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Lexmark v. Static Control – 12 Years and Still Going Strong

Jarndyce and Jarndyce drones on. This scarecrow of a suit has, in course of time, become so complicated, that no man alive knows what it means. The parties to it understand it least; but it has been observed that no two Chancery lawyers can talk about it for five minutes, without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause; innumerable young people have married into it; innumerable old people have died out of it.  . . . Bleak House, Charles Dickens

We were writing about Lexmark v. Static Control 9 years ago. (2005 article). The case itself dates back to 2002. And, after the Supreme Court decision on March 25, 2014, it is not yet over. Lovers of Bleak House may want to shift their gaze in the direction of this case.

At its outset this case involved allegations of copyright infringement and violation of the DMCA’s anti-circumvention provisions. Those issues were resolved by court decisions, but one issue lingered on: whether Static Control could proceed with its false advertising counterclaim against Lexmark under Section 43(a) of the Lanham Act, even though the parties are not direct competitors.  The Sixth Circuit held it could not, but the Supreme Court reversed, holding that it could. The Court ruled that a plaintiff who alleges injury to a commercial interest in reputation or sales flowing directly from the defendant’s actions in violation of the statute falls within the “zone of interests” Section 43(a) was designed to protect, even if the plaintiff and defendant are not direct competitors.

The short background on this case is as follows. Lexmark , a producer of toner cartridges for its laser printers, developed microchips for it toner cartridges and printers so that Lexmark printers would reject toner cartridges not containing a matching microchip. The goal, of course, was to frustrate remanufacturers of Lexmark printer cartridges, who had created a secondary market for used cartridges. Static Control replicated the cartridge microchips and sold them to the remanufacturers to enable the resale of Lexmark toner cartridges. Lexmark sued Static Control for copyright violations related to its source code in making the duplicate microchips, but Static Control won against that charge, leaving in place Static Control’s counterclaim that Lexmark had engaged in false advertising when it told remanufacturers that using Static Control’s products would constitute intellectual property infringement.*

*note: This summary is oversimplified.  See the Sixth Circuit’s decision for full details.

The Sixth Circuit held that Static Control could not maintain its false advertising claim since, technically speaking, Static Control and Lexmark are not actual competitors – Static Control sells microchips, while Lexmark sells toner cartridges.

In the view of the Sixth Circuit, this distinction was fatal to Static Control’s false advertising counterclaim. However, the Supreme Court rejected a potpourri of different legal tests applied by the various federal circuit courts (including the Sixth Circuit), concluding that the issue was whether a false advertising plaintiff such as Static Control falls within the class of plaintiffs whom Congress has authorized to sue under the federal false advertsing statute, Section 43(a) of the Lanham Act. Using this approach, the Court created a two-part test: (1) whether the claim is within the “zone of interests” protected by the Lanham Act and (2) whether the alleged conduct proximately caused the alleged injury. The Court held that to meet part one of this test a plaintiff must plead “an injury to a commercial interest in reputation or sales.” To meet the second part a plaintiff must plead “economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising” and that the deception causes consumers to withhold business from the plaintiff.

The Court found that Static Control’s allegations satisfied both components of this test. Having liberalized the test for standing in Lanham Act Section 43(a) false advertising cases, the Court sent the case back to the federal district court for the Eastern District of Kentucky, where Static Control will have an opportunity to attempt to prove that it suffered injury proximately caused by Lexmark’s alleged misrepresentations and where the case will resume, perhaps to someday challenge the longevity of Jarndyce v. Jarndyce.

Lexmark Int’l v. Static Components, Inc. (U.S. Supreme Court, March 25, 2014)

Mass Law Blog, Update Week Ending March 21, 2014

  • 9th Circuit holds copyright registration of a collective work registers the component works within it. Alaska Stock v. Houghton Mifflin (link)
  • The PTO held its first Public Meeting on the Establishment of a Multistakeholder Forum on Improving the Operation of the Notice and Takedown System Under the DMCA (link)
  • Long-running DMCA copyright suit settles. Viacom v. Youtube (press release) (blog post)
  • Parties settle remaining issues in Prince v. Cariou copyright fair use case (blog post)
  • Columbia Law Prof. Jane Ginsburg’s article on EU linking decision, Hyperlinking and Infringement: The CJEU Decides (sort of) (link)
  • Prof. Eric Goldman’s post on Gardner v. CafePress (copyright/DMCA case; link to case in post) (link)
  • Sup. Ct. Cal., County of San Francisco, holds that Instagram’s unilateral change of terms of service is enforceable (link)
  • Michael Robertson, founder of MP3Tunes, found liable for copyright infringement in SDNY trial (link)

