My late May post on Rent-A-PC, Inc. v. Robert March, et al.  discussed a Massachusetts federal district court case in which Judge O’Toole refused to issue a preliminary injunction enforcing noncompete provisions against two former employees of Rent-A-PC because their job responsibilities had substantially changed since their non-compete agreements had been signed.

In a decision issued by a Massachusetts Superior Court Judge in May, the court refused to issue a preliminary injunction on the same grounds. In Intepros v. Athy one defendant, Paul Athy, had advanced from branch manager to regional vice president. Relying on the hoary case of F.A. Bartlett Tree Expert Co. v. Barrington (1968), as well as several more recent cases, the court held that this change in job title responsibilities, as well as changes in pay, constituted a material change rendering the noncompete agreement void and unenforceable.

A second defendant, Anne Marie Canty, had been hired and fired twice, and had signed a noncompete agreement on the first two hires. However, she was not asked to sign a noncompete agreement at the time of her third hire, a fact that left the employer without an enforceable noncompete agreement against her.

Ms. Canty’s case was open and shut: if you fire an employee don’t expect a noncompete provision from that employment to be enforceable if you rehire the employee and don’t get a new agreement.

Mr. Athy’s case is more difficult. Must an employer require an employee to sign a new noncompete agreement (or ratify an existing agreement) on the occasion of every promotion or change in salary? Not only is this an awkward condition to impose on the employer-employee relationship, but lets face it: many employers will forget. To make matters murkier, no court has provided a bright line as to how much an employment relationship must change before a new agreement becomes mandatory. In fact, one Massachusetts judge has ruled that the material change doctrine applies only when the change adversely affects the employee, such as in the case of a demotion or decrease in pay. (Sentient Jet LLC v. Mackenzie, Garsh, J. 2012).

Employers may attempt to use noncompete agreements that specifically anticipate job changes during the course of employment and provide that the non-compete clause will continue regardless of such changes, but no Massachusetts court has ruled on whether such a provision is enforceable.

Unfortunately, for now the material change doctrine seems to be an unavoidable stumbling block for Massachusetts employers.

 

Whitey Bulger and Gorky Park

by Lee Gesmer on June 14, 2013

“The FBI is an unindicted coconspirator in the massive racketeering case against Whitey.” – Kevin Cullen, Boston Globe, June 14, 2013

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I wonder if Martin Cruz Smith had Bulger in mind when he wrote this in 1981:

The FBI doesn’t conduct investigations, they pay informers. … Their informers are mental cases and hit men. Where the bureau touches the real world, suddenly you get all these freaks who know how to kill people with piano wire. Say a freak gets caught … he tells the bureau what it wants to hear and makes up what he doesn’t know. See, that’s the basic difference. A cop goes out on the street and digs up information for himself. He’s willing to get dirty because his ambition in life is to be a detective. But a bureau agent is really a lawyer or an accountant; he wants to work in an office and dress nice, maybe go into politics. That son of a bitch will buy a freak a day. … When their freaks are finished testifying, they move them and give them new names. If the freak kills someone else, they move him again. There are psychopaths that have been moved four, five times — totally immune; they’ve got better pardons than Nixon. That’s what happens when you don’t do the job yourself, when you use freaks.

Gorky Park, p. 387-388.

93A Opinion in Baker v. Goldman Sachs: What Happens When You Mix In Equal Parts A Start-Up, a Fraudulent Purchaser, a Tech Bubble and a New York Investment Banker?

Earlier this year, on the eve of trial in Baker v. Goldman Sachs in federal district court in Boston, I published a blog post describing the facts behind this unusual case, which involved the acquisition of Dragon Systems by Lernout & Hauspie in a $600 million all-stock deal. Soon after the acquisition closed the market discovered that Lernout had fabricated its Asian sales figures. This was quickly followed by Lernout’s bankruptcy, which left Dragon (owned by the Bakers, husband and wife founders) holding worthless Lernout stock. (Baker v. Goldman Sachs – The Business Deal From Hell).

The acquisition was negotiated and concluded in the first half of 2000, just as the technology bubble was beginning to deflate. nasdaq

After a lengthy trial the jury ruled in favor of Goldman Sachs on all issues except the claim that Goldman violated M.G.L. c. 93A, the Massachusetts statute that makes illegal “unfair or deceptive acts or practices.” Under Massachusetts law, that claim must be decided by the judge.

Now, Massachusetts federal district court judge Patti Saris has issued her decision on the Baker’s 93A claims, holding that Goldman Sachs did not violate 93A. This ruling is not a surprise; judges rarely find a violation of 93A when a jury rules against a plaintiff on the underlying claims, which in this case were negligence, breach of fiduciary duty and fraud.

However, her opinion is a fascinating look into how a transaction of this magnitude can go wrong. In addition, I read her opinion to imply that, in her view, the jury should have found Goldman Sachs negligent. Of course, there is no explanation for why the jury ruled against the Bakers – perhaps the Bakers were unsympathetic witnesses, or they drew a hostile jury. Perhaps the jury failed to understand the case, or the Baker’s case was poorly tried. These are the risks of the jury system–you may be convinced you have a great case and the jury can still rule against you. And, to rub salt in your wounds, you will never know why.

But, the case shows what goes on behind the scenes in a transaction of this sort, especially when your investment banker is Goldman Sachs, which was paid $5 million for its services to Dragon Systems. Here are a few points from Judge Saris’ opinion that caught my attention:

The Goldman Sachs Investment Banking Team Was Very Young. The team was comprised of three people. The leader of the team was only 31 years old. The second team member was 25 years old and was job hunting at the time. The third investment banker was a 21 year old recent college graduate. No senior Goldman Sachs investment banker did any work on the transaction.

=> The fact that Dragon allowed a 31 year old Goldman employee to be the leader on a $600 million deal of this importance to Dragon’s owners is a mystery. This brings to mind the saying, “young doctors, old lawyers.” For this case, I would change that to read, “young doctors, old lawyers and old investment bankers.”  A degree from a prestigious business school does not equal experience.

Dragon Made a Critical Decision Without the Involvement of Its Investment Bankers.  The sale of Dragon to Lernout initially had a large cash component – 50% cash/50% Lernout stock. But, this changed at a meeting at which Goldman Sachs was not present. Judge Saris wrote that “Janet Baker chose to pursue an all-stock transaction with [Lernout] for $580 million. By the end of the meeting, Janet Baker and [Lernout] signed a handwritten agreement setting forth a fixed exchange ratio for an all-stock acquisition of Dragon.  … Janet Baker made this napkin agreement without consulting Goldman.”

=> The fact that the Bakers modified the deal without consulting Goldman Sachs suggests a lack of business sophistication on the part of the Bakers. A “napkin agreement” to sell your company for 100% stock, without including your investment banker in the decision? This was a huge decision, and by the time it was made it was too late for Goldman Sachs to advise against it. If you’re going to pay your New York investment bankers $5 million, keep them in the loop.

goldman-sachs

Goldman Sachs C.E.O. Lloyd Blankfein and C.O.O. Gary Cohn, in the boardroom of Goldman’s headquarters, in New York City

The Investment Bankers Are Not Your Friend, So Get Their Opinions and Assurances in Writing.  Judge Saris wrote that “Goldman was dissatisfied with respect to Lernout’s answers on many due diligence questions up until the last moment. The transaction would likely not have gone forward if Goldman had voiced its ongoing concerns about financial due diligence. In his deposition, Wayner said he did not disclose any concerns he had about due diligence at the March 27 meeting because ‘the client did not ask.’”

