If  a patent lawyer represents separate clients applying for patents involving the same subject matter, has she violated her ethical responsibility to either client?

On December 23, 2015, the Massachusetts Supreme Judicial Court became one of the first state courts to address this issue. Maling v. Finnegan Henderson, Farabow, Garrett & Dunner, LLP.

The central issue in this case was whether the simultaneous representation of clients competing for patents in the same technology area — a so-called “subject matter conflict” — was a conflict of interest.  The court found no conflict, stating, “we conclude that although subject matter conflicts in patent prosecutions often may present a number of potential legal, ethical, and practical problems for lawyers and their clients, they do not, standing alone, constitute an actionable conflict of interest that violates [Mass. R. Prof. C.] rule 1.7.”

However, the court suggested a few ways in such “potential” problems might give rise to an actionable conflict of interest.

First, it would be improper, without disclosure and consent, for a lawyer to represent two clients where the claims are identical or obvious variants of each other and a reasonable patent lawyer should reasonably foresee that an interference proceeding (or, under the American Invents Act, a derivation proceeding) was likely.

Second, the patent lawyer must be careful to avoid a directly adverse conflict. Finnegan avoided such a conflict in this case when the plaintiff sought a legal opinion from Finnegan regarding the likelihood that he might be exposed to claims by the second client. Finnegan declined to provide this opinion. The court suggested that had Finnegan provided such an opinion the interests of Finnegan’s two clients would then have been “directly adverse,” and therefore a violation of the rules of professional conduct in Massachusetts. Importantly, there was no allegation that Finnegan had agreed to provide such an opinion in its engagement letter with the plaintiff. Moreover, the plaintiff did not allege that Finnegan should have reasonably anticipated that the plaintiff would need such an opinion.

Third, a patent lawyer may not engage in “claim shaving”-  altering the claims in one client’s application because of information contained in a different client’s application.

Fourth, the plaintiff in this case did not allege that the representation of two patent prosecution clients in the same subject matter area led to the disclosure of client confidences, or was used to one client’s advantage over the other client. For example, there was no allegation that Finnegan delayed filing the plaintiff’s patent application to ensure the success of the second client’s application. This likely would have been a violation of the rules of professional conduct.

More generally, the court discussed what constitutes an adequate conflict check in an environment where law firms have offices in multiple states (Finnegan has five offices in the U.S., and this case involved lawyers in different offices). That fact is no excuse for the failure to implement what the court characterized as “robust processes” — a phrase never before used by any U.S. court in the context of conflict checks or professional conduct generally — to detect potential conflicts. The court noted that it has not defined a minimum protocol for carrying out a conflict check in the area of patent practice, or any other area of law, and it declined to do so in this case, leaving this to be developed on a case-by-case basis.

While patent lawyers may be breathing a sigh of relief at this decision, the court’s list of horribles leaves them with a lot to think about, particularly in the areas of engagement letters and effective conflict checks. And, it may prompt clients to ask some tough questions when engaging patent counsel – “hey, by the way, are you providing patent services to anyone else in my subject matter area? Can you tell me about that so I can be sure there’s no direct conflict? Could that possibly create a problem for me down the road?”

It’s safe to say that in-house ethics counsel in law firms with large patent prosecution practices and multiple locations will have something to keep them busy on January 4th.

Maling v. Finnegan Henderson, Farabow, Garrett & Dunner, LLP (December 23, 2015).

Federal Circuit: Disparagement Provision of Trademark Statute is Unconstitutional

The Court of Appeals for the Federal Circuit (“Federal Circuit”) has issued a typically fractured en banc decision (12 judges, 5 opinions) holding that the 70 year old disparagement provision of § 2(a) of the Lanham Act (the federal trademark statute) is unconstitutional under the First Amendment.

This law states, in relevant part:

No trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless it—

(a) Consists of or comprises immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute …. (emphasis added)

The background of this decision is straightforward.  Simon Shiao Tam named his band, “The Slants”, and attempted to register it as a trademark.  Tam asserted that he had chosen this name to make a statement about racial and cultural issues in the United States, and by chosing this name his band sought to “reclaim” or “take ownership” of Asian stereotypes.

