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ECJ Rules on Excessive Licensing Fees for Copyrights

By Martin Miernicki

On 14 September 2017 the Court of Justice of the European Union (“ECJ”) handed down its decision in AKKA/LAA v. Konkurences padome (C-177/16). The case originated in a fine imposed on the Latvian collective management organization (CMO) AKKA/LAA – which possesses a legal monopoly in Latvia – by the national competition authority. The authority asserted that the CMO had abused its dominant position by charging excessively high license rates. In the following, the Latvian Supreme Court made a reference for a preliminary ruling, asking the ECJ, inter alia,[1]

  1. whether it is appropriate to compare the rates charged by a national CMO to those rates charged by CMOs in neighboring and other member states, adjusted in accordance with the purchasing power parity index (PPP index);
  2. whether that comparison must be made for each segment of users or the average level of fees;
  3. above which threshold the differences between the compared fees indicate abusive conduct; and
  4. how a CMO can demonstrate that its license fees are not excessive.

 

Background

Article 102(a) of the TFEU declares the imposition of “unfair purchase or selling prices” as an abuse of a dominant position. The seminal case for the interpretation of this provision is United Brands v. Commission (case 27/76). Furthermore, the ECJ has repeatedly been asked to gives its opinion on this matter in the context of copyright management services. Relevant case law includes Ministère public v. Tournier (case 395/87), Kanal 5 v. STIM (C-52/07) and OSA v. Léčebné lázně Mariánské Lázně (C‑351/12). In contrast, U.S. antitrust doctrine does not, as a principle, recognize excessive pricing as an antitrust violation.

 

Decision of the court

The ECJ largely referred to the opinion of the Advocate General and confirmed that a comparison of fees charged in other member states, relying on the PPP index, may be used to substantiate the excessive nature of license rates charged by a CMO. However, the reference member states must be selected according to “objective, appropriate and verifiable” criteria (e.g., consumption habits, economic factors and cultural background) and the comparison must be made on a consistent basis (e.g., similar calculation methods). For this purpose, it is, in principle, permissible to refer to a specific segment of users if indicated by the circumstances of the individual case (paras 31-51). With regard to the level license fees, the ECJ ruled that there is no minimum threshold above which a license fee can be considered abusive; yet, the differences between the compared fees must be both significant (not a minor deviation) and persistent (not a temporary deviation). CMOs can justify their rates by reference to objective dissimilarities between the compared member states, such as differing national regulatory regimes (para 52-61).

 

Implications of the decision

The court reconfirmed its approach taken in the former decisions which introduced the comparison of fees charged in different member states as well as the “appreciably higher” standard. In the case at hand, the court further elaborated on this general concept by providing new criteria for the analysis which should assist competition authorities and courts in assessing excessive pricing under the EU competition rules. Clearly, however, it will still be challenging to apply those guidelines in practice. Furthermore, it seems that the ECJ does not consider the method of comparing license fees in other member states to be the only method for the purposes of Article 102(a) of the TFEU (see also paras 43-45 of the AG’s opinion); this might be of special relevance in cases not related to CMOs. In this connection, it is noteworthy that the ECJ expressly permitted authorities to consider the relation between the level of the fee and the amount actually paid to the right holders (hence, the CMO’s administrative costs) (paras 58-60).

Lastly – although the finding of abusive pricing appears to be the exception rather than the rule in European competition law practice – the decision supplements the case law on CMOs which is especially important since the rules of the Collective Management Directive 2014/26/EU (CMD) are relatively sparse in relation to users. Nevertheless, it should be noted that said directive contains additional standards for the CMOs’ fee policies. Article 16(2) states that tariffs shall be “reasonable”, inter alia, in relation to the economic value of the use of the licensed rights in trade and the economic value of the service provided by CMOs. These standards may be, however, overseen by national authorities (CMD article 36) which are not necessarily competition authorities. A coordinated application of the different standards by the competent authorities would be desirable in order to ensure the coherence of the regulatory regime.

[1] Focus is put here on the most important aspects of the decision.

