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U.S. District Court Dismisses a Sherman Act Class Action Lawsuit Brought by Former and Current Bureau of Prison Inmates for lack of Antitrust Injury

By Valerio Cosimo Romano

On 28 February 2017, the U.S. District Court for the Eastern District of Michigan (hereinafter, “District Court”) dismissed  a putative class action lawsuit filed by current and released Bureau of Prison (“BOP”) inmates who purchased MP3 players and music or other audio files against Advanced Technologies Group LLC (“ATG”) and SanDisk Corporation (SanDisk”).

The plaintiffs were former and current BOP inmates. While incarcerated, plaintiffs purchased MP3 players on the BOP-operated facility’s “Commissary List” of items for sale, which included only those products that met special security features and had the ability to interface with BOP’s Trust Fund Limited Inmate Computer System (“TRULINCS”). Indeed, in 2012 BOP and ATG signed a contract granting ATG the exclusive right to supply prison-restricted MP3 players and MP3 music to BOP inmates. In turn, ATG and SanDisk entered into an agreement for SanDisk to exclusively supply the prison-restricted MP3 players to ATG, pursuant to which only one brand and model of MP3 player was available for sale to inmates. The authorized device was not connected to the internet, but could only download approved music and audio books through TRULINCS. Inmates could purchase as many as 1,500 songs, which were stored on the MP3 player. When prisoners were released from BOP custody and they lost access to TRULINC, the MP3 players became inoperable and the prisoners lost access to the purchased audio files. Plaintiffs allege that this loss could only be avoided by buying a post-release MP3 player manufactured by SanDisk and sold by ATG. Also, according to plaintiffs, ATG will not restore any content to a third party player.

Plaintiffs therefore allege that defendants engaged in unlawful tying or a conspiracy to engage in unlawful tying in violation of §1 of the Sherman Act and in unlawful monopolization, attempted monopolization, or conspiracy to monopolize in violation of §2 of the Sherman Act. More specifically,  Plaintiffs assert that Defendants unlawfully tied the purchase of prison-restricted MP3 players to the purchase of a post-release MP3 player, and further allege that defendants’ conduct has exclusionary and anticompetitive effects with respect to the market for post-release MP3 players. Defendants argue that Plaintiffs lack antitrust standing.

First, The District Court recalled the relevant factors for the establishment of standing to bring an antitrust action, as articulated by the Supreme Court in Associated Gen. Contractors of Calif. and summarized by the Sixth Circuit in  Southhaven Land. These factors are: (i) the causal connection between the antitrust violation and the harm to the plaintiff and the intent of the defendant to cause that harm, with neither factor alone sufficient to confer standing; (ii) whether the plaintiff’s alleged injury is of the type for which the antitrust laws were intended to provide redress; (iii) the directness of the injury, which addresses the concerns that liberal application of standing principles might produce speculative claims; (iv) the existence of more direct victims of the alleged antitrust violations; and (v) the potential for duplicative recovery or complex apportionment of damages.

Second, the District Court held that, despite the fact that the factors have to be balanced, antitrust injury is a necessary component, and, therefore, where a plaintiff fails to establish an antitrust injury, the court must dismiss the complaint as a matter of law.

Third, the District Court ruled that an injury will not qualify as an antitrust injury unless it is attributable to an anticompetitive aspect of the practice under scrutiny. In this sense, adhering to the principles established in Standfacts Credit Servs., the District Court held that no cognizable antitrust injury could be identified where the alleged injury is a “byproduct of the regulatory scheme” or federal law rather than of the defendant’s business practices, and in this case, the injury stems from BOP policy rather than anticompetitive conduct by Defendants.

In light of the above, the District Court concluded that antitrust injury was lacking to support Plaintiff’s Sherman Act claims against defendants. Therefore, it granted motion to dismiss the defendants’ antitrust complaint as well as additional common law and state law claims.

Anti-Harassment Video Turned Appetizers Ad is Not False Endorsement

By Marie-Andrée Weiss

On 24 January 2017, Judge Abrams from the Southern District of New York (SDNY) granted a motion to dismiss from a video director who had been sued for violation of Section 43(a) of the Lanham Act by an actress featured in an anti-street-harassment video he had directed, and which he later licensed for use in an TGI Friday’s appetizers advertisement. The case is Roberts v. Bliss, No. 15-CV-10167.

Plaintiff had been hired to appear in “10 Hours Walking in NYC as a Woman,” (the video) which was filmed by hidden camera to show the amount of catcalling directed at women walking on the streets. The actress was filmed for 10 hours walking in the streets of Manhattan, while men commented on her appearance and asked for her phone number. The footage was edited to a 1.56 minute video, which ended with a message urging viewers to donate to a non-profit organization dedicated to fighting street harassment, which had commissioned the video.

