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U.S. FTC makes Actavis’ acquisition of Forest subject to conditions

By Gabriele Accardo and Aurelia Magdalena Goerner

On 30 June 2014, the U.S. Federal Trade Commission (“FTC”) stated that, in order to address the competition concerns raised by Actavis’s proposed acquisition of Forest Laboratories, it has tentatively accepted the proposed settlement agreement between the FTC’s Bureau of Competition and the two pharmaceutical companies.

In brief, under the proposed settlement agreement, Actavis and Forest agreed to sell or relinquish their rights to four generic pharmaceuticals that treat hypertension, angina, cirrhosis, and prevent seizures.

According to the FTC’s complaint, the effects of the proposed acquisition, as originally proposed, would violate federal antitrust laws insofar as it may substantially lessen competition in the markets for three generic products that treat hypertension, angina and cirrhosis. In particular, the number of suppliers in the markets concerned would be reduced from three to two (for angina) and from four to three (for hypertension and cirrhosis), whereas market concentration would increase substantially post-merger.

Moreover, the proposed transaction would delay the introduction of generic competition against Lamictal ODT, the branded lamotrigine orally disintegrating tablets used to prevent seizures, manufactured by Forest and marketed by GlaxoSmithKline (“GSK”). No companies currently market a generic version in the U.S., whereas Actavis holds the only approved abbreviated new drug application to market generic Lamictal ODT. Thus, absent the proposed acquisition, Actavis is likely to be the first generic entrant and would be the sole competitor to Forest/GSK’s branded Lamictal ODT product for a significant period of time.

In particular, under the proposed settlement agreement, the companies have agreed to relinquish their rights to market generic diltiazem hydrochloride to Valeant Pharmaceuticals International, sell generic ursodiol and generic lamotrigine ODT to Impax Laboratories, and sell generic propranolol hydrochloride to Catalent Pharma Solutions.

The proposed settlement will preserve competition in the markets for these important drugs and is part of the FTC’s ongoing effort to protect U.S. consumers from higher heath care-related costs.

A description of the consent agreement package will be published in the Federal Register by the FTC shortly. Following a public consultation that will last until 30 July 2014, the FTC will decide whether to make the proposed consent order final. A monitoring trustee will then oversee the swift implementation of the consent order.

It may be recalled that last June 2013, the U.S. Supreme Court reversed the eleventh Circuit opinion in the landmark FTC v. Actavis case (see Newsletter 3-4 2013, p. 3 for more background), holding that reverse payment settlement agreements may violate federal antitrust laws but are not a per se violation, thus recognizing the impact that such settlement agreements would have on American consumers in the pharmaceutical market. Yet the validity of such agreements will still be tested under the rule-of-reason. 

Apple settles with U.S. states and consumers in the e-books price fixing case

By Nicole Daniel

According to documents filed in a New York court on 16 June 2014, Apple has reached an agreement in principle with state governments and consumers who filed a class-action lawsuit in the e-books price fixing case where it was alleged that Apple conspired to fix e-book prices.

This comes after District Judge Cote ruled in July 2013 that Apple had conspired with five major book publishers to fix the prices of e-books. They had done so to challenge Amazon’s market power, which was similar to monopoly power. Apple engaged in this anti-competitive behaviour by pushing the adoption of the agency model, where the publishers set the e-book prices and pay the retailers commissions. Prior to this model and before Apple entered the e-book market, wholesale e-book pricing was common. The July finding concerned a separate lawsuit brought by the U.S. Justice Department. However District Judge Cote further ruled that her finding of liability was also a win for those states and consumers that had sued Apple in a separate lawsuit. They had sought damages of $840 million and claimed that the alleged price-fixing scheme had cost consumers millions of dollars.

Apple has asked the Second Circuit to overturn Judge Cote’s ruling. Furthermore Apple was set to go on trial in the case against the states and consumers in August 2014. Apple had requested that the latter case to be stayed while it waits for the appeal decision. However this was refused by the Second Circuit in May.

The settlement is a “binding agreement in principle” and would spare Apple a trial to determine the amount of damages for price fixing. Importantly the settlement will only move forward if Apple loses the pending appeal.

General Court upholds the EU Commission’s decision against Intel

By Nicole Daniel

On 12 June 2014 the General Court published its decision in the Intel case thereby upholding the Commission’s 2009 decision finding that Intel had abused its dominant position and imposed a fine of EUR 1.06 billion.

On 13 May 2009 the Commission adopted a decision under Article 7 of Regulation 1/2003 (Antitrust Regulation) prohibiting Intel’s anticompetitive conduct (for background see Newsletter No 5/2009, p. 5 and Newsletter No 3/2009, p. 4). According to the decision Intel had engaged in two types of abuse of its dominant position in the x86 CPU market (computer chips).

The first type of abuse was the grant of conditional rebates. Such rebates were granted to four PC and server manufacturers on the condition that they obtain all or almost all of their supplies from Intel. Furthermore payments to one downstream computer retailer were made conditional on the retailer’s undertaking that it only sold computers with Intel CPUs.

The second type of abuse was the use of naked restrictions. According to the Commission Intel granted direct payments to three computer manufacturers to halt, delay or limit launching specific products which incorporated chips from AMD, Intel’s only rival.

In its decision the Commission stated that Intel’s anticompetitive behaviour had undermined competition and innovation. It ordered Intel to end this anti-competitive behaviour and imposed a fine of EUR 1.06 billion. Intel appealed the Commission’s decision to the General Court.