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U.S. Appeals Court for the Ninth Circuit Affirms a Preliminary Injunction against Movie Filtering Service on Copyright Grounds

By Valerio Cosimo Romano

On 24 August 2017, the U.S. Court of Appeals for the Ninth Circuit (“Appeals Court”) affirmed a preliminary injunction from the U.S. District Court for the Central District of California (“District Court”) against the defendant in an action under the Copyright Act and the Digital Millennium Copyright Act (“DMCA”).

 

The parties

Disney Enterprises, LucasFilm Limited, Twentieth Century Fox Film Corporation, and Warner Brothers Entertainment (“Studios” or “Plaintiffs”) produce and distribute copyrighted motion pictures and television shows through several distribution channels. The Studios employ technological protection measures (“TPMs”) to protect against unauthorized access to and copying of their works.

 

VidAngel, Inc. (“VidAngel” or “Defendant”) operates an online streaming service that removes objectionable content from movies and television shows. It purchases physical discs containing copyrighted movies and television shows, rips a digital copy and streams to its customers a filtered version of the work.

 

The lawsuit

The Studios filed suit against VidAngel, alleging copyright infringement and circumvention of technological measures controlling access to copyrighted works in violation of the DMCA. At the moment of filing suit, Defendant offered more than eighty copyrighted works, which it was not licensed or otherwise authorized to copy, perform, or access. VidAngel denied the statutory violations and raised affirmative defenses of fair use and legal authorization by the Family Movie Act of 2005 (“FMA”).

The Studios moved for a preliminary injunction, and the District Court granted the motion, enjoining Defendant from copying and streaming, transmitting, or otherwise publicly performing or displaying any of Plaintiff’s copyrighted works, circumventing technological measures protecting Plaintiff’s copyrighted works or engaging in any other activity that violates, directly or indirectly.

 

The District Court found that Defendant had circumvented the technological measures controlling access to the Studios’ works and violated the Studios’ exclusive right to reproduce and publicly perform their works. The District Court rejected instead Defendant’s FMA defense, holding that the service did not comply with FMA (which requires a filtered transmission to “come from an ‘authorized copy’ of the motion picture) and (ii) that Defendant was not likely to succeed on its fair use defense.

VidAngel appealed, claiming that FMA exempts VidAngel from liability for copyright infringement and that anti-circumvention provision of the DMCA does not cover the plaintiffs’ technological protection measures.

 

Merits of the case

First, the Appeals Court found that the District Court had not abused its discretion in concluding that Defendant’s copying infringed the Studios’ exclusive reproduction right, because lawful owners of a copy of the copyrighted work are only entitled to sell or otherwise dispose of the possession of that copy, and not to reproduce it.

The Appeals Court also found that the District Court had not abused its discretion in finding that the Studios are likely to succeed on their DMCA claim because VidAngel had offered no evidence that the Studios had either explicitly or implicitly authorized DVD buyers to circumvent encryption technology to access the digital contents of their discs.

The Appeals Court then moved to VidAngel’s defenses. It found that The FMA exempts compliant filtered performances, rather than the processes that make such performances possible. Moreover, the Court found that FMA  has been created to provide for the protection of intellectual property rights, which would not be preserved by VidAngel’s interpretation of the statute. Indeed, VidAngel does not stream from an authorized copy of the Studios’ motion pictures: it streams from the “master file” copy it created by ripping the movies from discs after circumventing their TPMs. Therefore, the District Court had not abused its discretion in concluding that VidAngel is unlikely to succeed on the merits of its FMA defense to the Studios’ copyright infringement claims.

In order to exclude infringement on copyright, Defendant also relied on the fair use theory.  In determining whether the use of a copyrighted work is fair, the Appeals Court considered again: (i) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (ii) the nature of the copyrighted work; (iii) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (iv) the effect of the use upon the potential market for or value of the copyrighted work. The Appeals Court sided again with the District Court, affirming that VidAngel’s service simply omits portions that viewers find objectionable, and transmits them for the same intrinsic entertainment value as the originals. Therefore, VidAngel’s use is not transformative (and thus it cannot be protected by fair use).

