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Actors Have No Copyright in Their Performance

By Marie-Andrée Weiss

On May 18, 2015, the Ninth Circuit held en banc that actress Cindy Lee Garcia does not have a copyright interest in her performance in the Innocence of Muslims movie and that Google can thus not be asked to remove it from all its platforms. The case is Garcia v. Google, No. 12-57302. Many amici curiae filed briefs, which can all be found here.

Garcia had signed up to appear in a low-budget movie, Desert Warrior, and was led to believe the film was about ancient Egyptians. This movie was never completed, but Garcia’s five-second performance was later incorporated by its writer and producer in his anti-Islamic The Innocence of Muslims movie. Garcia’s original lines had been dubbed so that she appeared to ask: “Is your Mohammed a child molester?” The movie was uploaded on YouTube and led to violent protests in the Middle East. It may even have been at the origin of the 2012 attack on the United States Consulate in Benghazi. A fatwa was issued against all people having participated in the movie, and Garcia received death threats.

Garcia filed eight Digital Millennium Copyright Act (DMCA) takedown notices, but Google refused to take the movie down. Garcia then claimed that she had a copyright interest in her performance and sought a preliminary injunction to have Google remove the movie from YouTube. The United States District Court for the Central District of California refused to grant the temporary injunction in November 2012, as Garcia’s copyright claim was not likely to succeed. A three-judge panel of the Ninth Circuit reversed, and issued an injunction to Google to take down all copies of The Innocence of Muslims from YouTube and its other platforms. This decision was later amended to state that the injunction did not encompass movies which did not include Garcia’s performance. The panel’s decision was vacated by the Night Circuit which granted a rehearing en banc. The en banc court affirmed the district court’s decision.

No copyright in a movie performance

Article 7(1)(c) of the 1961 Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations gives performers, including actors, the right to prevent the unauthorized reproduction of a fixation of their performance, if the original fixation had been made without their consent or if the reproduction was made “for purposes different from those for which the performers gave their consent.“ However, the United States did not accede to the Convention and does not recognize otherwise that performers have an individual right in their performance.

Indeed, the Copyright Office refused in March 2014 to register Garcia’s performance because its “longstanding practices do not allow a copyright claim by an individual actor or actress in his or her performance contained within a motion picture. The rationale behind this position is clear: an actor or actress in a motion picture is either a joint author in the entire work, or, as most often is the case, is not an author at all by virtue of a work for hire agreement.”

The three judge panel had found that “[a]n actor’s performance, when fixed, is copyrightable if it evinces “some minimal degree of creativity… `no matter how crude, humble or obvious’ it might be” (at 1263). The panel had further noted that pantomimes and choreographic works may be protected under Section 102 of the Copyright Act and had concluded that “[i]t’s clear that Garcia’s performance meets these minimum requirements.”

But the Ninth Circuit en banc did not agree with this statement, because the Copyright Act only protects original works of authorship fixed in any tangible medium, a fixation which must be done, under 17 U.S.C. §101, by or under the authority of the author. Garcia had not fixed her performance, which was instead fixed by the director and his crew. The en banc court also warned that granting a copyright in a movie performance would “turn cast of thousands into a new mantra: copyright of thousands” (p. 20). It quoted the Community For Creative Non Violence v. Reid case, where the Supreme Court explained that “the author is the party who actually creates the work, that is, the person who translates an idea into a fixed, tangible expression entitled to copyright protection” (p. 22, quoting Reid at 737).

In a rather emotional dissent, Judge Kozinski stated that “Garcia’s dramatic performance met all of the requirements for copyright protection: It was copyrightable subject matter, it was original and it was fixed at the moment it was recorded” (p. 33). He argued that if one considers that “Garcia’s scene is not a work, then every take of every scene of say, Lord of the Rings is not a work, and thus not protected by copyright unless and until the clips become part of the final movie” (p.35). For Judge Kozinski, “a performer need not operate the recording equipment to be an author of his own performance” (p.37).

Could Garcia have been successful by filing different claims?

Garcia’s goal was less to have her performance protected by copyright than to have The Innocence of Muslims taken down from the Web, as its wide dissemination and the ensuing fatwa had caused her “severe emotional distress, the destruction of her career and reputation and credible death threats” (p24). However, the en banc court stated that “[t]his relief is not easily achieved under copyright law… [and] the protection of privacy is not a function of the copyright law… Likewise, authors cannot seek emotional distress damages under the Copyright Act, because such damages are unrelated to the value and marketability of their works” (p.25).

While the en banc court was “sympathetic to her plight … the claim against Google is grounded in copyright law, not privacy, emotional distress, or tort law” (p.8). The court further noted that the “difficulty with Garcia’s claim is that there is a mismatch between her substantive copyright claim and the dangers she hopes to remedy through an injunction. Garcia seeks a preliminary injunction under copyright law, not privacy, fraud, false light or any other tort-based cause of action. Hence, Garcia’s harm must stem from copyright- namely, harm to her legal interest as an author “ (p. 24).

