AS-IS: Ecommerce, Internet, Software & Technology Law and Contracts

Imagine working in an industry with no intellectual property protection at all.  Unlike the book, music, and high tech industries, you couldn't use the law to shut down an infringer who was ripping off your products.

How would you stay in business?

Ask the fashion design business.  That's what BusinessWeek did.  According to BW, garment designs are not copyrightable (but "counterfeit garments ... right down to the label ... are illegal").

BW found these strategies:

1. Protect what you can under existing intellectual property law - at the edge of IP, so to speak.  Diane Von Furstenberg has begun protecting her copyrights to fabric patterns (as opposed to the entire garment itself), as art.  Shoe designer Stuart Weitzman patented a shoe's buckle and ornamentation.  Both Von Furstenberg and Weizman have sued to enforce their intellectual property rights.  (Similarly, blue jeans companies have for years registered and sued to protect their trademarks in the ornamental stitching on the back pockets of their jeans.  For example, see Levi Strauss's U.S. trademark registration number 1,139,254.)

2. Use time to market to your advantage.  According to BusinessWeek, Designer Halston now makes its fashions available quickly at Net-a-Porter.com, to speed ahead of the inevitable copycats. Many industries have used this strategy successfully over the years, even the U.S. media industries in the late 19th century.  (See Stephen Breyer, "The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs," 84 Harvard Law Review 281 (1970).

3. Use "natural intellectual property" -- materials or processes that others simply can't copy, or that would be too expensive to knock-off cheaply.  For example, Weitzman is making shoe heels out of steel and titanium, which are too costly for low-price imitators.  When imitators try to use cheaper wooden materials, "the heels will snap."

4. Change the law.  The designers are supporting a proposed Design Piracy Prohibition Act.  But Congress is deliberative, and that path is slow and risky.  

Posted by Harry at 01:03 PM | Permalink

This month's Wired magazine has a perceptive article about so-called "data scraping" or "screen scraping" practices.  It discusses the practical aspects of data scraping (such as IP address banning or blocking as a practical remedy to prevent scraping), use of cease and desist letters, and use of properly-licensed web services application programming interfaces (API's) as a way to control such practices.

The article does not provide any detail about underlying legal theories or court cases to prevent data scraping, such as those based on the Computer Fraud and Abuse Act (CFAA) or court cases concerning unfair competition.

Source: Should Web Giants Let Startups Use the Information They Have About You?, by Josh McHugh. 

Posted by Harry at 03:55 PM | Permalink

Web sites and other online services containing content submitted by users (also known as user-generated content) are obviously a hot growth area.

Not so obvious is the fact that these services depend on a little-known statute to protect their providers from legal liability for copyright infringement.  That statute is Section 512 of the Digital Millennium Copyright Act (DMCA).

Section 512 is crucial for online services such as YouTube, where users have been placing third parties' content (such as clips from a TV show or move) without authorization from the copyright owner.  Under the copyright law, the user placing the content on the site without authorization can be liable as a "direct" infringer.  Absent Section 512, the online service provider that hosts such content could be liable as a "contributory" or "vicarious" infringer -- roughly analogous to being an accomplice of the user.  The business impact is that the provider could face large damages in a pre-set statutory amount.  And, officers and directors of corporations and other entities face personal liability for their role in infringing activity.

Typically, the provider posts a policy regarding its copyright law compliance along with contact information for an agent to receive notices of copyright violations.  Providers also must register the agent in a public database at the U.S. Copyright Office to take advantage of Section 512. 

Owners of works that may be infringed then send what is known as a "takedown" notice, following detailed requirements in Section 512, for the work to be removed from the provider's service. The original user may submit a "counter notification" to have the work reinstated on the online service (and face a lawsuit from the copyright owner), again following detailed requirements in Section 512.