VidAngel also raised a defense related to the economic effects of its business. It argued that its service actually benefits the Studios because it purchases discs and expands the audience for the copyrighted works to viewers who would not watch without filtering. However, the Appeals Court confirmed the District Court’s view that VidAngel’s service is an effective substitute for Plaintiff’s unfiltered works and that neither the fact that VidAngel purchases the discs excuses its infringement, because any allegedly positive impact of Defendant’s activities on Plaintiffs’ prior market in no way frees defendant to usurp a further market that directly derives from reproduction of the plaintiffs’ copyrighted works. Thus, and a market harm caused by the infringing activity can be presumed.

 

Irreparable harm and balance of equities

As for irreparable harm, the Appeals Court sided with the District Court in determining  that VidAngel’s service undermines the value of the Studios’ copyrighted works, their business model, their goodwill and negotiating leverage with licensees and that the loss of goodwill, negotiating leverage, and that non-monetary terms in the Studios’ licenses cannot readily be remedied with damages. The Appeals court therefore concluded that the eventual financial hardship deriving from discontinuance of infringing activities does not outweigh the irreparable harm likely to befall the Studios without an injunction.

For these reasons, the Appeals Court affirmed the preliminary injunction from the District Court.

U.S. Company Pursues International Investment Arbitration against Panama over Trademarks

By Gabriel M. Lentner

The U.S.-based Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc.  lodged a claim against Panama over trademarks at the International Centre for Settlement of Investment Disputes (ICSID).

The claim relates to a decision rendered by the Supreme Court of Panama concerning Bridgestone’s trademarks in Panama and is based on the Panama-US Trade Promotion Agreement (TPA). The arbitral tribunal is currently dealing with “Expedited Objections”.

A key issue in this dispute is whether the ownership of the FIRESTONE trademark and rights to sell, market and distribute BRIDGESTONE and FIRESTONE branded products in Panama constitute “investments” under Art 10.29 of the TPA, as argued by the claimants. Under this provision the term “investment” is defined as “means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.  Forms that an investment may take include: … (f) intellectual property rights; (g) licenses, … and similar rights conferred pursuant to domestic law” In a footnote it is clarified that “Among the licenses, authorizations, permits, and similar instruments that do not have the characteristics of an investment are those that do not create any rights protected under domestic law.”

Bridgestone argues inter alia that its licenses are to be considered intellectual property rights and therefore covered investments. In addition, they contend that these licenses create rights protected under Panamanian law, since they concern trademarks registered in Panama.

Panama on the other hand challenges these arguments stating that Bridgestone does not have an “investment” within the meaning of the ICSID Convention (Art 25) and the TPA. Rather, Panama views the activities of Bridgestone as ordinary commercial transactions outside the scope of investment arbitration. More specifically responding to the Claimant’s argument, Panama disputes that the three licenses at issue do have the characteristics of an investment as they do not create any rights protected under Panamanian law.

Still pending, this case as it adds to the growing number of international investment disputes involving intellectual property rights (see cases of Philip Morris v Australia and Philip Morris v Uruguay, Eli Lilly v Canada). There is still a lot of uncertainty in this area of law and hence it will be interesting to see the final outcome and the reasoning of the tribunal dealing with the issue of investment and IP.

The Battle for CRISPR Technology: Who really Owns It?

By Bart Kolodziejczyk

The face of genetic engineering is being revolutionized with the emergence of the CRISPR/Cas9 technology. You have probably heard of it, but if you haven’t, here you go: CRISPR stands for Clustered Regularly Interspaced Short Palindromic Repeats, and it is a group of bacterial DNA sequences into which pieces of viral DNA were plugged into while the bacterium was being attacked. The CRISPR/Cas9 is a genome editing technology that can be used to alter genes in living organisms permanently.

In July 2017, a research team in the U.S proved that they could alter the DNA of human embryos using CRISPR/Cas9 technology. However, there have been controversies surrounding this technology, mainly because of ethical and biosafety concerns. Importantly, the question of who owns the patent to this technology is also undecided, which brings up the question of who can use the technology for commercial purposes.