Garcia had originally filed a claim in Los Angeles Superior Court claiming invasion of privacy, false light, violation of her right to publicity, slander and intentional infliction of emotional distress. She voluntarily dismissed her state court suit to file instead a copyright infringement suit in the federal court, but she has since revived her state claims against Youssef. Indeed, she may be able to prove that the director’s conduct has caused her damages.

Copyright and First Amendment

The en banc Court noted that, “[u]nfortunately for Garcia … a “right to be forgotten” although recently affirmed by the Court of Justice for the European Union, is not recognized in the United States” (p. 26). This case, Google Spain SL v. Agencia Española de Protección de Datos, requires search engines to remove links to personal data upon demand of the individual whose personal information is thus displayed. The allusion to the right to be forgotten is interesting as the U.S. is generally viewing it as a threat to freedom of expression.

In this case, Garcia asked an Internet intermediary to take down speech. Justice Kozinski wrote in 2014 as part of the three-judge panel that the words which Garcia seems to utter in the dubbed version of her performance were “fighting words to many faithful Muslims” (Garcia v. Google, at 1262), a choice of words which may have been an attempt to present her dubbed performance as unprotected speech as it is so blasphemous that it triggers violence.

But for the en banc court, this “appeal teaches a simple lesson – a weak copyright claim cannot justify censorship in the guise of authorship” (p. 7) and “Garcia seeks to impose speech restrictions under copyright laws meant to foster rather than repress free expression”(p.8). The en banc court found that the panel’s injunction “censored and suppressed a politically significant film- based upon a dubious and unprecedented theory of copyright” and found it to be “a classic prior restraint of speech” (p. 29).

This case could have had a different outcome in Europe, which recognizes ‘neighboring rights.’ However, these rights cannot trump the rights of the author, and, in this case, Basile is the author of the offensive movie and chose to publish it on YouTube. France recognizes that interpreting artists have a moral right over their performances which may give them the right to prevent publication: the Versailles Court of Appeals held in 2004 that interpreters have moral rights, which are “non-negotiable and stem from each contract, and are outside the contractual scope” and that they “may hinder the unacceptable commercial policy” set by the other contracting party. Also, the Innocence of Muslims movie could be considered unprotected hate speech in Europe, and thus the injunction to take it down could have been successful, which would have made the whole discussion about Garcia’s neighboring rights unnecessary.

A Study in Copyright and Trademark

By Marie-Andrée Weiss

The movie Mr. Holmes, produced by Miramax, is set to be released in the U.S. on July 17. It is based on the Mitch Cullin novel A Slight Trick of the Mind and features Sherlock Holmes in his twilight years, after he retired to a Sussex farm to tend to his bees. The Conan Doyle Estate (CDE) is suing Miramax, Penguin, the editor of A Slight Trick of the Mind, and Mitch Cullin himself for copyright and trademark infringement. The case is Conan Doyle Estate Ltd. v. Miramax, LLC, No. 1:15-CV-432.

While the first fifty of the Sherlock Holmes short stories and novels are now in the public domain, ten are still protected by copyright in the United States. CDE was unsuccessful last year in its claim that the Sherlock Holmes and Doctor Watson characters are still protected by copyright, as the Seventh Circuit held in Leslie Klinger v. Conan Doyle Estate, Ltd. that they were now in the public domain (see here for a comment about the case in a previous TTLF newsletter).

CDE had argued in Klinger that Sherlock Holmes and Dr. Watson were “complex” characters who evolved during the stories and novels in which they appeared, and that, therefore, they should only become part of the public domain when the copyright of the last story in which they appear expires. This claim did not convince the Seventh Circuit, but Judge Posner noted in Klinger that the characters indeed changed over the years, writing that “[o]nly in the late stories . . . do we learn that Holmes’s attitude toward dogs has changed—he has grown to like them—and that Watson has been married twice. These additional features, being (we may assume) “original” in the generous sense that the word bears in copyright law, are protected by the unexpired copyrights on the late stories.“ Therefore, while the Sherlock Holmes character is no longer protected by copyright, some elements of the character first appearing in stories still protected by copyright may still be protected themselves. CDE claims the Cullin’s novel and the movie are copying these “highly original and protectable” elements.

Development of characters and copyright

According to the complaint, two of the public domain short stories refer to Sherlock Holmes’ retirement on the Sussex Downs, where he takes to bee-farming, and so these particular elements are no longer protected by copyright (Complaint p. 2). The complaint, however, distinguishes the “copyrighted mature Holmes” of the short stories protected by copyright from “the more clinical and purely rational Holmes” of the public domain stories (Complaint p. 12).