The General Court upheld the Commission’s decision finding that it had correctly demonstrated the anti-competitive behaviour in question. It held that Intel’s attempts to conceal the anti-competitive nature of its practices and that the anti-competitive behaviour was an abuse of Intel’s dominant position. Furthermore the fine imposed by the Commission was deemed appropriate.

Regarding the rebates the General Court stated that by their very nature exclusivity rebates granted by a dominant undertaking are capable of restricting competition. Therefore – contrary to Intel’s claims – the Commission was not required to assess the circumstances of the case to show that the rebates had actually or potentially had the effect of foreclosing rivals from the market.

Similarly the General Court stated that the Commission was not required to assess whether in the light of the facts of this specific case the payments had restricted competition. The Commission was merely required evidence that Intel granted a financial incentive conditional upon an exclusivity condition.

The fine was appropriate and amounts for 4.15% of Intel’s annual turnover and is therefore well below the 10% ceiling.

Motorola Mobility won’t appeal the European Commission’s decision on patent licensing

By Nicole Daniel

Motorola Mobility (Motorola) has decided not to appeal the European Commission’s decision holding that it was abusing the way it licensed standard essential patents for mobile-phone standards.

The Commission had investigated technology companies since it was concerned that consumers are forced to pay more for phones or that phones may be withheld from the market if patent holders use their market power to get higher royalty rates for licensing their patents.

In April 2014 the Commission adopted a decision that found that seeking and enforcing an injunction in a German court against Apple regarding a smartphone standard essential patent constituted an abuse of its dominant position.

The Commission found that it was abusive of Motorola to both seek and enforce an injunction in Germany against Apple based on a standard essential patent that it had committed to license on FRAND terms and where Apple had agreed to licence the patent in question and even agreed to be bound by a determination of the German court of the FRAND royalties.

 According to the Commission it was anti-competitive of Motorola – under the threat of enforcing an injunction – to insist that Apple give up its right to challenge the validity or infringement of Motorola’s standard essential patents by Apple’s mobile devices.

Since there is no case law dealing with the legality of standard essential patents based injunctions under Article 102 TFEU and there are diverging conclusions in national courts, no fine was imposed on Motorola. Motorola was ordered to eliminate the negative effects resulting from its anti-competitive behaviour.

As Motorola did not file a court challenge to the Commission’s finding, this means that its decision stands and no judge will have a chance to scrutinize the Commission’s approach.

French Competition Authority orders PMU to separate its online horserace betting activity from its physical point of sale network

By Gabriele Accardo and Aurelia Magdalena Goerner

On 25 February 2014, the French Competition Authority (“AdlC”) issued a decision (available only in French) making legally binding the commitment of Pari Mutuel Urbain (“PMU”), the holder of a legal monopoly over horserace bets placed in physical outlets, to separate its online horserace betting activity (“Pmu.fr”) from its point of sale network.

In essence, PMU has undertaken to separate, by September 2015, the pool of bets registered online from the pool of bets registered at physical outlets.

The investigation followed the complaint of Betclic a competitor in the online horserace betting space.

According to the AdlC, the aggregation of the bets, i.e. the fact that PMU can pool into a single pot all the bets made online and in physical outlets, strengthens the attractiveness of Pmu.fr’s online horserace betting, by offering much higher winnings than its online competitors – to the extent of threatening their existence:

  • PMU is the only operator able to offer an online bet on the arrival in order of five horses, known as the Quinté +, for which the potential winnings are very high.
  • Because of its larger betting pot resulting from the aggregation of all online and offline bets, the PMU is in a position to guarantee online gamblers very stable odds and therefore to accept on Pmu.fr all bets by betters with no limits on amounts, which it could hardly do if only online bets are considered since a major bet can cause any change to the odds on any given horse;               
  • PMU is in a position to expand its online horserace betting offer without significant change to the betting pot of existing bets, and can thus preserve the stability of odds and winnings.

Conversely, Pmu.fr’s competitors are unable to provide such an attractive offer because they do not have the resources at their disposal which the monopoly has over betting in physical outlets. In fact, PMU’s market share of 85% in 2013 underlines its ultra-dominant position in the online horserace market.

According to the AdlC, the practice of aggregation was therefore liable to lead to a risk of marginalization and the eviction of its online competitors, as well as becoming a barrier to entry into the online horserace betting market, possibly in breach of Article 102 of the Treaty on the Functioning of the European Union.

To address the competition concerns identified by the AdlC, PMU proposed the following commitments, which the AdlC has accepted following various rounds of consultations with stakeholders:

  • By 30 September 2015, PMU shall separate the pool of bets registered online from the pool of bets registered at physical outlets.
  • PMU will not use its database of clients at its physical outlets to induce them to place bets on its online site Pmu.fr.

Once the separation of the two betting pools has taken place, Pmu.fr and its competitors will only be able to use the respective horserace betting stakes of online gamblers. In particular, it will no longer be possible, as it is currently the case, for PMU to offer online winnings as high as on the Quinté +, winnings which could only be financed by the resources of the monopoly over the physical outlets.

Italian competition authority investigates online hotel bookings

By Gabriele Accardo and Aurelia Magdalena Goerner

On 7 May 2014, the Italian Competition Authority (“Agcm”) initiated proceedings (decision only available in Italian) against Booking.com and Expedia in the online hotel reservations space. This is yet another case in the wake of similar investigations undertaken by other national competition authorities in Europe (see Newsletter 1/2014, p.15, Newsletter 5-6/2013, p.9 and 11, Newsletter No. 4-5/2012, p. 15, for additional background).