The CRISPR battle is being spearheaded by the University of California (UC) against the Broad Institute in Cambridge, Massachusetts, and its associates. UC claims that it has a patent that covers the uses of CSISPR in every type of cell, but the Broad Institute claims that they should own the patent that covers the use of the technology in eukaryotes, which is the focal point for the development of human medicines using the CRISPR technology,

The group of litigants led by the UC argue that the U.S. Patent Trial and Appeal Board (PTAB) ruled wrongly in February in favor of the the Broad Institute in Cambridge, Massachusetts, and two associates — Harvard University and the Massachusetts Institute of Technology in Cambridge — in a judgement that said the Broad group invented the use of CRISPR usage in eukaryotic cells. In order to overturn the ruling, the UC filed an appeal based on the argument that the U.S. Patent Trial and Appeal Board (PTAB) “ignored key evidence” and “made multiple errors.” This argument was contained in a brief sent to the U.S Court of Appeals on July 25.

However, the battle for ownership of CRISPR took a dramatic turn when Millipore Sigma, a subsidiary of Merck KGaA, a German pharmaceutical company entered into the fray. In a claim filed by Millipore Sigma, they claim that they have the right to merge genetic information into eukaryotic cells using CRISPR and that “the method does not comprise a process for modifying the germ line genetic identity of a human being.” The battle seems far from coming to an end as a statement credited to the European Patent Office (EPO) shows that it intends to grant a patent to Millipore Sigma to own the use of CRISPR in this manner. There are other similar patents being submitted, and some have been granted, for example in Australia.

Therefore, even though the CRISPR technology has ushered in new frontiers in genetic engineering, the subject of who owns what looks like it might be the topic of controversial discussions for a while.

CJEU: Online Sharing Platforms like “The Pirate Bay” May Constitute Copyright Infringement by Indexing BitTorrent Files

By Katharina Erler

The Second Camber of the Court of Justice of the European Union (CJEU) ruled on 14 of June 2017 that the making available and management of a sharing platform on which user-generated BitTorrent files related to copyright protected works are indexed may constitute copyright infringement. In particular, the concept of Article 3 (1) EU InfoSoc Directive (2001/29/EC) “communication to the public” must be interpreted as covering situations, where the protected works are not hosted by the sharing website operators themselves, but by users through a peer-to-peer network, given that the operators of the sharing platform play an essential role in making those works available. The case is Stichting Brein v. Ziggo and XS4ALL Internet BV, C-610/15.

Stichting Brein, a Netherlands foundation which safeguards the interests of copyright holders, has initiated proceedings before the courts in the Netherlands requesting that the internet access provider Ziggo and XS4ALL shall be ordered to block the domain names and IP addresses of the online sharing platform “The Pirate Bay”. A significant number of the subscribers of Ziggo and XS4ALL use the online platform The Pirate Bay.

The Pirate Bay is a website, which allows its users to share music and video files, much of which, according to the opinion of Advocate General Szpunar of 8 February 2017 90 % to 95 %, contain protected works distributed without the consent of the authors. Since Pirate Bay is a website that offers the possibility for content-sharing in the context of a peer-to-peer network based on a BitTorrent protocol, the shared files are generated by its users and downloaded, divided into segments, from several peer computers in a decentralized way. In order to generate and share these files, users must first download a specific software called “BitTorrent Client”, which is not provided by Pirate Bay. Pirate Bay allows its users to find other users (“peers”) available to share the desired file by indexing torrent files related to the video or audio files on its website. The works to which those torrent files refer may be downloaded onto the users’ computers in segments through their “BitTorrent Client” software.

The Court of first instance upheld Stichting Breins request. However, the internet access providers filed an appeal against this decision. The Hoge Raad der Nederlanden (Supreme Court of the Netherlands) noting that in the present case it has been established that (1) the actions of Pirate Bay make protected works available to the public without the authors consent and that (2) subscribers to Ziggo and XS4ALL, through Pirate Bay, make protected works available without the consent of the authors and thus infringe the copyright of those right holders.