I recently attended a seminar of specialists on Section 512, and took away some practical tips on how providers can use the protections of Section 512.  These takeaways are a composite of panelists' opinions:

1. Many sites and services can face issues with user-generated content.  Content sharing sites such as YouTube and Myspace are obvious examples.  Even simple blogs, wikis or guestbooks that permit visitor comments can create similar issues, however.
2. Some copyright owners have hired rooms full of employees to search for infringing works and send take down notices.  One major media company sends more than 100,000 takedown notices -- per day.
3. Users rarely send counter notifications when their works are taken down.  Typically the works that are taken down, remain down.  (Unless, of course, the same or another user re-submits them separately later.)
4. Many providers fail to register their designated agents with the U.S. Copyright Office, and thus miss out on the benefit of Section 512.  (I often assist clients with this simple and inexpensive filing.)
5. Providers need to adopt a policy providing for termination of repeat infringers.
6. Providers should keep good records of all take downs, such as the number of terminated works and user accounts, the reason for termination and the date of notice and date of termination.  This can be very helpful in demonstrating that the provider has a reasonable policy of terminating infringers.
7. Because providers can face liability based on their actual knowledge that the works are infringing, they should be wary of reviewing the user-generated content more thoroughly than required by law. Some seemingly obvious situations (such as a human editor choosing featured content on a home page) might create actual knowledge.
8. Obtaining a financial benefit directly tied to individual pieces of user-generated content is risky. Receiving fees for an overall service (such as setup or periodic subscription fees) should be less risky.  The financial benefit from advertising is currently an open question, so many providers currently do not place ads directly in any problematic content.
9. Several groundbreaking lawsuits are pending in this area in New York federal court. Google and other web services are introducing filtering technology to keep infringing works off of their sites, but such technology is still in early stages.  Web site operators and other online service providers need to keep an eye on this rapidly changing area.

The seminar was "Viacom v. YouTube (Google) Case: A Review of Section 512 (DMCA)" at the High Tech Law Institute (HTLI) of Santa Clara Law School, on October 23, 2007.  The panel consisted of Mindy Morton, associate, Bergeson LLP; Professor Tyler Ochoa of Santa Clara Law School; Fred von Lohmann, Senior Counsel of the Electronic Frontier Foundation (EFF); and Jenny Lynn Cox, Moderator and Executive Director of HTLI.

Posted by Harry at 04:50 PM | Permalink

In the old west, the land title office represented law and order, and helped keep the peace among ranchers, farmers and miners with competing claims.  In the movie version of the old west, the land title office invariably burns down... and the drama begins.

It's obvious that copyrights are critical to our economy, as the legal underpinning of software, movies, music, books, newspapers, magazines, art and other intellectual works.  You might be surprised to learn that, here in the 21st century, in some respects our copyright system resembles the old west, after the title office has burned down.

Professor Hal R. Varian explains a new trend to bring back law and order in a recent article, "Copyrights that No One Knows About Don't Help Anyone." (The New York Times, 5/31/07).

He points out that under current law, a work is automatically copyrighted when it is "fixed" in a "tangible medium of expression" (e.g., words written on a piece of paper, music saved to a CD, video saved to an online digital archive).  No notice (c-in-a-circle) or registration is required.  This came about when the U.S. joined an international treaty in 1989 known as the Berne Convention.  Many clients do not understand this, because they remember the prior law, which did require notice and registration.  (There are still many benefits from notice and registration, they just aren't needed to obtain and maintain the basic copyright itself.)

Although this approach is great for authors, Varian explains that it makes it very difficult - or even impossible - if you are seeking permission to use a work, but can't determine who the owner is, or can't find the owner.  (If you don't believe me, see Copyright Office Circular 22, How to Investigate the Copyright Status of a Work.)  Such works are called "orphan works."

Re-enter the Title Office.  Varian describes proposals by the U.S. Copyright Office and Stanford University Law Professor Lawrence Lessig to introduce a limited registration system for orphan works.  This will reduce costs of finding the owners and obtaining permissions.  He mentions other limited registries for clearing rights that already work well - the Copyright Clearance Center for permissions for printed works and the Harry Fox Agency for certain song permissions. 

These are pragmatic proposals.  Until some reliable registry exists, the drama (and frustration) of the old west will continue well into our century.

Posted by Harry at 02:51 PM | Permalink

If you want to dig deeper, or "enjoy" reading legal briefs, Viacom's complaint against Google/YouTube described in the previous post is available online.