The video was directed and produced by Defendant Rob Bliss. He posted the video on YouTube in October 2014, and it went viral within 24 hours, receiving 10 million views in the first 24 hours of its posting. It has now been seen some 44 million times. After the video went viral, Bliss used it on his professional website to advertise his services. In February 2015, he licensed the video to a Colorado advertising agency, which used it to create two ads for TGI Friday’s, a fifteen-second ad and a thirty-second ad (the ad).

The ad starts with a black screen with the text, ”Nobody likes a catcaller,” and then shows clips of the video, with oversized pictures of new TGI Friday’s appetizers entirely covering Plaintiff’s body. This gives the impression that men on the street are  expressing their admiration for mozzarella sticks or potato skins. The ad ends with another black screen which reads: “But who can blame someone for #AppCalling?”

Plaintiff sued Bliss, his company, and the non-profit which had originally commissioned the ad, claiming that the ad misleadingly implied that she had endorsed the ad and the appetizers, in violation of Section 43(a) of the Lanham Act, which forbids false endorsements. She also claimed that her right of publicity under New York law had been violated. Claims against the non-profit were later dropped.

The Section 43(a) false endorsement claim fails

Plaintiff claimed that she had not licensed her identity or persona to be used in the ads and would not have done so if offered to license it. She claimed that the ad violates Section 43(a) of the Lanham Act, as it “depicted [her] persona and conveyed the false impression to a substantial group of viewers… that she had participated in, authorized or endorsed the [ad]” (Complaint, p. 12-13).

While right of publicity laws generally forbid using a person’s likeness for commercial purposes, the Lanham Act, which prohibits the unauthorized use of personal identity in endorsements or advertising, may also be used to that effect. Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) prohibits:

“us[ing] in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which… is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or… in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities.”

Judge Abrams cited Burck v. Mars, Inc., a 2008 SDNY case, which enumerated the elements of a false endorsement claim under the Lanham Act, which require that “the defendant, (1) in commerce, (2) made a false or misleading representation of fact (3) in connection with goods or services (4) that is likely to cause consumer confusion as to the origin, sponsorship, or approval of the goods or services”.

The ad did not use Plaintiff’s persona

Plaintiff did not claim that her name had been used, but instead her “persona,” which indeed could fall within the scope of Section 43(a), as its broad terms may indeed protect persona.

Judge Abrams examined what exactly is a “persona” and noted that it is defined by the Oxford English Dictionary as “the aspect of a person’s character that is displayed to or perceived by others.” He also quoted two 1992 Ninth Circuit cases recognizing persona. In Waits v. Frito Lay, a case about the unauthorized imitation of Tom Waits‘ voice, the court held that an artist’s distinctive voice and style was part of his persona. In White v. Samsung Elecs. Am. Inc., the court recognized that Vanna White had a right to her individual style and stance within the context of the set of Wheel of Fortune, where she had become famous; therefore, an ad could not use a robot in a blonde wig and pink dress on a set resembling Wheel of Fortune.

In this case, Judge Abrams was not convinced by Plaintiff’s claim “because neither she, nor any representation of her, her image, or her persona, appear in the TGI Friday’s advertisement, and the ad contains no false or misleading statement suggesting that she endorsed TGI Friday’s or its appetizers.” He noted further that “the superimposed renderings of appetizers cover [Plaintiff’s] entire body.”

Judge Abrams also noted that Plaintiff could not claim that she is so associated with her performance that the ad falsely implies that she endorsed the appetizers, because the Second Circuit held in Oliveira v. Frito Lays, Inc. that a signature performance, which is one in which a “widespread audience associates with the performing artist,” cannot be claimed as a trademark. In Oliveira, the Court found that Astrud Gilberto, the singer who first sang The Girl From Ipanema, could not claim her performance as a trademark and thus claim her rights had been infringed by the use of her performance in an ad without her permission. Judge Abrams noted that TGI Friday’s had purchased a license for the video, just as Frito Lays had purchased a license to use The Girl from Ipanema in the potato chip ad. Judge Abrams concluded that the ad did not falsely imply that Plaintiff endorsed the products, noting again that Plaintiff is not seen at all in the ads.