The Hoge Raad, however, referred two questions to the CJEU: (1) whether Pirate Bay itself “communicates” works to the public within the meaning of Article 3 (1) of EU InfoSoc Directive (2001/29/EC) and if question (1) is answered in negatively, (2) whether Article 8 (3) of EU Directive 2001/29 and Article 11 of EU Directive 2004/48 offer any scope for obtaining an injunction against an intermediary, of that intermediary facilitates the infringing acts of third parties in the way referred to in question (1).

 

Legal context

Recital (23) of of EU InfoSoc Directive 2001/29/EC of the European Parliament and of the Council on the harmonization of certain aspects of copyright and related rights in the information society (InfoSoc Directive) states expressly, that author’s right of communication to the public should be understood in a broad sense and should cover any such transmission or retransmission of a work to the public by wire or wireless means, including broadcasting.

Recital (27) of EU InfoSoc Directive (2001/29/EC) states that the mere provision of physical facilities for enabling or making a communication is not covered by communication within the meaning of this Directive.

Article 3 (1) (“Right of communication to the public of works and right of making available to the public other subject matter”) of EU InfoSoc Directive (2001/29/EC) stipulates that Member States shall provide authors with the exclusive right to authorize or prohibit any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access them from a place and at a time individually chosen by them.

 

Consideration of the questions referred to the CJEU

Of two questions referred to the CJEU by the Hoge Raad der Nederlanden, the CJEU only explicitly addressed the question whether there is a “communication to the public” within the meaning of Article 3 (1) of the EU InfoSoc Directive by the operator of a website, if no protected works are available on that website, but a system exists by means of which metadata on protected works which are present on the users’ computers are indexed and categorised for users, so that the user can trace and upload and download the protected work by the basis thereof.

In essence, the CJEU answered the question, whether the operators of an online sharing platform themselves commit copyright infringment by managing and indexing BitTorrent files, thereby allowing users to share user-generated and user-stored files containing protected works.

First and in view of its past case-law, the CJEU emphasized, as a general rule, that any act by which a user, with full knowledge of the relevant facts, provides its clients with access to protected works is an “act of communication” for the purposes of Article 3 (1). To determine this general rule for user-liability, the CJEU explicitly referred to its recent series of decisions on copyright infringement via links (CJEU, GS Media, C-160/15) and/or add-ons (CJEU, Fimspeler, C-527/15), which refer to protected works.

With regard to the liability of Pirate Bay – the core question in the case at hand – the CJEU – in line with the opinion of Advocate General Szpunar – noted that it is common knowledge that copyright-protected works are made available through Pirate Bay in such a way that users may access those works from wherever and whenever.

Most importantly the CJEU highlighted, although video or audio files have not been placed online by the platform operators themselves but by its users, the operators of Pirate Bay play an essential role in making those works available. The CJEU hold that by making available and managing an online platform the Pirate Bay operators intervene with full knowledge of the consequences of their conduct, to provide access to protected works, especially by indexing on that platform torrent files, which allow users to locate and share those works.

It is worth mentioning that in line with its Filmspeler decision, the CJEU in this case further broadened the scope of the copyright holders’ right of communication to the public. According to the CJEU “full knowledge” of the communication party with regard to “the consequences of their conduct”, is sufficient to hold the operators themselves liable.

By referring to the opinion of Advocate General Szpunar, the CJEU additionally found, as a main criterion for finding the operators of a sharing platform themselves liable for copyright infringement, that without making such a platform available and managing it, the works could not be shared by the users or, at the very least, sharing them would prove to be more complex.

In that context, the CJEU emphasized that the website “The Pirate Bay” cannot be considered to be making a “mere provision” of physical facilities for enabling or making a communication within the meaning of recital 27 EU InfoSoc Directive (2001/29/EC). According to the CJEU, this is not only true because the platform indexes the torrent files in such a way that the works may be shared easily, but also because the platform offers an index classifying the works in different categories based on i.a. the genre. Moreover, the operators of Pirate Bay delete obsolete or faulty torrent files and actively filter the user-hosted content.