The Patent and Trademark Office denied registration, finding the name disparaging to persons of Asian descent. After the usual appeals, during the course of which the trademark office’s denial of registration was affirmed, the Federal Circuit took the case “en banc” (meaning all judges in the circuit would rule on the case, not merely a panel of three judges).

The Federal Circuit reversed, stating:

Courts have been slow to appreciate the expressive power of trademarks. Words—even a single word—can be powerful. Mr. Simon Shiao Tam named his band THE SLANTS to make a statement about racial and cultural issues in this country. With his band name, Mr. Tam conveys more about our society than many volumes of undisputedly protected speech. Another rejected mark, STOP THE ISLAMISATION OF AMERICA, proclaims that Islamisation is undesirable and should be stopped. Many of the marks rejected as disparaging convey hurtful speech that harms members of oft-stigmatized communities. But the First Amendment protects even hurtful speech.

The government cannot refuse to register disparaging marks because it disapproves of the expressive messages conveyed by the marks. It cannot refuse to register marks because it concludes that such marks will be disparaging to others. The government regulation at issue amounts to viewpoint discrimination, and under the strict scrutiny review appropriate for government regulation of message or viewpoint, we conclude that the disparagement proscription of § 2(a) is unconstitutional.

It now falls to the Department of Justice, which defended the PTO in this case, to decide whether it will seek an appeal to the Supreme Court.  It also remains to be seen what implications this decision will have in the Washington Redskins litigation, where the PTO was ordered to cancel several “Redskins” trademarks on the ground that they were disparaging to Native Americans.  That case was recently decided by a federal district court in the Fourth Circuit (which encompasses Maryland, North and South Carolina, Virginia and West Virginia). Pro-Football, Inc. (owner of the Redskins marks) has filed an appeal to the Court of Appeals for the Fourth Circuit, which may or may not find the Federal Circuit’s decision persuasive. If it rules differently, the chances of a successful Supreme Court appeal in the Redskins case is great.

In re Tam (CAFC, December 22, 2015)

I’ve often written about how easy it can be for an employer to lose the ability to enforce an employee noncompete provision.  In recent years the courts have come down hard on employers who materially change an employee’s job responsibilities but fail to require the employee to enter into a new contract, holding in many cases that a noncompete provision in the old contract does not survive the job change.  (For example, see Rent-A-PC Fails to Enforce Restrictive Covenants Against Former Employees).

However, there is an even more fundamental mistake employers can make, as illustrated in the decision in Meschino v. Frazier Industrial Co. (D. Mass. November 18, 2015). In this case the employee entered into an agreement in 2005 which contained a covenant not to compete and a confidentiality provision.  The employee then signed a new employment agreement in 2012, but the 2012 agreement did not include these terms or refer back to the 2005 agreement. As the court noted, the 2012 agreement “states on its face that it contains ‘the terms of [the employee’s] employment’ without any reservation or reference to any other document or agreement.”

That, so far as Massachusetts Federal District Court Judge Stearns was concerned, was the end of the matter.  The employer may have intended to preserve the 2005 noncompete provision in the 2012 contract (as it claimed), but the 2012 agreement contained not even the hint of such an intention.

Employers and employees have a lot at stake when it comes to noncompete and confidentiality agreements, and failing to consult a qualified lawyer to make sure that these terms remain in effect (or, in the case of an employee, to know when they may not be enforceable) can be a costly mistake, as Frazier learned in this case.

Meschino v. Frazier Industrial Co. (D. Mass. November 18, 2015).

Lawyers can cross examine experts by questioning them with a “learned treatise” – what a non-lawyer might describe as an authoritative book or article written by an expert in the field. For example, if a doctor is testifying at trial in a medical malpractice case, her opinion on the proper standard of medical care can be challenged, on cross examination, by showing her a “learned treatise” that conflicts with her testimony. The jury hears the quote from the book, and can take it into consideration in evaluating the weight it may give to the expert’s testimony.

This is what happened in Kace v. Liang, a wrongful death medical malpractice case. In this case the doctor-defendant was testifying.  He was shown pages from the web sites of Johns Hopkins University School of Medicine and Mayo Clinic that impeached his testimony, and at the request of the attorney questioning him, he read them to the jury.