There is no likelihood of confusion as to Plaintiff’s sponsorship because the ad is parody

Judge Abrams also found that Plaintiff did not prove that consumers were likely to be confused as to her sponsorship of the ad. He quoted Burck, where the SDNY found that if a trademark is parodied, it may be enough to result in no confusion under the statutory likelihood of confusion analysis.” Thus, if there is a parody, there is probably not consumer confusion. This had also been noted in January 2016 by Judge Furman of the SDNY in the Louis Vuitton v. My Other Bag case, which was recently affirmed by the Second Circuit (see here for a former discussion of the case in the TTLF newsletter). In that case, Judge Furman discussed the parody of a trademarks at length, and observed that “a parody clearly indicates to the ordinary observer that the defendant is not connected in any way with the owner of the… trademark.” In Bliss, Judge Abrams found the ad to be “a clear parody” of the video, which “in no way suggests that [Plaintiff] was championing the product used to mock the video for its own commercial benefit.”

The right of publicity claim was not addressed by the federal court

Since Judge Abrams dismissed the federal law claim which had justified federal jurisdiction, he declined to review the New York right of publicity claim.

New York’s right of publicity law is codified in New York Civil Rights Law, Section 50-5, and protects the right to privacy of a person if a “person, firm or corporation” uses her “name, portrait or picture” for “advertising purposes, or for the purposes of trade… without having first obtained the written consent of such person”.

Would Plaintiff be more successful in her claim that her persona had been used without her permission in a New York court? As noted in a previous TTLF newsletter, some state’s right of publicity laws protect personas, such as the Alabama Right of Publicity Act which protects the right of publicity of individuals “in any Indicia of Identity,” and thus extend its protection to persona. This is not the case in New York.

Actress Lindsay Lohan recently argued that the protection of New York’s right of publicity includes her persona, which she claimed is composed of various elements such as a bikini, shoulder-length blonde hair, jewelry, a cell phone, sunglasses, a loose white top, and her signature ‘peace sign’ pose. he Appellate division of the New York Supreme Court dismissed her claim on 1 September 2016, because New York law only protects against unauthorized use of a person’ name, portrait, or picture— not a persona. However, in February 2017 the New York Court of Appeals accepted review of this case, and so may affirm or modify the narrow scope of the New York’s right of publicity.

Plaintiff has appealed her federal case and is likely to pursue her New York right of publicity case. Regardless, this case highlights the dangers of performing without a written contract. Plaintiff alleged in her complaint that she agreed to participate in the project without being compensated because the video had been presented to her as a public service announcement against street harassment. She received death and rape threats after appearing in the original video. This case brings in mind the Garcia v. Google case (discussed in a previous TTLF newsletter here) where an actress unsuccessfully claimed copyright in her performance. There are no neighboring rights provided to performers in U.S. law, unlike, say, French law, which grants performers a droit voisin,, a sort of property right over their interpretation of the work protected by copyright . In a statement, Plaintiff wrote that “the rights of all actors and other creative artists are increasingly threatened by those who profit commercially from their content without paying for it.” Should U.S. law give performers a neighboring right?

Tenth Circuit holds IPRs defense available to rebut a refusal to deal antitrust claim

By Valerio Cosimo Romano

On 31 October 2016, the United States Court of Appeals for the Tenth Circuit (the “Court of Appeals”) held that the invocation of IPRs is a presumptively valid business justification sufficient to rebut a refusal to deal claim.

The case involved a dispute between a software company and the developer of aviation terminal charts (which provide pilots with the information necessary to navigate and land at a specific airport). The developer holds copyrights for portions of its charts, which use a proprietary format. The parties negotiated and executed a license and cooperation agreement under which the developer would waive its standard licensing fee and grant the software company access to proprietary products that facilitate the integration of the developer’s terminal charts into third-party systems. In exchange, the software company would create a data management reader that works in conjunction with an e-book viewer. After the execution of the agreement, the software company registered with Apple as a software application developer and requested the necessary toolkit from the developer to develop an app. The developer did not provide the toolkit. Rather, it announced it had created its own app, offered to its customers at no additional cost beyond their terminal chart subscription fee.

The software development company sued the developer. The district court granted summary judgment for developer on the antitrust claims but denied summary judgment on the remaining claims for loss of profits, awarding more than $43 million in damages. The developer appealed, challenging only the district court’s ruling related to the loss of profits. The software company cross-appealed, challenging the dismissal of its antitrust claims, alleging a single anticompetitive conduct consisting in a refusal to deal, in violation of § 2 of the Sherman Act.

