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.

Eleventh Circuit's Fair Use Decision In Georgia State Leaves Uncertainty Over Use of Excerpts in University Course Packs

Academia is abuzz with reactions to the Eleventh Circuit’s copyright fair use decision in  Cambridge University Press v. Patton. This is, as one blogger described it, “the most important copyright and educational fair use case in recent memory.”

The decision highlights, yet again, the truth behind Professor Nimmer’s observations that fair use is said to be “the most troublesome [area] in the whole of copyright law” and has been called “so flexible as virtually to defy definition.”

At issue is Georgia State University’s right to scan and distribute to students, without payment, digital course packs comprised of excerpts from scholarly books and journals. The plaintiffs — several publishing houses — alleged 74 specific instances of infringement. In a 350 page ruling issued in May 2012 the district court court found infringement in only 5 of these cases, handing the university a significant victory and awarding it several million dollars in attorney’s fees.

The U.S. Court of Appeals for the Eleventh Circuit (which covers federal appeals in Alabama, Florida and Georgia) reversed the district court, issuing its own mammoth opinion on October 17, 2014, (129 pages including the 16 pages of concurring opinion by one of the three judges on the panel).

Needless to say, this case is of great importance to colleges and universities that want to provide their students with course packs without having to coursepackspurchase “permissions” from publishers. It is, in effect, a test case based on 74 individual claims of infringement. The district court evaluated each work individually, taking into consideration factors such as the amount of copying (a finding that the school copied less than 10% or one chapter or less favored fair use) and whether the work was available for digital licensing (licensing unavailability favored fair use). At the end of the day, the district court found that all but five of the 74 items were protected by fair use.

The Eleventh Circuit agree with many conclusions reached by the district court –

  • It agreed that the works should be evaluated individually, rather together as a “nebulous cloud of infringements.”
  • It agreed that Georgia State’s use of the works was of a nonprofit, educational nature, a conclusion that heavily favored fair use.
  • It agreed that license availability should be taken into account in evaluating the effect of the use on the market for or value of the excerpts. (Although it found that the district court did not give this factor proper weight).

However, it disagreed in some important respects:

  • The Eleventh Circuit disagreed that the “educational and informational” nature of the excerpts favored fair use, concluding that in some instances this factor was neutral, or weighed against fair use.
  • It rejected the district court’s mechanistic use of a “blanket 10 percent-or-one-chapter benchmark” as a “substantive safe harbor.” The district court “should have analyzed each instance of alleged copying individually, considering the quantity and quality of the material taken – including whether the material taken constituted the heart of the work – and whether that taking was excessive in light of the educational purpose of the use and the threat of market substitution.”
  • It disagreed with the fact that the district court gave each of the four statutory fair use factors equal weight – the court should have used a “holistic analysis which carefully balanced the four factors.”

After this detailed critique of the district court’s decision, the Eleventh Circuit sent the case back for “further proceedings consistent with this opinion.” In other words, the district court must now evaluate each of the 74 excerpts again, applying the criteria and methodology described in the Eleventh Circuit’s opinion.

coursepacks2To complicate things further, one of the three judges on the 3-judge appellate panel wrote an opinion which, while technically concurring (since it agreed to remand the case to the district court), is for all practical purposes a dissent. In the view of this judge (a district court judge sitting by designation) the case involved “extensive verbatim copying in undisputed non-transformative format, resulting in complete market substitution”. The “concurring” judge noted that Georgia State had paid permission fees when distributing the articles in paper format, and argued that the “use” of the copyrighted works did not suddenly become fair use “just because the work is distributed via a hyperlink instead of a printing press.” He concluded his opinion with the statement that Georgia State’s use of the publishers’ copyrighted works “without compensation was, in a word, unfair.”

What are some takeaways from this decision?

First and foremost, the case illustrates, yet again, how difficult it is to apply the fair use doctrine in practice. The four judges who wrote on the case represent three different views on the application of fair use to these facts. Georgia State could have lost the case outright if one of the two judges who backed the Eleventh Circuit “majority” opinion had agreed with the “concurring” (actually dissenting) judge. That is a thin margin of victory.