The Agcm is assessing, among other things, the compatibility with the antitrust rules on anticompetitive agreements and abuse of dominance by the use of the so-called most favored nation clauses (“MFNs”) included in the terms and conditions of Booking.com and Expedia.  MFN clauses would require hotels that want to appear on the respective platforms of Booking.com and Expedia to not offer their services at prices lower than or terms better than those made available to other booking agencies, and in general via all booking channels available (both brick-and-mortar and online) including the websites of the hotels themselves.

The Agcm is also investigating the application of the so-called Best Price Guarantee, which assures consumers about the convenience of the offer compared with similar ones offered, e.g., online. On the other hand, the clause requires hotels to apply the lower rate that may be found online, and eventually to provide a refund of the difference paid by the consumer, in case the reservation price was not the lower available.

According to the Agcm, these terms may result in substantial alignment of prices by reducing the incentives for hotel operators to compete, taking into account the fact that the failure to observe them would negatively affect the visibility of the hotels’ own 

German Federal Cartel Office closes investigation into online sales ban required by adidas

By Gabriele Accardo and Aurelia Magdalena Goerner

On 2 July 2014 the German Federal Cartel Office (“Bundeskartellamt”) announced that it has closed proceedings against adidas AG (“adidas”), following the commitment of the sport goods manufacturer to amend the conditions required for online sales and search engine advertising.

The investigation followed numerous complaints by sports retailers. The Bundeskartellamt is currently investigating similar practices by ASICS (see Newsletter No 2/2014, p. 20 for background information).

Whilst adidas sells its products to consumers only via authorized retailers, in 2012 it included a prohibition for retailers to sell via online market places such as eBay and Amazon, as well as other platforms like Rakuten.de, Yatego.de, Hitmeister.de and meinPaket.de. In addition, adidas restricted the use of adidas brand related terms as search words for search engine advertising such as Google AdWords, thereby further limiting the possibilities of using the online channel by retailers.

adidas has now amended its conditions of sale, removing the ban on sales via online market places and has also clarified that all authorized retailers are free to use adidas brand related terms as search words for search engine advertising. From now on, adidas’ authorized retailers will be able not only to operate their own online shops but also to operate shops at online market places.

Andreas Mundt, President of the Bundeskartellamt stated that “…proceedings against adidas and ASICS (which have not yet been concluded) serve as test cases because currently a number of brand manufacturers are contemplating similar measures…

U.S. Supreme Court rules that online television streaming Aereo is illegal

By Béatrice Martinet Farano

On 25 June 2014, the U.S. Supreme Court handed down its long awaited decision in American Broadcasting et al v. Aereo, holding that Aereo infringed the public performance rights owned by an association of broadcasters over their works.

Aereo is an online television streaming service that allows its subscribers to watch television programs over the internet at about the same time as the programs are broadcasted over the air. Because this retransmission is made through a complex system of thousands of small antennas, each of which is dedicated to the use of one subscriber at a time, Aereo argued that it did not publicly perform any of the copyrighted works and therefore did not infringe such works. While this argument was successful before the U.S. Court of Appeal for the Second District (see TTLF Newsletter No 2/2013 p.10-11), the Supreme Court reversed this decision and held that because Aereo had performed the broadcasters’ rights publicly within the meaning of the transmit clause (17 U.S.C § 106(4)), Aereo had infringed the rights of these broadcasters.

To reach this conclusion, the Supreme Court observed that Aereo both (1) performed these works and (2) that this performance was public.

First, the Supreme Court argued that Aereo “performed” the broadcasters’ work, rather than merely supplied equipment that allowed their users to do so. The Court considered that Aereo was in many ways akin to a pay TV provider, which pays for the right to air broadcasts, regardless of the technology it was based upon. These “behind the scenes technological differences”, argued the Court, could not distinguish Aereo’s system from cable systems, which Congress had made a point to include within the definition of the public performance clause. Because Aereo receives, by means of its technology, programs that have been released to the public and because it carries them by private channels to additional viewers, the Supreme Court argued that Aereo performed these works, regardless of the fact that the performance was actually commanded by a user.

The Court then held that this performance also had to be considered “public”. Here Aereo claimed that because it transmitted from user-specific copies, using individually–assigned antennas, and because each transmission was available to only one subscriber at a time, this performance could not be considered “public”. Taking another approach, the Supreme Court considered that when an entity communicates the same contemporaneously perceptible images and sounds to a large number of people who are unrelated and unknown to each other, it transmitted “a performance” to “a public”, irrespective of whether it transmits such work using a single copy of the work or, as Aereo does, using an individual personal copy for each viewer.

The Supreme Court finally stressed that the scope of its decision was limited to the specific technology used by Aereo, with the aim of addressing the multiple concerns that had been voiced on the impact of this decision on the legality of multiple technologies, including cloud computing. After having repeatedly announced during trial that it would shut down its service should the Supreme Court hold its service illegal, Aereo finally announced on July 10 that it will seek a compulsory copyright license as a cable TV provider in order to continue its activity.

