e-Commerce Docket Sheet

The Virginia anti-spam statute, which makes sending certain unsolicited bulk commercial e-mail a felony, is not invalid under the Commerce Clause or other provisions of the U.S. Constitution or the federal CAN-SPAM Act. Commonwealth of Virginia v. Jaynes, No. 15585 (Va. Cir. Ct. Aug. 11, 2004). The court rejected numerous arguments by three defendants charged with felonies under the Virginia statute, finding, among other things, that the statute was not an unlawful, content-based prior restraint on speech. The court also ruled that the statutory prohibition against the use of false e-mail transmission and routing information didn't violate the defendants' right to correspond anonymously. The court added that the statute did not violate the Commerce Clause, because the state had a legitimate interest in protecting networks, servers and their subscribers within the state, and the prohibition against the use of false transmission or router information did not unduly burden interstate commerce. The court noted, too, that the Virginia statute fell within the exception in the pre-emption provision of the federal CAN-SPAM Act, which allows states to enforce anti-spam laws prohibiting “falsity or deception” in commercial e-mail messages.

---

P2P Software Distributors
Not Secondarily Liable For
Users' Infringement

Peer-to-peer file-sharing software distributors are not contributorily or vicariously liable for copyright infringement committed by those who use the software. Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd., No. 03-55894, 2004 U.S. App. LEXIS 17471 (9th Cir. Aug. 19, 2004). The court concluded that the software is capable of “substantial non-infringing uses” within the meaning of the U.S. Supreme Court decision in Sony Corp. v. Universal City Studios, 464 U.S. 417 (1984) (the “Betamax” case), despite the allegations of the plaintiff copyright owners that the vast majority of the software use was for infringing purposes. The court found that the design of the software was “of great import” in analyzing the issue of secondary liability, and noted the evidence showing that the software was designed so that the software developers did not maintain operational control over the network the software created. The court concluded, therefore, that the software developers did not have “reasonable knowledge of specific infringement” by the software users, nor did the distributors “materially contribute” to the infringement. The court similarly concluded that the defendants were not liable for vicarious infringement, because they lacked ability to block individual users' network access.

---

Offering Credit Payment
Services Doesn't Set
Secondary Liability

The mere provision of credit-card payment services to allegedly infringing Web sites doesn't give rise to secondary liability for copyright- and trademark-infringement, and other California state law causes of action. Perfect 10, Inc. v. Visa International Service Assn, No. C 04-0371 JW, 2004 U.S. Dist. LEXIS 15895 (N.D. Cal. Aug. 5, 2004). The court ruled that the plaintiff's contributory copyright and trademark liability claims were insufficient because the plaintiff had not pleaded facts supporting a conclusion that the payment services assisted in the Web sites' infringing activities, such as by providing the means of distribution, transfer or storage of the works. The vicarious liability claims were ruled insufficient because there were no facts supporting a conclusion that the payment services had the right to dictate the Web sites' content, such as by requiring the sites to shut down or delete infringing material. Theories of secondary liability for various state law claims were also rejected. The court found that secondary liability for claims of unfair competition was barred under California law. Theories of secondary liability for violation of rights of publicity and false advertising were rejected for failure to establish that the services aided and abetted the violations. Secondary liability claims for libel and intentional interference with economic relations were rejected as time-barred and otherwise legally insufficient.

---

e-Article Copies
Outside 1st Context
Aren't Copyright Revision

Reproduction of copyrighted images in an electronic periodicals database was not a privileged “revision” under Section 201(c) of the Copyright Act where the images could be viewed individually, outside the context in which they appeared in the original periodical. Auscape International v. National Geographic Society, No. 02 Civ. 6441 (S.D.N.Y. Aug. 12, 2004). The court concluded that the result was compelled by the U.S. Supreme Court decision in The New York Times v. Tasini, 433 U.S. 583 (2001), which involved electronic versions of magazine articles. The court came to the opposite conclusion about publication of microform copies of the publications containing the copyrighted images, finding that the images appeared “in precisely the position in which [they] appeared” in the original publication, and thus the publication was a privileged revision.

---

1st Sale Doctrine Doesn't Apply To 'Academic' License

The limitations in an “academic” license of software to an educational institution indicate that the transaction was a license rather than a sale. Novell, Inc. v. Unicom Sales, Inc., No. C-03-2785, 2004 U.S. Dist. LEXIS 16861 (N.D. Cal. Aug 17, 2004). The court noted numerous restrictions in the license that were inconsistent with a sale transaction, including the 1-year license period, the use limitation to the academic institution's students and employees, and the requirement that the software be returned at the end of the 1-year period. The court accordingly rejected the argument that the software developer's copyright and trademark infringement claims against a subsequent reseller of the software were barred by the first-sale doctrine.