Second, as a “test case” the outcome of the appeal is not a clear winner for either side. Not only is the outcome on remand unclear (the district court must re-examine and reach a decision as to each of the 74 excerpts), but going forward the Eleventh Circuit’s “holistic” balancing approach makes it difficult for publishers and non-profit academic creators of course packs to predict whether a fair use defense will succeed or fail as to a specific excerpt. Certainly, non-profit educators would prefer a predictable, mechanical test (such as a 10% rule or the 1976 “Classroom Guidelines”*), rather than the uncertainty and expense of a holistic test.

*[note] The Eleventh Circuit gave little weight to the Classroom Guidelines, noting that they are not controlling on the court, and that they contain hard evidentiary guidelines, an approach that is inconsistent with subsequent guidance from the Supreme Court.

Setting aside the test case aspect of this lawsuit, the Eleventh Circuit’s decision must be discouraging to the parties that have had to pay for this slow and frustrating process. Before this appeal, Georgia State alone had incurred attorney’s fees and costs exceeding $3 million. Both parties can expect to spend hundreds of thousands of dollars more when the case goes back to the district court and, absent a settlement, nothing will prevent the losing party there from filing a second appeal to the Eleventh Circuit. There is no small chance that the case will eventually be appealed to the Supreme Court, which hasn’t decided a straightforward copyright fair use case in 20 years.

Cambridge University Press v. Patton (11th Cir. Oct. 17, 2014)

The Kerfuffle Over Copyrights in Pre-1972 Sound Recordings

If you are confused by the news that a California federal court has ruled that satellite broadcaster Sirius XM is liable under California state law for streaming pre-1972 sound recordings by The Turtles,* you are not alone. The issues in this case prove, once again, Mark Twain’s complaint that “only one thing is impossible for God: To find any sense in any copyright law on the planet.”

To appreciate this bizarre situation you may need to be reminded of a few basic principles of our arcane copyright laws:

  1. The copyright in a musical work (aka a musical composition) and a “sound recording” of that work may be separately owned. John Lennon’s estate may own the copyright to the musical work Imagine, but Ray Charles, Elton John and Queen (or their record labels) own the copyrights in their sound recordings of the song. Thus, a sound recording may give rise to legal rights under two separate copyrights with two different owners.
  2. When Congress passed the 1976 Copyright Act, the new federal law preempted most, but not all, state copyright laws. One area Congress expressly left untouched was copyright rights in the public performance of  sound recordings made before February 15, 1972. The public performance right for sound recordings will not become subject to federal law until February 15, 2067 (go figure).
  3. The federal vacuum for pre-1972 sound recordings left by the 1976 Act gives rise to an argument that state copyright laws may be asserted by the owners of pre-1972 sound recordings.
  4. Lastly, in 1995 and 1998 Congress passed laws which have the effect of requiring noninteractive digital streaming services (such as Sirius XM and Pandora) to pay a compulsory license set by the Copyright Royalty Board and administered by SoundExchange, for post-1972 sound recordings. This compulsory licensing system does not cover analog transmissions (AM/FM radio). Nor, importantly, does it cover pre-1972 sound recordings.

Here is the rub: the owners of pre-1972 sound recordings claim that if the public performances of their sound recordings are not covered by the federal turtlescopyright act then they must, of necessity, be protected under state copyright laws.* Congress said nothing to the contrary when it passed the 1976 Act, and in fact expressly left pre-1972 sound recordings governed by state law. Flo & Eddie, which owns the Turtles’ pre-1972 sound recordings, has filed suits against Sirius XM and Pandora, as have several record companies. To date, the cases are centered in California and New York.

*[note] This has implications in more than one area of copyright law. For example, in April 2013 I wrote a post discussing the question whether the Digital Millennium  Copyright Act’s “notice and take-down” process provides a safe harbor for publishers of pre-1972 works. (See New York State Court Blows a Hole in the DMCA Safe Harbors for Pre-1972 Sound Recordings).