To determine whether a refusal to deal violates § 2, the Court of Appeals first looked at market power in the relevant market, in which the court assumed that the developer enjoyed monopoly power. Second, the Court of Appeals looked at the use of the product, and concluded that the assertion of IPRs is a presumptively rational business justification for a unilateral refusal to deal. In its legal reasoning, the Court of Appeals relied on the approach taken by both the First and Federal Circuits in Data General and Xerox, respectively. In Data General, the First Circuit held that while exclusionary conduct can be pursued by refusing to license a copyright, an author’s desire to exclude others from use of its copyrighted work is a presumptively valid business justification for any immediate harm to consumers. In Xerox, a Federal Circuit declined to examine the defendant’s motivation in asserting its right to exclude under the copyright laws, absent any evidence that the copyrights were obtained by unlawful means or used to gain monopoly power beyond what provided for by the law. Quoting Novell and Trinko, the Court of Appeals also recognized the existence of a limited exception, available only where the plaintiff can establish the parties had a preexisting, voluntary, and presumably profitable business relationship, and its discontinuation suggests a willingness to forsake short-term profits to achieve anti-competitive ends. On this last point, the Court of Appeals held that the software developer did not present any evidence.

Therefore, it concluded that the developer did not have an independent antitrust duty to share its intellectual property with the software company. Consequently, it reversed and vacated the jury’s award of lost profits, but affirmed the partial summary judgment on software company’s antitrust claims.

Second Circuit reverses a price-fixing cartel verdict against Chinese defendants on international comity grounds

By Valerio Cosimo Romano

On 20 September 2016, the United States Court of Appeals for the Second Circuit (the “Appeals court”) in New York reversed a federal district court judgment in an antitrust lawsuit against two Chinese companies accused of conspiring to fix the price and output of vitamin C sold to the United States.

In 2005, several vitamin C purchasers in the United States filed suit against two Chinese companies, alleging that the defendants and their co-conspirators had established an illegal cartel with the purpose and effect of fixing prices, controlling the supply of vitamin C  exported to the United States and worldwide, and inflating the prices of vitamin C in the United States and elsewhere. Defendants argued that they had acted in line with Chinese regulations on vitamin C export pricing which, in essence, requires coordination on prices and creation of a supply shortage, and that pursuant to the principle of international comity (i.e., the recognition granted by a nation within its territory to the legislative, executive, or judicial acts of another nation) the Court should have abstained from exercising jurisdiction in the case. The case went to trial, and in March 2013 a jury awarded plaintiffs approximately USD 147 million in damages and issued an injunction barring defendants from fixing the price or output of vitamin C. Defendants appealed the district court’s judgment.

Preliminarily, the appeals court determined whether Chinese law required defendants to engage in a conduct contrary to U.S. antitrust laws.

Defendants’ argument was supported by the Chinese Ministry of Commerce, which filed an amicus curiae brief in support of Defendants’ motion to dismiss, confirming that it had compelled Defendants to sell the goods at industry wide-coordinated prices and export volumes, in order to assist China in its transition from a state run command economy to a market‐driven economy. Consistent with prior case law, the appeals court reaffirmed the principle that when a foreign government participates in U.S. court proceedings providing a reasonable evidentiary proffer on the construction and effect of its laws and regulations, the U.S. court is bound to defer to those statements. On that basis, the Court concluded that Chinese law required Defendants to engage in activities that amounted to U.S. antitrust violations.

Once ascertained the existence of a “true conflict” of laws between the applicable Chinese regulations and the relevant U.S. law, the Court determined whether it had to abstain from asserting jurisdiction on comity grounds.

In order to do so, it applied the Timberlane Lumber-Mannington Mills multi‐factor balancing test, which involves the analysis of: the degree of conflict with foreign law or policy; the nationality of the parties, locations or principal places of business of corporations; the relative importance of the alleged violation of conduct here as compared with conduct abroad; the extent to which enforcement by either state can be expected to achieve compliance, the availability of a remedy abroad and the pendency of litigation there; the existence of intent to harm or affect U.S. commerce and its foreseeability; the possible effect upon foreign relations if the court exercises jurisdiction and grants relief; whether a party will be placed in the position of being forced to perform an act illegal in either country or be under conflicting requirements by both countries; whether the court can make its order effective; whether an order for relief would be acceptable in this country if made by the foreign nation under similar circumstances, and lastly whether a treaty with the affected nations has addressed the issue.

Applying the test, the Court held that China’s interests outweigh the U.S. antitrust enforcement’s interests and thus that the factors counsel against exercising jurisdiction in the case. The Court further noted that Plaintiffs are not without recourse in respect to China’s export policies, since they can always resort to the executive branch, which would deal with the issue with foreign policy instruments.

Consequently, the Appeals court held that the district court had abused its discretion by not abstaining from asserting jurisdiction, and reversed the court’s order.

This judgment is an exercise of legal diplomacy aimed at balancing the enforcement of U.S. antitrust and the right to recourse for U.S. citizens on the one hand, and the recognition and deference to be granted to the legislative and governmental acts performed by sovereign states on the other hand. In fact, the complex intersection of legal, political, and economic effects stemming from the clash of legal systems mandates a prudential approach in deciding matters like this. However, sovereign self-limitation shall not be intended as a legitimization of a free riding behavior over foreign economies. Thus, its application shall be kept to a minimum in order not to impair the effectiveness of national antitrust laws.