Viacom v. Youtube: Mother of All DMCA Copyright Cases Settles

According to my count, I’ve written seven posts on the Viacom v. Youtube DMCA copyright case. The first time I mentioned Youtube and the DMCA was in October 2006, over 7 years ago. Referencing Mark Cuban’s comment that Youtube would be “sued into oblivion” I stated:

Surprisingly few observers have asked the pertinent question here: do the Supreme Court’s 1995 Grokster decision and the DMCA (the Digital Millennium Copyright Act) protect YouTube from liability for copyright-protected works posted by third parties . . ..?

In fact, Youtube was acquired by Google for $1.65 billion. It was then sued by a group of media companies, resulting in a marathon lawsuit that never went to trial, but yielded two district court decisions and one Second Circuit decision on the issues I identifed in 2006. As I described in a two-part post in December 2013/January 2014, the second appeal to the Second Circuit had been fully briefed and was awaiting oral argument. Now the case has settled, on confidential terms of course. However, demonstrating the extent to which the interests of the media companies and Youtube have converged, the joint press release contained the unusual statement that the “settlement reflects the growing collaborative dialogue between our two companies on important opportunities, and we look forward to working more closely together.”

We may never know the terms of the settlement, but rumor has it that the plaintiffs received no money in this settlement. My guess is they recovered a  token amount, if anything. All three decisions favored Youtube, and Viacom’s case had been whittled down to next to nothing, even if it had been able to persuade the Second Circuit to crack the door a bit and remand the case a second time for damages on a limited number of video clips.

However, the settlement leaves some important questions unanswered:

  • Viacom’s argument that web sites don’t have to take any actions to “induce infringement” – that this basis for liability can be found based on the owner’s intent or state of mind alone – remains unresolved. This is the Grokster issue I identified in 2006. While I think Viacom’s argument was weak, it would have been helpful to have the Second Circuit resolve it.
  • Since the Second Circuit’s first ruling in April 2012 the courts have read the decision to reduce protection for web sites. Courts in New York applying the Second Circuit decision have held that a website can lose DMCA protection if it becomes aware of a specific infringement, or if it is aware of facts that would make it “obvious to a reasonable person” that a specific clip is infringing. Because the case has settled, the Second Circuit will have no opportunity to clarify this standard, at least in this case.
  • The Second Circuit will have no opportunity to clarify the  “actual knowledge”/”facts or circumstances” sections of the DMCA. The distinction between these two provisions remains confusing to the lower courts and to lawyers who must advise their clients under this law.
  • The Second Circuit will have no opportunity to clarify its controversial comments (in its first decision) on “willful blindness,” and help the courts reconcile this concept with the DMCA’s notice-and-takedown procedure. As noted above, the settlement leaves in place the Second Circuit’s implication that awareness of specific infringement may result in infringement liability even in the absence of a take-down notice.

It’s likely that other cases presenting these issues will make their way to the Second Circuit (arguably the nation’s most influential copyright court), but it could be years before that happens. The industry could have used additional guidance in the meantime, and one consequence of this settlement is that it will  get it later rather than sooner, if at all.

 

 

MyMovingReviews.com Unable to Obtain Dismissal Under CDA

According to Massachusetts U.S. District Court Judge O’Toole the defendants in Moving and Storage, Inc. v. Payanatov are in the moving business and operate a web site at MyMovingReviews.com which, they claim, reflects neutral consumer reviews of moving companies.

Not true, assert some of their competitors and the plaintiffs in this case. The plaintiffs allege that MyMovingReviews manipulates the reviews, deleting positive reviews of the plaintiffs and deleting negative reviews of their own company.