The first court decision to address this issue was Flo & Eddie, Inc. v. Sirius XM , decided by a California federal judge on September 22, 2014. This case held that because sound recordings fixed before siriusxm_sued-297x195February 15, 1972 are not covered under the federal copyright act — and are explicitly left to the control of state statutory and common law — Flo & Eddie’s rights are governed by a California statute which vests “exclusive ownership” in pre-1972 sound recordings in their authors. The California copyright statute states:

The author of an original work of authorship consisting of a sound recording initially fixed prior to February 15, 1972, has an exclusive ownership therein until February 15, 2047, as against all persons except one who independently makes or duplicates another sound recording that does not directly or indirectly recapture the actual sounds fixed in such prior recording, but consists entirely of an independent fixation of other sounds, even though such sounds imitate or simulate the sounds contained in the prior sound recording.

Sirius XM argued that because it was generally assumed at the time the California law was enacted that copyright rights did not exist in pre-1972 sound recordings under state law, the California law was never intended to grant pre-1972 copyright holders this right. The court rejected this reasoning based on the express language in the statute, concluding that “exclusive ownership” encompasses all rights, the only exception being the right to make a “cover” recording (which is expressly carved out in the statute).

Setting aside an almost certain appeal and reversal, what are the implications of this decision? First, there is no reason that the logic in Flo & Eddie does not extend beyond streaming webcasters to analog broadcasters, such as radio and television. It’s not clear why these companies would not now be squarely in the litigation cross-hairs of Flo & Eddie and others (mostly record companies) who own pre-1972 sound recordings.

lpSecond, this decision (if upheld) puts Internet service providers such as Youtube at risk of copyright infringement under state laws. If Youtube is not protected by the DMCA (as one court has already held in a case involving a different music locker), Youtube cannot claim immunity under that section of the federal copyright law, even if pre-1972 sound recordings were uploaded by users of the site. It would be liable for copyright infringement under the same theory used in Flo & Eddie – by streaming these recordings it is publicly performing them.

Despite Flo & Eddie’s win in the federal district court in California, this battle is by no means over. First, there is an argument that Sirius XM can press on appeal, either to the Ninth Circuit or to the California Supreme Court (if certified to that court), that given the fact that public performance rights in sound recordings did not exist as a historical matter before 1972, the California legislature never intended to create them for pre-1972 sound recordings. However, this seems a long-shot given the language of the California statute. If there were any legislative history to support this argument it would have been presented to the federal district court, so apparently there is none.

Second, there are several ways the federal legislature could step in and fix this problem (prospectively, at least) by amending the federal copyright statute. In fact, the Register of Copyrights has recommended exactly that. For example, Congress could bring sound recordings (pre- and post-1972, webcasting and otherwise) under the system of compulsory licensing regulated by the Copyright Royalty Board. Legislation to effect this has already been proposed.

Third, broadcasters could negotiate licenses for these works, either directly or through a new or existing performance rights organization.

Lastly, some commentators have argued that the Flo & Eddie/record company litigation strategy vis-a-vis pre-1972 sound recordings is an attempt to obtain leverage to increase the royalty rates paid under the compulsory license for post-1972 sound recordings, which means that a compromise on post-1972 royalty rates could resolve the dispute.

The final option for streaming companies and their terrestrial counterparts would be to eliminate pre-1972 sound recordings from their broadcasts, which would certainly be the worst outcome for music lovers.

Flo & Eddie v. Sirius XM (C.D. Cal. Sept. 22, 2014)

I’ve often advised vendor-clients that one of the best ways to protect themselves is to include an acceptance clause in their agreements. This can be accomplished either through an explicit acceptance clause or a short warranty period, which can function as a de facto acceptance clause. For some reason, many customers seem to forget about the acceptance clause, giving the vendor a strong defense to a claim of breach.

This is what happened in Samia v. MRI Software, decided by Massachusetts federal district court judge Nathaniel Gorton on October 9, 2014.

Samia purchased computer software, consulting and technical support from MRI. The License and Services Agreement provided for a 30 day warranty period, during which Samia could notify MRI of any non-conformities and trigger a “repair-and-replacement” clause. This was, in effect, a 30 day acceptance period – Samia had 30 days to vet the software and notify MRI of any defects. This was the sole and exclusive remedy, and all other remedies were disclaimed.