On appeal the defendant argued that the web pages did not satisfy the strict requirements associated with learned treatises under Massachusetts law, and the Massachusetts Supreme Judicial Court agreed, stating that

The content of the web pages indicates that they are not medical ‘treatises’ of any sort intended to be read and used by physicians, but rather are directed at laypersons. . . . To establish the admissibility of the statements taken from the Johns Hopkins and Mayo Clinic Web sites, the plaintiff’s counsel was obligated to show that the author or authors of the web pages was or were “a reliable authority.” . . . The credibility of Johns Hopkins and Mayo Clinic as highly respected medical institutions or facilities is not enough to demonstrate the reliability of statements on individual pages of each institution’s Web site. There is nothing to say who wrote each Web page, or whether the author of each Web page was an appropriate source of information … .

This is not to say that material on a website may never be used as a learned treatise on cross examination. As the Court noted, it is up to the party seeking to use the material to establish that it was authored by a “reliable authority,” something the plaintiff had been unable to do in this case.

Despite this holding, the Court upheld a 2.9 million dollar jury verdict in favor of the plaintiff, holding that this, and several other errors, did not result in undue prejudice to the defendant.

Kace v. Liang (Mass. Supreme Judicial Court, Sept. 10, 2015)

Lets Go Crazy! The Dancing Baby, the DMCA  and Copyright Fair Use

It’s not often that a case involving a 29 second video of toddlers cycling around on a kitchen floor goes to the a federal court of appeals, much less results in an important,  precedent-setting copyright decision. But that is exactly what happened in Lenz v. Universal Music Corp.

The cases arises from an issue inherent in the Digital Millennium Copyright Act. The DMCA allows copyright owners to request the “takedown” of a post that uses infringing content.

But, what does the copyright owner have to do to determine, first, whether fair use applies? Does it need to do anything at all?

This question has finally been decided by the Ninth Circuit in a much-anticipated decision issued on September 14, 2015.

The case had inauspicious beginnings. In 2007 Stephanie Lenz posted to YouTube a 29 second video of her toddler son cycling around the kitchen, with Prince’s song “Let’s Go Crazy” playing in the background. Universal sent a DMCA takedown notice to YouTube, but Ms. Lenz contended her use of the song was fair use, and therefore was non-infringing. Eventually the dispute made its way to federal court in California, with Ms. Lenz asserting that her use of the song was protected by fair use, and that Universal had failed to take fair use into consideration before requesting takedown of her video.

The issue before the court was whether, before sending a DMCA takedown notice, copyright holders must first evaluate whether the offending content qualifies as fair use. The court held that the copyright statute does require such an evaluation, but that the copyright holder need only form a “subjective good faith belief” that fair use does not apply. And, the copyright holder may not engage in “willful blindness” to avoid learning of fair use.

In this case Universal arguably failed to consider fair use at all.

The court does not answer the practical question now faced by Universal and others: what, exactly must a copyright holder do to show subjective good faith under the DMCA? Noting that it was “mindful of the pressing crush of voluminous infringing content that copyright holders face in a digital age,” the court described generally what appears to be a low standard to satisfy the “good faith” test. The court opined that subjective good faith belief does not require investigation of the allegedly infringing content. And, “without passing judgment,” that the use of computer algorithms appeared to be a “valid … middle ground” for processing content. However, the court failed to provide a standard for an computerized algorithmic test that might apply in the notoriously uncertain legal context of copyright fair use.

It seems difficult to conclude other than that this decision will increase the cost burden on the part of content holders who wish to use the DMCA to force the takedown of copyright-infringing content on the Internet. While the court provides little guidance as to what a copyright content owner will have to do to show that it exercised “subjective good faith” before sending a takedown notification, it seems likely that the ruling will involve increased human involvement, and perhaps even legal consultation in “close cases.”

This case was originally filed by Ms. Lenz in 2007, eight years ago, however it is far from concluded. The Ninth Circuit’s decision only sends the case back to the trial court for a trial under the legal standard enunciated by the Ninth Circuit. And, even that determination can only be reached after the court (or a jury) concludes that the 29 second video was fair use of the Prince song in the first place, an issue that has yet to be taken up by the court.