CDE claims that the Cullin novel and the Miramax movie are using elements of Sherlock Holmes’ character which were originally created by Sir Arthur Conan Doyle in the short stories still protected by copyright, such as his love of nature and dogs or his ability to express love. For instance, the complaint states that, in The Adventure of the Lion’s Mane, a story still protected by copyright, “Conan Doyle changed Sherlock Holmes. Holmes now loves the quiet of nature” (Complaint p. 10.) For CDE, Conan Doyle continued to develop the Sherlock Holmes character in the ten stories still protected by copyright (Complaint p. 2). For instance, he “develop[ed] a gentler demeanor, emotional warmth, and the ability to show love in his later years” (Complaint p. 8). Conan Doyle “changed Holmes in later life by giving him a gentleness and kindness Holmes did not possess in public domain stories” (Complaint p. 12). His knowledge of medicine was also created in these stories, as was his embrace of modern technologies, such as the microscope, and their use to solve crimes.

CDE further alleges that Cullin’s work is infringing because, in A Glass Armonicist, a story within a story in Cullin’s novel, Holmes is shown to be respectful and solicitous toward Dr. Watson, which the Complaint states is “[a] more subtle but important copying” from two protected stories, The Three Garridebs and The Adventure’s of the Lion’s Mane (Complaint p. 15). The Complaint cites a passage of The Lion’s Mane where the detective recalls how deeply moved he was when he first saw a very beautiful woman who had been the object of affection of a man who had died under mysterious circumstances, and affirms that “Cullin similarly has Holmes react from his heart rather than just his mind to the woman at the center of “The Glass Armonicist” (Complaint p. 15). The Complaint does not, however, cite any parallel allegedly infringing passage.

These two claims are likely to be unsuccessful. As Sherlock Holmes is in the public domain, writers are free to write stories featuring him, and may provide him with new feelings. Respect and solicitousness for an old friend, emotions when meeting a beautiful woman, are not particularly original feelings. Indeed, most people would find them normal and, while Conan Doyle chose to provide these feelings to the famously cold detective in his twilight years, their inner normalcy may prevent finding them original enough to prove infringement of the protected “Sherlock Holmes as a retiree”

The setting of both works

Conan Doyle has Holmes describing his “little Sussex home” in the second paragraph of The Adventure of the Lion’s Mane. The Complaint gives as an example of alleged copying by both the novel and the movie their featuring of “the lonely villa, the chalk cliffs in the distance, the path to the beach, and Holmes’ walks on it.” This particular example is not likely to be found protectable by the court: if a particular character has a farm in Sussex, it may very well be close to the Channel, and if it is, the house could very well be “commanding a great view of the Channel,” as written in The Lion’s Mane. Such a property would also be likely to have a path leading to the sea, and this path could be “long, tortuous . . . steep and slippery” as described in The Lion’s Mane, and as often observed in the area. Such a setting would probably be considered scènes à faire for a novel set in Sussex, in a house close to the sea.

The style of both works

The complaint points out that the Glass Armonicist is supposedly written by Holmes himself, using the first person, not the voice of Doctor Watson, and that Conan Doyle had his hero narrate his adventures in only two stories, The Lion’s Mane and The Adventure of the Blanched Soldier, which are still protected by copyright. The complaint reproduces a passage of Blanched Soldier and an allegedly infringing passage of Cullin’s novel. Both passages have Holmes crediting Watson for having written their adventures in a way interesting to the readers, instead of sticking to the facts, as Holmes would have preferred him to do. Both passages conclude that the writer must present the story in a way which is interesting to the reader (Complaint p. 13).

The Complaint also compares a passage of Blanched Soldier with a passage from Cullin’s novel which CDE claims is infringing. In both extracts, Holmes is shown sitting with his back to the window while receiving a visitor, who is himself illuminated by light. In both passages, the visitor does not know how to start his conversation with Holmes, and the detective finally initiates it by one of his famous deductions. In the original story, Holmes deduces that the visitor is from South Africa, while in Cullin’s work Holmes deduces that the visitor is seeking advice regarding his wife. In both works, the visitor is surprised by Holmes’statement.

Sherlock Holmes as a Trademark

CDE also claims trademark infringement and unfair competition because the movie, Mr. Watson, “uses a title confusingly similar to [the Estate]’s trademark SHERLOCK HOLMES.” CDE owns the SHERLOCK HOLMES trademark for “Organisation of exhibitions for cultural, educational, and entertainment purposes” which was registered last February in the principal register and the SHERLOCK HOLMES trademark for “Electronic gaming machines.” It has applied for registration of the SHERLOCK HOLMES trademark for entertainment services, for motion pictures, and for printed matter. This application has, however, has been suspended by the USPTO for five years pending registration of a similar mark in the same class. Indeed, many SHERLOCK HOLMES trademarks are currently owned by various entities, reflecting the fact that the name of a character in the public domain may indeed be registered as a trademark.

CDE has allowed writers to create new Sherlock Holmes stories, such as Anthony Horowitz’s Moriarty. It has also authorized Warner Brother’s Sherlock Holmes movies, and the BBC series Sherlock which is set in contemporary times. Other writers have used Sherlock Holmes as a retired detective character. For instance, Michael Chabon’s novel, The Final Solution, features an octogenarian detective, smoking a pipe and wearing tweeds, tending to his bees in Sussex. The novel is, however, set during World War II, and the main character is not named, but only referred to as ‘the old man.’ All of these works, whether authorized or not, have contributed to the fame of the Baker Street detective; the “Elementary my Dear Watson” phrase was not created by Conan Doyle, but by Hollywood. We may soon have more clues on whether some aspects of the characters created by Sir Arthur Conan Doyle are still protected by copyright.

