e-Commerce Docket Sheet

The U.S. Supreme Court has granted the petition for certiorari filed by movie studios seeking to hold distributors of peer-to-peer file-sharing software liable for copyright infringement by users of their software. Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd, 380 F.3d 1154 (9th Cir. Aug. 19, 2004), cert. granted (U.S. Dec. 18, 2004). The Ninth Circuit held that the distributors were not contributorily or vicariously liable for such infringement, concluding that the software is capable of “substantial non-infringing uses” within the meaning of the Supreme Court's decision in Sony Corp. v. Universal City Studios, 464 U.S. 417 (1984) (the “Betamax” case).

The U.S. Supreme Court agreed to review a challenge to the 2002 ruling by the Federal Communications Commission (FCC) that cable modem service is an “interstate information service” and not a “telecommunications service.” NCTA v. Brand X Internet Services, No. 04-277 & FCC v. Brand X Internet Services, No. 04-281 (cert. granted Dec. 3, 2004). In 2003, the Ninth Circuit Court of Appeals vacated the FCC ruling, which had the effect of removing cable modem service from regulation by federal and state authorities under the Telecommunications Act.

The wholesaler, which shipped products directly to Massachusetts consumers at the direction of Internet retailers, is not liable for Massachusetts sales tax on the transactions. In re Valley Media, Inc., 2004 Bankr. LEXIS 2061 (D. Del. Dec. 29, 2004). The bankruptcy court disallowed the state sales tax authority's claim for unpaid taxes against the estate of the bankrupt wholesaler, finding that the wholesaler did not deliver goods in Massachusetts within the meaning of the state sales tax statute. Under the agreement between the wholesaler and the retailers, the court found, delivery of the goods took place when they were deposited at a shipping facility in California. The court also noted that the wholesaler had no direct relationship with the consumers, and the “economic consequences” of the transaction to the wholesaler were “essentially the same as with a conventional sale to a retailer followed by resale to a customer with delivery by the retailer.”

Federal courts are bound by the Federal Communications Commission (FCC) ruling that Vonage Internet telephony service is exempt from state public utilities commission regulation. Vonage Holdings Corp. v. The Minnesota Public Utilities Commission, 2004 U.S. App. LEXIS 26748 (8th Cir. Dec. 22, 2004). The district court ruled in October 2003 that the Vonage service is exempt from state regulation and while the Minnesota PUC appeal was pending, the FCC issued its declaratory ruling, consistent with the ruling of the district court. The circuit court ruled that under the federal Administrative Orders Review Act (the Hobbs Act), the Minnesota PUC's only remedy is to pursue an appeal of the FCC's final order, rather than an appeal directly from the decision of the district court.

Internet retailer Amazon.com is entitled to safe harbor protection under Section 512(c) of the Digital Millennium Copyright Act (DMCA) for copyright infringement by third-party vendors on its “zShops” retailing platform. Corbis Corp. v. Amazon.com, Inc., No. CV03-1415L (W.D. Wash. Dec. 21, 2004). The court ruled that the retailer satisfied the threshold conditions for safe-harbor protection, including the adoption and reasonable implementation of a user policy providing for termination of service for repeat infringers. With respect to implementation of its policy, the court held that Amazon.com was not required to “conduct active investigation of possible infringement or make a decision regarding difficult infringement issues.” The court concluded that a failure to properly implement a termination policy requires a showing that the service provider failed to terminate service to a user “even though it has sufficient evidence to create actual knowledge of that user's blatant, repeat infringement of a willful and commercial nature.”

The sale of trademark terms by a search engine to generate “sponsored links” in search results does not, by itself, violate the Lanham Act. Government Employees Insurance Co. v. Google Inc., No. 1:94CV597 (E.D. Va. Dec. 15, 2004). The court found that there was insufficient evidence that the “mere use” of trademarks as search terms causes confusion where the sponsored advertisements did not themselves contain the trademark term. The court also ruled that where the advertisements did include the trademark term, the plaintiff's evidence, unrebutted by the defendant search engine, established an actionable likelihood of confusion. The court left open for further proceedings the issue of whether the search engine was secondarily liable for infringement resulting from the inclusion of trademark terms in sponsored advertisements prepared by third-party advertisers. The court ruled from the bench, and indicated that a written opinion expanding on the bench ruling would come shortly.