=> Wow. Wayner was the senior Goldman team member. His testimony that he was concerned about due diligence but didn’t voice his concerns because “the client did not ask” shows how careful a client must be in dealing with its investment banker. When you are about to sell your company for $600 million in stock you should be waking up in the middle of the night worrying. And, before you fall back to sleep you should be emailing your investment banker and asking, “is there anything about this deal you’re concerned about that we should know before we jump?” The fact that an investment banker as prestigious, expensive and (supposedly) competent as Goldman Sachs took a “don’t ask, don’t tell” position toward its client says a lot about where investment banker interests lie. Could their $5 million fee on the sale of the company been in the back of Wayner’s mind when he weighed whether to tell the Bakers about his concerns?

Don’t Assume the Investment Banker is Creating a File You Can Use to Sue The If Things Go Wrong.  Judge Saris wrote that Goldman Sachs has a “written policy encouraging its mergers and acquisitions department not to safeguard their written notes. The policy tells investment bankers to keep ‘[n]otes supporting due diligence,’ to throw out ‘[n]otes to self-citing unresolved problems,’ and ‘[w]hen in doubt, throw them out,’ unless litigation has commenced.”

=> In case you had any doubts, that’s what’s going on behind the scenes at Goldman Sachs, and probably other New York investment bankers. If you make a note to yourself regarding an unresolved problem in an M&A transaction, throw it out. Why? So it can’t be used in litigation against Goldman Sachs if there is a legal problem later.

Near the end of her lengthy opinion Judge Saris observes that “The reasons why small startup companies like Dragon go to a place like Goldman to assist with hatching their golden eggs is because they don’t have their own expertise to analyze revenue projections by asking tough questions to potential merger partners.” Reading between the lines of her opinion, one could conclude that Judge Saris felts that Goldman Sachs did not provide that expertise to Dragon. However, this decision was the province of the jury, and the jury ruled for Goldman Sachs on all of Dragon’s legal claims. Judge Saris’ ruling on Dragon’s Chapter 93A claims was Dragon’s last chance, and she concluded that Goldman Sachs did not engage in conduct that met the test of “unfair and deceptive practices,” as that law has been interpreted by the courts. Absent an appeal, her decision marks the end of a long road, strewn with missteps by Dragon and its advisors. Perhaps it will serve as a lesson for the future.

In this May 28th, 2013 decision by Massachusetts Federal District Court Judge George O’Toole, Rent-A-PC unsuccessfully sought to obtain a preliminary injunction against two former employees, and to enforce a confidentiality agreement against a third.

As to two of the employees, Rent-A-PC attempted to enforce a one year covenant not to compete. Judge O’Toole denied that motion, finding that the employees underwent several material changes to their employment, making it likely that their agreements had been abrogated. In analyzing this issue Judge O’Toole relied heavily on F.A. Bartlett Tree Expert Co. v. Barrington, a hallowed chestnut in Massachusetts noncompete case law dating back to 1968, but one that had been largely ignored until it was revived by a series of Superior Court cases in 2004.* Judge O’Toole’s reliance on F.A. Bartlett reinforces the impression that this doctrine has come full circle.

*These cases held that when the employment itself was the consideration for a noncompetition provision but the employee’s job had substantially changed, the provision was no longer enforceable.

The third employee had only a confidentiality/non-disclosure agreement, and the court found there was insufficient evidence to show he had violated it.

Rent-A-PC, Inc. v. Robert March, et al. (D. Mass., May 28, 2013)

 

 

Aereo, Antenna Farms and Copyright Law: Creative Destruction Comes to Broadcast TV (Part 3)

Click here for Part 1 in this series of posts, here for Part 2.

In Parts 1 and 2 of this series of posts I discussed how Aereo designed its broadcast-TV-to-Internet system to fit within the ruling established by the Second Circuit in the Cablevision case, anticipating that it would be sued for copyright infringement by a group of broadcasters.

Innocence Abroad

INNOCENCE ABROAD
(IN SEARCH OF A COPYRIGHT)
Thomas Nast’s illustration in Harper’s Weekly
January 21, 1882, p. 37.

The broadcasters did file suit against Aereo, and in the Second Circuit, the very circuit in which Cablevision is controlling law and the circuit in which Aereo, not coincidentally, first offered its service. Home territory, in a manner of speaking. As expected, Aereo wrapped itself in Cablevision, and the district court ruled that Aereo’s “one antenna-one viewer” system did not violate the broadcasters’ public performance right under the Copyright Act. On this basis the district court denied the broadcasters’ request for a preliminary injunction that would have forced Aereo to stop operations in the Second Circuit, at the very least.

The broadcasters appealed this ruling to the Second Circuit, which upheld the district court. The Second Circuit held that its holdings in Cablevision controlled the outcome in Aereo, and set out four conditions that needed to be considered in evaluating a challenge to a rebroadcast system such as Aereo’s based on the copyright public performance right:

First and most important, the Transmit Clause [of the statutory definition of public performance] directs courts to consider the potential audience of the individual transmission. If that transmission is “capable of being received by the public” the transmission is a public performance; if the potential audience of the transmission is only one subscriber, the transmission is not a public performance, except as discussed below. Second and following from the first, private transmissions – that is those not capable of being received by the public – should not be aggregated. It is therefore irrelevant to the Transmit Clause analysis whether the public is capable of receiving the same underlying work or original performance of the work by means of many transmissions. Third, there is an exception to this no-aggregation rule when private transmissions are generated from the same copy of the work. In such cases, these private transmissions should be aggregated, and if these aggregated transmissions from a single copy enable the public to view that copy, the transmissions are public performances. Fourth and finally, “any factor that limits the potential audience of a transmission is relevant” to the Transmit Clause analysis.

Aereo satisfied this four-factor test. Its system relies on individual transmissions that can be received by only one subscriber. These individual or “private” transmissions are not generated from the same copy of the work, but rather from the “unique copies” that are created for each subscriber. The transmission of these separate copies should not be aggregated for purposes of determining whether Aereo was violating the broadcasters’ public performance rights. Thus, the fact that Aereo might be transmitting 50,000 individual copies of the Super Bowl at the same time does not turn its rebroadcast system into a public performance.

The broadcasters fought valiantly to distinguish Aereo from Cablevision, but without success.

  • The court rejected Aereo’s argument that Cablevision should be distinguished because Cablevision had a license to retransmit programs and Aereo had no license. The presence or absence of a license was irrelevant to the rationale of the Second Circuit in Cablevision.
  • It refused to accept the broadcasters’ argument that Aereo should be distinguished because Aereo’s system was analogous to a cable system, whereas the Cablevision system was more like a VCR. The Cablevision decision was not influenced by the fact that the system was comparable to a stand-alone VCR.
  • The broadcasters’ argument that Cablevision engaged in time-shifting that broke the chain of transmission, while Aereo facilitated near-real time retransmission, likewise failed to provide a basis for distinguishing the Aereo system from Cablevision’s network-DVR.

As the Second Circuit noted, the broadcasters’ arguments boiled down to an attempt to persuade the court to overrule Cablevision, something the Aero court lacked the authority to do.* The broadcasters have filed a request for en banc review of the case which, as of the time of this post, has not been acted on. Cablevision remains the law of the Second Circuit, and it controlled the outcome of the broadcasters’ suit against Aereo, at least at this stage of the case.

*The circumstances under which a federal appeals court panel may overrule a decision of an earlier panel are sharply limited.

Fox Television Stations v. BarryDriller

While the Aereo case has come to at least a temporary conclusion in the Second Circuit (pending a ruling on en banc review), a similar case is pending in the Ninth Circuit. In Fox Television Stations v. BarryDriller (C.D. Cal. Dec. 27, 2012),* the California district court rejected the rationale of Cablevision and Aereo, and enjoined a “technologically analogous” broadcast system on the very grounds rejected by the New York federal courts. Like Aereo, the system at issue used mini-antennas, a transient buffer copy and unique copies of programs.

*For an explanation of why the defendant company named itself “BarryDriller” see this article on paidcontent.com.