---

Buyer, Anti-trust Factors Weighed
In Embedded Software Decision

A competitor's access to copyrighted software embedded in a garage-door opening system is not unauthorized within the meaning of the Digital Millennium Copyright Act (DMCA) where the manufacturer did not prohibit consumers from using third-party transmitters in conjunction with the system. The Chamberlain Group, Inc. v. Skylink Technologies, Inc., No. 04-1118 (Fed. Cir. Aug. 31, 2004). The court narrowly construed the act's anticircumvention provisions, commenting that accepting the manufacturer's position “would allow any manufacturer of any product to add a single copyrighted sentence or sentence fragment in a product, wrap the copyrighted material in a trivial 'encryption' scheme, and thereby gain the right to restrict consumers' rights to use its products in conjunction with competing products,” raising questions of antitrust and copyright misuse. The court also commented that the anticircumvention provisions of the DMCA were not intended to “eliminate all existing consumer expectations about the public's rights to use purchased products because those products might include technological measures controlling access to a copyrighted work.”

---

GPL-Licensed Software Doesn't
Waive Rights In Resulting Code

The use of the “Bison” parser licensed under the GNU General Public License (GNU GPL) to create software code does not prevent a developer from asserting proprietary rights in the code output by the parser. Computer Associates International v. Quest Software, Inc., No. 02 C 4721, 2004 U.S. Dist. LEXIS 11832 (N.D. Ill. June 28, 2004). Under the GNU GPL, the court noted, a user of the code making up the Bison program is restricted from claiming proprietary rights in any subsequent modification or distribution of the code. The court found, however, that the license accompanying the Bison parser contained a specific exception for output files the parser created, releasing such files from license restrictions.

---

Search Term Sale 'Use In Commerce' Under Lanham Act

Allowing advertisers to bid on trademarked terms and pay search-engine operators to be linked to those trademarks constitutes a “use” of those trademarks “in commerce” under the Lanham Act. Government Employees Insurance Co. v. Google, Inc., No. 1:04cv507 (E.D. Va. Aug. 25, 2004). The court declined to dismiss the trademark owner's infringement claims, concluding that when the search-engine operators sold the rights to link advertising to the trademark terms, they were “using the trademarks in commerce in a way that may imply that defendants have permission from the trademark holder to do so.” The court also declined to dismiss claims of contributory and vicarious trademark infringement, finding that the trademark owner's complaint alleged facts sufficient to support a conclusion that the search-engine operators exercised “significant control” over the content of advertising appearing on their search-results pages.

---

Domain Name Use For Critical Comment
Ruled Protected Speech

An injunction prohibiting a domain-name holder from linking to Web sites containing disparaging or negative commentary concerning a trademark holder is an invalid content-based restriction on noncommercial speech. Nissan Motor Co. v. Nissan Computer Corp., No. 02-57148 (9th Cir. Aug. 6, 2004). The court concluded that injunctive relief under the Federal Trademark Dilution Act (FTDA) was improper because the links to disparaging commentary fell within the exception in the FTDA for “noncommercial use” of a mark. The court commented that the links to negative commentary about the plaintiff and its litigation with the defendant “reflect a point of view” that is protected by the First Amendment. The court also ruled, however, that the defendant's use of the domain name for automobile-related advertising constituted actionable trademark infringement, and upheld the trial court's entry of summary judgment on those uses. The court remanded for further proceedings on the plaintiff's FTDA claims, including factual determinations concerning when the plaintiff's mark became famous, and whether the plaintiff could show actual dilution of the mark under the standard set by the U.S. Supreme Court in Moseley v. V Secret Catalogue, 537 U.S. 418 (2003).

---

Lack Of Standards In Trademark
License Constitutes Abandonment

A trademark license that does not contain any “distinct or cognizable” limits on the quality of goods that may be produced or distributed under the mark is a “naked license,” that granting constitutes an abandonment of the trademark. Halo Management, LLC v. Interland, Inc., No. C-03-1106, 2004 U.S. Dist. LEXIS 15563 (N.D. Cal. Aug. 10, 2004). The trademark license gave the licensee the right to “worldwide use and registration” of the mark and imposed only the obligation that the licensee “employ reasonable commercial efforts” to maintain the mark's business value. The court noted that the trademark license did not contain any “explicit or definite quality control terms” nor were there any “objective, enforceable terms” that guided or limited the licensee's use of the mark. Furthermore, the court noted, the licensee did not reserve the right to terminate the license if the licensee breached its obligation to maintain the mark's “positive business value.”