U.S. PTO Trademark Trial and Appeal Board cancels registration of marks containing name Redskins (Blackhorse, et al. v. Pro-Football, Inc., TTAB (June 18, 2014))

By Irene Calboli

On June 18, 2014, the Trademark Trial and Appeal Board (TTAB) of the U.S. Patent and Trademark Office (USPTO) wrote an important page in the dispute over the marks “Redskins” that has been ongoing for over two decades. Notably, the TTAB cancelled six federal registrations for trademarks that include the name “Redskins” that were registered by Pro Football Inc. between 1967 and 1990,[1] accepting the request brought forward by five Native Americans who argued that the name “Redskins” is disparaging for the Native American population and violates Section 2(a) of the Trademarks Act (Lanham Act), which prohibits the registration of marks that consist of matter that may disparage or bring into contempt or disrepute any person, institution, or belief.[2]

This decision comes after a similar decision by the TTAB in 1999,[3] where another group of Native Americans (seven prominent leaders) challenged the trademarks as disparaging under Section 2(a). Against the TTAB ruling, however, Pro-Football appealed to the District Court for the District of Columbia, which granted summary judgment in favor of the team and reinstated the cancelled registrations. The court held, in particular, that the Native American plaintiffs’ claims were barred by laches since they were unjustifiably delayed in bringing the action when some of the trademarks had already been registered for as long as 25 years by the time of the lawsuit.[4] In contrast, in its 1999 ruling, the TTAB had ruled that laches did not apply because matters of broad public policy are not subject to the equitable defense of laches.[5] The district court’s ruling in favor of Pro-Football was ultimately upheld by the Court of Appeals for the D.C. Circuit,[6] and Supreme Court denied petition for certiorari.[7]

Hence, in 2006, a new group of five younger Native Americans petitioned the TTAB to cancel the six “Redskins” registrations.[8] In the decision at issue, the TTAB again found that the term “Redskins” was derogatory with respect to Native Americans, even though it was commonly associated with the Washington football team. The TTAB examined expert testimony and dictionary evidence, and concluded that at least 30 percent of Native Americans found the mark, in connection with professional football, to be offensive or disparaging.[9] The TTAB additionally revisited the issue of laches[10] and again ruled that the equitable defense does not apply where there is a broader public policy concern at issue. 

Still, the June 2014 TTAB decision does not necessarily put an end to this dispute. The football team has already issued a statement expressing its confidence of a more favorable outcome on appeal.[11]

Nevertheless, should the team decide not to appeal due to public pressure or other reasons, or should the cancellation of the “Redskins” trademarks be affirmed by subsequent federal court review, Pro-Football will lose the legal benefits of federal registration of the marks.[12] This means that the team will lose the legal presumptions of ownership and of a nationwide scope of rights, the ability to use the federal registration symbol, and the ability to record the registrations with Customs and Border Protection in order to block the importation of infringing or counterfeit foreign goods.[13]

Last, but not least, Pro-Football will likely continue to retain common law rights in the marks—that is, its use-based rights will continue even in the case that the cancellation of its federal registrations would be upheld in federal courts. In this respect, Pro-Football could continue to invoke exclusive rights to the “Redskins” trademarks (and related merchandise) based on Section 43(a) of the Lanham Act.[14] Hence, the argument could be made that a cancellation based on Section 2(a) could also affect the ability of the team to enforce its common law rights based on Section 43(a), even though many signs that could not be registered have traditionally enjoyed the unfair competition protection of Section 43(a). To date, however, no court has ruled on the effect on Section 43(a) of a trademark cancellation based on Section 2(a)—i.e. in the case of a disparaging mark. We thus cannot exclude the possibility that the application of Section 43(a) could be preempted by a trademark cancellation based on Section 2(a) as a matter of public policy. In this case, it would be interesting to see whether the court in question would find that a sign that has been deemed unregistrable—because it is disparaging and offensive—could still be protected based on unfair competition principles under Section 43(a) of the Lanham Act.

 

[1] Blackhorse, et al. v. Pro-Football, Inc., Cancellation No. 92046185 (June 18, 2014), available at http://ttabvue.uspto.gov/ttabvue/v?pno=92046185&pty=CAN&eno=199.

[2] Lanham Trademark Act of 1946 §2(a), 15 U.S.C. § 1052(a) (2006). The word “redskin” is generally understood to be a derogatory racial epithet referring to Native Americans. The term refers to scalping.

[3] Harjo v. Pro Football, Inc., 50 U.S.P.Q.2d (BNA) 1705 (T.T.A.B. 1999).

[4] Pro Football, Inc. v. Harjo, 284 F. Supp. 2d 96 (D.D.C. 2003).

[5] Harjo v. Pro Football, Inc.,30 U.S.P.Q.2d (BNA) 1828, 1833 (T.T.A.B. 1994).

[6] See Pro-Football, Inc. v. Harjo, 565 F.3d 880, 880–1 (D.C. Cir. 2009).

[7] Harjo, 565 F.3d 880 (D.C. Cir. 2009), cert. denied, 130 S. Ct. 631 (2009).

[8] Blackhorse, et al. v. Pro-Football, Inc., Cancellation No. 92046185 (June 18, 2014).

[9] Id. at 71 (finding that 30 percent was “without a doubt a substantial composite”).

[10] Id. at 73-4(ruling that the enactment of the AIA, which changed the venue for appeals from the USPTO inter partes proceedings, meant that the previous laches decision by the U.S. District Court for the District of D.C. was not binding or persuasive).

[11] Statement by Bob Raskopf, Trademark Attorney for the Washington Redskins, Washington Redskins: Press Release (June 18, 2014), available at http://files.redskins.com/pdf/Statement-by-Bob-Raskopf-Trademark-Attorney-for-the-Washington-Redskins.pdf.

[12] Id.

[13] Lanham Act §42(a), 15 U.S.C. § 1124(a) (2006).

[14] Lanham Act §43(a).