What, one might ask, can Ms. Lenz expect to receive in the event she prevails at trial? First, The Ninth Circuit decision explicitly allows her to recover “nominal damages” — in other words, damages as low as $1. However, even if she prevails and recovers only one dollar, she would be entitled to her costs and attorney’s fees, which could be a substantial amount, notwithstanding the fact that Ms. Lenz is represented by counsel pro bono.

Of course, given the economics of this type of case, its unlikely we’ll see too many similar cases of this sort in the future. Clearly, this was a “test case,” in which the principle, not monetary compensation, was the motivation. Not many recipients of DMCA takedown notices will bring suit when at best they can hope to recover nominal damages plus attorney’s fees.

For an earlier post discussing a decision on this issue by Judge Stearns in the District of Massachusetts, see Judge Stearns Weighs in on Legal Standard for Copyright Takedown Notices (Sept. 30, 2013).

Lenz v. Universal Music Corp. (9th Cir. Sept. 14, 2015).

No, You May Not Copyright a Chicken Sandwich

by Lee Gesmer on September 1, 2015

One of the hoariest chestnuts of copyright law is that a recipe is not copyrightable.

Seemingly unaware of this – or in outright defiance of the law – the plaintiffs in Lorenza v. South American Restaurants Corp. argued to the contrary.  Specifically, the plaintiffs claimed copyright in a “Pechu Sandwich” recipe consisting of”fried chicken breast patty, lettuce, tomato, American cheese, and garlic mayonnaise on a bun.”

The complaint contained no allegation that the “recipe” for the sandwich was in a form of expression beyond that of a list of ingredients.

The district court dismissed the copyright claim, and the First Circuit made short work of affirming:

Contrary to [plaintiff’s] protests on appeal, the district court properly determined that a chicken sandwich is not eligible for copyright protection. This makes good sense; . . .. A recipe — or any instructions — listing the combination of chicken, lettuce, tomato, cheese, and mayonnaise on a bun to create a sandwich is quite plainly not a copyrightable work.

The only surprise in this decision is that the First Circuit did not award the defendants costs or attorney’s fees incurred in defending this appeal.

Initial Interest Confusion – It’s Back

by Lee Gesmer on July 31, 2015

Initial Interest Confusion - It's Back

[Note: The decision discussed below turned out to be short-lived.  On October 21, 2015, less than three months after its publication dated, the decision was withdrawn and a new opinion was issued, upholding the district court’s ruling that Amazon’s search results did not violate the Lanham Act. ]

In an unusual decision the Ninth Circuit Court of Appeals has held that the Amazon search results page for an “MTM Special Ops” watch — a product Amazon does not sell — has the potential to violate the Lanham Act. The Ninth Circuit reversed a decision holding to the contrary by the Federal District Court for the Central District of California, and remanded the case for trial.

MTM’s dealer agreements prohibit them from selling to Amazon, and MTM does not sell to Amazon directly. However, at issue were Amazon search engine results obtained when consumers searched for MTM’s Special Ops watch on Amazon. While Amazon was unable to offer its customers Special Ops watches, it brought them to a page displaying watches by MTM competitors such as  Luminox and Chase-Durer.

MTM sued Amazon, but this was not a case of trademark infringement in the conventional sense – instead, of claiming that Amazon illegally used MTM’s trademark, MTM alleged that when consumers searched for MTM watches on Amazon, Amazon illegally misled them by merchandising competitive watches.

The district court dismissed the case, holding that the search results page made it unlikely that consumers would think the watches displayed were associated with the MTM watch.

The Ninth Circuit disagreed, holding that even if consumers realized that the watches featured by Amazon in place of the MTM watch were not Special Ops watches before making a purchase, Amazon’s search results may have created “initial interest confusion.” This offshoot of trademark law, which has been widely criticized and thought by many to be a thing of the past, arises when confusion arises early in the shopping process, even if the confusion is dispelled before the actual sale occurs.