However, after reviewing Cablevision, the district court found that Cablevision “is not the only possible reading of the statute.” The court found that the copyright statute does not, by its terms, require that a public performance be received from the same transmission, the central holding in Cablevision: “the concern is with the performance of the copyrighted work, irrespective of which copy of the work the transmission is made from. … Cablevision’s focus on the uniqueness of the individual copy from which a transmission is made is misplaced.”

Will the Supreme Court Take This Case?

BarryDriller case is on appeal to the Ninth Circuit Court of Appeals. If that court upholds the district court and the Second Circuit either declines to review Aereo en banc or upholds the Second Circuit panel decision, there will be a split of authority between the two circuits, making these cases strong candidates for Supreme Court review. While the Supreme Court accepts only about 1% of cases appealed to it, and infrequently reviews copyright matters, the importance of this issue,* and a clear circuit split, would give the cases a good chance for Supreme Court review.

*As the broadcasters said in the first sentence of their en banc petition, “A recent … decision of this Court raises a question of exceptional importance; it effectively overturns a congressional mandate that is the foundation for much of the current system for delivery of television programming.”

And, there a prospect of additional circuit splits over the Cablevision issue as Aereo introduces its service in Screen Shot 2013-05-29 at 8.19.48 AMadditional markets throughout the United States and is sued in those circuits, which would only increase the likelihood of Supreme Court review. The imminent release of Aereo in Boston would give the broadcasters a chance to present their arguments to the Massachusetts district court, following which either party could appeal to the First Circuit Court of Appeals.

In the next, and last, post in this series, I’ll discuss the widespread criticism of Cablevision and Aereo, which will be presented to additional circuits should Aereo be sued in other circuits. And ultimately, perhaps, before the Supreme Court. 

Aereo, Antenna Farms and Copyright Law: Creative Destruction Comes to Broadcast TV (Part 2)

Only one thing is impossible for God: to find any sense in any copyright law on the planet.

Mark Twain’s Notebook, 1902-1903

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Click here to see Part 1 of this series of posts.

In part 1 of this series I described how Aereo’s technology allows users to watch, record and access broadcast TV over the Internet. At the heart of this system is the use of a set of dime-sized antennas assigned to each subscriber, short buffering in RAM for retransmission (several seconds) and the creation of a unique per-subscriber copy of each broadcast the user wants to record for later viewing.

Why did Aereo construct its system this way?  Why not one antenna and one copy of each recording? Aren’t the thousands of antennas and thousands of personal copies unnecessary? The answer is that they may be technically unnecessary, but they are essential to Aereo’s ability to avoid broadcaster claims of copyright infringement. In fact, Aereo’s Rube Goldberg system was designed to fit the legal parameters of a case decided by the Second Circuit in 2008. And, it is no accident that Aereo first released its service in New York, which falls in the Second Circuit, drawing a lawsuit by the broadcasters in the same circuit that had decided the 2008 case.

The case that Aereo based its design on is the Second Circuit’s famous (or, to the broadcast industry, infamous) decision in Cartoon Network v. CSC Holdings, usually referred to as the Cablevision case. In Cablevision the broadcasters tried to enjoin Cablevision—a cable operator with a license to retransmit cable programming to its paying subscribers—from introducing a remote storage digital video recorder (remote storage or network-DVR) that would allow Cablevision customers who did not have a TiVo-like set-top DVR to record cable programming and receive playback through the cable system itself, or from “the cloud.”

Cablevision’s network-DVR system is itself something of a Rube Goldberg creation. Cablevision’s network-DVR utilizes a complex buffering and storage technology that splits a licensed cable broadcast feed into two streams, one of which includes a “buffer” copy directed to a router where it is stored in RAM for no more than 1.2 seconds as the router looks to see if any consumers have asked that the program be recorded for them. If a consumer has asked for the program to be recorded, the data is stored on a Cablevision hard drive storage area maintained by Cablevision and assigned solely to that customer, where it is available for later replay, much as it would be if it had been stored on a set-top DVR. If there is no “record” request from a subscriber, the data in the revolving buffer is not retained.remote dvr

For example, if 50,000 Cablevision customers recorded the Super Bowl, Cablevision would create 50,000 copies, one for each customer. If a customer wanted to play back the program, Cablevision would transmit the specific copy created for that customer. No one else could access that copy.

The broadcasters filed suit in federal court in the Southern District of New York, claiming copyright infringement. In 2007 the district court judge, Denny Chin, enjoined Cablevision, but the Second Circuit issued a controversial decision reversing Judge Chin and rejecting the the broadcasters’ copyright challenge based on  some highly technical interpretations of copyright law.*

*Ironically, Denny Chin, the district court judge reversed by the Second Circuit in Cablevision, was later appointed to the Second Circuit, and became a dissenting judge on the 3-judge panel that decided Aereo in 2013.

Cablevision’s Buffered Copies Do Not Meet Copyright Law’s Fixation Requirement

First, the Second Circuit held that the 1.2 second buffered copy was not an infringing copy because it was not embodied “for more than a transitory duration.” A 1.2 second copy does not, the court held, satisfy copyright law’s “fixation” requirement,* and therefore the buffered copy did not create a copy under the Copyright Act’s definition of that term. However, the court did not state how long a copy wold have to be embodied to be more than transitory, and its holding arguably conflicts with the 9th Circuit’s 1993 ruling in MAI Systems v. Peak Computer, which held that copying, for purposes of determining copyright infringement, includes the transfer from a permanent storage device (such as a hard drive) to RAM. As we shall see, the holding that transitory buffering is not infringement was important to the later decision in Aereo.

*”A work is ‘fixed’ in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.” 17  U.S.C. §101.

Transmission of a Unique Copy to a Single Subscriber Is Not a “Public Performance”

In addition to making a copy, one of the exclusive rights of a copyright owner is the right to authorize a “public performance” of a work. This right is found in a section of the copyright statute that includes a provision known as the “transmit clause,” which states that to perform a work “publicly” includes:

to transmit … a performance or display of the work … to the public, by means of any device or process, whether the members of the public capable of receiving the performance … receive it in the same place or in separate places…, at the same time or at different times. 17  U.S.C. §101.

The most controversial holding in Cablevision was the Second Circuit’s conclusion that the word “performance” did not refer to the performance of the underlying work being transmitted but rather the transmission itself. The court held that “the transmit clause directs us to examine who precisely is capable of receiving a particular transmission of a performance.” The court concluded that because Cablevision’s network-DVR required each transmission to be made to a single subscriber using a unique copy saved by that subscriber, the potential audience for a network-DVR playback transmission is limited to the single subscriber, and therefore the transmissions are not performances to the public.

In other words, for purposes of the “public performance” right the 50,000 copies of the Super Bowl (each of which has been “saved” to a separate directory by a single subscriber) should not be aggregated for purposes of determining whether Cablevision is engaged in a “public performance” of the Super Bowl.*

*Making individual copies for each subscriber in this manner requires thousands of terabytes of hard disk storage. The ability to provide this storage at low cost is a consequence of “Kryder’s Law,” which holds that magnetic disk storage density doubles every 13 months, a rate faster than the doubling of semiconductor chip performance according to Moore’s law.

It is this “unique copy” test that became critical when the broadcasters challenged Aereo in the Second Circuit.

Subscribers, Not Cablevision, Exercise the Volitional Conduct Necessary to Make a Stored Copy For Later Viewing 

Third, the Cablevision network-DVR does save a copy for each subscriber that requests it, and these copies clearly do meet the copyright statute’s fixation requirement for purposes of infringement. However, the Second Circuit focused on the “volitional conduct” that caused the copy to be made, and held that while Cablevision created and maintained a system that allowed a copy to be made, it is the customer’s conduct in ordering the system to make a copy—”the person who actually presses the button to make the recording”—that causes the copy to be made. The Second Circuit analogized Cablevision to a store proprietor who charges customers to use a photocopy machine on the store’s premises, in which case it is the customer, not the store owner, who makes the copy for purposes of determining direct liability under the Copyright Act.*

*The court emphasized that the conduct Cablevision engaged in would better be analyzed under principles of contributory infringement. However, Cablevision had not pursued that theory of liability.