The contract contained a separate provision addressing defects related to custom work authorizations. Here, Samia had a 30 day acceptance period during which it could “test any project elements … and notify [MRI] of all potential deficiencies relative to the applicable specification for such work.”

To make a long story short, Samia claimed to have found non-conformities and deficiencies, but it failed to given written notice to MRI during the 30 day period following delivery. On this basis, the court allowed MRI’s motion for summary judgment on most of its claims, leaving alive only a claim of negligent misrepresentation based on oral promises allegedly made to Samia. However, little is left of Samia’s case at this point.

If you are a vendor, do your best to include an acceptance clause (or a short warranty period) in your agreements. If you are a customer, challenge this, but if you are forced to accept it, be sure to rigorously test any deliveries in a timely manner, to avoid the defense that defeated Samia in this case.

Samia Companies LLC v. MRI Software LLC (D. Mass. Oct. 9, 2014)

 

 

Two Recent Decisions Show the Strengths and Limitations of the CDA

Many observers have commented that if they had to identify one law that has had the greatest impact in encouraging the growth of the Internet, they would chose the Communications Decency Act  (“CDA”) (47 USC § 230). 

Under the CDA (also often referred to as “Section 230″) web sites are not liable for user submitted content. As a practical matter, in most cases this means Internet providers are not liable for defamation posted by users (many of whom are anonymous or judgment-proof).* 

*[note] The DMCA, not the CDA, provides Internet providers with safe harbors for claims of copyright infringement based on user submitted content.

Two recent cases illustrate the reach and limitations of this law. In one case the CDA was held to protect the website owner from liability for defamation. In the other, the law did not protect the website from potential liability based on negligence.

Jones v. Dirty World

The CDA provides immunity from information provided by users. However, if a site itself is the “content provider” — for example, the author of defamation —  it is legally responsible for the publication. In other words, the CDA does not give Internet providers or web site owners license to engage in defamation, only immunity when their users do so.

Under the CDA the term “content provider” is defined as a person “that is responsible, in whole or in part, for the creation or development of information ….” Therefore, in many cases, the issue has been who is responsible for the “creation or development” of the defamatory content – the poster or the site owner?

This was the issue before the U.S. Court of Appeals for the Sixth Circuit in Jones v. Dirty World Entertainment Recordings LLC.

Nik Richie owns Dirty World, an online tabloid (www.thedirty.com). Users, not Mr. Richie or his company, create most of the content, which often is unflattering to its subjects. However, Dirty World encourages offensive contributions by its “dirty army,” and it selects the items that are published from user contributions. In addition, Mr. Richie often adds a sentence or two of commentary or encouragement to the user contributions.

Sarah Jones, a teacher and cheerleader for the Cincinnati Bengals was repeatedly and crudely defamed on the site. However, the defamation was contained in the posts written and contributed by users, not Richie or his company. In fact, it’s easy to see that Ritchie had been carefully coached as to what he can and cannot say on the site (as distinct from what his contributors say).

Dirty World refused to remove the defamatory posts, and Sarah Jones (who apparently was unaware of the Streisland Effect) sued Richie. Two federal court trials ensued (a mistrial and a $338,000 verdict for Jones).

Before and during the trial proceedings Richie asserted immunity under the CDA. The trial judge, however, refused to apply the law in Dirty World’s favor. The district court held that “a website owner who intentionally encourages illegal or actionable third-party postings to which he adds his own comments ratifying or adopting the posts becomes a ‘creator’ or ‘developer’ of that content and is not entitled to immunity.” Of course, there was a reasonably strong argument that Dirty World and Ritchie did exactly this – encouraged defamatory postings and added comments that ratified or adopted the posts — and hence the jury verdict in Jones’ favor.

After the second trial Richie appealed to the U.S. Court of Appeals for the Sixth Circuit, which reversed, holding that Dirty World and Richie were immune from liability under the CDA.

