap license that prohibits reverse engineering. Engineers reverse engineering any software program should verify to make certain that they do not reverse engineer a product that was purchased with a shrink-wrap license that prohibits reverse engineering.

20 20 Open Source Licensing Litigation SCO Group v. International Business Machines SCO acquired the rights to Unix intellectual property. SCO acquired the rights to Unix intellectual property. SCO filed suit against IBM alleging that IBM breached a contract with SCO by incorporating Unix Code into Linux, which is covered in the General Public License (GPL) open source license. SCO filed suit against IBM alleging that IBM breached a contract with SCO by incorporating Unix Code into Linux, which is covered in the General Public License (GPL) open source license. SCO has also sent letters to 1,500 Linux customers accusing them of illegally using SCOs intellectual property. SCO has also sent letters to 1,500 Linux customers accusing them of illegally using SCOs intellectual property. IBM and Red Hat, the largest seller of Linux software, have filed countersuits against SCO. IBM and Red Hat, the largest seller of Linux software, have filed countersuits against SCO.

21 21 Potential Consequences of SCO Litigation Litigation is likely to slow the growth of the GNU/Linux operating system, which would negatively impact the software industry, since Linux is the most effective alternative available to Microsofts Windows. Litigation is likely to slow the growth of the GNU/Linux operating system, which would negatively impact the software industry, since Linux is the most effective alternative available to Microsofts Windows. Litigation may have the effect of discouraging the use of open source licenses in the future. Litigation may have the effect of discouraging the use of open source licenses in the future. Microsoft could end up being the real winner of the litigation, given the fact that it has the most to gain from halting the growth and use of Linux. Microsoft could end up being the real winner of the litigation, given the fact that it has the most to gain from halting the growth and use of Linux.

22 22 Lessons From SCO Litigation The utilization of open source software can have real legal consequences, and users assume the full legal risk of using software with an unknown development history. The SCO case puts users on notice of the extent of those potential risks. The utilization of open source software can have real legal consequences, and users assume the full legal risk of using software with an unknown development history. The SCO case puts users on notice of the extent of those potential risks. Companies contemplating use of open source software should carefully review the terms of any applicable open source license prior to use of the software in order to understand the specific risks of the relevant agreement as well as the terms with which such companies will need to comply. Companies contemplating use of open source software should carefully review the terms of any applicable open source license prior to use of the software in order to understand the specific risks of the relevant agreement as well as the terms with which such companies will need to comply. Companies using open source software should take extra care not to incorporate elements of proprietary code into open source code. Companies using open source software should take extra care not to incorporate elements of proprietary code into open source code.

23 23 Practice Tips on Licensing Based on Bowers and SCO Litigation Incorporate terms prohibiting reverse engineering in all new license agreements, unless you are the licensee, in which case any such terms should be rejected. Incorporate terms prohibiting reverse engineering in all new license agreements, unless you are the licensee, in which case any such terms should be rejected. Reevaluate the risks/benefits of utilizing open source software and review the terms of any existing open source agreements under which you are bound in order to verify compliance with all such terms. Consider alternatives. Reevaluate the risks/benefits of utilizing open source software and review the terms of any existing open source agreements under which you are bound in order to verify compliance with all such terms. Consider alternatives. Monitor the use of open source software at your company and how it is being used. Educate employees on the risks inherent to the use of open source software. Monitor the use of open source software at your company and how it is being used. Educate employees on the risks inherent to the use of open source software.

24 24 Licensing: Ambiguous Terms McRoberts Software v. Media 100, 66 USPQ2d 1648, 329 F.3d 557 (7 th Cir. 2003). In 1992, McRoberts Software (MSI) developed a software program for users of Apples Macintosh personal computers. In 1992, McRoberts Software (MSI) developed a software program for users of Apples Macintosh personal computers. Media 100 negotiated licenses with MSI to supply MSIs software for use with its line of personal video editing board hardware. Media 100 negotiated licenses with MSI to supply MSIs software for use with its line of personal video editing board hardware. Media 100 subsequently entered into an agreement with a third party to translate the source code of the software program from Macintosh to Windows without MSIs knowledge, and then supplied the new code with its Windows-compatible video editing system. Media 100 subsequently entered into an agreement with a third party to translate the source code of the software program from Macintosh to Windows without MSIs knowledge, and then supplied the new code with its Windows-compatible video editing system. MSI sued Media 100 for copyright infringement, trade secret misappropriation, and breach of contract. MSI sued Media 100 for copyright infringement, trade secret misappropriation, and breach of contract.