Is Richard Prince the King of Fair Use?

By Marie-Andrée Weiss

Richard Prince is an appropriation artist whose name became known by every U.S. copyright attorney, after he won a fair use case which became a cause célèbre. The Second Circuit found in Cariou v. Prince that Prince’s use of Alain Cariou’s Yes Rasta photographs to create his Canal Zone series was transformative enough to be fair use.

Perhaps feeling his oats, Prince used images found on Instagram to create his New Portraits series which was presented at the Gagosian Gallery in October 2014. Prince selected several images posted on Instagram by celebrities, or by “Instagramers” famous for their personal style, and posted comments under the images using his own Instagram account, @richardprince4. Some comments were only a line of emojis, other were nonsensical. The artist then took screenshots of the original postings and his comments and printed them on canvas using an inkjet printer.

The exhibition did not generate much comment when it was privately presented at the Gagosian Gallery in October 2014, but when New Portraits was shown to the public at the Frieze Gallery in New York last May, it generated much comment about whether Prince had the right to reproduce the images, including by the subjects and the authors of the photographs.

Is New Portraits protected by fair use?

Prince may very well be trying to elicit more comments, including legal ones, over his appropriation art: the Gagosian Gallery page about the exhibition did not provide much information about the exhibition, but merely featured the pithy warning “Subject to copyright. Gallery approval must be granted prior to reproduction.” Is this phrase business as usual for an art gallery wishing to protect its rights, and those of its artist, or is it Prince’s taunting of the original Instagram’s users,: come and get me, and we’ll fight in court?

Photographer Donald Graham took the gauntlet. He posted on Instagram in October 2014 a photograph of the New Portraits exhibition, which showed Prince’s work reproducing his 1997 “Rastafarian Smoking a Joint, Jamaica” photograph, hung between other paintings, and wrote: “Appropriated Exhibit. The only way you’d know my work was a part of this display is . . . well, that’s just it, you wouldn’t know. #PrinceofAppropriation.”

The Graham photograph had been posted by another Instagram user, apparently without authorization, not by Graham himself. Prince added this comment under the original post: “Canal Zinian da lam jam” and then reproduced the Instagram post, complete with the @richardprince4’s comment, which could be interpreted as a tease, as Graham’s photograph is a black and white image photograph of a Rastafarian, just as Cariou’s photographs used in the Canal Zone series. Graham sent Prince a cease and desist letter over the use of his work, but no suit has been filed.

It remains to be seen if New Portraits will again lead to a copyright infringement suit allowing Prince to test the limits of fair use. Would this defense be successful? In Cariou v. Prince, the Second Circuit put great weigh on whether Prince’s paintings were transformative enough to be fair use, noting that “Prince altered [the Cariou photographs] significantly, by among other things painting “lozenges” over their subjects’ facial features and using only portion of some of the images” (Cariou at 699). By contrast, Prince did not “alter significantly” the original Instagram posts to create his New Portraits works, as he reproduced them in their entirety adding only a comment or two. Adding a comment on an Instagram post is certainly not transformative enough to qualify as fair use.

However, as we know from Marcel Duchamp and his Ready-mades there may be more to art than what meet the naked eye. Richard Prince is an appropriation artist, and thus savvy at deconstructing and reconstructing images. In New Portraits, Prince reproduced the entire photographs and did not add collages and paint as he did in Canal Zone. However, it can be argued that he took these images out of their original context, social media, and then “re-contextualized” them by making them part of an exhibition presented at prestigious art galleries and making them command six figure prices. He may thus comment on social media, on the contemporary art market, on both, or on noting at all. It should be noted that, while the Southern District of New York (SDNY) had found Prince’s use of Cariou’s work not to be fair as it did not comment on the original works, the Second Circuit rejected this holding, finding that “[t]he law imposes no requirement that a work comment on the original or its author to be considered transformative” (Cariou, at 706).

Does New Portraits violate the New York right of publicity?

Even if the fair use defense could indeed protect Prince, he could have to face right of publicity claims. Most of the works from the New Portraits series were screenshots of photographs representing the original Instagram users. Although not simple “selfies”—they are composed with great care–they do represent the likeness of these Instagram users. Could they claim that Prince has violated their right to publicity? Most U.S. states, including New York, where the exhibition was presented, have right to publicity laws. Sections 50 and 51 of New York Civil Rights Law prohibits the use of personal likeness “for the purpose of trade” without written consent.