As to the question of whether the protected works were communicated to the public, the CJEU on one hand referred to the order of reference, which reveals that a large number of Ziggo and XS4ALL subscribers have downloaded media files through Pirate Bay. On the other hand, the CJEU noted that the operators on their sharing platform, explicitly claimed to have several dozens of million users (“peers”). This large number of users can potentially and at any time access the protected works, which are shared through Pirate Bay.

As a core matter, the CJEU discussed whether the Pirate Bay operators communicated to a “new” public, which is a public that was not taken into account by the copyright holders when they authorized the initial communication. This raises the decisive question of whether the operators were aware of the missing authorization of the copyright holders. In contrast to the opinion of Advocate General, the CJEU held that the operators of Pirate Bay may simply be found liable because they: (1) were informed that this platform, which they make available to users and manage, provides access to works published without authorization of the copyright holder and (2) were aware that the operators display, on blogs and forums available on their website, their purpose of making protected works available and encouraging their users to make copies of that works. In fact, the CJEU found that, if the operators are aware of the possibility of infringing copyrights through their own conduct, managing their website, they may be found liable of infringement themselves. Under this ruling a concrete knowledge of the illegality of an individual shared work is no longer required to justify the liability for platform operators.

Furthermore, the CJEU noted, that there can be no dispute that the online sharing platform is carried out with the purpose of obtaining profit therefrom, which is clear from the considerable advertising revenues generated by Pirate Bay.

For these reasons, the Court held that the concept of “communication to the public” must be interpreted as covering the making available and managing of a sharing platform. The Pirate Bay, which by indexing of BitTorrent files and providing a search engine, allows its users to locate and share protected works in the context of a peer-to-peer network without the consent of the copyright holders. In the light of the answer to this first referred question, the CJEU saw no need to answer the second question.

It is, however, worth mentioning that the CJEU just answered the referred preliminary question of whether the managing of the website Pirate Bay is covered by the concept of “communication to the public” and therefore may constitute copyright infringement. It did not take position as to Stichting Breins’ principle request in the main proceedings that in consequence of these considerations the internet access provider Ziggo and XS4ALL be ordered to block the IP addresses and domain name of The Pirate Bay.

Samsung Wants New Trial in the Wake of the Recent Supreme Court Decision on Design Patents

By Nicole Daniel

In April 2017 Samsung filed an opening brief asking to vacate a design-patent judgment for $399 million and order a new trial on damages regarding their eleven smartphone models which have been found to infringe an Apple design patent.

According to Samsung the recent Supreme Court’s decision on design patents invalidates the legal premise on which the damages were tried in the earlier trials and further eliminates the legal basis for the $399 million award amounting to the total profit Samsung made on its phones.

This development comes after an unanimous Supreme Court decision made in December 2016. The Supreme Court ruled that the term “article of manufacture” in Section 289 of the Patent Act could apply to a component of a finished and not just the whole product.

Section 289 entitles a design patent holder to all profits derived from the “article of manufacture” that infringed the patent. The Supreme Court remanded a $399 million judgment against Samsung on three iPhone design patents back to the U.S. Court of Appeals for the Federal Circuit. According to the Supreme Court ruling interpreting Section 289 to only cover the end product sold to a consumer is a too narrow meaning of the phrase. “Article of manufacture” is broad enough to cover the final product as well as a component of that product. This decision follows the oral arguments held in October 2016 where Apple, Samsung and the U.S. Department of Justice (participated as amicus in the case) agreed that it was incorrect by the Federal Circuit to hold that the term “article of manufacture” always has to be synonymous with the final product sold to the consumers.

From the ruling it follows that a single component of a device featuring multiple components, such as a smartphone, could be the basis for determining damages for infringing a design patent.

Samsung therefore argued that this Supreme Court ruling requires vacating the $399 million award and scheduling another trial for damages. In February 2017, the U.S. Court of Appeals remanded the case back to U.S. District Judge Lucy Koh, saying that the district court was in the best position to decide on the arguments of Apple and Samsung over the need for further trials.