25 25 Key Issues in McRoberts Software v. Media 100 A jury determined that Media 100 infringed MSIs copyright by acting outside the scope of the licensing agreement. A jury determined that Media 100 infringed MSIs copyright by acting outside the scope of the licensing agreement. Seventh Circuit held in favor of MSI on each of the three claims, including copyright infringement. Seventh Circuit held in favor of MSI on each of the three claims, including copyright infringement. At issue was the ambiguity in the license as to whether or not the license gave Media 100 the right to translate the source code into Windows and then to distribute the software in the new Media 100 Windows-compatible video editing system. The Court found that the jury was entitled to resolve the ambiguity in favor of MSI. At issue was the ambiguity in the license as to whether or not the license gave Media 100 the right to translate the source code into Windows and then to distribute the software in the new Media 100 Windows-compatible video editing system. The Court found that the jury was entitled to resolve the ambiguity in favor of MSI.

26 26 Lessons from McRoberts Case and Practice Tips Ambiguous terms in a license agreement can lead to litigation. Be as specific as possible when drafting an agreement. Ambiguous terms in a license agreement can lead to litigation. Be as specific as possible when drafting an agreement. Avoid making assumptions about what the other partys intentions were when the agreement was signed. Consider getting a new agreement in writing that resolves any ambiguity. Avoid making assumptions about what the other partys intentions were when the agreement was signed. Consider getting a new agreement in writing that resolves any ambiguity. Anticipate new technology and address in any agreement how new technology will be treated. Anticipate new technology and address in any agreement how new technology will be treated. Anticipate any potential issues that could arise down the road and address them when drafting the agreement. Anticipate any potential issues that could arise down the road and address them when drafting the agreement.

27 27 Circumvention of Technology: Background of DMCA Digital Millennium Copyright Act of 1998, Pub. L. No , 112 Stat (1998). Enacted in 1998 to implement the World Intellectual Property Organization Copyright Treaty. Enacted in 1998 to implement the World Intellectual Property Organization Copyright Treaty. Controversial since its enactment, particularly with respect to the anti- circumvention provisions. Controversial since its enactment, particularly with respect to the anti- circumvention provisions. Concern that it is being applied beyond the scope of what Congress intended. Concern that it is being applied beyond the scope of what Congress intended.

28 28 TEXT OF DMCA § 1201 (a)(2) 17 U.S.C. § 1201 (a)(2) provides as follows: (2) No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that (A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title; (B) has only limited commercially significant purpose or use other than to circumvent a technological measure that effectively controls access to a work protected under this title; or (C) is marketed by that person or another acting in concert with that person with that persons knowledge for use in circumventing a technological measure that effectively controls access to a work protected under this title.

29 29 TEXT OF DMCA § 1201 (a)(3) 17 U.S.C. § 1201 (a)(3)(A), (B) provides definitions to the following terms: (A) to circumvent a technological measure means to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner; and (B) a technological measure effectively controls access to a work if the measure, in the ordinary course of its operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work.

30 30 TEXT OF DMCA § 1201 (b)(1) 17 U.S.C. § 1201 (b) (1) states: No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that (A) is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or portion thereof; (B) has only limited commercially significant purpose or use other than to circumvent protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion therefore; or (C) is marketed by that person or another acting in concert with that person with that persons knowledge for use in circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof.

31 31 TEXT OF DMCA § 1201 (c)(3) 17 U.S.C. § 1201(c)(3) states: Nothing in this section shall affect rights remedies, limitations, or defenses to copyright infringement, including fair use, under this title.

32 32 Circumvention of Technology: Recent Litigation Involving DMCA § 1201 Chamberlain Group v. Skylink Technologies, 68 USPQ2d 1009, 292 F. Supp.2d 1023 (N.D. Ill. 2003). Chamberlain and Skylink were competitors in the electronic garage door industry. Chamberlain and Skylink were competitors in the electronic garage door industry. Skylink develops and distributes for sale a universal remote transmitter capable of activating certain garage door openers manufactured and sold by Chamberlain, including a line of openers utilizing a rolling code technology. Skylink develops and distributes for sale a universal remote transmitter capable of activating certain garage door openers manufactured and sold by Chamberlain, including a line of openers utilizing a rolling code technology. Chamberlain files a lawsuit against Skylink claiming that Skylink violated the DMCA. Chamberlain files a lawsuit against Skylink claiming that Skylink violated the DMCA. Northern District of Illinois held in favor of Skylink on summary judgment, finding disputed issues of fact over whether (a) Chamberlains rolling code program is protected by copyright and (b) whether a consumers use of Skylinks product to open his own garage constitutes an unauthorized circumvention for purposes of the DMCA. Northern District of Illinois held in favor of Skylink on summary judgment, finding disputed issues of fact over whether (a) Chamberlains rolling code program is protected by copyright and (b) whether a consumers use of Skylinks product to open his own garage constitutes an unauthorized circumvention for purposes of the DMCA.