The Ninth Circuit gave Amazon, and every other online retailer, an easy out from claims of this sort by repeatedly noting that “clear labeling” could avoid any confusion. In fact, the court unfavorably compared Amazon to Buy.com and Overstock.com, both of which informed consumers luminoxthat they did not carry MTM Special Ops watches. Interestingly, however, in what may be an act of passive aggression by Jeff Bezos, Amazon has not yet changed its search results or added additional labeling since the Ninth Circuit’s opinion issued on July 6, 2015.

It may be a stretch to conclude that this decision has implications beyond internal search engines run by online retailers such as Amazon, but one never knows – the case may have breathed life back into the moribund “initial interest confusion” doctrine, at least in the Ninth Circuit.

Multi Time Machine, Inc. v. Amazon.com, Inc. (9th Cir. July 5, 2015)

Slides from MIT Copyright Class (3/13/2015)

by Lee Gesmer on March 18, 2015

Stephen Lyons, a friend and attorney at Klieman & Lyons, asked me to guest-lecture the Law & Technology class he is teaching at MIT this semester. I only had one class period, so I decided to focus on the 2014 Supreme Court Aereo case. Although the slides are not “stand-alone” they are somewhat self-explanatory. I am sharing them below.

MIT Copyright Seminar 3-13-2015 (Reduced File Size) by gesmer

 

The fact that the Supreme Court has asked the Obama Administration (via the Office of the Solicitor General) to comment on Google’s application for certiorari in Oracle v. Google* has focused renewed interest on this case – not that it needs it. The case, if the Supreme Court accepts it, could be a replay of Lotus v. Borland, an important software copyright case the Supreme Court tried but failed to decide in 1996, when the Court deadlocked 4-4 (one justice abstaining).

For detailed procedural and substantive back ground on this case see these earlier posts: How Google Could Lose on AppealOral Argument in Oracle v. Google: A Setback for Google?CAFC Reverses Judge Alsup – Java API Declaring Code Held CopyrightableGoogle Rolls the Dice, Files Cert Petition in Oracle Copyright Case. I also made a presentation to the Boston Bar Association on this case before the CAFC decision, slides here.

The issue is this: computer software — both source code and object code — is protected by copyright law so long as it meets copyright’s statutory requirements, the most important of which, for purposes of the case discussed in this post, is originality. At issue are the 7,000 lines of “declaring code” of Oracle’s Java API software. This software was copied by Google when it implemented the Android smartphone operating system. The Java API declaring code clearly satisfies copyright law’s requirement of “originality.” The issue, therefore, is why this code should not be protected by copyright.

*APIs are specifications that allow programs to communicate with each other.  A computer program designed to be compatible with another program must conform to the API of the first program, which establishes rules about how other programs must communicate information so that the two programs can work together to execute specific tasks.

The argument Google has made to the Supreme Court is that the software a “method of operation”* that should be denied copyright protection?

*[note] The Copyright Act states that “[i]n no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” 17 U.S.C. § 102(b)

This issue has bedeviled the courts in this case. A federal district court judge in California held that Oracle’s Java API was an unprotectible method of operation. The Court of Appeals for the Federal Circuit reversed, holding that copyright protects the expression of a method of operation, and therefore the Java API is protected by copyright.

Now the software industry and copyright lawyers are eager to learn whether the Supreme Court is likely to accept review of this case, and the Court’s request that the Obama Administration weigh in thickens the plot by suggesting that the Court is giving Google’s appeal serious consideration.

The Supreme Court takes about 1% of the petitions filed with it, and despite its request to the Office of the Solicitor General I don’t think this case is likely to make the cut. Why is that so?

Setting aside the question of copyright fair use (which remains pending and will be retried on remand if the Supreme Court denies cert.), the core question is whether the Java API — 7,000 lines of programming code — is protected by copyright law.

The question is, why would the 7,000 lines Google copied from the Java API not be copyrightable? Google argues that the API code is not copyrightable because it is a “method of operation,” a category the Copyright Act expressly excludes from copyright protection. Google is inviting the Court to pick up, once again, an issue it proved unable to decide in 1996. In that case, Lotus v. Borland, decided by the First Circuit Court of Appeals based in Boston, the First Circuit held that  a menu command hierarchy in a user interface (“File,” “Print,” “Copy” ….) was a “method of operation,” and therefore excluded from copyright protection, regardless of whether it is original. The menu commands were the “means by which a person operates something” — in that case a computerized spreadsheet — and therefore the commands were not protected by copyright.