Fair Use May Prevent Copyright from being Used as Censorship Tool

By Marie-Andrée Weiss

Judge Chris McAliley from the U.S. Southern District Court of Florida recommended on June 17, 2014, that the court grant summary judgment to a blogger who had used a photograph of a Florida businessman, to which he holds the copyright, to illustrate a blog post about him. The case is Raanan Katz v. Irina Chevaldina, 12-22211-CIV -KIN G/M CAL1LEY.

Plaintiff Raanan Katz owns shopping centers and a minority stake in the Miami Heat professional basketball team. Defendant Irina Chevaldina maintains two blogs highly critical of Plaintiff and his business practices. She used several times an unflattering photograph of Plaintiff to illustrate posts criticizing and deriding him. The photograph had been first published by the Israeli newspaper Haaretz, albeit the parties dispute whether it was first published in its online or offline edition.

After Chevaldina used the photograph on her blog, Plaintiff entered into a copyright assignment agreement with the photographer to assert his rights as a copyright owner. He then filed a copyright infringement suit against Chevaldina, and registered the copyright. When he notified Chevaldina of the copyright registration, she removed the photo from her blogs.

Chevaldina moved for summary judgment claiming fair use. Fair use is an affirmative defense to copyright infringement if the use is done for certain purposes such as criticism, comment or research. It is recognized by Section 107 of the Copyright Act which provides four factors that the courts may consider to determine whether a particular use was fair: (1) the purpose and character of the use, (2) the nature of the copyrighted work, (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and (4) the effect of the use upon the potential market. Fair use is however, always a mixed question of law and fact.

Judge McAliley found the first factor to weigh in Defendant’s favor. He noted that the blog posts using the photograph all criticized Plaintiff and commented about him and, as such, were “criticism and commentary” under Section 107. He also found the use to be non-commercial and transformative. Judge McAliley quoted the Supreme Court’s decision in Campbell v. Acuff-Rose Music, Inc., where the Court explained that the first factor central to the investigation must aim at determining whether the new work merely supersedes the original work or if the use is instead transformative. Judge McAliley compared Chevaldina’s use of the photo with its other use, as made by Haaretz, the Israeli newspaper. Haaretz had used it to illustrate an article which had written favorably about the Plaintiff, whereas Chevaldina, “in sharp contrast,” had used it to illustrate blog posts criticizing the Plaintiff, even derogatory posts. Therefore, Chevaldina had not merely used the photograph to identify Katz, her use was transformative. Judge McAliley cited the recent Northern District of California Dhillon v. Doe case, where Harmeet K. Dhillon, California Republican Party Vice Chairman, had sued an anonymous blogger who had used one of her headshots, of which she owned the copyright, to illustrate a post critical of her. The court had found the use transformative, noting that “the defendant used the… photo as part of its criticism of, and commentary on, the plaintiff’s politics. Such a use is precisely what the Copyright Act envisions as a paradigmatic fair use.”

Judge McAliley also found the second factor, the nature of the copyrighted work, to weigh in the Defendant’s favor. The courts consider mainly whether the original work was factual or creative and whether it had been previously published. In this case, it had already been published by Haaretz, and Judge McAliley is of the opinion that the photo is factual, as that there is no evidence that the photographer had at all influenced the Plaintiff’s pose or expression when he took the picture.

When considering the third factor, the amount of the work used, Judge McAliley noted that even though Chevaldina had sometimes used the entire photo, sometimes only a portion, he had “copied only as much of the [p]hoto as was needed to further her criticism.” As the work is a photograph and thus it would not have been feasible for Chevaldina to copy less than the entire work, Judge McAliley found the third factor to be neutral.

Finally, the fourth factor, the effect of the use upon the potential market, also weighed in favor of Chevaldina. Katz had made no showing that there is a potential market for the photograph and he even testified that he had registered the copyright in order to “stop this atrocity” and to make a “correction of a mistake that happened.” Even if Katz could one day change his mind and publish the photograph, that possibility was “remote” according to Judge McAliley.

For all these reasons, Judge McAliley concluded that Defendant’s use of the photograph was fair and therefore recommended that the court grant Chevaldina’s motion for summary judgment, and to deny the Plaintiff’s motion for summary judgment.

The Curious Incident of Characters and Copyright at the Seventh Circuit

By Marie-Andrée Weiss

The Seventh Circuit Court of Appeals decided on June 16, 2014, that the famous Sherlock Holmes and Dr. Watson characters created by Sir Arthur Conan Doyle are no longer protected by copyright. The case is Klinger v. Conan Doyle Estate, Ltd., no. 14-1128.

The Appellee in this case was Leslie S. Klinger, the publisher of A Study of Sherlock, ananthology of contemporary short stories inspired by the Sherlock Holmes books and stories and featuring several characters created by Sir Arthur Conan Doyle. The publisher of the anthology, Random House, had entered into a licensing agreement with the Conan Doyle Estate, Ltd. (“CDE”) after CDE had contacted the publisher to assert its exclusive rights over the Sherlock Holmes and Dr. Watson characters.

These two characters had first appeared in A Study in Scarlet, published in 1887 and first released in the United States in 1890. This story is thus in the public domain in the United States as are all works published before January 1st, 1923. But ten Sherlock Holmes short stories, also featuring the famous detective and doctor, were published after January 1st, 1923 and are thus still protected by copyright. Does that mean that the characters created by Sir Arthur Conan Doyle are also still protected by copyright?