Partial victory for BMI: Federal judge rules against full-work licensing requirement

By Martin Miernicki

On 16 September 2016, Judge Stanton issued an opinion interpreting the BMI Consent Decree. He concluded that the decree does not require BMI to issue “full-work” licenses.

 

Background

On 4 August 2016, the U.S. Department of Justice (DOJ) published a closing statement concluding its review of the ASCAP and BMI Consent Decrees. It stated that said decrees prohibited ASCAP and BMI from issuing fractional licenses and required them to offer full-work licenses.[1]  Both ASCAP and BMI immediately announced to fight the opinion, the latter seeking a declaratory judgement, asking the “rate court” for its opinion.[2]

 

The court’s opinion

In its declaratory judgement, the court rejected the DOJ’s interpretation of the BMI Consent Decrees, ruling that “nothing in the Consent Decree gives support to the [Antitrust] Division’s view.” It held that the issue of full-work licensing remained unregulated by the Consent Decree; rather, this question should be analyzed under other applicable laws, like copyright or contract law. In conclusion, the court explained that the decree “neither bars fractional licensing nor requires full-work licensing.” The court furthermore distinguished the question at hand from its decision in BMI v. Pandora,[3] where it struck down attempts by major publishers to partially withdraw rights from BMI’s collective licensing regime.

 

The way forward

The court’s opinion is a clear success for BMI, but also for ASCAP, since it can be expected that Judge Stanton’s ruling will be influential in analogous questions regarding the ASCAP Consent Decree. However, this success is not final. BMI reported that the DOJ appealed the decision on 11 November 2016. It is hence up to the Court of Appeals for the Second Circuit to clarify the meaning of the decree.

[1] Under a full-work license, a user obtains the right to publicly perform the entire work, even if not all co-owners are members of the organization issuing the license. Conversely, a fractional license only covers the rights held by the licensing organization.

[2] For more information on the background of the decision see Transatlantic Antitrust and IPR Developments Issue No. 3-4/2016.

[3] BMI v. Pandora, Inc., No. 13 Civ. 4037 (LLS), 2018 WL 6697788 (S.D.N.Y. Dec. 19, 2013).

Who’s on Second (Circuit)? Transformative fair use

By Marie-Andrée Weiss

The Second Circuit found on 11 October 2016 that verbatim use of the famous ‘Who’s on First’ Abbott and Costello routine in the Hand to God play was not transformative enough to be fair use. The Second Circuit nevertheless affirmed the dismissal of the lower judgment as Plaintiffs did not have a valid copyright interest in the routine. The case is TCA Television Corp. v. McCollum, No. 1:16-cv-0134 (2d Cir. Oct. 11, 2016).

William ‘Bud’ Abbott and Lou Costello formed a comedy duo which was popular in the thirties and forties. Who’s on First is one their most famous routines, where Abbott plays the manager of a baseball team which Costello just joined. The newbie wants to know the name of his fellow players and the manager obliges: they are “Who,” “What,” and “I Don’t Know.” Misunderstandings ensue, fired up at a rapid pace. The routine was named “Best comedy routine of the 20th Century” by Time magazine in 1999.

The play Hand to God, written by Robert Askins, was shown off-Broadway in 2011 at The Ensemble Studio Theatre, and has since been shown on Broadway and in London. The play is about Jason, an introverted young man from a small Texas town who participates in his church’s “Christian Puppet Ministry,” a sock puppet show. Tyrone, Jason’s sock puppet takes a life on its own and blurts out embarrassing facts, maybe because it is an incarnation of the devil, maybe because Jason uses him to say what he truly thinks. Jason recites Who’s on First, with Tyrone as his partner, to a young woman in order impress her, and then pretends that he is the one who came up with the routine. Tyrone then calls him a liar and tells the girl she is stupid for believing that Jason indeed created the routine. An excerpt of that scene was used in a promotional video for the play.

When Abbott and Costello’s heirs learned about this use, they filed a copyright infringement suit against the Ensemble Studio Theatre and the playwright in the Southern District of New York (SDNY). Defendants conceded that they had used part of the routine, but argued in defense that is was “part of a sophisticated artistic expression” and also that Plaintiffs do not own a valid copyright in the routine.

On December 17, 2015, Judge Daniels from the SDNY dismissed the copyright infringement suit brought by Plaintiffs because, while Plaintiffs had indeed established a continuous chain of title in the copyright, use of the routine by Defendants was fair use. Plaintiffs appealed.