The first question before the Sixth Circuit was whether Dirty World “developed” the material that defamed Sarah Jones. In a leading CDA case decided by the Ninth Circuit in 2008 — Fair Housing Council of San Francisco Valley v. Roommates, LLC —  the Ninth Circuit established the following “material contribution” test: a website helps to develop unlawful content, and therefore is not entitled to immunity under the CDA, if it “contributes materially to the alleged illegality of the conduct.”

The Sixth Circuit adopted this test, and held a “material contribution” meant ” being responsible for what makes the displayed content allegedly unlawful.” Dirty World was not responsible for the unlawful content concerning Ms. Jones.

Second, consistent with many other cases applying the CDA, the court held that soliciting defamatory submissions did not cause Dirty World to lose immunity.

Lastly, the Sixth Circuit rejected the district court’s holding that by “ratifying or adopting” third-party content a web site loses CDA immunity: A website operator cannot be responsible for what makes another party’s statement actionable by commenting on that statement post hoc. To be sure, a website operator’s previous comments on prior postings could encourage subsequent invidious postings, but that loose understanding of responsibility collapses into the encouragement measure of ‘development,’ which we reject.”

The $338,000 verdict was set aside, and the district court instructed to enter judgment in favor of Richie and Dirty World.

The Sixth Circuit’s decision was no surprise. Many people in the legal community believed that the trial court judge was in error in failing to dismiss this case before trial. Nevertheless, it is a reminder of how far the CDA can go in protecting website owners from user postings, and adds to the road map lawyers can use to make sure their clients stay on the “safe” side of the line between legal and illegal conduct under this law.

Jane Doe 14 v. Internet Brands (dba Modelmayhem.com)

Things went the other way for Modelmayhem, in a case decided by the Ninth Circuit on September 17, 2014.

Like Dirty World, this case involved a sympathetic plaintiff. The plaintiff, “Jane Doe,” posted information about herself on the “Model Mayhem” site, a mayhemnetworking site for the modeling industry. Two rapists used the site to lure her to a fake audition, at which they drugged and raped her. She alleged that Internet Brands knew about the rapists, who had engaged in similar behavior before her attack, but failed to warn her and other users of the site. She filed suit, alleging negligence based on “failure to warn.”*

*[note] The two men have been convicted of these crimes and sentenced to life in prison.

In this case, like Dirty World, the district court again got it wrong and was reversed on appeal. However, in this case the district court wrongly held that the site was protected by the CDA.

The Ninth Circuit disagreed, stating –

Jane Doe … does not seek to hold Internet Brands liable as a “publisher or speaker” of content … or for Internet Brands’ failure to remove content posted on the website. [The rapists] are not alleged to have posted anything themselves. … The duty to warn … would not require Internet Brands to remove any user content or otherwise affect how it publishes such content. … In sum, Jane Doe’s negligent failure to warn claim does not seek to hold Internet Brands liable as the “publisher or speaker of any information provided by another information content provider.” As a result, we conclude that the CDA does not bar this claim.

This ruling has raised the hackles on advocates of broad CDA coverage. Their “parade of horribles” resulting from this decision includes questioning how broadly the duty to warn extends, practical questions about how a web site would provide effective warnings, and concerns about various unintended (and as yet hypothetical) consequences that may result from this decision. However, based on the broad interpretation the courts have given the CDA in the last two decades, it seems unlikely that this case will have significant implications for CDA jurisprudence. Nevertheless, like Jones v. Dirty World, it is one more precedent lawyers must take into consideration in advising their clients.

Jones v. Dirty World Entertainment Recordings LLC (6th Cir. 2014)

Doe v. Internet Brands, Inc. (9th Cir. Sept. 17, 2014) 

 

Google Rolls the Dice, Files Cert Petition in Oracle Copyright Case

Google has filed a certiorari petition with the Supreme Court, asking it to review and reverse the Federal Circuit’s May 9, 2014 decision holding that the declaring code of Oracle’s Java API software is not copyrightable. I have written about this case on several occasions, most recently on May 10, 2014 (CAFC Reverses Judge Alsup – Java API Declaring Code Held Copyrightable).

