Intellectual Property Litigation, Protection and Prosecution

First Published in Intellectual Property Today in September of 2008

Henry Sneath is an intellectual property and business litigation attorney with Houston Harbaugh in Pittsburgh, Pennsylvania (www.psmn.com). He is a national member of the Board of Directors of DRI – The Voice of the Defense Bar, a 22,000 member organization of lawyers defending companies and individuals in civil litigation.

The IP wars are heating up, or so it would seem if we measure by the amount of current media attention for internet and technology legal battles. Both mainstream business media and the internet with its blogosphere are filled with commentary and stories of patent, trademark and copyright law suits. Many involve some big names in the internet and gaming industries. Hasbro, Mattel, Facebook, Viacom, eBay, YouTube, Nintendo, HP, Nokia, Adobe, Oracle, Arista Records and others are squaring off in court with competitors and accused infringers over, in most cases, alleged digital knockoffs and derivative works. News organizations have been chronicling each new development in Hasbro’s quest to shut down the electronic knock-off of its board game Scrabble on Facebook, and the internet auction site eBay has drawn a good deal of print over its simultaneous cross-Atlantic litigation with both LVMH Moët Hennessy Louis Vuitton SA and Tiffany and Co. Although IP lawsuits are nothing new, by any means, these cases highlight the struggle that the rising popularity of the internet has caused as courts and legislators attempt to adapt centuries-old concepts into the modern technological landscape.

There is no doubt that the internet has deeply affected the way in which people interact and companies do business. File-sharing applications, internet auction sites, media repositories and blogs have opened the door for the exchange of goods, services and even ideas to anyone with a means to access the internet. However, along with the good comes the bad, and this new interconnectivity has also led the way for people to exchange goods and ideas in violation of others’ intellectual property rights. In some cases, such as the Facebook application Scrabulous, the alleged violation is defended as unintentional. The creators of the on-line game Scrabulous, Rajat and Jayant Agarwalla, claim that they simply wanted to expand access to a board game that they loved (Scrabble), but if their claims are accurate, they apparently gave no thought to the legal ramifications of their actions.1 Their on-line creation was a veritable clone of the board game Scrabble, and became very popular in internet gaming circles. By filing a trademark and copyright suit and launching its own authorized on-line Scrabble game, Hasbro, the owner of Scrabble, has forced the Agarwalla brothers to pull their on-line Scrabulous game from the net. However, these upstart game developers immediately launched a new Facebook application game called Wordscraper, which has some of the look and feel of Scrabble, but with a host of design, color and rule changes. A lengthy battle either in the courts or in the boardrooms looms for these competitors.

In other instances, such as the trading of knock-off designer accessories and bootleg movies, the violation is clearly intentional and with the goal of profiting from the misappropriation of another’s IP rights. Recently, Arista Records filed suit in Pittsburgh, Pennsylvania against unnamed John Doe Defendants who allegedly used a P2P system to download songs and copyrighted materials. Arista then received permission from the Federal District Court to serve a subpoena on the Internet Service Provider (ISP), a University, who provided internet access to the alleged infringers. The subpoena seeks to compel the production of actual people’s names to match with known IP addresses that are believed to have engaged in the infringing activity. The legacy of Napster and Grokster is now part of the legal landscape and infringers are still being hunted.

In these scenarios, there is a mixed public response. The business and legal communities appear fairly united in supporting the exercise of IP rights through litigation, but the internet community and particularly “gamers” are generally critical of the notion of IP protection. There is a clear sense that lawlessness is part of the fuel that drives a good portion of internet activity and the mostly anonymous world of internet gaming and downloading is generally disdainful of corporate IP protections. The law is working hard to catch up with the fast pace of technological development and the growing public belief that if the infringement is popular with the internet world, then it must be ok.

The qualities that are protected by traditional concepts of trademarks and copyrights continue to exist today, even in electronic format. Therefore, the existing laws and cases regarding these rights are more than adequate to decide if there exists a protectable right and if that right has been violated. However, the more complicated questions arise when considering the proper remedies for those violations. It is highly impractical, and nearly impossible, to file a lawsuit against every individual who shares copyrighted materials online in violation of existing copyrights, and the sporadic and quick nature of online auctions makes it nearly impossible to prevent the sale of counterfeit goods which violate existing trademarks. That is almost certainly why the owners of the copyrights and trademarks have instead chosen, in some instances, to remove the source of dissemination of their products by pursuing the companies that make it possible for these transactions to take place (i.e., the website owners and operators). Due to a lack of development in statutory law and case law, the outcomes of these legal attacks are uncertain, and inconsistent opinions have already begun to issue.