---

Julian S. Millstein Edward A. Pisacreta Jeffrey D. Neuburger

Criminal Provisions Of VA Anti-Spam Statute
Valid Under Constitution, CAN-SPAM Act

The Virginia anti-spam statute, which makes sending certain unsolicited bulk commercial e-mail a felony, is not invalid under the Commerce Clause or other provisions of the U.S. Constitution or the federal CAN-SPAM Act. Commonwealth of Virginia v. Jaynes, No. 15585 (Va. Cir. Ct. Aug. 11, 2004). The court rejected numerous arguments by three defendants charged with felonies under the Virginia statute, finding, among other things, that the statute was not an unlawful, content-based prior restraint on speech. The court also ruled that the statutory prohibition against the use of false e-mail transmission and routing information didn't violate the defendants' right to correspond anonymously. The court added that the statute did not violate the Commerce Clause, because the state had a legitimate interest in protecting networks, servers and their subscribers within the state, and the prohibition against the use of false transmission or router information did not unduly burden interstate commerce. The court noted, too, that the Virginia statute fell within the exception in the pre-emption provision of the federal CAN-SPAM Act, which allows states to enforce anti-spam laws prohibiting “falsity or deception” in commercial e-mail messages.

---

P2P Software Distributors
Not Secondarily Liable For
Users' Infringement

Peer-to-peer file-sharing software distributors are not contributorily or vicariously liable for copyright infringement committed by those who use the software. Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd., No. 03-55894, 2004 U.S. App. LEXIS 17471 (9th Cir. Aug. 19, 2004). The court concluded that the software is capable of “substantial non-infringing uses” within the meaning of the U.S. Supreme Court decision in Sony Corp. v. Universal City Studios , 464 U.S. 417 (1984) (the “Betamax” case), despite the allegations of the plaintiff copyright owners that the vast majority of the software use was for infringing purposes. The court found that the design of the software was “of great import” in analyzing the issue of secondary liability, and noted the evidence showing that the software was designed so that the software developers did not maintain operational control over the network the software created. The court concluded, therefore, that the software developers did not have “reasonable knowledge of specific infringement” by the software users, nor did the distributors “materially contribute” to the infringement. The court similarly concluded that the defendants were not liable for vicarious infringement, because they lacked ability to block individual users' network access.

---

Offering Credit Payment
Services Doesn't Set
Secondary Liability

The mere provision of credit-card payment services to allegedly infringing Web sites doesn't give rise to secondary liability for copyright- and trademark-infringement, and other California state law causes of action. Perfect 10, Inc. v. Visa International Service Assn, No. C 04-0371 JW, 2004 U.S. Dist. LEXIS 15895 (N.D. Cal. Aug. 5, 2004). The court ruled that the plaintiff's contributory copyright and trademark liability claims were insufficient because the plaintiff had not pleaded facts supporting a conclusion that the payment services assisted in the Web sites' infringing activities, such as by providing the means of distribution, transfer or storage of the works. The vicarious liability claims were ruled insufficient because there were no facts supporting a conclusion that the payment services had the right to dictate the Web sites' content, such as by requiring the sites to shut down or delete infringing material. Theories of secondary liability for various state law claims were also rejected. The court found that secondary liability for claims of unfair competition was barred under California law. Theories of secondary liability for violation of rights of publicity and false advertising were rejected for failure to establish that the services aided and abetted the violations. Secondary liability claims for libel and intentional interference with economic relations were rejected as time-barred and otherwise legally insufficient.

---

e-Article Copies
Outside 1st Context
Aren't Copyright Revision

Reproduction of copyrighted images in an electronic periodicals database was not a privileged “revision” under Section 201(c) of the Copyright Act where the images could be viewed individually, outside the context in which they appeared in the original periodical. Auscape International v. National Geographic Society, No. 02 Civ. 6441 (S.D.N.Y. Aug. 12, 2004). The court concluded that the result was compelled by the U.S. Supreme Court decision in The New York Times v. Tasini , 433 U.S. 583 (2001), which involved electronic versions of magazine articles. The court came to the opposite conclusion about publication of microform copies of the publications containing the copyrighted images, finding that the images appeared “in precisely the position in which [they] appeared” in the original publication, and thus the publication was a privileged revision.

---

1st Sale Doctrine Doesn't Apply To 'Academic' License

The limitations in an “academic” license of software to an educational institution indicate that the transaction was a license rather than a sale. Novell, Inc. v. Unicom Sales, Inc., No. C-03-2785, 2004 U.S. Dist. LEXIS 16861 (N.D. Cal. Aug 17, 2004). The court noted numerous restrictions in the license that were inconsistent with a sale transaction, including the 1-year license period, the use limitation to the academic institution's students and employees, and the requirement that the software be returned at the end of the 1-year period. The court accordingly rejected the argument that the software developer's copyright and trademark infringement claims against a subsequent reseller of the software were barred by the first-sale doctrine.