Posted by Harry at 10:38 PM | Permalink

User-generated content took the Internet by storm last year - even as Time Magazine's Person of the Year 2006.  This content includes postings on forums, photos on Flickr, videos on YouTube, and all sorts of media on MySpace and other social networking web sites.  It's a new outlet for millions of web users who want to mix and mash their media as a way of communicating with their friends and a vast anonymous web audience.

The rub is that much of the content is protected by copyright, and the users who post the content have no legal right to do so.  This is especially true of television shows, movies, and other popular content that is posted with little if any justification as a fair use.  Truly fair uses might include postings of short portions of works along with critical or political commentary.

Since 1998, the Digital Millennium Copyright Act (DMCA) has provided legal protection (a "safe harbor") to web hosts who offer user-generated content, but who agree to remove it (or "take it down") in response to a valid notice (a "take down notice") from the copyright owner. 

This placed the burden of enforcement on the copyright owners.  It also may have aided the development of web 2.0 services that offer user-generated content. 

I often recommend to my clients that they utilize the DMCA protections if their websites include user-generated content (such as forums or postings open to user comments).  Clients need to follow a simple registration procedure with the U.S. Copyright Office, and publicly describe a take down procedure in their website terms and conditions.

Viacom's recent lawsuit against Google concerning YouTube may place these DMCA protections at risk.

The question could extend much further than Google.  "If Viacom wins it really casts doubt on a number of businesses that rely on hosting information for users.... Google has basically been following the advice of the best lawyers in Silicon Valley.  If Viacom wins, that would call into doubt all of the business models that relied on the same kinds of legal advice," said Fred von Lohmann, attorney with the Electronic Freedom Foundation, in a recent interview with The San Jose Mercury News.

The Wall Street Journals calls this "the $1 Billion Question".  Yes, that and more.

Additional resources:

Viacom vs. Google: Test of key online law, by Elise Ackerman, The San Jose Mercury News, March 14, 2007.

Viacom v. Google Could Shape Digital Future: Lawsuit Hinges on 1998 Act Protecting Net Copyrights: Does YouTube Qualify?, by Kevein J. Delaney and Matthew Karnitschnig, March 14, 2007.

Whose Tube? Viacom Sues Google Over Video Clilps on Its Sharing Web Site, by Miguel Helft and Geraldine Fabrikant, The New York Times, March 14, 2007.

Posted by Harry at 07:56 AM | Permalink

Marketing guru Seth Godin, author of The Bootstrapper's Bible: How to Start and Build a Business With a Great Idea and (Almost) No Money and many others about marketing and blogging, published an ebook titled Everyone's an Expert (About Something): The Search for Meaning Online.

The title page of the ebook says that "Copyright holder is licensing this under the Creative Commons license, Attribution 2.5.  http://creativecommons.org/licenses/by/2.5/".  According to Creative Commons,  that license "lets others distribute, remix, tweak, and build upon your work, even commercially, as long as they credit you for the original creation. This is the most accommodating of licenses offered, in terms of what others can do with your works licensed under Attribution." 

Fine, right?

Yes, until an email from Amazon.com announced that an unknown publisher was offering his ebook for sale as a new book.  Those two words in the license, "even commercially," meant that Godin had granted the rights to anyone to resell the book, as long as he received attribution as the author.

In a recent posting on his blog (Please Don't Buy This Book), he says "I fully realize that the Creative Commons license I chose permits someone to sell the ebook or even turn it into a book. I had no problem with that. My concern was that the book was being passed off as something new. That my trademark (and your expectations) were violated when Amazon sent out an email indicating that in 2007 I had a new book come out on this topic. The news is that the publisher of the book was incredibly responsive and has changed the cover.  He's being really clear about the origin of the book now, and that was my point all along."  Plus Godin received some good publicity, including a brief mention in The New York Times.

The takeaway: Others won't be so fortunate.  It pays to read and understand the licenses that you grant, even if they are short or look "standard".

By the way, Godin is still making the ebook available for download for free.

 

 

Posted by Harry at 11:35 AM | Permalink

Intellectual property (such as patents, copyrights, trademarks, and domain names, or “IP”) is becoming recognized as a new and separate asset class.  At the same time, a new group of intermediaries and brokers has emerged to facilitate deals.  Most of these companies focus on patents, because that’s where the money is, thanks to a series of rulings from the Federal Circuit upholding patent rights.