The Supreme Court accepted review of that case, but one justice recused himself, and the remaining eight judges voted 4-4, leaving the case undecided at the Supreme Court and affirming (by default) the decision of the First Circuit, where it has stood as controlling law ever since (but only in the First Circuit).

No other federal circuit court has adopted Lotus v. Borland wholesale, and several courts have finessed the issue. In addition to the Federal Circuit’s decision in the current case, at least one circuit court has expressed disagreement, but that was in 1997, eighteen years ago. In other words, this is not an issue that has been burning up the federal courts since 1996. Google does its best to elevate this to a clear circuit split (one sure way to attract the attention of the Supreme Court is to present a circuit split), but frankly its effort is not entirely convincing given the infrequency with which the the issue has reached the appeals courts.

The amicus brief filed by the Electronic Frontier Foundation and a host of computer scientists (77 scientists) is no more convincing. The scientists based their argument on the need for compatibility. They argue that “copyrightable APIs would discourage innovation by creating potential liability for the mere act of writing a compatible program.” The problem with the scientists’ “compatibility/interoperability” argument is that it goes to fair use, an issue that neither the district court nor the Federal Circuit decided. At the trial of this case the jury deadlocked on the issue, and therefore absent intervention by the Supreme Court the case will be remanded for a retrial on this defense. While the scientists argue that the need for compatibility should lead the court to take the case and hold that APIs are uncopyrightable, their argument does not clearly address the “method of operation” argument made by Google.

Moreover, the scientists ignore the fact that the Google Android-Java API is not compatible with the Oracle API, a fact that Google has conceded.

If the Supreme Court is looking for the Office of the Solicitor General to help them decide whether this case is review-worthy, Google is likely to be disappointed. First, there is no reason to believe this is an issue of interest to the Obama administration – it hardly falls within any of the social action categories the administration is focused on. Second, the case can be appealed to the Court in the future by whichever party loses the retrial on fair use. Perhaps the case will settle, or the losing party will not appeal, saving the Court (and the Solicitor General) the effort. Lastly, as noted, while there may be a split of opinion among the federal circuit courts, the decisions that create the split are spread out over two decades. This hardly amounts to a cry for help from divided federal courts. Rather, this seems to be an obscure issue which could lie dormant for another ten or twenty years. If events prove otherwise, the Supreme Court will have another opportunity to take up the issue in a future case.

_______________

The parties’ briefs filed with the Supreme Court:

Google Petition for Certiorari 

Computer Scientists’ Amicus Filing in Support of Google

Oracle Opposition to Google’s petition

[Update: The Supreme Court did not accept this case for review]

Flo & Eddie v. Sirius XM - The Other Shoe Drops on the East Coast

On October 22nd I wrote a detailed post discussing Flo & Eddie’s (owner of the Turtles’ pre-1972 sound recordings) suit against Sirius XM, and specifically the holding of a California federal district court that Sirius’s satellite radio broadcast and webcasting of these recordings was subject to a claim under California state law. (See The Kerfuffle Over Copyrights in Pre-1972 Sound Recordings). As I noted in that post, when sound recordings were added to the federal Copyright Act in 1972 pre-1972 sound recordings were not included – these works were not preempted by the federal copyright statute, and were left to be regulated under state law until (drum roll ….) 2067.

I also mentioned that Flo & Eddie had a separate case pending in federal court in New York, claiming copyright infringement of their pre-1972 recordings under New York common law.

On November 14, 2014, the federal judge handling the New York case issued a decision similar to that reached by the court in California. Although, unlike California, New York does not have a specific statute that protects the public performance right in pre-1972 sound recordings, the court upheld Flo & Eddie’s suit under pre-1972 New York state copyright common law, which protects “any original material product of intellectual labor” in which the artist invests “time, effort, money, and great skill.” Clearly, a great deal of pre-1972 music satisfies that test.