Google framed the “question presented” (framing the question in such a way as to catch the interest of the court is an art form in itself) as follows:

Whether copyright protection extends to all elements of an original work of computer software, including a system or method of operation, that an author could have written in more than one way.

The Supreme Court accepts review of approximately 1% of of cases appealed to it, and therefore lawyers spend a great deal of time and effort to make their cases as significant and interesting as possible. Here, Google asks the Court to take the case in order to decide an issue the Court deadlocked on in 1996 in Lotus v. Borland. Google’s brief states:

In 1995, this Court granted certiorari in Lotus Development Corp. v. Borland International, Inc., 516 U.S. 233 (1996), to resolve the question presented here. The First Circuit had held―consistent with the plain language of 17 U.S.C. § 102(b) but in conflict with other courts of appeals―that methods of operation embodied in computer programs are not entitled to copyright protection. This Court deadlocked, affirming by an equally divided court. Two decades later, this oft-acknowledged circuit split has deepened and the question presented has grown even more important as software has become a fixture of modern life.

This case directly implicates the unanswered question in Lotus because the Federal Circuit extended copyright protection to systems and methods of operation, including computer interfaces. That holding would obstruct an enormous amount of innovation in fast-moving, high-technology industries, in part because innovation depends on software developers’ ability to build on what has come before. If the Federal Circuit’s holding had been the law at the inception of the Internet age, early computer companies could have blocked vast amounts of technological development by claiming 95-year copyright monopolies over the basic building blocks of computer design and programming. By the time Google and countless other innovators even came onto the scene, others could have locked up the field for longer than most people will live.

. . . [By holding that] copyright protection … extend[s] to a system or method of operation so long as there was more than one way to write it the Federal Circuit usurped Congress’s role, deepened a circuit split that this Court previously granted certiorari to resolve, allowed Oracle to use copyright law to evade the limits on patent protection, and thereby blocked developers from building on what has come before. The court did so, moreover, in one of the most important cases of its kind, concerning the widely used Java language and Android platform. This Court’s review is needed now, before tomorrow’s innovation falls victim to the decision below.

Google is correct in arguing that there is a circuit split over the issue presented in Lotus v. Borland. In fact, no federal circuit court has held (as the First Circuit did in Lotus), that methods of operation based in computer software are uncopyrightable, leaving the First Circuit an outlier on this issue.

However, whether this issue will attract the Court’s attention is impossible to know – four justices must vote in favor of review, but that decision is made in the context of all of the competing cases presented to the Court. If the Court does accept review — and if the Supreme Court decides the issue it was unable to resolve close to 20 years ago — this will be an important and interesting copyright case.

The Supreme Court rarely accepts review of copyright cases, but the Court reviewed two copyright cases in its last term, so perhaps momentum will play a role in its decision whether to accept review in this case.

For those interested in how the Supreme Court viewed this issue in 1996 based on oral argument, the transcript of oral argument is linked here.

Grooveshark's Lesson: Better to Ask Permission Than Forgiveness

One thing that any online “music locker” company that relies on third-party content and hopes to benefit from the DMCA safe harbor should know is that employees should not upload copyrighted content to the service. Nothing will blow up a DMCA defense faster.

It seems that Grooveshark (legally “Escape Media”), didn’t get this message. As Joshua Greenberg, one of Grooveshark’s co-founders wrote to employees in 2007:

Download as many MP3′s as possible, and add them to the folders you’re sharing on Grooveshark. Some of us are setting up special ‘seed points’ to house tens or even hundreds of thousands of files, but we can’t do this alone… There is no reason why ANYONE in the company should not be able to do this, and I expect everyone to have this done by Monday… IF I DON’T HAVE AN EMAIL FROM YOU IN MY INBOX BY MONDAY, YOU’RE ON MY OFFICIAL SHIT LIST.

Strong stuff, and not the kind of thing you want to have pop up in discovery.

Grooveshark has been the target of multiple industry lawsuits. Two, in particular, are an action in SDNY in which the court, on September 29, 2014, entered summary judgment against Grooveshark, and a New York state action alleging infringement of pre-1972 sounds recordings, which at present are not covered by federal copyright law.