.     .     .

Clearly, the Cablevision network-DVR was designed to avoid copyright liability, not to achieve technical efficiency. And, if the Second Circuit’s three legal holdings strike you as threading the needle through some very tight legal loopholes, you are not alone. The case has its supporters, but their support is mostly based on copyright policy – why shouldn’t people who are paying for cable service that is being transmitted to them by the cable company under license be able to “time shift” their viewing of cable shows using a network-DVR, just as they can using a set-top DVR? However, strictly as a matter of copyright law each of the three conclusions has suffered scathing criticism by copyright law scholars—particularly the public performance and the “volitional” holdings.

Nevertheless, this decision remains the law in the Second Circuit – copyright law’s most influential circuit. And, it didn’t take long for enterprising entrepreneurs to see how they could stretch this precedent even further, leading to the Second Circuit’s April 1, 2013 decision in WNET V. Aereo. In fact, Cablevision may have opened the door to creative destruction in the television industry. I will discuss Aereo in Part 3 of this series of posts.

Click here to continue to Part 3.

Aereo, Antenna Farms and Copyright Law: Creative Destruction Comes to Broadcast TV (Part I)

Whenever a copyright law is to be made or altered, then the idiots assemble.

- Mark Twain’s Notebook, 1902-1903

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Aereo is coming to Boston, and to 20 other cities before the end of the year.

Screen Shot 2013-05-17 at 8.30.36 AMWhat is Aereo? Aereo is a company. It has developed a system that captures over-the-air television (broadcast TV) and retransmits it to subscribers over the Internet. Subscribers are able to watch broadcast TV on their computers, tablets and smart phones. Even better, Aereo acts as a remote digital video recorders (a remote DVR) so subscribers can record programs and stream them at another time. Aereo launched in New York City in early 2012, but it has announced that it is expanding to 21 other cities in 2013.

Is this a problem for broadcasters? You bet it is. Cable companies pay broadcasters such as CBS, ABC, NBC and FOX  for the right to retransmit their shows to cable subscribers. If people can access broadcast TV at Aereo’s rates (which are less costly than cable rates), it may mean fewer cable subscribers and reduced network revenues. According to the New York Times, the use of Aereo and copycat services has the potential to cost the networks retransmission fee revenues of more than $2 billion/year, an amount projected to grow to $6 billion/year by 2018.

The broadcasters are not taking this lying down. Claiming copyright infringement they sued Aereo in New York. However Aereo successfully defended its technology before the influential Court of Appeals for the Second Circuit.* CBS has threatened to sue Aereo anywhere it offers its service, and the broadcasters are almost certain to appeal the Second Circuit decision to the Supreme Court. Simply put, this has the potential to be a nation-wide litigation free-for-all.

*The case may not be over in the Second Circuit. Aereo has petitioned for the case to be heard en banc. And, the broadcasters have threatened to take the fight to marketplace by taking their broadcast signals off the airwaves in cities where Aereo operates.

In order to understand the copyright issues involved in Aereo’s service we need to step back and look at three cases, one of which is an important copyright law precedent from the Second Circuit, and two of which involve Aereo’s or Aereo-like technology. First, however, it is important to understand how Aereo provides its service.

Aereo: Thousands of Tiny Antennas, and a Separate Copy of Recorded Programs for Each Subscriber

Imagine, for a moment, that you captured TV broadcast signals that are transmitted through the airwaves, transcoded them to make them available over the Internet, stored them on a server and streamed the shows to people who accessed a website you created for this purpose. Limited only by bandwidth, thousands of people could watch broadcast TV on their computers, tablets or smartphones by accessing your site. You would have allowed viewers to bypass cable service. And, you could easily allow users to watch the television shows at times convenient to them. Screen Shot 2013-05-17 at 7.46.42 AM

Would this violate copyright law? You bet it would. Copyright owners have the exclusive right to public performances of their works, and you would be violating this right. The federal courts have made clear that retransmission of copyrighted television programming by streaming it over the Internet constitutes a “public performance” in violation of the Copyright Act. The broadcasters woud be able to shut you down in a New York minute.

Aereo, however, makes broadcast TV available to its subscribers. And, to make matters even worse (for broadcasters), it allows them to “record” programs and watch them later – in other words, to “time shift” TV broadcasts using Aereo’s remote DVR.

tiny antennas

tiny antennas on circuit boards

Exactly how it implements this is important to the legality of its service, so here goes.

The technical features of Aereo’s service are unusual, to say the least. One judge described them as ”a  sham . . . a Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.” (Aereo Dissent).

First, rather than have one antenna to capture over-the-air broadcasts, its system allocates two “unbelievably small” (Aereo’s description) antennas, attached to antenna boards, to each customer. Each of the antennas is able to receive TV broadcast signals. Every Aereo subscriber is assigned a pair of these dime-sized antennas to handle that subscriber’s live feeds and recordings. One antenna is used to receive a show that can be streamed to the customer  in near-real time, the other antenna is used to receive broadcasts to be recorded for later viewing. If the customer choses to watch the show as it is broadcast it is stored for six or seven seconds on Aereo’s servers before it is streamed to the user, so the user is watching the broadcast with a slight delay.

Screen Shot 2013-05-17 at 8.05.25 AM

Aereo’s “Unbelievably Small” Antenna

After receiving the broadcast signal on an antenna assigned to a user, Aereo digitizes the signal so that it can be streamed over the Internet.  Massive cloud-based storage handles the storage of TV programs for subscribers who wish to “record” broadcasts for later viewing. However, Aereo does not store a single copy of a particular broadcast. It creates a unique copy of the program for each subscriber, which is saved on Aereo’s hard drives; only the subscriber assigned that disk space or directory can access that specific copy of the program for later viewing.

For example, if 50,000 Aereo subscribers are watching the Super Bowl as it is broadcast on CBS the broadcast is received by 50,000 personal “watch” antennas and stored for several seconds individually on Aereo’s servers before being transmitted to subscribers in near-real time. If another 50,000 Aereo subscribers choose to record the game for later viewing, it is received by the 50,000 “record” antennas and stored on Aereo’s servers in 50,000 separate directories, each directory and recording being assigned to an individual Aereo subscriber and available for a discrete transmission at the request of the subscriber.

**For a more detailed explanation of Aereo’s technology, with pictures of the components, see Inside Aereo: new photos of the tech that’s changing how we watch TV  (Gigaom.com).

As discussed later in this series of posts, these features—the use of massive “antenna farms” utilizing small antennas and duplicative, individualized storage on Aereo’s servers—are what allowed Aereo to persuade the Second Circuit that its system was not being used to infringe the broadcasters’ copyrights. The extent to which other courts around the country, and perhaps the Supreme Court, will agree remains to be seen.

My next post will discuss the Cablevision case, which motivated Aereo to create this “Rube Goldberg” system, and how it used its design to claim that its service does not violate broadcaster copyright rights.

Click here to go to Part 2.

Does Second Circuit Decision Determine Copyright Legality of Aereo “Antenna-Farm” System Nationwide?

Aereo captures over-the-air television broadcasts and streams them to Aereo subscribers over the Internet. While the broadcasters claim this is copyright infringement (unauthorized public performance), Aereo has created an “antenna-farm” system designed to avoid allegations that its rebroadcast is a public performance under U.S. copyright law. CBS Broadcasting and other broadcasters brought suit for copyright infringement in federal court in New York.  However, Aereo convinced both the federal district court and the Second Circuit Court of Appeals that Aereo does not violate copyrights in the broadcasts. (Aereo shows “how it works” here).