---

Buyer, Anti-trust Factors Weighed
In Embedded Software Decision

A competitor's access to copyrighted software embedded in a garage-door opening system is not unauthorized within the meaning of the Digital Millennium Copyright Act (DMCA) where the manufacturer did not prohibit consumers from using third-party transmitters in conjunction with the system. The Chamberlain Group, Inc. v. Skylink Technologies, Inc., No. 04-1118 (Fed. Cir. Aug. 31, 2004). The court narrowly construed the act's anticircumvention provisions, commenting that accepting the manufacturer's position “would allow any manufacturer of any product to add a single copyrighted sentence or sentence fragment in a product, wrap the copyrighted material in a trivial 'encryption' scheme, and thereby gain the right to restrict consumers' rights to use its products in conjunction with competing products,” raising questions of antitrust and copyright misuse. The court also commented that the anticircumvention provisions of the DMCA were not intended to “eliminate all existing consumer expectations about the public's rights to use purchased products because those products might include technological measures controlling access to a copyrighted work.”

---

GPL-Licensed Software Doesn't
Waive Rights In Resulting Code

The use of the “Bison” parser licensed under the GNU General Public License (GNU GPL) to create software code does not prevent a developer from asserting proprietary rights in the code output by the parser. Computer Associates International v. Quest Software, Inc ., No. 02 C 4721, 2004 U.S. Dist. LEXIS 11832 (N.D. Ill. June 28, 2004). Under the GNU GPL, the court noted, a user of the code making up the Bison program is restricted from claiming proprietary rights in any subsequent modification or distribution of the code. The court found, however, that the license accompanying the Bison parser contained a specific exception for output files the parser created, releasing such files from license restrictions.

---

Search Term Sale 'Use In Commerce' Under Lanham Act

Allowing advertisers to bid on trademarked terms and pay search-engine operators to be linked to those trademarks constitutes a “use” of those trademarks “in commerce” under the Lanham Act. Government Employees Insurance Co. v. Google, Inc., No. 1:04cv507 (E.D. Va. Aug. 25, 2004). The court declined to dismiss the trademark owner's infringement claims, concluding that when the search-engine operators sold the rights to link advertising to the trademark terms, they were “using the trademarks in commerce in a way that may imply that defendants have permission from the trademark holder to do so.” The court also declined to dismiss claims of contributory and vicarious trademark infringement, finding that the trademark owner's complaint alleged facts sufficient to support a conclusion that the search-engine operators exercised “significant control” over the content of advertising appearing on their search-results pages.

---

Domain Name Use For Critical Comment
Ruled Protected Speech

An injunction prohibiting a domain-name holder from linking to Web sites containing disparaging or negative commentary concerning a trademark holder is an invalid content-based restriction on noncommercial speech. Nissan Motor Co. v. Nissan Computer Corp., No. 02-57148 (9th Cir. Aug. 6, 2004). The court concluded that injunctive relief under the Federal Trademark Dilution Act (FTDA) was improper because the links to disparaging commentary fell within the exception in the FTDA for “noncommercial use” of a mark. The court commented that the links to negative commentary about the plaintiff and its litigation with the defendant “reflect a point of view” that is protected by the First Amendment. The court also ruled, however, that the defendant's use of the domain name for automobile-related advertising constituted actionable trademark infringement, and upheld the trial court's entry of summary judgment on those uses. The court remanded for further proceedings on the plaintiff's FTDA claims, including factual determinations concerning when the plaintiff's mark became famous, and whether the plaintiff could show actual dilution of the mark under the standard set by the U.S. Supreme Court in Moseley v. V Secret Catalogue , 537 U.S. 418 (2003).

---

Lack Of Standards In Trademark
License Constitutes Abandonment

A trademark license that does not contain any “distinct or cognizable” limits on the quality of goods that may be produced or distributed under the mark is a “naked license,” that granting constitutes an abandonment of the trademark. Halo Management, LLC v. Interland, Inc., No. C-03-1106, 2004 U.S. Dist. LEXIS 15563 (N.D. Cal. Aug. 10, 2004). The trademark license gave the licensee the right to “worldwide use and registration” of the mark and imposed only the obligation that the licensee “employ reasonable commercial efforts” to maintain the mark's business value. The court noted that the trademark license did not contain any “explicit or definite quality control terms” nor were there any “objective, enforceable terms” that guided or limited the licensee's use of the mark. Furthermore, the court noted, the licensee did not reserve the right to terminate the license if the licensee breached its obligation to maintain the mark's “positive business value.”

---

Julian S. Millstein Edward A. Pisacreta Jeffrey D. Neuburger New York Brown Raysman Millstein Felder & Steiner LLP