Some of the players include:

IP bankers.  These include Ocean Tomo, which introduced live public auctions of patent portfolios.  According to its web site, Ocean Tomo’s April 2006 auction resulted in over $8.5 million of transactions and a follow-on auction in October 2006 resulted in over $23 million of transactions.  Its next auction is scheduled in April 2007 in Chicago.  Inflexion Point Strategy is a more private shop run by Ron Laurie, an industry veteran and former intellectual property partner at the large law firm, Skadden Arps.

Online exchanges.  These include yet2.com in Massachusetts, Tynax  and 2xfr  by PatentCafe in California.  My understanding is that the transactions are too large and complex to be completed fully online, and that the online exchanges serve more as a meeting ground for deals that get documented and completed offline.  Other exchanges are listed here.

Some online exchanges focus instead on incentivizing new research efforts, rather than on transactions for existing intellectual property, .  These include Innocentive and Ninesigma.

Some IP transactions are even completed over eBay for patents, domain names and entire websites.  Dedicated exchanges exist for domain name resales, such as Sedo.com  and The Domain Name Aftermarket (offered by one of the leading domain name registrars, GoDaddy.com).

IP brokers.  These include IMC Licensing, a sell-side broker of consumer brand (trademark) rights for licensing, and Gordon Brothers Group on both the buy and sell side.  Another broker, breedersrights.com, specializes in plant patents and plant breeding rights.

IP brokers generally focus on IP assets, as compared to traditional investment banks and business brokers (such as brokers who are members of the International Business Brokers Association or the California Association of Business Brokers) who handle sales of stock or the entire spectrum of assets of a business or company.

Of course, literary, motion picture and sports agents (such as International Creative Management, Inc. (ICM)  and Creative Artists Agency) have operated for years as brokers of copyrights to books, movies, songs, music and other entertainment and sports content. The movie Jerry Maguire, with its famous line “Show me the money,” is the story of a frenetic sports agent.

Brokers for patents should be distinguished from  “inventor agents,” “invention developers” or “invention promoters,” which are regulated under the laws of several states, including California (see California Business and Professions Code Section 22370 and following), due to consumer issues faced by individual inventors for invention marketing services.  (Articles for individual inventors seeking to protect themselves are available from Inventor’s Digest magazine and the United Inventors Association.) 

IP Lenders / IP Securitization.  Other companies, such as Licent Capital and Copient Capital, arrange for loans based on intellectual property or a royalty stream from a license agreement.  On a more sophisticated level, IP portfolios and their royalties (e.g., from music catalogs) have been securitized as collateral for publicly traded debt.  For more, see Securitization News.  This site  offers older articles specifically about IP securitization.

Valuation and Escrow Consultants.  As with real estate, many firms offer valuation and escrow services.  IP auctioneer Ocean Tomo also provides due diligence and valuation services, as well as “patent ratings,” a statistical measure of patent portfolio quality.  Some of the domain name exchanges include a basic escrow as part of the transaction. Royaltystat.com  offers a subscription-based database of royalty rates and license agreements compiled from the U.S. Securities and Exchange Commission (SEC) Edgar Archive.

Buyers.  There are many new buyers too.  Some of the new buyers have been labeled as “patent trolls” because they purchase or create patent rights solely for the purpose of licensing them to third parties, often threatening or pursuing litigation to extract licensing royalties from operating companies.  Recently, some buyers have been purchasing rights to older music and seeking royalties for its use in sampled music; they’ve been termed “sample trolls.”

The companies and resources listed above are for information only, not endorsement.

Posted by Harry at 01:38 PM | Permalink

Welcome to the AS-IS blog, where I plan to discuss ecommerce, internet, software and technology contracts and licenses, as well as the laws affecting internet and software companies, both large and small.  My focus is on California law and Silicon Valley.

 This blog is sponsored by the Boadwee Law Office.  Please visit that site to learn more about me (attorney Harry Boadwee).

Posted by Harry at 10:53 PM | Permalink