Aereo rolled out its first implementation in New York, and the Second Circuit “test case” was decided there. Now, Aereo plans to launch its service in 22 cities before year end. Boston is scheduled to launch on May 30th. Apart from the legalities of the underlying copyright claim, this raises the question whether the broadcasters can re-challenge the Aereo service as it launches in new locations outside the Second Circuit (which is comprised of New York, Connecticut and Vermont). Unfortunately, federal law in the U.S. is not always uniform. For example, Aereo may have prevailed in the Second Circuit (i.e., New York), but the broadcasters may be able to successfully challenge Aereo in the First Circuit (Boston) when it launches here, and perhaps get a different result. In fact, according to Aereo CBS has threatened to do just that, stating  (after losing in New York), “we will sue in Boston.”

Aereo, whose legal acumen should not be underestimated, does not want to wait to be sued in Boston (or anywhere else in the U.S.), at least not by CBS Broadcasting or CBS’s affiliates. On May 6th it filed a preemptive suit in the Southern District of New York, asking that court to enjoin CBS from filing what Aereo calls “duplicative follow-on suits” or “do overs.” Its new lawsuit was assigned to the same federal district court judge that refused to enjoin Aereo’s system in the first place.

After reviewing Aereo’s complaint, it seems that this suit is tactical rather than strategic.

The suit names 12 defendants in cities where Aereo intends to offer its service, but they are all owned by or are affiliates of CBS Broadcasting. Aereo asserts that CBS’s New York lawsuit sought a nationwide injunction against Aereo, and therefore the outcome of the New York suit governs the nationwide legal relationship between Aereo and CBS, including CBS subsidiaries and affiliates. CBS should not, Aereo argues, be entitled to relitigate the same issue in another federal court.

CBS may be the most aggressive Aereo plaintiff, and it is possible that Aereo believes that by excluding CBS from follow-on cases it will weaken the plaintiff side of the case. But even if CBS is precluded from filing suits outside the Second Circuit (not a foregone conclusion), that will leave several large broadcasters free to file suit in those districts. For example, even though NBC, ABC, PBS and Fox were parties to the New York case, they are not named in Aereo’s declaratory judgment suit. Even if they were added to the suit, it should not be difficult for the broadcasters to find a broadcaster that was not a party to the New York case to carry the flag for them outside of New York. The broadcasters’ strategy may be to challenge Aereo in every federal circuit that Aereo enters, obtain at least one favorable decision (which shouldn’t be hard to do — the Second Circuit’s Aereo decision is controversial and vulnerable to a different interpretation of the law),* and seek Supreme Court review when a split in the circuits develops.

*A federal district court in California has already ruled that an Aereo-like system violates broadcaster copyrights. (Fox v. BarryDiller, CD Cal. 2012). 

The bottom line is that the Second Circuit decision favoring Aereo was, as far as the broadcasters are concerned, a battle, not the war. I anticipate that the broadcasters will ultimately prevail, and that Aereo’s attempt to block additional suits by CBS will turn out to be a minor impediment in the broadcasters’ campaign to have Aereo’s “antenna farm” system of rebroadcast declared illegal under U.S. copyright law.

“Yet Another Hierarchical Officious Oracle” is Yahoo!, of course. And, its lawyers should be embarrassed by Yahoo!’s inability to create enforceable online Terms of Service (TOS).

The issue arose in Ajemian v. Yahoo!, decided by the Massachusetts Appeals Court on May 7, 2013. In this case the plaintiffs were the administrators of a decedent’s estate. They wanted access to the decedent’s email account to let his friends know of his death and memorial service, and later to locate assets of his estate. Yahoo! refused to provide the online password, and the administrators filed suit in Massachusetts to compel access.

Yahoo!, in turn, argued the suit should have been brought in California and, in any event, it was too late. These arguments were based on Yahoo!’s terms of service which provide, in part, as follows:

You and Yahoo agree to submit to the personal and exclusive jurisdiction of the courts located within the county of Santa Clara, California…. You agree that regardless of any statute or law to the contrary, any claim or cause of action arising out of or related to use of the Service or the TOS must be filed within one (1) year after such claim or cause of action arose or be forever barred.”

The decedent in this case had opened his account in 2002, and he died in 2006. In the interim Yahoo! had updated its TOS to provide that “any rights to your Yahoo! ID or contents within your account terminate upon your death,” providing Yahoo! with another basis on which to deny the administrators access to the email account.

According to the Appeals Court, this was the first time a Massachusetts state court had been asked determine to the enforceability of an online agreement of this sort. The court found that Yahoo! was unable to establish the legal requirements necessary to enforce this provision:

The burden is on Yahoo! to demonstrate that the forum selection and limitations clauses in the TOS were reasonably communicated and accepted. … The only information on this point is Yahoo!’s affidavit stating that “[p]rospective users are given an opportunity to review the Terms of Service and Privacy Policy prior to submitting their registration data to Yahoo!.” Standing alone, this is not enough to establish that the forum selection provision and limitations provision of either the 2002 or the amended TOS were reasonably communicated, or to whom they were communicated. We do not know, and cannot infer, that the provisions of the 2002 TOS were displayed on the user’s computer screen (in whole or in part). It is equally likely … that the user was expected to follow a link to see the terms of the agreement. If that was the case, the record would need to contain information concerning the language that was used to notify users that the terms of their arrangement with Yahoo! could be found by following the link, how prominently displayed the link was, and any other information that would bear on the reasonableness of communicating the 2002 TOS via a link.

Yahoo! submitted nothing to establish whether or how the provisions of the 2002 TOS were accepted by [Yahoo! end users] or how the provisions of the amended TOS were accepted by [Yahoo! end users] , or how they manifested their assent.

Although forum selection clauses contained in online contracts have been enforced, courts have done so only where the record established that the terms of the agreement were displayed, at least in part, on the user’s computer screen and the user was required to signify his or her assent by clicking “I accept.” … This is known as a “clickwrap” agreement. … By contrast, a “browsewrap” agreement is one “where website terms and conditions of use are posted on the website typically as a hyperlink at the bottom of the screen.” Although forum selection clauses have almost uniformly been enforced in clickwrap agreements, we have found no case where such a clause has been enforced in a browsewrap agreement.

The fact that this case arose in the context of administrators seeking access to a decedents email account made it a harder case. In fact, the Appeals Court held that even if Yahoo! had used a clickwrap agreement, it would not be reasonable to enforce the forum selection and limitations clause against the administrators based on a variety of considerations, including the fact that the case was in probate court, that the decedent lived in Massachusetts, that the administrators are in Massachusetts and the scope of the forum selection clause (which, the Court of Appeals noted, was of unreasonable breadth for a consumer contract).

Nevertheless, the court’s holding with respect to the enforceability of “clickwrap” agreements and lack of enforceability with respect to “browsewrap” agreements stands as the current state of the law in Massachusetts, probate court or not. Simply put, browsewrap areements are not enforceable under Massachusetts law.

The inability to create an enforceable online license seems almost endemic to online companies. Craigslist failed in the 3Taps case (post here). Zappos failed in the Security Breach Litigation (post here). CollegeSource failed in its case against AcadamyOne (post here).

And, companies seem not to realize that even if they do have a proper clickwrap agreement, they cannot retain the right to modify the agreement unilaterally. See “Sign This Contract. By the Way, We Can Modify It At Any Time.” Is This Enforceable?

In the Yahoo! case the Massachusetts courts joins the majority across the country: get consent by means of a click, and if you update your TOS, get consent again.