It has been reported that some of these works have sold for around $100 000, so they have indeed been traded. However, Prince used the likeness of Instagram users for artistic purposes. Could this be used as a defense by Prince if he is sued for a right of publicity violation? This question is so far purely rhetorical, as none of the Instagram users have yet filed a right of publicity suit against Prince. One of them, DoeDeere, who is a professional makeup artist and cosmetics entrepreneur who regularly posts images of herself wearing stunning make up and wigs, stated on Instagram: “No, I did not give my permission and yes, the controversial artist Richard Prince put it up anyway. It’s already sold ($90K I’ve been told) during the VIP preview. No, I’m not gonna go after him. And nope, I have no idea who ended up with it!”

Indeed, filing a right to publicity suit against Prince would not be a slam dunk, especially in the Second Circuit. The SDNY held in 2002 in Hoepker v. Kruger, that the unauthorized use of the likeness of one of the plaintiffs by collage artist Barbara Kruger to create a work was protected by the First Amendment, regardless of whether the court applies the New York standard, which views art as speech trumping privacy whether the use is transformative or not, or the California standard, which requires the use to be transformative (Hoepker, at 350).

New Portraits is shown in London until August 2015. As the U.K. has no right to publicity, Prince does not have to fear that crossing the Atlantic may lead to a suit. Prince recently wrote on the Gagosian Gallery London exhibition page a piece about the show, explaining how he had recently discovered the pleasure of taking pictures with an iPhone. He “asked [his] daughter more about Tumblr. Are those your photos? Where did you get that one? Did you need permission?” Whether one chooses to believe that Prince is naïve enough to ask his teenage daughter copyright questions, or if this phrase is an artful prick, the question of whether Prince indeed needed permission under U.S. law to use these images is worthy of an answer. Richard Prince concluded ”What’s yours is mine.” Could New Portraits be less a traditional art show than a performance piece appropriating a copyright infringement suit, or a command performance where the parties, judges, and attorneys are being provoked to step into the arena at the command of Prince?

The FTC is Going Full Speed Ahead in Retail Tracking Case

By Marie-Andrée Weiss

On April 23, 2015, the Federal Trade Commission (FTC) published its proposed consent order with Nomi Technologies, Inc. (Nomi), a retail tracking company, Nomi Technologies, Inc. – Consent Agreement; File No. 132 3251. The FTC draft complaint against Nomi alleged that it had violated Section 5 of the Federal Trade Commission Act by misleading consumers when failing to provide them an opt-out mechanism at its clients’ retail store locations, even though its privacy policy represented that such an option was available to them.

What is retail tracking?

This is the first FTC complaint against a retail tracking company. According to the complaint, Nomi “uses mobile device tracking technology to provide analytics services to brick and mortar retailers . . . [and] has been collecting information from consumer’s mobile devices . . . since January 2013.”

While online retailers may easily track their visitors’ digital trail, brick and mortar retailers used to have to resort to asking “are you looking for something in particular?” to find out about their client’s interests, only to be often rebuffed by “just looking…” They also could instruct their staff to report observations about clients’ expressed interests and peruse over sales reports to define and refine their marketing strategy. But tracking companies can now provide retailers precise data on consumer’s behavior.

The complaint explained how sensors placed by Nomi in its clients’ stores detect the media access control (MAC) addresses which mobile devices broadcast when searching for WiFi networks. Nomi also collects MACs from the stores’ WiFi access points. The information thus collected by Nomi is used to compile analytics reports about the percentage of customers passing by the store versus entering it, the average duration of their visit, the type of mobile devices they use, the percentage of repeat consumers within a particular period of time, and the number of customers that have also visited another of the retailer’s location. This information allows retailers to measure the impact of in-store promotions or displays and to adjust their layouts and offerings accordingly.

The FTC did not consider retail tracking per se to be a violation of the FTC Act. Rather, it alleged that Nomi had not kept its privacy promises. Nomi’s privacy policy stated, from at least November 2012 to October 22, 2013, that the company “pledges to… always allow consumers to opt out of Nomi’s service on its website as well as at any retailer using Nomi’s technology.” However, according to the complaint, the retail tracking company had not made available to consumers a list of the retailers using its service, nor did it require its clients to notify consumers about the tracking service and to provide an opt-out mechanism at their stores.

Nomi provided an opt-out option on its own site. However, consumers had to provide all of their mobile devices’ MAC addresses, a rather cumbersome process, especially since consumers did not know which retailers were using Nomi tracking services and could thus spend time opting out of a service which may never even track them.

According of the terms of the consent order, Nomi agreed not to misrepresent “the extent to which, consumers can exercise control over the collection, use, disclosure, or sharing of information collected from or about them or their computers or devices, or… the extent to which consumers will be provided notice about how data from or about a particular consumer, computer, or device is collected, used, disclosed, or shared.”

 

Do retail tracking systems identify consumers?

Each MAC is a 12-digit identifier, which the FTC considers to be a persistent unique identifier, even though Nomi cryptographically hashes it, because when a particular MAC is hashed, the resulted hashed MAC is always the same. When one hashes a document or information to encrypt it, an algorithm transforms a string of characters, the input, into another string of characters, the hash value. In our case, each unique 12-digit identifier input are encrypted into a unique hash value, which can be therefore used as identifier.