In contrast to Samsung, Apple is of the opinion that no additional proceedings are necessary after the Supreme Court ruling. Apple argues that the Supreme Court’s decision did not identify any problems with the jury verdicts in 2012 and 2013 in the patent trials. Also Samsung never presented evidence or even argued that “article of manufacture” applied to anything other than the entire phone. Accordingly, no further proceedings are necessary as the ruling did not serve to question any aspect of the Court’s prior decisions. Further, the Supreme Court merely resolved a narrow question on the interpretation of the term “article of manufacture” which arose out of the Federal Circuit’s reading of this term in its original opinion. The Federal Circuit had interpreted the term in question as relating only to a finished product.

It also has to be noted that in March 2016 Judge Koh decided to delay a scheduled third trial in the case dealing with damages for Samsung’s smartphones found to infringe Apple’s trade dress. This decision by Judge Koh was made after the Supreme Court agreed to hear Samsung’s appeal on design patents. Therefore, a third trial in this case will take place anyway. For now the stay remains in place.

Judge Koh now scheduled a hearing for June 15 on the need for a further trial in the wake of the Supreme Court ruling and ordered a case management conference for July 5.

Ninth Circuit: Using a Trademark as a Verb Is Not Automatically Generic Use

By Marie-Andrée Weiss

The United States Court of Appeals for the Ninth Circuit ruled on 16 May 2016 that ‘google’ is not a generic term for a search engine, and thus the famous California company did not suffer the costly indignity of having its trademarks cancelled through genericide. The case is Elliott v. Google, 2:12-cv-01072.

Plaintiffs had registered 763 domain names, each incorporating the word ‘google’ along with the name of a another brand (googledisney.com), of a person (googlebarackobama.net) or a place (googlemexicocity.com). This business plan did not fare well with the famous search engine company, which successfully asked the National Arbitration Forum to transfer all these domain names to Google.

Plaintiffs then filed a suit in the United States District of Arizona claiming that ‘Google’ “is, or has become, a generic term universally used to describe the action of internet searching with any search engines” (Complaint, p. 2), and asked the court to cancel Google’s trademarks. Indeed, the Lanham Act, 15 U.S.C. § 1064(3), provides the right to petition for the cancellation of mark if it “becomes the generic name for the goods or services, or a portion thereof, for which it is registered.”

The parties filed cross-motions for summary judgment on the issue of whether the GOOGLE marks were generic: while Plaintiffs claimed that Google is a generic term because a majority of the public use it as a verb, Google argued that use of a trademark as a verb use is not automatically generic use. On 11 September  2014, the United States District of Arizona granted summary judgment for Google. Plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit, which affirmed.

 

The Google trademarks

As mentioned in the original complaint, ‘Google’ comes from the term ‘googol,’ meaning a 1 followed by 100 zeros. Google holds a trademark registration for GOOGLE in class 9 for “computer hardware; computer software for creating indexes of information, indexes of web sites and indexes of other information resources” and another one in class 38 for  “[p]roviding electronic mail and workgroup communications services over computer networks; providing multiple user access to proprietary collections of information by means of global computer information networks.”

 

Generic trademark and genericide

Needless to say, if a mark becomes generic, it is quite costly for the company that invested a lot in developing goodwill towards its brand.  A generic term cannot serve as a trademark because it cannot serve as identifying the source of a product or service. Several famous marks, among them aspirin, cellophane, and thermos, fell victim of their success and became generic because they were used by the general public to designate the genus of their product, not just a particular brand. This is ‘genericide’.

 

The primary significance test

Plaintiffs had the burden of proving the genericide since they applied for the cancellation of the GOOGLE trademarks, and a registered trademark is presumed to be valid. They argued on appeal that the district court had misapplied the primary significance test, which was coined by the Supreme Court in its 1938 Kellog Co. v. National Biscuit Co. case:  a mark is not generic if “the primary significance of the term in the minds of the consuming public is not the product but the producer.” As noted by the Ninth Circuit, quoting Ty Inc. v. Sofbelly’s Inc., “a trademark only becomes generic when the “primary significance of the registered mark to the relevant public” is as the name for a particular type of good or service irrespective of its source.”