Klinger was preparing a sequel to the first anthology, to be published this time by Pegasus. CDE asked again the publisher to obtain a license, and also threatened to prevent distribution of the book if the publisher did not obtain a license. Pegasus then refused to publish the anthology. Klinger sued CDE, seeking a determination that the Sherlock Holmes story elements were in the public domain and thus could be freely used. The Northern District of Illinois ruled in favor of Klinger and CDE appealed to the Seventh Circuit, which affirmed.

CDE argued before the Seventh Circuit that when a “complex” character is protected by copyright, it remains protected until the last work where this character appears falls into the public domain. It further argued that, while “flat” characters don’t evolve, “round” characters do. CDE was also arguing that since the characters had continued to be developed throughout the ten short stories still protected by copyright, the characters themselves were still protected by copyright.

In Silverman v. CBS Inc. , 870 F.2d 40, 50, the Second Circuit had explained  in 1989 the “increments of expression” principle, which is “fully applicable to works that provide further delineation of characters already sufficiently delineated to warrant copyright protection.” In this case, Stephen Silverman wanted to use the Amos ‘n’ Andy characters in a Broadway musical comedy he had written. As in our case, some of the “Amos ‘n’ Andy” materials were in the public domain while others were still protected by copyright. The Second Circuit found that the Amos ‘n’ Andy characters had been “sufficiently delineated” in the radio scripts which were in the public domain and, as such, could be used by Silverman, However, he  could not use “any further delineation of the characters” contained in the radio and television scripts and programs still protected by copyright.

The Seventh Circuit quoted Silverman, noting that “[w]hen a story falls into the public domain, story element, including characters covered by the expired copyright, become fair game for follow-on authors.” The ten Sherlock Holmes stories still protected by copyright are derivative works and “so only original elements added to the later stories remain protected.

The Seventh Circuit also noted that extending copyright protection to characters in the public domain appearing in works still protected by copyright  would “reduce the incentive of subsequent authors to create derivative works” because, instead of being able to use works in the public domain for free, they would have to obtain a license. The Seventh Circuit also noted that it would also “discourage creativity” as authors might be tempted, instead of creating new characters, to use the characters they have already created again and again in order to prolong their copyright protection.

The “flat” and “round” characters theory presented by CDE failed to convince the Seventh Circuit, noting that “[w]hat this has to do with copyright law eludes us.” Instead, the pertinent issue is whether the characters, as they appear in the work still protected by copyright, bear some original elements which are protected under the “increments of expression” theory. What ultimately matters is whether a particular character is sufficiently distinctive to be copyrightable. If it is, it is copyrightable. If it is then used by the author in another work, it is a derivative work and only the additional, original features added in the second work are protected by copyright.

The Second Circuit finally noted that it could imagine that CDE could be upset if an author would write a story where Sherlock Holmes would be disparaged. The Court paralleled that instance to trademark dilution, but it noted that “[t]here is no comparable doctrine of copyright law.” Indeed, U.S. copyright law does not recognize a general moral right for all copyrighted works. While the Visual Artists Rights Act of 1990 protects the right of attribution and the right of integrity, its scope is limited to works of visual arts, which are defined by the Copyright Act as single copies of drawing, print or sculpture, or limited editions of 200 copies or fewer, signed and numbered by the author.

Sherlock Holmes and Doctor Watson are now part of the public domain in the U.S., and many new works featuring the famous characters will certainly be published in the years to come.

Meltwater: CJEU confirms that online browsing does not require a license

By Béatrice Martinet Farano

On 5 June 2014, the CJEU handed down its long awaited decision in Public Relations Consultants Association v. Newspaper Licensing Agency (C-360/13),  more commonly known as Meltwater, clearly stating that the mere browsing of online articles was covered by the temporary copies exception and therefore did not require an end-user license.

Meltwater is an online monitoring service which provides to its subscribers headlines and short excerpts of articles, along with a hyperlink to the original articles. The Public Relations Consultant Association (PRCA), an association of public relations professionals from the UK is one of their subscribers. Sometimes in 2009, the Newspaper Licensing Agency (NLA), a group of newspaper publishers in the UK, took the view that for Meltwater to provide access to excerpts of NLA’s articles and for Meltwater’s users to have access to such content, not only Meltwater but also its customers (including the PRCA) needed a license authorizing them to view such articles. The NLA notably argued that for users to access such articles, unauthorized copies of NLA’s articles were necessarily made on the users’ screen and servers (on-screen and cache copies). While this argument succeeded before the High Court and the Court of Appeal in England (see TTLF Newsletter No. 4/5 2011 p. 14-15), the UK Supreme Court strongly expressed the view that the temporary copies’ exception should apply to on-screen and cached copies of copyrighted works generated in the course of ordinary browsing. In light of the importance of this issue to millions of internet users however, the UK Supreme Court decided to refer this question to the CJEU .

For the referring Court, this case raised the question as to whether internet users who viewed websites on their computers (without downloading or printing them out) were committing infringement of copyright by the sole reason of the creation of on-screen copies and cached copies on their computers. The CJEU gave a clearly negative answer to this question, holding that such copies were covered by the temporary copies’ exemptions of article 5 (1) of Directive 2001/29 (the Infosoc Directive).

To reach this conclusion, the Court went through a full analysis of the criteria laid down in article 5(1) of the Infosoc Directive to conclude that on-screen and cached copies that were automatically created by an end-user while reading or browsing an online article were:

(i) temporary, since the on-screen copies were deleted any time the internet user moved away from the website viewed, even though cached copies could be retained for some time depending on the extent and frequency of internet use;

(ii) transient or incidental, in that their duration and purpose was limited to what was necessary for the technical process concerned to work properly;

(iii) an integral and essential part of the technical process, in that both the on-screen and cached copies were integral and essential to internet browsing, regardless of who activated the process.