However, it is difficult to see how the September 29th decision doesn’t mark the end of the line for Grooveshark. The decision holds Grooveshark and its two founders (Greenberg and Samuel Tarantino) liable for direct and secondary copyright infringement. A few additional quotes from the 57 page opinion tell the story:

  •  When it began “Grooveshark did not have a large user base to leverage as a source for content.” Therefore, it told its employees “to create Grooveshark user accounts and to store hundreds of thousands of digital music files on their computers in order to upload or ‘seed’ copies of these files to other Grooveshark users.”
  • “Escape’s senior officers searched for infringing songs that had [been] removed in response to DMCA takedown notices and re-uploaded infringing copies of those songs to Grooveshark to ensure that the music catalog remained complete.”
  • Grooveshark “was aware that its business model depended on the use of infringing content,” but decided to “bet the company on the fact that it is easier to ask forgiveness than it is to ask permission.”
  • After moving from a peer-to-peer to a centralized storage model, Grooveshark “designed its … software so that it would automatically copy every unique music file from each of its users’ computers and upload them to the storage library.  … Grooveshark referred to this as a ‘cache everything’ policy.” Grooveshark “instructed its employees to obtain copies of digital music files from any possible source and to upload them to the central music library.”

The court found that the Grooveshark employees uploaded more than 150,000 files, and that Grooveshark’s library of songs hit the company’s goal of  2 million files.

Needless to say, Grooveshark’s activities were blatantly illegal. While the DMCA provides safe harbors for web sites that host copyrighted work uploaded by third parties, it has no relevance to works uploaded by company employees, as was the case here. One can only wonder what Grooveshark’s owners and employees were thinking to participate in what bordered on group insanity.

Whether Grooveshark sought legal advice before embarking on this voyage of folly we may never know.

In any event, it is over now.  Grooveshark.com will soon be dark, and the two founders will be stripped of their assets or forced into bankruptcy. Grooveshark’s investors (yes, it appears that “angels” may have invested over $6 million in the company) will (to borrow from Samuel Clemens) not only receive no return on their money, they’ll receive no return of their money.

For some additional thoughtful comments on this case in the broader context of how the courts have come to view music sharing sites, see Jeff John Roberts’ post on GigaOm, here.

UMG Recording v. Escape Media Group, Inc. (S.D.N.Y Sept. 24, 2014)

California "Yelp" Bill, Guarantees Right to Post (Non-Defamatory) Reviews

Imagine this.

You go to a new dentist and, before she will take you as a patient she requires you to sign an agreement that you won’t post negative reviews of her on the Internet. You go to book a wedding reception at a restaurant and before they will book your reception they ask you to sign a similar document. Even worse, you must agree that if you do post a negative review, you will owe the restaurant a $500 fine.

The Internet has been full of stories of this sort, but now one state — California — has put a stop to it. And, as is sometimes said when it comes to new laws, as California goes, so goes the country.

A bill signed into law in California on September 9, 2014, popularly referred to as the “Yelp” bill, prohibits the use of “non-disparagement” clauses in consumer contracts. The law takes effect on January 1, 2015. 

Under the new law a “contract or proposed contract for the sale or lease of consumer goods or services may not include a provision waiving the consumer’s right to make any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services.” It will also be “unlawful to threaten or to seek to enforce” such a provision, or to “otherwise penalize” a consumer for making any such statement. The law carries statutory penalties ranging from $2,500 for the first offense, up to $10,000 for “willful” violations.

The impact of this law will not be limited to California businesses: it will apply to anyone doing business with consumers in California.

One aspect of this law that is important to understand is that it does not give consumers free license to defame businesses, nor does it limit the right of businesses to sue consumers for defamatory statements. It is limited to using a contract or proposed contract (whether online or on paper) to preclude the publication of reviews — even defamatory reviews — in the first place. If  a review is defamatory, the business owner’s legal rights remain as they were before enactment of this law.

Practice tip: it is possible that the new law will  be viewed as an invitation to class action plaintiffs to seek aggregated statutory damages. Therefore, it is important that companies that do business with consumers in California (whether the business itself is in California or not), review their contracts and online terms and conditions to remove non-disparagement clauses that would violate this law.