In his dissenting statement, Commissioner Wright argued that Nomi did not track individual consumers, but merely recorded whether they are unique or repeat visitors to a store, without knowing their “identity.” But Chairwoman Ramirez cited in her statement about the proposed consent order an article written last year by Jonathan Mayer, from Stanford University, which stated that “[h]ashing [MAC addresses] is… no defense against re-identification” and explained how he had built such a re-identification system in less than an hour. Ashkan Soltani, the FTC Chief Technologist, noted in a post that the use of a persistent identifier presents privacy issues since tracking pattern of movement in itself is often enough to uniquely identify an individual.”

Is having a privacy policy a smart business idea?

Commissioner Wright also argued in his dissenting statement that the FTC should not have issued a complaint against Nomi, as “aggressive prosecution of this sort will inevitably deter industry participants like Nomi from engaging in voluntary practices that promote consumer choices and transparency [ and…] sends a dangerous message to firms weighing the costs and benefits of voluntarily providing information and choice to consumers.” For Commissioner Wright, the market has already responded to consumers expressing their preference, and he alluded in a footnote to several instances where retailers pulled out their tracking programs after consumers voiced their concerns.

But these instances may also be interpreted as signs that consumers are very concerned about being tracked in stores, and thus must be provided with effective ways to opt out, after having been put on notice of such programs. Ashkan Soltani cited in his post a recent OpinionLab survey which found that 8 out of 10 shoppers do not want retailers to track them using their smart phones, adding that “[t]he privacy issues are further exacerbated by the fact that most consumers are not aware that their device information may be captured as they walk by a store or visit an airport.” As such, defining privacy policies may very well drive innovation by incentivizing the creation of products and services respecting consumers’ privacy.

The FTC offered the public the opportunity to file comments about the case, and provided an Analysis to Aid Public Comment. The Information Technology and Innovation Foundation (ITIF), a think tank, while stating it did not condone Nomi’s mistake, argued in its comment that “innovation, by its very nature, involves risks and mistakes . . . .Certainly, companies should not face punitive measures for actions that were taken in good faith and did not cause consumer harm. This would create perverse incentives for companies to slow down the pace of innovation” (ITIF comments, p. 3).

Whether or not the FTC was too quick to act, this case signals the need to provide start-ups and entrepreneurs with the privacy framework they need to create products and services respecting consumers’ privacy. Since most consumers wish to guard their privacy, privacy protection can be an effective marketing tool to attract consumers and generate sales.

Delfi v. Estonia: ECtHR strikes a blow against online intermediaries

By Milos Novovic

One of the key characteristics of the modern Internet is its dynamic nature: over the past decade, the Internet became a domain in which user-generated content rules supreme, allowing people to express themselves, connect with each other and share their data with unprecedented ease. Blogs, wikis, social media websites and other interactive online platforms came to be the new face of the Internet: yet, their very existence heavily relies on the laws shielding the online intermediaries – such as these platforms – from the legal responsibility for user-posted content, provided that certain conditions are met. In the European Union, this principle has been long enshrined in the Directive 2000/31/EC on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (“E-Commerce Directive”, “ECD”); still, it has been called into question by the recent ruling of the European Court of Human Rights (“ECtHR”) in the Delfi AS v. Estonia (64569/09) case. While the case deals with the liability of online intermediaries in the context of defamation and freedom of expression, it might have wide-reaching consequences for intellectual property laws and the online environment as a whole.

Background

Delfi is one of the largest Internet news portals in Estonia. In 2006, Delfi published an article on possible destruction of ice roads – roads which connect mainland and islands over the frozen sea – by a company called SLK, owned by a person known as L. While the article itself was undisputedly well-balanced and contained no defamatory statements or hate speech, it drew a lot of attention from readers, who posted 185 comments. Some of these comments were manifestly insulting to L, and some could be perceived as direct threats of violence against him.

At the time, Delfi had no team of professional moderators reviewing user-submitted comments before they were published. They did, however, implement an automated software filter which prevented users from posting comments with certain obscene words, as well as a notice-and-takedown system, allowing users to report offensive comments, upon which they were promptly removed. L’s lawyers asked Delfi to remove the offensive comments and pay a fine, and while Delfi removed the offensive material on the same day, it refused to pay any compensation, prompting L to file a lawsuit before Estonian courts. Delfi’s claim that it was immune from liability under the Information Society Services Act, an Estonian law which transposes the ECD, was ultimately rejected, and L was awarded 320 euros in compensation. Delfi brought the matter to the ECtHR, claiming that the ruling of Estonian courts violates its right to freedom of expression under the Article 10 of the European Convention on Human Rights (ECHR). In a unanimous judgment, First Section Chamber of ECtHR concluded that no such violation has occurred, and that Estonian court ruling was a justified and proportionate restriction on Delfi’s right to freedom of expression. Delfi then brought the matter to the Grand Chamber, which affirmed the ruling.