The court rejected Sirius XM’s arguments that (i) the owners of pre-1972 sound recordings lacked an exclusive right to the public performance of those works, (ii) Sirius’s broadcast of the recordings is protected by fair use, (iii) upholding Flo & Eddie’s claims would violate the Commerce Clause, and (iv) Flo & Eddie’s claims were barred by laches.

This is very bad news for Sirius XM. One decision against Sirius on this issue is bad; two may prove catastrophic.

After the California decision was issued commentators asked why the court’s ruling wouldn’t apply with equal force to analog broadcasters (radio and TV stations) and retail businesses that play music, such as bars, restaurants and stores. This decision makes that question even more pressing – not only does a second federal court decision upholding pre-1972 state law copyright rights validate the first case (making it less likely to be an outlier), but it forces legal advisors to ask how non-digital businesses are any different than satellite radio or webcasting for purposes of analyzing this legal issue. Why would the logic of the two Sirius XM cases not apply to them as well?

It’s the case that these decisions create more questions than answers. For example, assuming the decisions survive appeal, the courts may have a difficult time arriving at a measure of damages. Since the recordings are not covered by the Copyright Act, statutory damages are not available, and “actual” damages are an open question. Flo & Eddie may have a difficult time proving it lost any sales as a result of the infringements (in fact, it may have gained sales from the exposure). And, it will be difficult to determine the extent to which Sirius XM profited by playing them, or how to determine a “reasonable royalty” for a license to play them that’s any different from the compulsory license established by the Copyright Royalty Board for post-1972 sound recordings. Things are further complicated by the fact that both the New York and California cases are styled as class actions, and are seeking damages on behalf of all owners of pre-1972 sound recordings that have been broadcast by Sirius.

In the meantime, this decision should add to the pressure on Congress to clean up this mess by amending the copyright statute on pre-1972 sound recordings. Leaving them to be regulated by state law for another 53 years, until 2067, may have made sense in the early ’70s’s but it makes no sense now, especially in light of these cases. As the district court judge in the New York case stated, the enforcement of common law copyrights by the states raises “the specter of administrative difficulties in the imposition and collection of royalties,” and could “possibly make broadcasts of pre-1972 recordings altogether unavailable.” In other words, broadcasts of music by The Beatles, The Doors, Jimi Hendrix and Janis Joplin (to name just a few) could disappear altogether from satellite broadcasters and webcasters like Sirius and Pandora, as well as from traditional radio stations.

Legislation like the RESPECT bill that was introduced in the House in May, and which was referred to the House Judiciary Subcommittee on Courts, Intellectual Property and the Internet in July, could resolve this issue, at least moving forward.

If these cases are not reversed or a law like RESPECT is not enacted, we are likely to hear a lot less pre-1972 music for the next five decades. And that would be everyone’s loss.

Over the last 100 years the musical licensing business has evolved into a complicated system! This is a consequence of the evolution of technology, business practices and copyright laws. A picture is worth a thousand words, and I’ve been meaning to post this attempt by the U.S. Copyright Office to create a graphic that illustrates how music licensing operates. The copyright office published this graphic earlier this year, as part of its Musical Licensing Study – one of three active policy studies in progress at the Copyright Office. Click on the image to expand it.

Music Licensing Chart

 

Here is Professor Fisher’s attempt to illustrate some of this in his 2014 CopyrightX course. This is a screenshot at approximately 11:00 in this CopyrightX video.

 

Screen Shot 2014-11-09 at 1.00.58 AM

 

EU and UK Liberalize Access to Orphan Works - When Will the U.S. Catch Up?

One of the thorniest issues under the present U.S. copyright system is the law’s failure to accommodate the problem of  “orphan works” – works whose owners can’t be identified or located. In many cases copyright holders have died, gone out of business or simply stopped caring. This makes it difficult or impossible to obtain terms for the use of works that likely represent the majority of 20th century cultural artifacts, including songs, pictures, films, books, magazines and newspapers.

Mass digitization technologies and the Internet have created opportunities to make these works widely accessible, but they have also created risks for copyright owners – for example, many digital photos that should be protected have had their metadata stripped before being posted on the Internet, creating a risk that protected works may be mistakenly misclassified as orphans.