Plaintiffs argued that the district court had framed the inquiry as to whether the primary significance of ‘google’ to the consuming public is a generic name for search engines, whereas it should have inquired whether the public primarily uses ‘google’ as a verb. The Ninth Circuit disagreed with this argument for two reasons: genericide always relates to a particular good or service and using a trademark as a verb is not automatically generic use.

 

Genericide always relates to a particular good or service

For the Ninth Circuit, the District Court “properly recognized the necessary and inherent link between a claim of genericide and a particular good or service” (p. 9). The Court reasoned that failing to consider this would prevent some arbitrary marks to be protectable, giving as example IVORY which is arbitrary as applied to soaps, but would not be so for product made from the tusks of elephants.

The Ninth Circuit found that Plaintiffs’ “evidence was “’largely inapposite to the relevant inquiry under the primary significance test because [the Plaintiffs] ignor[e] the fact that a claim of genericide must relate to a particular type of goods or service’” (p. 13).

 

Using a trademark as a verb is not automatically generic use

Also, “verb use does not automatically constitute generic use” (p. 10). Plaintiffs had argued that a word can only be used as a trademark if it is used as an adjective. The Ninth Circuit disagreed, noting that it had found in Coca-Cola Co. v. Overland, Inc. that the mere fact that customers ordered “a coke” did not prove what they were thinking, a mark or a cola beverage, and more evidence was required about the customer’s inner thought process. Therefore, the use of a trademark as a noun may or may not be using it as a trademark (p. 11).

The primary significance test directed plaintiffs to provide evidence that that the primary significance of the GOOGLE trademarks is a general name for search engines, not a trademark identifying a particular search engine. The Ninth Circuit agreed with the district court which had found that, while the verb ‘google’ is indeed used to refer to searching on the internet, regardless of the search engine used, this fact alone cannot support a jury finding of genericide under the primary significance test, as it does not prove “how the public primarily understands the word itself, irrespective of its grammatical function, with regard to internet search engines” (p. 14).

 

How to prove that a mark has become generic

Plaintiffs also argued on appeal that the district court impermissibly weighted the evidence presented by Plaintiffs when granting summary judgment to Google. The Ninth Circuit disagreed, because, while Plaintiffs’ had presented admissible evidence that the majority of the public used ‘google’ as a verb, this was not enough to survive summary judgment, as it cannot alone prove genericide.

Plaintiffs had presented three surveys as evidence. Two were excluded by the district court because they had been conducted by Plaintiffs’ counsel, and “a valid survey design typically requires graduate training or professional experience in survey research” (p. 15). The third survey was a “Thermos survey,” that is a survey using open-ended questions, in our case, asking respondents how they would ask a friend to search something on the internet. The majority answered by using ‘google’ as a verb, and the survey was admitted as evidence that a majority of the public uses google as a verb meaning searching the internet.

Plaintiffs also gave examples of alleged generic use of ‘google’ by media and consumers, but they failed to convince both the district court and the Ninth Circuit, because Plaintiffs did not provide evidence that the use was indeed generic in the mind of the media and the consumers.

Plaintiffs had also offered expert testimony by three experts who all were of the opinion that ‘google’ is generic when used as a verb. However, this finding alone is not enough to prove genericide. Plaintiffs’ dictionary evidence did not prove either that ‘google’ is a generic name for internet search engines, only proving it is generic when used as a verb.

Plaintiffs also tried to prove that Google itself was using ‘google’ in a generic sense, presenting as evidence an email from Google cofounder Larry Page encouraging its recipients to “keep googling!” Generic use of a mark by its holder can support a finding a genericide, but the email was found by the court to be yet another example of the use of ‘google’ as a verb and did not prove that Larry Page had a particular search engine in mind (p. 19).

Finally, Plaintiff claimed that there was no efficient alternative for ‘google’ as a name for the act of searching the internet, but the Ninth Circuit drily noted that Google’s competitors do not use ‘google’ to refer to their own services (p.20).

‘Google’ may have become a verb, but this alone does not prove that GOOGLE is a generic mark. Keep googling.