In order to adapt to the policy concerns brought about by the digital availability of copyrighted materials, and to conform to newly-executed international treaties, the Digital Millennium Copyright Act (“DMCA”)2 was passed by the U.S. Congress and signed into law by President Clinton on October 28, 1998. Title II of the DMCA contains various “safe harbor” provisions that shield Internet Service Providers from liability for copyright infringement under certain circumstances.3 It is these very safe harbor provisions that YouTube is relying upon to shield it from liability in the copyright infringement action brought against it by Viacom.4 Viacom claims that YouTube is hosting clips of movies and TV shows that are copyright protected. In order to qualify for protection under the safe harbor provisions of the DMCA, a service provider must meet certain criteria, depending on whether the copyrighted information is stored on the service provider’s systems in some fashion or whether the information merely passes through the network. The service provider must also be innocent of inducing infringement or profiting from it, but there is a substantial gray area in that inquiry. As with every other statutory provision, the safe harbor criteria are subject to various interpretations. To date, all of the requirements and exceptions of the DMCA safe harbor provisions have not been completely interpreted by a federal court of appeals and it is most likely that lawsuits will continue to be filed against websites containing copyrighted materials until these provisions are further explained by the courts.

The situation is even more problematic for website operators accused of trademark infringement. Although the safe harbor protections under which YouTube is claiming protection may be uncertain, the DMCA at least provides a starting point to judge whether these protections will exist. The laws governing trademark infringement provide no such framework for protection, however. Instead, owners of websites such as eBay are left to put together their own set of provisions to prevent the sale of infringing goods. If the trademark owner disagrees with the sufficiency of the website’s provisions, they often make suggestions to the website owner. However, if no agreement can be reached between the website owner and the trademark owner, litigation almost certainly commences, and a judge is asked to rule on the validity of the website’s protections against trademark infringement. This has already happened several times to eBay. As a result of the lack of statutory guidance, eBay has received contradictory decisions regarding its liability for the sale of counterfeit goods through its website, and its future liability is still unclear.

eBay Inc. has faced two major legal battles regarding its obligations to trademark holders. In 2004, the jeweler Tiffany and Co. filed an action in the Southern District of New York against eBay. LVMH Moët Hennessy Louis Vuitton SA (“LVMH”), maker of the Louis Vuitton brand of luxury goods, among others, filed suit in Paris, France against eBay in 2006. Although the two lawsuits had different legal bases (LVMH sought redress under French law, while Tiffany relied upon statutes of the United States), the underlying conduct complained of in each was the same – allowing counterfeit merchandise to be sold on eBay’s website. However, the results were completely different.

On June 30, 2008, the Paris Commerce Court ruled that eBay was liable for the fake LVMH products sold through eBay’s website, and fined eBay the equivalent of over $60 million dollars in damages. In addition, eBay was barred from allowing any LVMH products to be sold on its website. Two weeks later, on July 14, 2008, District Judge Sullivan ruled that under existing United States law, eBay was not liable to Tiffany for sales of counterfeit Tiffany products. Although this difference can be attributed to the potential distinctions between the applicable French and American statutes, the United States federal laws regarding trademark infringement and related violations have ample room for a court to interpret them to apply in this situation. Should another company sue eBay in a different US court, it is possible that the outcome may change.

Despite whatever results may come from these cases and their almost-certain appeals, similar litigation in the arena of copyrights and trademarks on the internet is far from over. InformationWeek recently reported on July 25, 2008 that the Software & Information Industry Association (“SIIA”), a trade association which claims major software companies such as Adobe Systems, Inc. and Oracle Corporation as members, is contemplating suing eBay for copyright infringement due to pirated software sold through eBay’s website.5 eBay apparently uses similar procedures for removing copyrighted material to those of YouTube, and so, should the SIIA action be filed in a different court, there is a possibility for conflicting decisions regarding copyright liability within the United States federal court system. This will lead to even further litigation as companies begin to litigate in courts with favorable views of their respective positions. There is also the possibility that changes to current legislation, or even new legislation, will go into effect that will drastically alter the current legal landscape for copyrights and trademarks.

Unfortunately, the law is constantly evolving and lawsuits are an unavoidable consequence of doing business. However, there are still steps that companies can take to reduce the risk of unwanted copyright and trademark litigation. Companies should not reproduce printed materials before verifying the source and whether there are any restrictions on the use of those materials. Companies that manufacture and sell products or offer services should have a qualified person conduct a thorough search for any trademarks that may conflict with the products or services offered by the company. In the event that a conflicting mark is found, the company should contact a professional to inquire about its rights. Conflicts regarding trademarks may be able to be resolved without litigation by entering into an agreement, or indeed the conflicting mark may be invalid. In addition, any company that owns copyrighted or trademarked material should register with the appropriate government agencies. Registration of trademarks and copyrights is fairly easy and inexpensive. In fact, the United States Copyright Office has recently made it even easier to register copyrights by providing an online registration system. The best way to avoid unnecessary litigation, however, is to be well advised regarding all of the legal risks and consequences of any activity that the company wishes to pursue.

1 http://www.nytimes.com/2008/03/02/business/02game.html

2 Digital Millennium Copyright Act, Pub. L. 105-304, 112 Stat. 2860 (codified as amended in scattered sections of 17 U.S.C.).

3 17 U.S.C. § 512

4 See Viacom International Inc. v. YouTube, Inc., No. 1:07-cv-02103 (LLS) (FM), Defendants’ Answer to First Amended Complaint and Demand for Jury Trial (Doc. No. 112) at 10, First Defense (S.D.N.Y. May 23, 2008).

5 http://www.informationweek.com/news/internet/retail/showArticle.jhtml?articleID=209601138