Of course, this case also raises a bigger issue surrounding email accounts and social media – who is entitled to access an email account after the owner’s death? What about a Facebook, Twitter or other social media account? Facebook has addressed the digital afterlife by allowing relatives to memorialize an account after its owner has died. And, Google lets account owners “plan their digital afterlives” with “inactive account manager.” So, perhaps a second lesson from this case—and a more important one—is to exercise one of these options where it is available, or make sure your heirs are able to access your online accounts by using your passwords after your death.*

*Personal note: when my father died in 2010 he had not left a record of his AOL email log-in information. However, AOL was more accommodating than Yahoo! A phone call to AOL was all it took to get his user name/password.

For Lawyers Turned Video-Porn Mass Copyright Plaintiffs, Litigation May Not Pay

I didn’t think I’d have a chance to write another “what were they thinking” post only two weeks after the last one. But, here goes ….

I’ve written about Bittorrent swarm mass copyright suits in the past, but Monday’s decision by California federal district court judge Otis D. Wright tops everything that has come before. A lot of people have followed this case and similar cases filed by so-called “Prenda Law”Ingenuity 13 v. John Doe. In other words, the plaintiffs in this case have made a lot of people mad.*

*Techdirt is at or near the top of this lengthy list.

The Ingenuity 13 case has been dismissed, but on Tuesday the judge issued a withering sanctions decision in the case. Here is some of what he had to say.

The opening paragraph of the opinion sets the stage for the indictment that follows:

Plaintiffs have outmaneuvered the legal system. They’ve discovered the nexus of antiquated copyright laws, paralyzing social stigma, and unaffordable defense costs. And they exploit this anomaly by accusing individuals of illegally downloading a single pornographic video. Then they offer to settle—for a sum calculated to be just below the cost of a bare-bones defense. For these individuals, resistance is futile; most reluctantly pay rather than have their names associated with illegally downloading porn. So now, copyright laws originally designed to compensate starving artists allow, starving attorneys in this electronic-media era to plunder the citizenry.

Their litigation strategy consisted of monitoring BitTorrent download activity of their copyrighted pornographic movies, recording IP addresses of the computers downloading the movies, filing suit in federal court to subpoena Internet Service Providers (“ISPs”) for the identity of the subscribers to these IP addresses, and sending cease-and-desist letters to the subscribers, offering to settle each copyright infringement claim for about $4,000. …

After that dramatic introduction Judge Wright introduces the actors in the “porno-trolling collective,” and introduces their modus operandi:

Steele, Hansmeier, and Duffy (“Principals”) are attorneys with shattered law practices. Seeking easy money, they conspired to operate this enterprise and formed the AF Holdings and Ingenuity 13 entities (among other fungible entities) for the sole purpose of litigating copyright-infringement lawsuits. They created these entities to shield the Principals from potential liability and to give an appearance of legitimacy. … The Principals’ web of disinformation is so vast that the Principals cannot keep track—their explanations of their operations, relationships, and financial interests constantly vary. …

The opinion then presents the following graphic, in an attempt to untangle the “web of disinformation” (an enlarged version of this graphic appears in the opinion):

graphic

Incredibly, since 2010 this strategy has resulted in gross settlements approaching $15 million:

This nationwide strategy was highly successful because of statutory copyright damages, the pornographic subject matter, and the high cost of litigation. Most defendants settled with the Principals, resulting in proceeds of millions of dollars due to the numerosity of defendants. …

However, there was one small problem with these cases. It appears that the plaintiff forged the copyright assignment to one of the porn films:

The Principals stole the identity of Alan Cooper (of 2170 Highway 47 North, Isle, MN 56342). The Principals fraudulently signed the copyright assignment for [porn movie] “Popular Demand” using Alan Cooper’s signature without his authorization, holding him out to be an officer of AF Holdings. …

Every conspiracy needs a henchman, and in this story it is attorney Brett Gibbs:

The Principals ordered [attorney] Gibbs to commit the following acts before this Court: file copyright-infringement complaints based on a single snapshot of Internet activity; name individuals as defendants based on a statistical guess; and assert a copyright assignment with a fraudulent signature. The Principals also instructed [attorney] Gibbs to prosecute these lawsuits only if they remained profitable; and to dismiss them otherwise. …

. . . [attorney] Gibbs, even in the face of sanctions, continued to make factual misrepresentions to the Court.

The judge then assesses sanctions, the least of which is the approximately $40,000 in attorney’s fees which he doubled to over $83,000:

The Principals, AF Holdings, Ingenuity 13, Prenda Law, and [attorney] Gibbs are liable for [over $83,000 in attorney's fees] jointly and severally, and shall pay this sum within 14 days of this order. …

[T]here is little doubt that that [attorneys] Steele, Hansmeier, Duffy, Gibbs suffer from a form of moral turpitude unbecoming of an officer of the court. To this end, the Court will refer them to their respective state and federal bars.

The Court will refer this matter to the United States Attorney for the Central District of California. The will also refer this matter to the Criminal Investigation Division of the Internal Revenue Service and will notify all judges before whom these attorneys have pending cases. For the sake of completeness, the Court requests Pietz to assist by filing a report, within 14 days, containing contact information for: (1) every bar (state and federal) where these attorneys are admitted to practice; and (2) every judge before whom these attorneys have pending cases. …

Ouch! A few weeks ago I posted about at case in which defendants angered a Massachusetts federal district court judge (“What Happens When You Get a Federal District Court Judge Really, Really Mad”). The California judge in the Ingenuity 13 case showed that, by comparison, the Massachusetts judge was throwing cotton balls.

Seriously, theses lawyers are in big trouble with the IRS (apparently they didn’t report their settlements as income), the courts and, worst for them, the U.S. Attorney’s Office. Since lawyers from the U.S. Attorney’s Office are the prosecutors that appear before federal judges, they are unlikely to disregard a federal judge’s request that they conduct an investigation to determine whether there are grounds for criminal prosecution.

What were they thinking?

Professor William Fisher’s edX “CopyrightX” MOOC

Let me begin with the bottom line: this was a excellent course. If Professor Fisher offered another course (such as trademark or Internet law, two areas identified on his online bio), I would not hesitate to take it or audit it.

Background

edX is a collaboration formed by Harvard and MIT to produce “Massive Online Open Courses,” or “MOOCs.”  (I will use the phrase “online courses” as well as “MOOC”). edX is something of a latecomer to the still-new world of MOOCs. The leaders to date (with the most courses), are Coursera and Udacity. However, there are many “smaller” and legacy offerings. (See 700 Free Online Courses From Top Universities). My impression is that until edX, Coursera and Udacity arrived, most online courses were nothing more than hit-or-miss video recordings of classroom lectures. They were not produced with an online audience in mind, and often suffered from poor production quality. Listening to the professor discuss homework assignments, papers, exams, office hours and teaching assistants–none of which are relevant to viewing the lectures online–was frustrating.

Until recently online courses tended to focus on the hard sciences, and I hadn’t come across any legal courses. This changed when, late last year, I received an edX email notice for “HLS1x Copyright.” Or, as it came to be known, “CopyrightX.” Here are some excerpts from the course description I received:

HLS1x Copyright, an experimental course offered on edX, explores in depth the law, theory, and practice of copyright. Approximately two thirds of the course focus on the copyright system of the United States; the remainder is devoted to the laws pertaining to copyright and “neighboring rights” in other countries. Considerable attention is devoted to the relationship between copyright law and creative expression in a variety of fields: literature; music; film; photography; graphic art; software; comedy; fashion; and architecture. The course commences on January 28, 2013, and lasts for 12 weeks. . . .

Applicants [must be] willing to devote eight hours per week to learning and discussing the material.

Several methods of instruction are used. Participants watch pre-recorded lectures, engage in interactive live webcasts of events in which guest speakers address especially controversial issues, discuss legal problems in online forums, and (most importantly) participate once a week in an 80-minute online seminar. Those seminars are taught by teaching fellows, all of whom are currently students at Harvard Law School.