33 33 Circumvention of Technology: Recent Litigation Involving DMCA § 1201 Lexmark v. Static Control, 66 USPQ2d 1405, 253 F.Supp.2d 943 (E.D. Ky. 2003). Lexmark is a worldwide developer, manufacturer, and supplier of laser printers and toner cartridges. Lexmark is a worldwide developer, manufacturer, and supplier of laser printers and toner cartridges. Static Control manufactures and sells components for remanufactured toner cartridges. Static Control manufactures and sells components for remanufactured toner cartridges. Lexmark filed suit against Static Control for copyright infringement and circumventing a technological measure in violation of the DMCA. Lexmark filed suit against Static Control for copyright infringement and circumventing a technological measure in violation of the DMCA. On a motion for preliminary injunction, the Eastern District of Kentucky held in favor of Lexmark, finding that Lexmark demonstrated a likelihood of success on the merits. On a motion for preliminary injunction, the Eastern District of Kentucky held in favor of Lexmark, finding that Lexmark demonstrated a likelihood of success on the merits.

34 34 Circumvention of Technological Measures: Key Issue in Lexmark Case How did the Eastern District of Kentucky reach its decision? Eastern District of Kentucky held that the toner loading programs did not function as lock-out codes, and that Static Controls identical and verbatim copying of Lexmarks toner loading programs went beyond what was necessary for compatibility. Eastern District of Kentucky held that the toner loading programs did not function as lock-out codes, and that Static Controls identical and verbatim copying of Lexmarks toner loading programs went beyond what was necessary for compatibility. The Court held that the fair use doctrine did not provide an exception to copyright infringement, particularly since Static Control engaged in the wholesale copying of Lexmark toner loading programs for a commercial purpose. The Court held that the fair use doctrine did not provide an exception to copyright infringement, particularly since Static Control engaged in the wholesale copying of Lexmark toner loading programs for a commercial purpose. Out of four factors ((a) the purpose and character of the use, (b) the nature of the copyrighted work, (c) the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and (d) the effect of the use upon the potential market or the value of the copyrighted work), all but (b) weight heavily in Lexmarks favor, and (b) only weighs slightly in Static Controls favor because computer programs are still entitled to some copyright protection, even if it does not rise to the level afforded to more traditional literary works. Out of four factors ((a) the purpose and character of the use, (b) the nature of the copyrighted work, (c) the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and (d) the effect of the use upon the potential market or the value of the copyrighted work), all but (b) weight heavily in Lexmarks favor, and (b) only weighs slightly in Static Controls favor because computer programs are still entitled to some copyright protection, even if it does not rise to the level afforded to more traditional literary works.

35 35 Circumvention of Technology: Recent Litigation Involving DMCA § Studios v. Metro-Goldwyn-Mayer Studios, 2004 WL (N.D. Cal. Feb. 19, 2004). 321 Studios markets and sells software and instructions for copying DVDs. 321 Studios markets and sells software and instructions for copying DVDs. Defendants are members of the Motion Picture Association of America (MPAA), who own copyrights in motion pictures, and produce/distribute DVDs containing copyrighted materials. Defendants are members of the Motion Picture Association of America (MPAA), who own copyrights in motion pictures, and produce/distribute DVDs containing copyrighted materials. 321 Studios filed a complaint for a declaratory judgment that (1) its distribution activities do not violate the DMCA, or in the alternative, that the provisions of the DMCA are invalid in light of other copyright provisions, and (2) the distribution of the software does not violate the Copyright Act because (a) the software has substantial, non-infringing uses, (b) the use of the software constitutes fair use, and (c) the provisions of the DMCA violate the First Amendment of the Constitution. 321 Studios filed a complaint for a declaratory judgment that (1) its distribution activities do not violate the DMCA, or in the alternative, that the provisions of the DMCA are invalid in light of other copyright provisions, and (2) the distribution of the software does not violate the Copyright Act because (a) the software has substantial, non-infringing uses, (b) the use of the software constitutes fair use, and (c) the provisions of the DMCA violate the First Amendment of the Constitution. Northern District of California, on a motion for summary judgment, held in favor of Defendants, and enjoined 321 Studios from manufacturing, distributing, or trafficking in any type of DVD circumvention software. Northern District of California, on a motion for summary judgment, held in favor of Defendants, and enjoined 321 Studios from manufacturing, distributing, or trafficking in any type of DVD circumvention software.