The Court went on to consider whether to allow such exception would also satisfy Article 5(5) of the Directive, i.e. whether such copies would unreasonably prejudice the legitimate interest of the right holders. The court concluded that it would not. To this extent, the Court argued that for the work to be made available to the user, the publisher – who communicated the work to the public – had to obtain a license from the copyright holder. Yet, the Court argued, if a license is obtained from the publisher, there is no justification for requiring the internet user to obtain another authorization to access that same work. The Court finally concluded that such copies did not conflict with a normal exploitation of the work, arguing that the viewing of a website by means of the technological process at issue represented a normal exploitation of the work, making it possible for internet users to avail themselves of the communication made by the publisher. This decision will certainly come as a relief for online publishers and internet users at large.

U.S. FTC files an amicus brief in the Court of Appeal urging to reverse the District Court finding in the Lamictal Direct Purchase Antitrust Litigation

By Nicole Daniel

On 28 April, 2014 the Federal Trade Commission (“FTC”) field an amicus brief in the Court of Appeals for the Third Circuit in the Lamictal Direct Purchase Antitrust Litigation urging the court to reverse the District Court finding in this case.

In the Lamictal Direct Purchase Antitrust Litigation the plaintiffs allege that Teva Pharmaceuticals (“Teva”) was paid by GlaxoSmithKline (“GSK”) to forgo entry of their authorized generic version of the Lamictal drug in return for GSK’s promise not to compete. The district court decided that this agreement which included GSK’s commitment not to introduce an authorized generic does not violate antitrust laws under FTC v. Actavis since this agreement did not involve the exchange of cash.

In its amicus brief the FTC explains why the conclusion of the District Court is wrong. In the Actavis case the Supreme Court held that reverse-payment patent settlements are to be evaluated using antitrust factors, i.e. they are not immune from antitrust scrutiny.

The District Court in the Lamictal case distinguished the agreement from the Actavis case as the compensation took the form of an agreement not to compete in contrast to compensation in cash.

The amicus brief explains that the commitment not to compete raises the same antitrust concerns which were identified by the Supreme Court in Actavis.

An empirical study by the FTC showed that consumers pay higher prices for the generic product if the brand company itself does not introduce an authorized generic during the exclusivity period for the first-filing generic under the Hatch-Waxman Act.

The amicus brief further states that in the Actavis decision no distinction between the forms of compensation for potentially problematic reverse-payment settlements is made. Accordingly the narrow reading of the District Court may serve to undermine the Supreme Court’s decision in the Actavis case and lead to potentially anticompetitive reverse-payment settlements being structured as to avoid cash and therefore antitrust scrutiny.

The FTC, in its amicus brief, additionally explains that the Supreme Court in the Actavis case affirmed that antitrust principles apply to agreements between a brand-name and a generic competitor undertaking as well as settlements between potential competitors with reciprocal agreements not to compete.

It will have to be seen how the Court of Appeal will decide this issue.

U.S. FTC modifies 1998 order against Toys “R” Us based on market changes brought about by e-commerce

By Gabriele Accardo

On 15 April 2014 the U.S. Federal Trade Commission approved a petition submitted by Toys “R” Us (“TRU”) to reopen and modify an order issued in 1998, which required TRU to refrain from certain actions in connection with its suppliers.

TRU claimed that the growth of Walmart and Target and the emergence of online retailers such as Amazon.com reshaped competition among purchasers and sellers of toys, so that such a change in the circumstances justified the modification of the 1998 order.

Yet, TRU did not seek to modify or set aside the final order’s core prohibition on facilitating or attempting to facilitate unlawful collusion, but “merely” to engage in procompetitive (or neutral) vertical conduct that could allow it to compete more effectively.

In fact, in 1996, the FTC took issue with TRU’s series of agreements with major toy manufacturers which sought to prevent the toy manufacturers from selling to club stores the same products they sold to TRU. The FTC complaint also alleged that TRU facilitated agreements among the toy manufacturers to the same end. Ultimately, the FTC found that TRU had used its significant market power to orchestrate a “hub and spoke” conspiracy among its suppliers to restrict the supply of toys to certain warehouse clubs that would otherwise have competed against TRU. This was affirmed by the Seventh Circuit, Toys ‘R’ Us, Inc. v. FTC, 221 F.3d 928 (7th Cir. 2000). The horizontal agreement among the toy manufacturers amounted to a violation of Section 1 of the Sherman Act both on a per se and a rule of reason analysis, whereas the vertical agreements between TRU and its suppliers further violated Section 1 of the Sherman Act on a rule of reason analysis.

The FTC concluded that TRU has met its burden in showing that changed conditions of fact justify modifying the order in the ways requested in the petition.

In particular, while the finding that the vertical agreements were anticompetitive was based on a rule of reason analysis that found that TRU had market power as a buyer and distributor of toys, the FTC held that TRU’s petition has demonstrated that it no longer has market power as a buyer of toys. In fact, Walmart and Target have overtaken TRU in competitive strength and market share across product categories. In 2013, Walmart was the market leader. In addition, Target operates twice as many locations as TRU, while Walmart has four times as many. Interestingly, the FTC also took into account the fact that online sales, as a proportion of total toy sales, have almost tripled between 2002 and 2012.