Now that the Massachusetts legislature has abandoned (at least until next session) a bill to make employer/employee noncompete agreements unenforceable (or more difficult to enforce) in Massachusetts, we’re back to business as usual in Massachusetts, and how the courts handle these cases remains of interest. And, since the preliminary injunction stage of these cases is so critical, how the courts handle preliminary injunction motions in noncompete cases is of particular interest.

Of course, noncompete law (sometimes statutory, sometimes “judge-made” case law) varies from state-to-state. A recent case highlights the extent to which even the procedure for handling these cases can differ from state-to-state.

In Massachusetts, the trial courts — federal or state — have no obligation to hold an evidentiary hearing when resolving a preliminary injunction motion. Affidavits are usually enough, and its rare to see a hearing with witnesses and cross-examination.

However, this is not the case in the 11th Circuit, which covers federal cases in Alabama, Florida and Georgia. The 11th Circuit recently held, in a noncompete case involving a preliminary injunction motion, that while an evidentiary hearing is not always required before issuance of a preliminary injunction, ““[w]here the injunction turns on the resolution of bitterly disputed facts … an evidentiary hearing is normally required to decide credibility issues. … where much depends upon the accurate presentation of numerous facts, the trial court erred in not holding an evidentiary hearing to resolve these hotly contested issues.”

The case was remanded to the trial court for a hearing.

Moral of the story: if you think an evidentiary hearing will improve your chances on a noncompete preliminary injunction motion, ask for one. Just maybe, you’ll get it. If the appealing party in this case had not asked for an evidentiary hearing, it would have had no basis for complaining, on appeal, about the failure of the court to grant one, and would not have obtained the reversal. While an Eleventh Circuit decision is only persuasive (not binding) on courts outside the Eleventh Circuit, a particular judge in another state could find it very persuasive, and an evidentiary hearing may make a difference in the outcome in the trial court. It also creates the basis for a good faith argument on appeal.

Moon v. Medical Technology Assoc. (11th Cir. Aug. 18, 2014)

Ninth Circuit Finds Barnes & Noble's "Browsewrap" Unenforceable

Online companies have often found it challenging to create enforceble terms of service (“TOS”), and the courts aren’t making it any easier. Perhaps the courts have concluded that, now that the Internet is an established commercial medium, they are not going to cut vendors any slack.

The latest decision illustrating this is the Ninth Circuit’s August 18, 2014 holding in Nguyen v. Barnes & Noble, holding that Barnes and Noble’s browsewrap agreement was not enforeable.

A website “browsewrap” agreement is where the online terms are posted on a site, typically via a link on the site’s homepage. By contrast, a “clickwrap” clickwraprequires the website user to take some affirmative action before engaging in a transaction (such as an online purchase). Typically this amounts to clicking a box on the site indicating that the user agrees to the site’s terms and conditions.

Where the user is not asked to “check the box” and the website relies on the posting alone, things can get messy. Barnes & Noble tried to impose an arbitration clause on a consumer based on a browsewrap, but the Ninth Circuit held that B&N’s browsewrap was not enforceable. Here, as is often true in these cases, the issue came down to vague factors such as where the terms were presented, and whether “a reasonably prudent user” would be put on notice of the terms. In this case, B&N didn’t do enough:

In light of the lack of controlling authority on point, and in keeping with courts’ traditional reluctance to enforce browsewrap agreements against individual consumers, we therefore hold that where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice. … the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers. Given the breadth of the range of technological savvy of online purchasers, consumers cannot be expected to ferret out hyperlinks to terms and conditions to which they have no reason to suspect they will be bound.

It is far from clear what constitutes a “conspicuous hyperlink” that would satisfy the test in this decision, but online business should stick with clickwrap agreements, rather than push the envelope with browsewraps. For a similar case that I wrote about in 2012, see Online Agreements – Easy To Get Right, Easy To Get Wrong.

Nguyen v. Barnes & Noble (9th Cir. Aug. 18, 2014).