The Grand Chamber Decision

The Court began by restating the importance of user-generated expressive activity on the Internet and its importance for the freedom of expression. It noted at the outset, however, that the ease of access that the Internet offers also poses certain dangers in this context, as defamatory and otherwise “clearly unlawful” – a concept not defined – speech can be easily disseminated and might remain persistently available online. The Court therefore reasoned that there is a tension between Article 8 of the Convention, which protects the right to privacy (“personality rights”), and freedom of expression, guaranteed by the Article 10 – and deeming them both worthy of equal respect, sought to find the balance between the two. In so doing, the Court relied on its previous case-law, requiring an existence of interference with a fundamental freedom (undisputed in this case), that such interference is “prescribed by the law”, has a “legitimate aim”, and is “necessary in a democratic society”. Since the existence of a legitimate aim was not contested by the parties, the main part of the case focused on whether holding Delfi liable for the content of user-posted comments was “prescribed by law” and “necessary in a democratic society”.

Prescribed by law

The Court started by noting that the measure in question had to be not only based on the domestic law, but that such law also has to satisfy certain requirements: namely, be accessible and foreseeable as to its effects. The norm, as the Court stated, had to be formulated with sufficient precision to enable a citizen (although not with absolute certainty) to regulate his conduct – otherwise, it could not have been held to be law. Delfi argued that there was no domestic law according to which an intermediary was to be taken as a professional publisher of comments posted on its website, and that, having relied on the national legislation and ECD framework, it could not have foreseen a different outcome. The Estonian government claimed that there was no case-law on the basis of which Delfi could have presumed that they would not be liable, specifically as owners of an Internet news portal, and claimed that EU law actually supported domestic court ruling.

ECtHR then observed that the fundamental disagreement in the opinions as to which law was to be applied stemmed from the diverging views on the issue of how Delfi was to be classified. According to Delfi, it should have been classified as an intermediary as regards the third-party comments, whereas the Estonian Government argued that it was to be seen as a media publisher, including with regard to such comments. The Court reiterated that it is not its role to interpret national legislation to this effect, and as a matter of lawfulness held that, as a professional publisher, Delfi should have been familiar with the legislation or sought legal advice. In holding that Delfi was in a position to assess the risks related to its activities and that it must have been able to foresee, to a reasonable degree, the consequences, the Court was satisfied that restriction on Delfi’s freedom of expression was lawful.

This holding drew sharp criticism from the dissenting judges. They emphasized that liability of news portals under the ECD regime was far from being settled in 2006, citing the CJEU case of Papasavvas, which only clarified the matter in 2014. They wrote: “Only divine legal counsel could have been sufficiently certain that a portal operator would be liable for a comment it was not aware of, under a kind of strict liability that applied to publishers (editors) who operated in full knowledge of the whole publication. […] Vaguely worded, ambiguous and therefore unforeseeable laws have a chilling effect on freedom of expression. A troubling uncertainty persists here.”

Necessary in a democratic society

In determining the necessity of the restriction imposed, the Court applied the principles embodied in the pre-existing case law to the current case, and went on to analyze the context of the comments, the measures applied by Delfi in order to prevent or remove defamatory comments, the liability of the actual authors of the comments as an alternative to the Delfi’s liability, and the consequences of the domestic proceedings for Delfi’s business model.

The Court first affirmed that Delfi “must be considered to have exercised a substantial degree of control over the comments published on its portal”, relying on several facts – notably, the fact that only Delfi could remove the comments, as original users could not alter or delete them after publication.

In considering whether original posters of comments could be held liable instead of Delfi, the Court held that “the uncertain effectiveness of measures allowing the identity of the authors of the comments to be established, coupled with the lack of instruments put in place by the applicant company for the same purpose with a view to making it possible for a victim of hate speech to effectively bring a claim against the authors of the comments, are factors that support a finding that the Supreme Court based its judgment on relevant and sufficient grounds.” While the Court stressed the importance of anonymity online, it also underlined the perils it brings.

Analyzing whether measures taken by Delfi were sufficient to shield them from liability, the Court re-iterated its stance that Delfi exercised substantial degree of control over the comments, and that the mechanisms in place had failed. The automatic word-filtering software did not remove offensive comments, although they did not contain “sophisticated metaphors or subtle threats”. The Court explicitly stated that asking a news portal to set up a team of dedicated moderators who will remove comments containing hate speech “can by no means be equated to ‘private censorship,’” and attached importance to the fact that “the ability of a potential victim of hate speech to continuously monitor the Internet is more limited than the ability of a large commercial Internet news portal to prevent or rapidly remove such comments.” As to the adequacy of the notice-and-takedown system, the Court stated that it can be used as a good balancing tool, but ultimately ruled that “the rights and interests of others and of society as a whole may entitle Contracting States to impose liability on Internet news portals, without contravening Article 10 of the Convention, if they fail to take measures to remove clearly unlawful comments without delay, even without notice from the alleged victim or from third parties.”

Lastly, the Court analyzed what kind of effect the ruling had on Delfi’s business model. It mainly focused on the fact that Delfi was only fined 320 EUR, and that it did not have to change its business model, as it remained one of the largest news portals in Estonia. It remains unclear why the Court did not acknowledge that hiring a professional team of moderators constitutes a change in the business model.