Web sites that allow consumer reviews are protected from copyright infringement under the DMCA, and from tort (e.g. defamation) claims under the Communications Decency Act (CDA) assuming, in each instance, that they meet the often strict requirements of the statutes. The defendants claimed the protection of the CDA, and moved to dismiss under that law. Not so, held Judge O’Toole –

The plaintiffs’ claims do not arise from the content of the reviews, whether they be disparaging, laudatory, or neither, but instead, the defendants’ alleged ill-intentioned deletion of positive reviews of the plaintiffs’ moving companies and deletion of negative reviews of their own company, coupled with various representations – that the website offers “accurate” data, that it is “serious about reviews quality,” and that readers “see the most accurate and up to date rating information to base your decision on.” The manner in which the information is presented, or withheld, is the conduct at issue, as well as the allegedly misleading ratings which result from such alleged manipulations. Such conduct provides substantial basis to find that the defendants were developers of the alleged misinformation.

The defendants argued that they were allowed to delete reviews under Section 230(c)(2) of the CDA, which provides that no operator of a website shall be liable for restricting access to material it deems (among other things) objectionable. However, the CDA requires that the website owner show good faith, and the plaintiffs had alleged bad faith.

The court also refused to dismiss a claim of copyright infringement based on the allegation that MyMovingReviews had copied text from a website belonging to one of the plaintiffs.

The court did, however, dismiss claims based on false advertising, unfair competition, tortious interference and trademark infringement. As to the last of these claims, the court rejected an argument in support of trademark infringement based on the controversial (and largely discredited) “initial interest confusion” doctrine, finding that plaintiffs had failed to adequately allege “confusion.”

Mass Law Blog Update – Week Ending March 14, 2014

  • First Circuit holds that failure to register copyrights in underlying musical compositions dooms copyright infringement claims. Alecia v. Machete Music (link)
  • N. Dist. Cal. court holds that websites copy of photo of politician is protected by copyright fair use doctrine. Dhillon v. Does 1-10 (link)
  • The 9th Circuit has declared open season on the petition for rehearing or hear en banc in its decision in Garcia v. Google – anyone can file an amicus brief (link). This case has been the subject of massive criticism by the copyright community, and it seems likely that it is headed for en banc review.
  • Techdirt: Google Points Out That Even the Copyright Office Thinks Judge Kozinski’s ‘Innocence of Muslims’ Rule is Wrong. Techdirt sums up recent developments in Garcia v. Google, including the fact that the plaintiff has been unable to obtain a copyright registration (see first bullet above). (link)
  • Hearings of House Subcommittee on Courts, Intellectual Property and the Internet on March 13, 2014.  Topic this week was the DMCA (link)
  • Atlantic article, Our Best Weapon Against Revenge Porn: Copyright Law? (link)
  • Columbia Law Professor Jane Ginsburg (daughter of Supreme Court Justice Ginsburg), Aereo in International Perspective: Individualized Access and U.S. Treaty Obligations (link)

  • David Nimmer (Nimmer on Copyright) says Second Circuit got it wrong in Aereo case. Responds Aereo: “ouch” (link)
  • The courts are unable to agree on when an idea is “abstract,” and therefore ineligible for patent protection under the non-statutory “abstract idea” test. The Supreme Court will take up this issue again in Alice Corporation Pty. Ltd. v. CLS Bank Internationalwhich is scheduled for oral argument on March 31st.  But, briefing is complete and Dennis Crouch summarizes the arguments on Patently-O. (link)
  • D. Mass. judge denied motion to dismiss claim against company hosting third-party web site reviews (mymovingreviews.com) under Communications Decency Act (CDA), on grounds that there is substantial basis to conclude that the defendants (not third parties) were the developers of the information at issue.  Moving and Storage, Inc. v. Panayotov (link)
  • E.D. Mich. judge struggles with copyright and trademark claims against a variety of high profile defendants (Sports Illustrated, Walmart, Getty Images) arising out of 1991 still photo of a moment in a football game between the U. of Michigan Wolverines and the Ohio State Buckeyes.  (link)
  • Week 7 CopyrightX – The Rights to Reproduce and Modify (link to Lecture 7.1)