Following the Supreme Court’s June 27, 2005 decision in MGM v. Grokster I wrote a short article about the case, in the style of a client consulting a lawyer about a file-sharing system.

Attorney: Judy, what brings you to my office today?

Client: John, I have an exciting idea, and I want to run it by you to make sure it passes legal muster. I’ve been involved in indie music and film for years; I have hundreds of contacts in the entertainment industry. People don’t realize what a huge body of uncommercialized work is out there! I’ve developed the most radical peer-to-peer file-sharing software you can imagine. It makes Napster, Grokster, Morpheus and all of the others look medieval by comparison. I think that musicians and video producers will contribute their works to this network to get publicity. My revenue model will be based on banner advertising. It’s perfect! I have no cost of inventory – my only costs are computers, networking, and sales commissions for my ad reps. The best thing is that although anyone can put their files on my network, the technology creates proprietary file structures, so that people can’t grab my files, convert them into MP3s, and publish them on a competing system.

Attorney: Judy, this sounds very promising. However, there are some legal issues that we should discuss. You know that on June 27th the Supreme Court issued its decision in the Grokster case?

Client: I vaguely knew that something was pending before the Supreme Court, but I’ve been too busy with my programmers to read the news this week. How does this case affect me?

Attorney: Well, the Court held that MGM could proceed with its copyright case against Grokster, and reading the decision it seems a forgone conclusion that the lower court will find that Grokster violated the copyright laws. The Supreme Court didn’t buy Grokster’s argument that it shouldn’t be held liable for contributory infringement because there were potential noninfringing uses for its software. So, is there any chance that people could rip copyrighted music or videos, convert them into your format, and use your network to engage in illegal file sharing?

Client: I suppose there is; I really can’t control that. Am I participating in copyright infringement if copyright pirates take advantage of my system, even if I don’t illegally copy files myself? We would never condone or participate in that kind of conduct, but I don’t see how we could stop it from happening.

Attorney: You may not have to. The facts in Grokster were pretty extreme. The evidence showed that at least 90% of the files available on Grokster’s system were unauthorized copies. Also, Grokster made some serious mistakes – there was evidence that they actively encouraged infringement …

Client: Wow, they really dug their own grave …

Attorney: …. they held themselves out openly as an alternative to Napster, made no effort to filter copyrighted material, didn’t block users who shared copyrighted files, and they even rejected an offer to help them monitor and reduce infringement.

Client: Interesting. Did the Court announce some kind of rule or holding that I can use as a guide for my company?

Attorney: They did. They said, and I quote, that it is illegal to distribute a device (including software), “with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement.” If you do that, you will be liable for acts of infringement by third parties who use your software.

Client: Well, I certainly can control what my company says. I’ll be careful never to indicate to the public that the purpose of my system is to copy unauthorized works

Attorney: Well, be careful Judy. Any internal emails, business plans or other communications would also show your intent, not just statements to the public.

Client: Thank you, I understand that John. But what does the Supreme Court mean when it talks about “fostering infringement”? Attorney: “Affirmative steps taken to foster infringement,” to use their exact language.

Client: What do they mean by that? Could the old media companies claim that I am fostering infringement simply by making this system available, despite my good intentions? After all, simply starting this file sharing system is an “affirmative step,” right?

Attorney: Yes, but it appears the Supreme Court wanted to avoid discouraging the creation of the kind of system you’re describing. They specifically stated, and again I quote, “mere knowledge of infringing potential or of actual infringing uses would not be enough here to subject a distributor to liability.” They emphasized that illegality requires “purposeful, culpable expression and conduct,” and that they did not want to discourage innovation.

Client: Well, that sounds good. But you said that in Grokster the Court was influenced by the fact that only 10% of the files shared were “legal,” and the rest were infringing. As a practical matter, I can’t prevent my system from being taken over largely by illegal file sharers. What if my system ends up the same way?

Attorney: Taking the Supreme Court at face value, there is no per se illegality based on percentages alone. As long as you have the proper “intent,” the fact that your system is used for illegal purposes shouldn’t be a problem.