At the conclusion of the course, each participant takes a three-hour exam, designed to assess his or her knowledge of copyright law and policy. Those exams are graded by the teaching fellows. Participants who receive passing grades are to be awarded certificates of completion and provided written assessments of their degree of proficiency.

COURSE INSTRUCTOR

William Fisher III

Professor Fisher received his undergraduate degree (in American Studies) from Amherst College and his graduate degrees (J.D. and Ph.D. in the History of American Civilization) from Harvard University. Between 1982 and 1984, he served as a law clerk to Judge Harry T. Edwards of the United States Court of Appeals for the D.C. Circuit and then to Justice Thurgood Marshall of the United States Supreme Court. Since 1984, he has taught at Harvard Law School, where he is currently the Wilmer Hale Professor of Intellectual Property Law and the Director of the Berkman Center for Internet and Society.

What a great opportunity! When I was in law school there was no course on copyright law. I could make up for that omission now.

I realized that by limiting the enrollment to 500 students, requiring participation in online seminars (which, due to the anticipated world-wide student body would take place at times quite inconvenient for people in U.S. Eastern Standard Time), asking people to take a three-hour exam and awarding passing students a certificate of completion, this MOOC was making a serious effort to set itself apart. Most MOOCs have no enrollment limits (tens of thousands of people register), so limiting the course to 500 students alone sent a message that this course would be different.

Unfortunately, I didn’t get to find out just how different the course would be. The application was concise, and included  demographic information and a short essay on why the applicant wanted to take the course and could contribute. I applied, but was not selected.  I didn’t take it personally, since it’s likely that the applicants numbered in the tens of thousands.

Screen Shot 2013-04-05 at 10.07.03 AM

Graphic from EdX

Still curious, I resolved to “audit” the course using the lectures that were posted on Youtube. I didn’t participate in the weekly online seminars, nor did I take the three-hour exam or earn a “certificate of completion.” I watched the pre-recorded lectures and read some (but by no means all) of the associated reading materials, which were extensive. I watched two of the six “Special Events” in full, and parts of the remaining four events.  And, I didn’t view the lectures or the Special Events in sync with the class—I watched them in  late March and April.

The list of lectures, with links to the videos on Youtube, is here. The list of reading materials here. And, the list of Special Events (with links to Youtube), here.

Observations on the Course

Other than CLEs, the last time I sat in a classroom and listened to academic lectures was 1979 – my last year of law school. And, frankly, I’m not sure there were many academic lectures in law school similar to what Professor Fisher presented in this course. So, it took me some effort to adjust to the format of this course. As I discuss below, this was not education disguised as entertainment to make it easier to digest—this was education served “neat.”

First, and perhaps most importantly, since I was just auditing the videos I had no interaction with other students. That made it more difficult, since I had no external motivation to watch each lecture. I’ve heard it said that the best motivator to showing up at the gym at 7:00 a.m. is knowing your workout partner will be expecting you. However, I had no external pressure to keep up with the course.

Motivation to complete an online course is not a trivial concern. At  this early stage in the evolution of online courses the drop out rate is extremely high—as high as 90% in many courses. The high non-completion rate may be due to the curiosity factor—people are registering for these courses just to see what a “MOOC” is all about, but with no intention of taking the full course—or it may be a question of self-motivation. I haven’t seen any statistics on what percentage of the 500 students enrolled in CopyrightX took the final exam, or what percentage passed the course. It would be interesting to see if the use of a selection process and online seminars led to a high completion rate.

The best motivator for CopyrightX was probably the knowledge that you are 1 of 500 people selected for the course and are expected to participate in the online forums and take the final exam. I wasn’t able to kibitz with other students, exchange ideas or ask questions. And, I have no way of knowing how much value that would have added to the course.

I confess that when I first began watching the lectures I found them a bit tedious. The lectures are comprised primarily of an upper-body shot of Professor Fisher in a dark sports coat that blends into a black background. He is often looking off-camera, presumably at an outline of the lecture. In other words, this was a visually non-stimulating format. The course was given in tandem to Harvard Law School students, but this was not a course where you saw the professor walking around in the front of a lecture hall and could see that students were present. So far as I could tell, the online course videos were shot in a studio specifically for the MOOC. Whether the law students taking the course for credit had live lectures, or were expected to watch the online lectures independent of the online lectures, I don’t know. However, I do know that you would be hard-pressed to find a less visually stimulating form of presentation:

Screen Shot 2013-05-06 at 12.40.37 PM

Professor Fisher, CopyrightX, Harvard Law School

sandel

Prof. Michael Sandel, Justice, Harvard

After a while I adjusted to this format. Professor Fisher is a serious scholar, and he was not there to put on a teaching show (see Michael Sandel, image right), perform classroom tricks (see Walter Lewis, image right), or make any effort to entertain in order to hold the interest of the students. This was hard core, Harvard Law-style lecturing, nothing more, nothing less. No jokes, no anecdotes, not even much movement; just a fire-hose of concentrated information presented in a narrow dynamic range.

Unlike MOOCs such as those on Coursera, there was no attempt to break up the videos into small segments and intersperse quizzes to maintain the viewer’s attention. For example, Coursera explains its pedagogy as follows:

A key factor in the design of the Coursera system is the extensive use of interactive exercises, which we believe are critical for student engagement and learning. Even within our videos, there are multiple opportunities for interactions: the video frequently stops, and students are asked to answer a simple question to test whether they are tracking the material. This strategy has value not only in maintaining student focus and engagement. Research shows that even simple retrieval questions have significant pedagogical value.

prof-walter-lewin

Prof. Walter Lewis, Physics, MIT

I had started a couple of Coursera MOOCs out of curiosity, just to see how Coursera implemented this teaching style. It was interesting to see that edX was not, at least in this course, using Coursera’s pedagogical approach to online learning.Professor Fisher’s CopyrightX videos had no “interactive exercises” and no “retrieval questions.” It had no cute sketches, like Udacity sometimes has (image lower right). Whether this will be true for all edX courses I don’t know, but it was for this one. I adjusted to the style of the course and this didn’t bother me, but I can imagine that some people might have difficulty with this approach.

I also wondered, as I progressed through the course, whether the course would be accessible to someone who was not a lawyer or a second or third year law student. The course was presented as a law school course for students at Harvard Law School, not an introductory course on copyright law for non-lawyers. The course made frequent reference to complex statutes, treaties, cases and law review/journal articles, many of which were made available on the reading list. The online lectures made no accommodations for non-lawyers. I question what someone who had no previous legal education would have made of this massive amount of sophisticated legal material.

Screen Shot 2013-05-06 at 12.12.35 PM

Coursera

As far as the substance of the course goes, it was quite broad. A full list of topics covered is provided in the schedule of lectures. After beginning with international copyright treaties (not the best topic to launch the course with, in my opinion, given how complex and arcane this topic is), Professor Fisher moves through a wide range of topics, including each of the exclusive rights granted by statute, the idea-expression dichotomy, copyright formalities, authorship, fair use and remedies. In fact, there are few topics he doesn’t at least touch upon.

The course often departs from an exposition of “black letter” law to address the philosophical and historical origins of copyright law, the economic rationale for various aspects of the law (or lack thereof) and Professor Fisher’s own views on copyright policy. Professor Fisher also contrasted U.S. copyright laws with the copyright laws and policies of other countries, with most of the focus on the EU. In other words, the course aspired (and I think succeeded) in questioning how aspects of copyright law have evolved to where they are today, and how the law could be improved. Professor Fisher appears to have strongly held beliefs in that regard, which he presented in his cerebral, mild-mannered style.