36 36 Circumvention of Technology: Recent Litigation Involving DMCA § 1201 Why did the Court rule against 321 Studios on summary judgment? Northern District of California found that the purchase of a DVD does not give the purchaser the authority of the copyright holder to decrypt an encrypted work in violation of §1201(a)(2), and distinguishes the 321 Studio software from the decryption technology in DVD players on the ground that DVD players are licensed to decrypt the encryption technology. Northern District of California found that the purchase of a DVD does not give the purchaser the authority of the copyright holder to decrypt an encrypted work in violation of §1201(a)(2), and distinguishes the 321 Studio software from the decryption technology in DVD players on the ground that DVD players are licensed to decrypt the encryption technology. Court finds that the encryption technology in DVDs is a copy control system and that § 1201(b)(1) therefore applies to the technology in the Studio 321 software, prohibiting its manufacture and sale. Court finds that the encryption technology in DVDs is a copy control system and that § 1201(b)(1) therefore applies to the technology in the Studio 321 software, prohibiting its manufacture and sale. Court finds that while the software may have other uses, part of the software is solely for the purpose of circumventing the encryption technology. Court finds that while the software may have other uses, part of the software is solely for the purpose of circumventing the encryption technology. Court rejected all challenges raised to the constitutionality of the DMCA. Court rejected all challenges raised to the constitutionality of the DMCA.

37 37 Circumvention of Technology: Recent Litigation Involving DMCA § 1201 Paramount Pictures v. 321 Studios, 2004 WL (S.D. N.Y. March 3, 2004). Southern District of New York granted a preliminary injunction against 321 Studios, finding that the manufacturing of the decryption software for sale violates the anti-trafficking provisions of the DMCA. The Court cited the Northern District of Californias ruling regarding the same software in reaching its decision. Southern District of New York granted a preliminary injunction against 321 Studios, finding that the manufacturing of the decryption software for sale violates the anti-trafficking provisions of the DMCA. The Court cited the Northern District of Californias ruling regarding the same software in reaching its decision.

38 38 Lessons from the Circumvention of Technology Cases Develop, sell, and distribute software that circumvents technology at own risk. Develop, sell, and distribute software that circumvents technology at own risk. Utilize encryption technology whenever possible to gain a competitive advantage. Utilize encryption technology whenever possible to gain a competitive advantage. Taking on the DMCA in the courtroom may not be a winning endeavor. Taking on the DMCA in the courtroom may not be a winning endeavor.

39 39 Practice Tips on the Circumvention of Technology Work closely with employees to educate them on circumvention of technology issues, in order to: catch product ideas that will utilize circumvention technology before they are actually developed, and catch product ideas that will utilize circumvention technology before they are actually developed, and increase awareness of the benefits of developing and utilizing encryption technology with products, particularly in light of its new legal protections. increase awareness of the benefits of developing and utilizing encryption technology with products, particularly in light of its new legal protections.

40 40 Contributory Infringement: Recent Litigation Involving File Sharing Metro-Goldwyn-Mayer Studios v. Grokster, 66 USPQ2d 1579, 259 F.Supp.2d 1029 (C.D. Cal. 2003). Defendants distributed software that enabled users to exchange digital media via a peer-to-peer transfer network. Defendants distributed software that enabled users to exchange digital media via a peer-to-peer transfer network. Plaintiffs are organizations in the motion picture and music recording industries. Plaintiffs are organizations in the motion picture and music recording industries. Plaintiffs filed class action suit against Defendants for copyright infringement, including claims for contributory infringement and vicarious infringement. Plaintiffs filed class action suit against Defendants for copyright infringement, including claims for contributory infringement and vicarious infringement. On a motion for summary judgment, Central District of California found in favor of Defendants on the contributory infringement claim. On a motion for summary judgment, Central District of California found in favor of Defendants on the contributory infringement claim.