 

The use of the routine is not protected by fair use

Plaintiffs had argued that the play had not added anything new to the original routine as Jason merely recited it without transforming it, and that therefore is was not fair use. The Second Circuit agreed.

When examining whether a particular use of a work protected by copyright is fair, courts use the four factors enumerated by Section 107 of the Copyright Act: the purpose and character of the use, the nature of the copyrighted work, the amount and substantiality of the portion used and the effect of the use on the market.

Judge Daniels had found, when examining the purpose and the character of the use of the routine in the play, that it was transformative enough to be fair use. He had cited the Second Circuit Cariou v. Prince case, where the Court had found that Richard Prince’s use of Cariou’s photographs to create new works was transformative enough to be fair use because Prince had “employ[ed] new aesthetics with creative and communicative results distinct from Cariou’s” and also had incorporated “new expression” in his works.

For Judge Daniels, “the performance through the anti-hero puppet… create[d] new aesthetics and understandings about the relationship between horror and comedy that are absent from Abbott and Costello’s… routine.” He further explained that “[t]he contrast between Jason’s s seemingly soft-spoken personality and the actual outrageousness of his inner nature, which he expresses through the sock puppet, is, among other things, a darkly comedic critique of the social norms governing a small town in the Bible Belt.”

The Second Circuit found this reasoning to be “flawed in what it identifies are the general artistic and critical purpose and character of the [p]lay” and that the court did not explain how “extensive copying of [the] routine was necessary to this purpose.” Section 107 enumerates the uses which are fair: criticism, comment, news reporting, teaching, scholarship and research. For the Second Circuit, the use of the routine “does not appear to fit within any of these statutory categories.”

Even though the Second Circuit had held in Cariou that it is not essential that a use comments on the original work to be transformative, it also held that a use is transformative only if it alters the original work with “new expression, meaning, or message.” For the Second Circuit, this was not the case as the routine had not been altered in the play, but used for what it is, a famous classic routine, instantly recognizable by the audience. The Court quoted its own On Davis v. Gap, Inc. case which explained that a use is not transformative if it used the original “in the manner it was made to be” used. The Court pointed out that it was necessary that the routine is not altered, so that the audience can recognize it and laugh when Jason pretends he created it. For the Second Circuit, the use of the routine is  a mere “McGuffin,” an event which sets the plot, in that case informing the audience that Tyrone the sock puppet can speak unprompted and has a foul mouth. However, not “any new dramatic purpose justif[ied] [d]efendants’ extensive copying of the [r]outine.” As the use was not transformative, the purpose and character of the use factor weighed in Plaintiff’s favor.

The Court also found that the nature of the work factor weighed in favor of Plaintiffs, as the routine was created to entertain the public, and thus is “at the heart of copyright’s intended protection.” It dismissed Defendants’ argument that use of the routine was justified by the need to use “an instantly recognizable “cultural” touchstone in the relevant scene” because Defendants could have used another cultural touchstone, such as “inventing the Internet” or “out-swimming Michael Phelps.” These examples are not convincing as they are not examples of cultural touchstones performed by a duo, a format which was needed in a play about a man and his evil sock puppet.

The amount and substantiality of the use factor weighted “strongly” in favor of Plaintiffs as the copying of the original work was “substantial” and because, while even a substantial use can be fair use “if justified,” it was not the case here. The fourth factor, the effect on the potential market, also did weigh in favor of Plaintiffs because there is a licensing market for the routine.

However, even though all of the fair use factors weighed in favor of Plaintiffs, the Second Circuit nevertheless affirmed the dismissal of the case because Plaintiffs failed to prove they own a valid copyright in the routine.

 

Plaintiffs do not own the copyright in Who’s on First

Judge Daniels had found that Plaintiffs had proven a continuous chain of title in the copyright of the routine, but the Second Circuit disagreed.

The routine was first performed in 1938 on the radio. It was also performed by Abbot and Costello in their 1940 One Night in the Tropics movie (Tropics) and in 1945 in their Naughty Nineties movie. As both the routine and the two movies were created before January 1, 1978, date of the entry into force of the 1976 Copyright Act, they are subject to the 1909 Copyright Act, which only protects published or registered works. A work was protected for twenty-eight years under the 1909 Copyright Act, if it was published with the required copyright notice. However, public performance of a work was not a publication under the 1909 Copyright Act, Silverman v. CBS Inc. (SDNY 1986), and therefore the routine was not first published in 1938, but in 1940. Unpublished and unregistered works were protected indefinitely by common law, but became automatically protected by copyright on January 1, 1978.