Screen Shot 2013-05-08 at 7.28.48 AM

Slide from CopyrightX re Copyright Terms

One thing the course made clear is that copyright law is a vast topic. Professor Fisher acknowledges this often, cutting off topics at a certain point and suggesting that students read statutes, cases or articles cited in his Copyright Map (discussed below) for more detail or greater understanding. One gains an understanding, as the course progresses, for just how complex copyright law is, particularly when the Internet (which knows no borders) is layered on top of a world-wide system of copyright laws that is highly parochial. (See, for example, Pandora CEO: The Complexity Of International Copyright Law Is A Big Problem; and Want To Get A Sense Of Just How Complex And Confusing Copyright Law Really Is? by Mike Masnick). His discussion of copyright duration and termination rights was a valiant attempt to bring clarity to one of the most confusing areas of the law (see one of his many slides on this topic, left).

Each weekly topic in the course consisted of between three and six videos, ranging in length from 15 minutes to 50 minutes each. I would estimate the weekly videos ran, on average, between one and one-and-one-half hours. Professor Fisher has created an outline that he calls Maps of Intellectual Property using MindJet. When you download a pdf file created with MindJet from his site the file has a built-in “MindJet Player” that allows you to view an expandable outline, or “map.” Here is the top level of the Copyright Map, which he used extensively during his lectures:

screen shot

Top-Most Level of Prof. Fisher’s Copyright Map

Each of the six peripheral boxes on the map is the top level of a large outline containing many sub-topics (along with statutory, case and journal citations). As long as there is a “+” symbol beside a topic, clicking the “+” will lead to more content. For example, here is part of the outline that expands out of the major topic heading, “What Is Protected”:

Screen Shot 2013-05-09 at 11.56.59 AM

Copyright Map, Expanded

I haven’t explored this outline in full, but from what Professor Fisher demonstrated it seems that it is very large, and includes many subsections that he didn’t have time to go into in the course. It also appears that he updates it often.

Professor Fisher also used traditional powerpoint screens, such as this example, discussing the Grokster decision:

Screen Shot 2013-04-18 at 9.48.36 AM

And, he used more elaborate color graphics such as this one, which illustrates the overlapping principles of fair use:

Screen Shot 2013-04-05 at 9.11.56 AM

I soon realized that I couldn’t watch these lectures like one would watch a TED Talk.  This was nothing like sitting in a law school classroom, where lectures are broken up by student questions and discussions, or the socratic dialog method of teaching. Apart from the Special Events (which did not seem intended to closely follow the lecture topics), this was just a straight lecture format.

While I assumed that I knew enough about copyright law that this would be nothing more than a refresher course, that proved to be anything but the case; there was a lot of information that was either new to me, or presented in a manner that required me to rethink my understanding of the topic. I realized that I had to fall back on something I haven’t done in a classroom for 34 years – take notes. I created a new Evernote file for each lecture topic, and took notes on the lectures. I think that helped me retain far more than I would have had I simply watched the lectures, but it slowed down the time it took to watch a video lecture.

There were also one or two times when I thought Professor Fisher may have given the wrong impression of how the courts treat a particular copyright law doctrine, but of course I had no one with whom I could discuss this, and no means of raising the point with Professor Fisher.*

*Professor Fisher may have mispoken when he stated that Stevie Ray Vaughn was “one of the few guitarists better than Hendrix himself.” (Lecture 3-3 at 10:12). 

I found the six Special Events—all of which focused on guest speakers—the weakest part of the course. Ironically, unlike the studio-produced video lectures, these were classroom events, and you could see that the students enrolled in the course were present. In his introductions of the guest speakers Professor Fisher addressed both the online and classroom students, and the speakers answered questions from both audiences.

Harvard Law Professor Larry Lessig gave what appeared to me to be his standard “remix” copyright presentation, which has been published on the web many times before. His presentations (which make extensive use of his “patented” ”Presentation Zen” slide style) are excellent, but he didn’t add much (if anything) to his stock deck.

The Special Event I found most interesting featured Robert Darnton and John Palfry discussing the Digital Public Library of of America, which went “live” in April.  The legal challenges the DPLA faces are significant, and they are discussed frankly during the presentation and discussion at this event.

Brewster Kahle, founder of the Internet Archive, was a no-show for this event, which was disappointing. By archiving vast swathes of the Internet from 1996 to present Kahle has been center-stage at the creation of the largest repository of online Internet resources available to the public. It would have been interesting to hear his thoughts on the copyright challenges faced by the Internet Archive, the Google Books project, and now the Digital Public Library of America.

I watched parts of each of the remaining four Special Events, but they didn’t hold my attention, which is not to say they may not have been the most interesting part of the course for some of the students.

Coda

As I said at the opening of this post, this was an excellent course for people interested in a scholarly, detailed review of copyright law. I have been unable to find any comparable elucidation of copyright law on the Internet, and I suspect there are only a handful of copyright practitioners in the U.S. that could pull off the tour de force that Professor Fisher does in this course. There is room, in the emerging world of MOOCs, for courses presented in this style, as well as courses in the more relaxed style of Coursera and Udacity. I hope that Professor Fisher and edX decide to create similar programs for trademark and Internet law.

[Note: As Professor Fisher would make sure you knew if you watched the CopyrightX course, the CopyrightX online videos are protected by U.S. copyright law. The online lectures for CopyrightX are subject to the Creative Commons Attribution-Noncommercial-Sharealike 2.5 License. The screenshots I've used from the lectures are subject to this license.]

 

D. Mass. Judge Stearns: Advertising Claims Create Express Warranty Despite Disclaimer in EULA

Assume a software vendor makes advertising clams regarding its product’s functionality. However, its end-user license agreement (EULA) is very narrow – it provides a 30 day  express warranty that (i) “the medium (if any) on which the [s]oftware is delivered will be free of material defects” and (ii) that “the software will perform substantially in accordance with the applicable specification.” Assume further that that software performs in a manner consistent with the “applicable specification” (the user manual) but inconsistent with advertising claims for the product. In fact,  not surprisingly given that this case is in federal court, it malfunctions and wipes out the data on the purchaser’s hard drive. 

You might think that the EULA would prevent a purchaser from claiming breach of express warranty, but under Delaware law (and the law of most states) you would be incorrect.

AVG Technologies is the seller of PC TuneUp. In Rottner v. AVG Technologies, Massachusetts U.S. District Court Judge Richard Stearns, applying Delaware law (as stipulated in the EULA) ruled on this issue in the context of AVG’s motion to dismiss. He held that AVG’s advertising claims must be viewed as part of the express warranty for PC TuneUp, despite the EULA’s attempt to disclaim them:

I am confident that the Delaware courts would consider PC TuneUp’s claimed functionality as an express warranty separate and apart from the EULA’s content-less warranty provisions.  … Here, although the EULA disavowed previous representations, PC TuneUp software trumpets announcements about its functionality (which track the internet advertising claims) each and every time it is run. These claims, therefore, also form an express warranty on which Rottner may properly allege to have relied.

Judge Stearns further held that because the express warranties form a basis of the parties’ bargain, the plaintiff had also fairly alleged claims for breach of contract and the implied covenant of good faith and fair dealing. And, as if this were not enough, to make matters worse the plaintiff is seeking class action certification on these claims.

This decision addresses a number of other issues, including the enforceability of the Delaware choice-of-law provision and whether the sale of the software at issue should be treated as a service or a good (in the latter case it would be subject to the provisions in the Uniform Commercial Code). On the “service vs. good” issue, Judge Stearns ruled that a straightforward software download should be treated as  a “good,” and therefore was  subject to the UCC, a conclusion that favored the plaintiff and led to the holding that the EULA did not protect AVG from a claim of breach of express warranty.repairman

But, the most important take-away from this case is that a software vendor’s EULA does not create an impenetrable legal wall of safety for the vendor. Marketing claims may be deemed to be part of the express warranty, notwithstanding attempts to disclaim them in the EULA.

Rottner v. AVG Technologies (D. Mass., May 3, 2013)

Update: Commentary on this case on Prof. Eric Goldman’s Blog