Client: Hmmm … if that’s the case, what’s to stop someone from coming up with the next generation of Napster or Grokster, hiring good lawyers to make sure they behave properly and don’t express illegal intentions, and then sit back and get fat and happy on advertising fees while illegal file sharers take over and expand their system?

Attorney: Nothing, that I can see from this case. Someone might be able to get away with a scheme like that. It almost goes without saying that they’d have to be able to fight off attempts by the media companies to expand the ruling in Grokster and shut them down, so a large litigation budget would be essential.

Client: What else could such a company do to be on the safe side?

Attorney: Well, like so many Supreme Court cases, the decision is very complex, and there are depths we may not have time to go into now. Although all three judges agreed on the ultimate ruling (reversing the lower court ruling in favor of Grokster), there are three different opinions, each joined in by three of the nine justices, so there are three factions within the nine member court. There are areas of disagreement, and one can see some complex cross-currents running through the three opinions that suggest that not all issues related to file sharing and copyright law have been resolved. That said, there are a few things you can do to be conservative. First, believe it or not, the Court thought the names of the services suggested their bad intent. For example, “Grokster” was derived from “Napster,” suggesting an illegal service. So, a file sharing service should have a neutral name. Second, I’d be somewhat concerned if someone knew that their system had been hijacked and did absolutely nothing to curtail the situation. So if it’s technically possible and financially feasible, use some filtering technology to minimize illegal file sharing. There’s more, but ….

Client: That’s OK John, I’ve heard enough for today. This has been much more educational than I anticipated. This conversation we’ve just had is attorney-client privileged, of course?

Attorney: Of course Judy. Best of luck on your new venture. Let me know if you need any further assistance, and don’t forget to give me the URL.

Trademark Law. Last year I wrote (together with Susan Mulholland, an attorney at my firm), an article on the WhenU line of cases. We reviewed the three legal decisions that had been published to date on the WhenU technology: two from the district courts in Virginia and Michigan holding that WhenU’s practice was permissible; and one, from the federal district court in New York holding that WhenU had violated the Lanham Act, the federal trademark statute.

What does WhenU do that resulted in three federal court cases? In brief, once downloaded by a user (concealed in a “Trojan Horse” application), WhenU’s software will continuously monitor (invisibly, to the user) the user’s Internet browser to determine whether content accessed by the user matches key words stored in WhenU’s client directory. When the software finds a match for an associated key word – often a trademark or service mark – it triggers the SaveNow program to transmit a WhenU-branded pop-up ad to the user’s computer. The pop-up ad is selected from a list supplied by WhenU’s advertising clients, and may be a competitor of the owner of the mark that triggered the pop-up. The pop-up ad provides a hyperlink to the web site of WhenU’s client that, if clicked on, results in the competitor’s web site opening on the user’s computer.

That was enough to send U-Haul, Wells Fargo and 1-800 CONTACTS running to court in protest. Unfortunately, they had only federal trademark law as the basis for their complaint, and the courts in Virginia and Michigan held that since WhenU didn’t “use” their trademarks in a way that was visible to potential customers — that is, it never actually displayed the trademarks — preliminary injunctions were inappropriate.

The New York federal district court disagreed, and issued a preliminary injunction.

The Second Circuit reversed that preliminary injunction on June 27, 2005, permitting WhenU to resume its use of the 1-800-CONTACTS trademark in this manner. In brief, the Second Circuit held that there was no trademark infringement because the WhenU ads do not display the 1-800-CONTACTS trademark.

This case is important decision in the developing law of the use of keywords on the Internet.

Yesterday’s masters of the universe are today’s cosmic dust.
Anon
_____________________

What Were They Thinking? A case that has received enormous attention in Massachusetts is the Massachusetts Board of Bar Overseers investigation into the activities of several attorneys for the defendants in the Demoulas case, a state court case involving claims of breach of fiduciary duty surrounding the ownership of a large New England supermarket chain.