In November 1940, Abbot and Costello allegedly assigned their rights in the routine as performed in the two movies to Universal Pictures Company (UPC), which registered the copyright of Tropics in 1940 and of The Naughty Nineties in 1945, and timely renewed both copyrights. As the common law copyright of the routine as first performed in 1938 was never assigned, Abbot and Costello had retained it. They registered a copyright for “Abbott and Costello Baseball Routine” in 1944, but did not renew it and thus the work is in the public domain since 1972.

Plaintiff did not rely on the 1944 registration to claim they own the copyright, but rather in an agreement made in 1984 where UPC quitclaimed all of its rights in the performance of the routine to Abbott &Costello Enterprises (ACE), a general partnership formed by the comedians’ heirs. ACE was later dissolved and copyrights’ ownership were divided among Abbot and Costello heirs.

Defendants had argued that the routine was in the public domain because only Abbott and Costello could have renewed the copyright of the movies, but Plaintiffs argued that UPC had the authority to do it because the comedians had assigned ownership of their common law copyright in the routine to UPC, the routine had merged into Tropics, and the copyright was transferred to ACE by the quitclaim.

For Judge Daniels, the 1940 registration of the One Night movie by UPC in 1940 “extinguished whatever common law copyright Abbott and Costello had in the unpublished version of the [r]outine.” However, the Second Circuit found that Abbott and Costello had merely intended to license the use of the routine to UPC, not to assign their common law copyright in it. The Second Circuit did not interpret the agreement as being a work-for-hire agreement either, because the routine had already been created in 1938 and thus could not have been created at UPC’s “instance and expense” as required it to be a work for hire, Playboy Enters., v. Dumas (2d Cir. 1995). The routine had not merged in the movies either, as “authors of freestanding works that are incorporated into a film… may copyright these ‘separate and independent works’”, 16 Casa Duse, LLC v. Merkin (2d Cir. 2015) and the routine is such a freestanding work.

When is the output of a copyright-protected software program itself protected by copyright?

By Marie-Andrée Weiss

When is the output of a copyright-protected software program itself protected by copyright? This is a case of first impression for any court of appeals which is pending at the Ninth Circuit. The case is Design Data Corporation v. Unigate Enterprise, Inc., 14-16701. On 17 October, 2016, counsels for both parties presented their arguments at the Ninth Circuit to a three-judge panel, composed of Judge Consuelo M. Callahan, Judge Michael Daly Hawkins and Judge Andrew D. Hurwitz.

Design Data Corporation (DDC) has created a computer aided design (CAD) steel detailing software, SDS/2, which can be used to draw 2-D and 3-D drawings and models of structural steel components. The designs can only be viewed through the SDS/2 software, the SDS/2 Viewer software, and in electronic images exported from SDS/2. Unigate Enterprise (UE) is a company which provides steel detailing CAD files to its clients in the U.S. It does not produce the files itself, but instead outsources their production to contractors in China.

DDC believed that UE had used the SDS/2 software illegally. Representatives of DDC visited UE’s office in August 2012 and UE allowed the representatives to search UE’s computers and copy some files. They found a folder containing installation files for SDS/2 and three patch files which can be used to circumvent SDS/2’s licensing requirement. Defendants admitted during discovery that one of its co-owners downloaded a copy of SDS/2 to an external hard drive, but that she believed this copy to be a free demonstration copy of the software, and that she did not install the software, nor did she try to use it. UE admitted that SDS/2 had been used to create files and drawings in five of its projects, but argued that they were made by contractors in China.

DDC sued UE for direct copyright infringement, claiming it had illegally downloaded a copy of the software and also had copied files and images which are output of the SDS/2 software protected by copyright. It also sued UE for contributory copyright infringement claiming that UE imported from China infringing files and images generated by SDS/2 in violation of 17 U.S.C. §602.

UE moved for summary judgment, claiming that merely downloading a software program without installing or using is de minimis copying and that therefore not direct infringement. UE also argued that it cannot be held liable for contributory infringement, as “wholly extraterritorial acts of infringement cannot support a claim under the Copyright Act even when authorized by a party in the United States,” quoting Subafilms, Ltd. v. MGM-Pathe Communications Co., 24 F.3d 1088, 1092, 1995 (9th Cir.1994).

On August 6, 2014, Judge William Orrick from the Northern District Court of California granted Defendants’ motion for summary judgment both for contributory infringement and direct infringement. Defendants had correctly argued that they could not be sued for contributory infringement. Judge Orrick also found that downloading a copy of SDS/2 “without any evidence that the copy was installed or used… amount[ed] at most to a de minimis ‘technical’ violation that is not actionable as a matter of law.”