41 41 Contributory Infringement: Recent Litigation Involving File Sharing Why did the Court find in favor of Defendants in the Grokster Case on the contributory infringement issue? Unlike Napster, Defendants only supplied the software and did not provide infrastructure or servers through which the infringing could take placethus, Defendants were not materially involved. Unlike Napster, Defendants only supplied the software and did not provide infrastructure or servers through which the infringing could take placethus, Defendants were not materially involved. Defendants undertook efforts to avoid assisting users who seek to use their software improperly, and gave only routine and non-specific technical assistance. Defendants undertook efforts to avoid assisting users who seek to use their software improperly, and gave only routine and non-specific technical assistance. Court analogized Defendants to companies that sell home video recorders or copy machines, both of which can be and are used to infringe copyrights. Court analogized Defendants to companies that sell home video recorders or copy machines, both of which can be and are used to infringe copyrights.

42 42 Contributory Infringement: Recent Litigation Involving File Sharing Aimster Copyright Litigation, USPQ2d 1233, 334 F.3d 643 (7 th Cir. 2003). Plaintiff music publishers, record companies, and songwriters sued Aimster (AOL instant messenger service) for contributory and vicarious infringement of copyrights. Plaintiff music publishers, record companies, and songwriters sued Aimster (AOL instant messenger service) for contributory and vicarious infringement of copyrights. Aimster system is made up of following: Aimster system is made up of following: proprietary software that can be downloaded free of charge from Aimsters Web site proprietary software that can be downloaded free of charge from Aimsters Web site Aimsters server Aimsters server computerized tutorials providing instruction on how to swap computer files computerized tutorials providing instruction on how to swap computer files Club Aimster, a related Internet service for downloading popular music Club Aimster, a related Internet service for downloading popular music Northern District of Illinois issued preliminary injunction, ruling that the recording industry had demonstrated a likelihood of prevailing on the merits. Northern District of Illinois issued preliminary injunction, ruling that the recording industry had demonstrated a likelihood of prevailing on the merits. Seventh Circuit affirmed district courts ruling. Seventh Circuit affirmed district courts ruling.

43 43 Contributory Infringement: Recent Litigation Involving File Sharing Why did the Court in Aimster affirm the lower Courts ruling? Seventh Circuit found compelling the fact that the tutorial gave as its only examples of file sharing the sharing of copyrighted music, and that Club Aimster enables users to download the music most often shared by Aimster users. Seventh Circuit found compelling the fact that the tutorial gave as its only examples of file sharing the sharing of copyrighted music, and that Club Aimster enables users to download the music most often shared by Aimster users. Aimster had infringing as well as uninfringing uses, but failed to show that it would have been disproportionately costly to eliminate or substantially reduce the infringing uses. Aimster had infringing as well as uninfringing uses, but failed to show that it would have been disproportionately costly to eliminate or substantially reduce the infringing uses. Court found the recording industrys damage without preliminary injunction would be irreparable. Court found the recording industrys damage without preliminary injunction would be irreparable.

44 44 Lessons from File-Sharing Cases If you are in the business of developing and selling file-sharing software: Market, sell, and provide technical assistance on only the non-infringing features of the software. Market, sell, and provide technical assistance on only the non-infringing features of the software. Actively discourage software users from using the software for infringing uses. Actively discourage software users from using the software for infringing uses. Avoid participating in the infringing activity in any way. Avoid participating in the infringing activity in any way.

45 45 Practice Tips on Contributory Infringement Consider including in product license agreements indemnifications to protect company against the risks of a user utilizing a product for an infringing use. Consider including in product license agreements indemnifications to protect company against the risks of a user utilizing a product for an infringing use. Monitor usage of products on the market in order to know when a product is being used for an infringing purpose. Monitor usage of products on the market in order to know when a product is being used for an infringing purpose. Educate employees on contributory infringement issues and advise them as to how they can minimize the risk of incurring liability for contributory infringement. Educate employees on contributory infringement issues and advise them as to how they can minimize the risk of incurring liability for contributory infringement.

46 46 SUMMARY OF PRACTICE TIPS Address intellectual property issues early. Address intellectual property issues early. Structure work for hire agreements carefully. Structure work for hire agreements carefully. Address structure of joint ownership arrangements early and get written agreement. Address structure of joint ownership arrangements early and get written agreement. Incorporate terms prohibiting reverse engineering into agreements. Incorporate terms prohibiting reverse engineering into agreements. Reevaluate the risks/benefits to using open source software, and review the terms of any existing agreements. Reevaluate the risks/benefits to using open source software, and review the terms of any existing agreements. Monitor the use of open source software and educate employees on the risks. Be specific in drafting agreements. Anticipate new technology and address in agreements. Educate employees on circumvention of technology and contributory infringement issues. Include indemnifications in agreements to protect against the use of products for unintended, infringing purposes.

47 Copyrights: Lessons and Practice Tips From Recent Cases Kristie Prinz Prinz Law Offices August 5, 2004


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