The case itself was a legal odyssey, spanning years and numerous state court decisions, but it is the aftermath of the litigation that stunned lawyers in Massachusetts and around the country. The losing defendants, dissatisfied with the decision of State Superior Court Judge Maria Lopez (who has since resigned in ignominy over a criminal molestation sentencing fiasco) and suspecting bias on her part, concocted a charade intended to induce the judge’s then law-clerk to disclose the inner workings of the judge’s chambers while the case was in litigation, and presumably prove that the judge’s clerk, rather than the judge herself, wrote the final (and most important) decision in the case.

The saga of how Gary Crossen (then of Foley, Hoag & Eliot, and former ethics counsel to two Massachusetts Governors), Richard Donahue (a former President of the Massachusetts Bar Association, chair of its Commission on Professionalism and President of Nike, Inc.), and Kevin Curry, (a former Massachusetts Assistant Attorney General), lured the judge’s former law clerk out-of-state in order to tape record his “confession,” attempted to bully him into signing an affidavit, conducted surveillance on him, and more, is described in agonizing detail in the 229 page decision. As a fan of hard-boiled detective novels (including Boston’s current claim to fame, Dennis LeHane, author of Mystic River and other engrossing works), I can only say that in Boston, reality is stranger than fiction.

After years of hearings and delays Bar Counsel issued her decision recommending the “ultimate sanction,” disbarment of all three attorneys. Her decision is now working its way through the Board of Bar Overseers and will ultimately be in the hands of a single Justice of the State Supreme Judicial Court. The consensus in the community appears to be that bar counsel’s decision will be followed.

Once again, we ask, “what were they thinking”? Even if the Demoulas lawyers had established that the Judge’s clerk had “done it” (written the fatal decision, that is), so what? What would they have done with that information? Used it as a basis to attack the integrity of the decision? Hardly a winning strategy.

  • You can read the case here

A word to the wise ain’t necessary, it’s the stupid ones who need the advice.
-Bill Cosby


 

What Were They Thinking? It fascinates me when lawyers do exceptionally stupid things. One would think that the successful completion of four years of college and three years of law school (not to mention years of experience watching clients do unwise things) would inoculate lawyers against the most foolish forms of human behavior. But, of course, experience shows otherwise. Even experienced lawyers are as likely to be rendered stupid by fear, greed, hatred and jealously, and to act on those emotions, as any other highly educated person.

A recently reported Massachusetts Superior Court case informs on this point. Although this case provides an interesting legal treatment of a contract issue (indeed, so interesting that the case was featured on the front page of Massachusetts Lawyers Weekly), it’s primary appeal is morbid curiosity. What was he thinking?

An attorney in good standing in Massachusetts (who will remain unnamed), was employed as Director of Procurement for Navisite. To make a somewhat long story short, his employment was terminated by Navisite in early 2002. After some back and forth over the terms of his severance, Navisite agreed to give the attorney two weeks severance pay ($5,300) and to pay his first month of COBRA benefits.

The lawyer, however, had other plans. After receiving this agreement from Navisite, he modified the boilerplate release language to provide:

“You will be paid eight hundred and fifty thousand dollars for wages earned, if not paid in full within seven days you will be paid three times this amount along with all your expenses and legal fees, all the officers and directors will be personally liable as well. ” [sic passim]

This language was added in such a way as not to attract Navisite’s attention to the alteration, and was signed and returned to Navisite without any mention of the change.

Navisite’s HR director briefly reviewed the document, didn’t spot the change, and signed the agreement.

Predictably, it was all downhill from there. After receiving the two weeks severance and the one month of COBRA benefits the lawyer made demand for $850,000 on Navisite and Navisite sued to rescind the agreement. The lawyer relied on the Massachusetts doctrine that “in the absence of fraud, one who signs a written agreement is bound by its terms whether he reads and understands it or not or whether he can read or not.” However, a Massachusetts Superior Court Judge had no trouble finding multiple grounds for rescinding the agreement (no meeting of the minds, unilateral mistake, unconscionably), and ordered the attorney to return to Navisite the severance payment he had received

This result was as predictable as rain in November in Boston. One hopes his attorney did not take this case on contingent fee.