Supreme Court Agrees To Hear Internet File-Sharing Case

The U.S. Supreme Court has granted the petition for certiorari filed by movie studios seeking to hold distributors of peer-to-peer file-sharing software liable for copyright infringement by users of their software. Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd , 380 F.3d 1154 (9th Cir. Aug. 19, 2004), cert. granted (U.S. Dec. 18, 2004). The Ninth Circuit held that the distributors were not contributorily or vicariously liable for such infringement, concluding that the software is capable of “substantial non-infringing uses” within the meaning of the Supreme Court's decision in Sony Corp. v. Universal City Studios , 464 U.S. 417 (1984) (the “Betamax” case).

The U.S. Supreme Court agreed to review a challenge to the 2002 ruling by the Federal Communications Commission (FCC) that cable modem service is an “interstate information service” and not a “telecommunications service.” NCTA v. Brand X Internet Services, No. 04-277 & FCC v. Brand X Internet Services, No. 04-281 (cert. granted Dec. 3, 2004). In 2003, the Ninth Circuit Court of Appeals vacated the FCC ruling, which had the effect of removing cable modem service from regulation by federal and state authorities under the Telecommunications Act.

The wholesaler, which shipped products directly to Massachusetts consumers at the direction of Internet retailers, is not liable for Massachusetts sales tax on the transactions. In re Valley Media, Inc., 2004 Bankr. LEXIS 2061 (D. Del. Dec. 29, 2004). The bankruptcy court disallowed the state sales tax authority's claim for unpaid taxes against the estate of the bankrupt wholesaler, finding that the wholesaler did not deliver goods in Massachusetts within the meaning of the state sales tax statute. Under the agreement between the wholesaler and the retailers, the court found, delivery of the goods took place when they were deposited at a shipping facility in California. The court also noted that the wholesaler had no direct relationship with the consumers, and the “economic consequences” of the transaction to the wholesaler were “essentially the same as with a conventional sale to a retailer followed by resale to a customer with delivery by the retailer.”

Federal courts are bound by the Federal Communications Commission (FCC) ruling that Vonage Internet telephony service is exempt from state public utilities commission regulation. Vonage Holdings Corp. v. The Minnesota Public Utilities Commission, 2004 U.S. App. LEXIS 26748 (8th Cir. Dec. 22, 2004). The district court ruled in October 2003 that the Vonage service is exempt from state regulation and while the Minnesota PUC appeal was pending, the FCC issued its declaratory ruling, consistent with the ruling of the district court. The circuit court ruled that under the federal Administrative Orders Review Act (the Hobbs Act), the Minnesota PUC's only remedy is to pursue an appeal of the FCC's final order, rather than an appeal directly from the decision of the district court.

Internet retailer Amazon.com is entitled to safe harbor protection under Section 512(c) of the Digital Millennium Copyright Act (DMCA) for copyright infringement by third-party vendors on its “zShops” retailing platform. Corbis Corp. v. Amazon.com, Inc. , No. CV03-1415L (W.D. Wash. Dec. 21, 2004). The court ruled that the retailer satisfied the threshold conditions for safe-harbor protection, including the adoption and reasonable implementation of a user policy providing for termination of service for repeat infringers. With respect to implementation of its policy, the court held that Amazon.com was not required to “conduct active investigation of possible infringement or make a decision regarding difficult infringement issues.” The court concluded that a failure to properly implement a termination policy requires a showing that the service provider failed to terminate service to a user “even though it has sufficient evidence to create actual knowledge of that user's blatant, repeat infringement of a willful and commercial nature.”

The sale of trademark terms by a search engine to generate “sponsored links” in search results does not, by itself, violate the Lanham Act. Government Employees Insurance Co. v. Google Inc., No. 1:94CV597 (E.D. Va. Dec. 15, 2004). The court found that there was insufficient evidence that the “mere use” of trademarks as search terms causes confusion where the sponsored advertisements did not themselves contain the trademark term. The court also ruled that where the advertisements did include the trademark term, the plaintiff's evidence, unrebutted by the defendant search engine, established an actionable likelihood of confusion. The court left open for further proceedings the issue of whether the search engine was secondarily liable for infringement resulting from the inclusion of trademark terms in sponsored advertisements prepared by third-party advertisers. The court ruled from the bench, and indicated that a written opinion expanding on the bench ruling would come shortly.