Accordingly, the FTC modified the 1998 final order to set aside the provisions in Section II that restricted TRU’s ability to enter into certain conditional supply relationships. In particular, Section II addressed the violation concerning the vertical agreements TRU entered into to prevent its suppliers from selling toys to club stores, and contained broad fencing-in relief, notably:

  • Paragraph II.A. required TRU to cease and desist from “continuing, maintaining, entering into, and attempting to enter into any agreement or understanding with any supplier to limit supply or to refuse to sell toys and related products to any toy discounter”;
  • Paragraph II.B. required TRU to cease and desist from “urging, inducing, coercing, or pressuring, or attempting to urge, induce, coerce, or pressure, any supplier to limit supply or to refuse to sell toys and related products to any toy discounter”;
  • Paragraph II.C. required TRU to cease and desist from “requiring, soliciting, requesting or encouraging any supplier to furnish information to respondent relating to any supplier’s sales or actual or intended shipments to any toy discounter”.

The order’s core prohibition, i.e. the prohibition against facilitating, or attempting to facilitate, unlawful collusion, remains in force.

ECJ clarifies EU customs rules concerning counterfeit or fake goods sold online from a non-Member State

By Gabriele Accardo

On 6 February 2014 the European Court of Justice issued a preliminary ruling concerning the interpretation of the rules on customs action against goods sold to a resident of a Member State from a website based in a non-Member State that are suspected of infringing certain intellectual property rights and the measures to be taken against such goods.

The case originated from an action brought by Rolex SA and Manufacture des Montres Rolex SA (“Rolex”) against Mr. Blomqvist, a resident of Denmark, concerning the destruction without compensation of a counterfeit watch which Mr. Blomqvist had bought online through a Chinese website which was seized by the customs authorities. The order was placed and paid for through the English website of the seller. The seller shipped the watch from Hong Kong by post. The parcel was inspected by the customs authorities on arrival in Denmark. Based on suspicions that the watch was a counterfeit good, and that there had been a breach of copyright over the model concerned, the customs authorities suspended the customs clearance and informed Rolex and Mr. Blomqvist.

Rolex asked the Maritime and Commercial Court to issue an order seeking consent from Mr. Blomqvist for final seizure and destruction of the watch without compensation. The Court granted Rolex’s claim.

On appeal, the Supreme Court noted that in order for the Council Regulation (EC) No 1383/2003 of 22 July 2003 (the “customs regulation”) to take effect, first, there must have been a breach of a copyright or trade mark right protected in the Member State in which the goods were seized and, second, the alleged breach must take place in that same Member State. But the Supreme Court noted that Mr. Blomqvist had purchased the watch for personal use and thus had not himself breached Danish copyright or trade mark law.

Accordingly, in order to ascertain whether the seller infringed copyright or trade mark law in Denmark by selling and dispatching the watch to a private purchaser with an address in Denmark known to the vendor, the Supreme Court asked the ECJ whether that sale must be considered, in that Member State, as a form of “distribution to the public” or as constituting “use in the course of trade”. The Supreme Court also asked whether goods may be infringing merely by virtue of the sale or whether, prior to the sale, the watch must have been the subject of an offer for sale or advertising targeting consumers in the Member State in question.

In brief, the ECJ held that the customs regulation must be interpreted to mean that the holder of an intellectual property right over goods sold to a person residing in the territory of a Member State through an online sales website in a non-Member State enjoys the protection afforded to that holder by that regulation at the time when those goods enter the territory of that Member State merely by virtue of the acquisition of those goods, without being necessary for the goods at issue to also have been the subject, prior to the sale, of an offer for sale or advertising that targets consumers of that Member State.

The reasoning of the ECJ builds upon existing case law. In particular, the ECJ recalled that EU law requires that the sale be considered, in the territory of a Member State, to be a form of distribution to the public within the meaning of the copyright directive, or use in the course of trade within the meaning of the trade mark directive and the Community trade mark regulation, and distribution to the public must be considered proven where a contract of sale and dispatch has been concluded. The ECJ clarified that such a situation is not comparable to that of goods on offer in an online marketplace (see Newsletter 4-5/2011, p. 7, and Newsletter 6/2011, p. 7, for additional background).

While there was no doubt that Rolex would have been entitled to claim an infringement of its rights if the counterfeit watch had been offered for sale by a trader established in that Member State (i.e. Denmark), in the circumstances, the issue at stake was whether Rolex could claim the same protection for its rights where goods are sold from an online sales website in a non-Member State on whose territory that protection is not applicable.

In this respect, the ECJ recalled that the mere fact that a website is accessible from the territory covered by the trade mark is not a sufficient basis for concluding that the offers for sale displayed there are targeting consumers in that territory. Nonetheless, the intellectual property rights protected by EU law may be infringed where, even before their arrival in the territory covered by that protection, goods coming from non-member States are the subject of a commercial act directed at consumers in that territory, such as i) a sale, ii) offer for sale or iii) advertising.

Accordingly, goods coming from a non-Member State can be classified as “counterfeit good” or “pirated goods” where it is proven that they are intended to be put on sale in the EU, such proof being provided, inter alia, where it turns out that the goods have been sold to a customer in the EU or offered for sale or advertised to consumers in the EU.

Consequently, the ECJ held that the mere fact that the sale was made from an online sales website in a non-Member State cannot have the effect of depriving the holder of an intellectual property right over the goods which were the subject of the sale of the protection afforded by the customs regulation, without it being necessary to additionally verify whether such goods were, prior to that sale, the subject of an offer for sale or advertising targeting EU consumers.

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