No one knows for sure how many bona fide orphan works there are, but estimates range between 25%  and 40% of all books eligible for copyright. The number seems to be particularly high in library and archive collections.

However, because copyright protection has become “automatic” (no notice or registration required) and the term more difficult to ascertain (life-of-the-author-plus-70-years – when did the author die?), the user of an orphan work risks an infringement action. This is the risk that Google Books encountered in its attempt at mass digitization of books. Google had hoped it had found a solution to this problem when, in the context of a class-action copyright infringement suit, it proposed a settlement that would have allowed Google to provide digital access to entire books (including orphan works), subject to the right of a copyright owner to “opt out.” However, the court rejected a settlement that was based on an opt-out system, and as a result Google currently restricts orphan works to “snippet views”.

In other words, there is a huge volume of published and unpublished material, some of it dating back as far as 1923, which may technically be subject to copyright protection in the U.S., but which is unavailable to the public, despite the fact that copyright owners would have no objection to it being used.*

*[note] Before the 1976 Copyright Act, when the law required copyright owners to renew their their copyright registrations after 28 years to obtain a second 28 year term, only 15% of registrations were renewed. The unrenewed 85% entered the public domain. (Copyright Law Revision, Studies 29-31, p. 221)

The U.S. Copyright Office has recognized that there is tremendous social value in making orphan works available to the public, even on a restricted basis. In 2006 the Copyright Office issued a “Report on Orphan Works,” in which it explored the issue in depth and proposed that Congress enact legislation that would reduce the risk of digitizing orphan works by limiting the remedies available against good faith users.  (See also Marybeth Peters, The Importance of Orphan Works Legislation (2008)).

Legislation that would have made orphan works more accessible under U.S. copyright law was proposed in 2006 and 2008 (1, 2), but was not enacted.*

*[note] In 2012 the Copyright Office continued to focus on orphan works, issuing a Notice of Inquiry requesting public comments. The Internet Policy Task Force urged reexamination of this issue in the July 2013 “Green Paper.”

However, each country has its own copyright laws, and the situation in some countries is not as grim as it is here. In addition to several non-EU individual country solutions, in October 2012 the EU adopted an Orphan Works Directive, to be implemented by the 28 member states by October 29, 2014 (although that implementation seems to be behind schedule in many countries). The Directive allows public interest entities* to make limited use of specified categories of orphan works “only in order to achieve aims related to their public-interest missions, in particular the preservation of, the restoration of, and the provision of cultural and educational access to, work and phonograms contained in their collection.”

*[note] “Public interest entities” are publicly accessible libraries, educational establishments and museums, as well as . . . archives, film or audio heritage institutions and public-service broadcasting organizations.” 

The Directive still requires a search to identify the copyright owner of each work, and therefore is not friendly to mass digitization of orphan works. However, once a work is deemed orphaned in one country, it will be treated as orphaned throughout the EU, and a list of orphan works will be maintained in a single registry.

The UK, while a member of the EU and participating under the EU Directive, has gone a big step beyond the relatively narrow Directive. Effective October 29, 2014 (the same date the EU Directive took effect) it made all types of orphan works available for commercial, as well as cultural, bodies. The system will be administered by the UK Intellectual Property Office,* which will maintain a searchable electronic registry.

*[note] See: “How to Apply for a License to Use an Orphan Work” on gov.uk. A more detailed “Orphan Works Licensing Scheme Overview,” is also available. As of the date of this post, it appears that the online electronic registry has yet to process any orphan work applications.

Both systems — the EU Directive and the more permissive UK licensing system — are highly controversial. How the systems will work in practice remains to be seen. Questions remain about many aspects of the systems, including how rigorous a “diligent search” will have to be before a work can be deemed “orphan,” whether works have had copyright identifying information stripped away, thereby incorrectly moving them into orphan status, and whether escrowed royalties (to be claimed by owners who show up later) will be set at adequate levels.

The United States — which has hung at the back of the pack — will be watching and, perhaps, picking up the know-how necessary to loosen the law on orphan works here.