DDC appealed to the Ninth Circuit, asking the Court to reverse summary judgment. DDC’s counsel argued before the Ninth Circuit that UE did “consciously implement a business model… that was designed to exploit a breach in the copyright protection afforded to software developers by shifting its infringement of [Plaintiff’s software] overseas.” However, as UE cannot be sued for contributory infringement, DDC argued instead that UE directly infringed its copyright by downloading the software and by reproducing the output of the software program which is protected by copyright.

 

Direct infringement: did UE violate copyright law by copying DDC’s software?

Judge Callahan and Judge Hurwitz were both troubled by the fact that UE had advertised on its site that it used the SDS/2 software. UE’s counsel answered that UE was counting on contractors to use it, but admitted that UE had never asked DDC if it was indeed true that the contractors were legally using the software. UE admitted it had downloaded the software, and therefore copied it, but argued it had not used it and therefore this de minimis copying was not actionable. DDC argued that, by downloading the software, UE had copied the entire SDS/2software code and therefore the copying was not de minimis.

Judge Hurwitz asked UE’s counsel whether the de minimis doctrine should apply each time someone copies a work protected by copyright, even if he does not use it, and the UE’s counsel answered in the affirmative.

 

Direct infringement: is the output of the software protected by copyright?

DDC argued also that UE has directly infringed the SDS/2 software because it has copied the steel component designs which are a visual display of the software, and are as such output of the software also protected by copyright. For Judge Hurwitz, this is the “really interesting issue in this case.” However, not every output of a software is protectable by copyright. The question of when the output of a computer program is protectable by copyright has not yet been answered by any court which makes it an issue of first impression.

Software’s source code, which is human-readable, and its object code, which is machine-readable, are both protectable by copyright as literary works, if they are original and fixed in a tangible medium of expression. However, the functional elements of the software, such as its systems or procedures, are not protected by copyright since copyright law does not protect process, system, and method of operation. Judge Orrick had quoted Altai and found that the “job files” and the other documents produced by the SDS/2 software “are data not covered by copyright”

Courts often use the abstraction-filtration-comparison test, first coined by the Second Circuit in Computer Assocs. Int’l v. Altai, to assess which parts of a software program are protected by copyright. The Second Circuit specified that the decision “[did] not control infringement actions regarding categorically distinct works, such as… products of computer programs.” There is no case where a court used the abstraction-filtration-comparison test to determine whether the output of a software has been infringed.

Judge Hurwitz asked DDC’s counsel what makes in her view a particular output protectable by copyright. She offered a test: an output would be protected by copyright if one can tie some sort of creative expression that is included in that output as having emanated from the software. Judge Hurwitz asked her what percentage of creative expression would trigger copyright protection. What if 80% of the creative expression originates from the software user? She conceded that in this case the output would “probably not” be protected by copyright. Judge Callahan found this test too complicated.

UE’s counsel then proposed another test. The output would be protected to the extent that it includes creative expression that has been fixed in the software and embodied in the output. However, if there is additional creative content added to the output by a user, and therefore the proportionality is too imbalanced and weights too heavily in favor of the user, it could be found under the abstract-filtration-comparison test not original and thus not protected. Judge Hurwitz said, that while there is no case addressing the issue, some seem to suggest that the output of a software program may be, in some instances, so substantially similar to the software program that it deserves protection. Judge Hurwitz noted, however, that plaintiff must show substantial similarity.

DDC’s counsel argued that there is not only substantial similarity, but even identity, because, if one inputs the same data into the software, one gets the same design out of it, in an expression which is fixed. But Judge Callahan quoted paragraph 721.6 of the Compendium of U. S. Copyright Office Practice about the “Relationship Between a Computer Program and a Work Created with a Computer or a Computer Program,” which explains that “ownership of the copyright in a work is distinct from ownership of any material object that may be used to create that work.” Judge Callahan asked DDC’s counsel whether this was relevant to the case and she answered that DDC owns the copyright in the software and also owns a copyright in “unnecessary creative expression that accompanies that.” She specified that DDC is not arguing that it owns the copyright in the entire design of the component, only in the expression that accompanies it. DDC considers this to be direct infringement, as it is a derivative work of the component of the software image files.

On rebuttal, Judge Hurwitz asked again DDC’s counsel to explain the relationship between both the creative input of the software and the creative input of its users, and how and when the ratio of these two creative inputs would trigger, or not, the copyright protection of the output. DDC’s counsel answered that DDC is focused on expressive content that is not in the actual design of the component, such as the font or the colors used, the shape of a comment box, or the placement of certain components around the design which appear in the design file, but which are not the design itself. She argued that these elements must be identified using the abstraction-filtration-comparison test to find out whether some elements are protected by copyright, but conceded that there was not any computer software case which used this test.