The Court therefore ruled that no violation of Delfi’s freedom of expression occurred.

Effect of the ruling

It remains unclear what kind of long-term effect this ruling might have.

The Court went to great lengths to emphasize that the ruling “does not concern other fora on the Internet where third-party comments can be disseminated, for example an Internet discussion forum or a bulletin board where users can freely set out their ideas on any topics without the discussion being channeled by any input from the forum’s manager; or a social media platform where the platform provider does not offer any content and where the content provider may be a private person running the website or a blog as a hobby”. Dissenting judges wrote as response: “[f]reedom of expression cannot be a matter of a hobby”.

Many prominent organizations have strongly criticized the ruling, claiming that it will chill the freedom of expression, principally because, as the dissenting judges have noted, “to avoid trouble, for active intermediaries the safe harbour will simply be to disable comments.” Moreover, as experiences from notice-and-takedown systems have shown in the past, moderators might be too cautious, and lacking legal training, might remove a significant amount of lawful content. Finally, users might feel the need to self-censor, as knowing that each comment they post will be read by a moderator can be a strong disincentive against posting.

The legal landscape seems rather confusing at this moment. On its surface, the only effect of the ruling is that imposing liability on active intermediaries is not a violation of the ECHR; but, being a violation of the ECD, the logical conclusion is that the EU Member States will not adopt such measures. However, unless such liability is imposed, “according to the logic of the present judgment, there is no proper protection for the rights of those who feel defamed by comments,” which creates a strong tension between the ECHR and ECD. For the time being, we can only wait – and hope that the system of shielding online intermediaries from liability, which is at the core of the modern Web, will not collapse under pressure.

US DOJ announces first criminal prosecution into online price fixing

By Gabriele Accardo

On April 6, 2015, the US Department of Justice’s Antitrust Division announced the first criminal prosecution of a conspiracy specifically targeting e-commerce. The case arose from an ongoing federal antitrust investigation into price fixing in the online wall décor industry.

Mr. David Topkins, a former executive of an e-commerce seller of posters, prints and framed art, has agreed to plead guilty to conspiring to fix the prices of posters sold online, and to pay a fine of $20,000. His plea agreement requires court approval. Price fixing in violation of Section 1 of the Sherman Act carries a maximum sentence of 10 years and a fine of $1 million for individuals, which makes the case even more exceptional in that, despite the very serious offence (price fixing), Mr. Topkins would dodge prison time.

According to the charges, Mr. Topkins and his co-conspirators participated in conversations and communications with representatives of other poster-selling firm to discuss (that is fix, increase, maintain and stabilize) the prices of the agreed-upon posters sold online through Amazon Marketplace, from as early as September 2013 until in or about January 2014. Amazon was not charged in the case.

To implement the anticompetitive agreement, Mr. Topkins and his co-conspirators adopted specific pricing algorithms with the goal of coordinating changes to their respective prices and wrote computer code that instructed algorithm-based software to set prices in line with the agreement. Similar algorithm-based pricing software is common in online marketplaces, but its use is not indicative of any wrongdoing absent this sort of coordination.

Although there is little information available, the case appears to show that the companies concerned used the “traditional tool-box” of anticompetitive behavior, such as contacts and exchange of information, etc.

According to the Department of Justice, this case arose from an ongoing federal antitrust investigation into price fixing in the online wall décor industry, so we should expect more of the same in the coming months. Watch this space.

European Commission sends formal charges to Google on comparison shopping services and opens separate investigation on Android

By Gabriele Accardo

On 15 April 2015, the European Commission sent a statement of objections to Google, alleging that the company is abusing its dominant position in the Internet search market, in breach of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”), by systematically favouring its own comparison shopping product “Google Shopping” in its general search results pages.

In parallel, the Commission launched a separate formal investigation concerning the mobile operating system Android. The investigation will focus on whether Google has entered into anti-competitive agreements or abused a possible dominant position, in breach of Article 101 TFEU and/or 102 TFEU, in the field of operating systems, applications and services for smart mobile devices.

  1. The alleged abuse in the Internet search market

This investigation does not come as a surprise.

In fact, during the past four years, Google has been in talks with the European Commission to address four set of competition issues, including the way Google displays specialized search services vis-à-vis its own products (see Newsletter 1/2014, Newsletter 5-6/2013, Newsletter No. 2/2013, Newsletter 2/2010, for additional background). While the present investigation focuses on Google’s favouring its comparison shopping product, the Commission continues to investigate Google’s conduct with regards to the allegedly more favourable treatment of other specialized search services, as well as Google’s conduct in three other areas of concern: copying of rivals’ web content (AKA “scraping”), advertising exclusivity and undue restrictions on advertisers.

In February 2014, Google was very close to a settlement, having offered a comprehensive package of remedies to the Commission.

However, while complainants made their voices louder, the mandate of the previous Commission was about to expire, so it soon became clear that the new Commissioner in charge for Competition would take over the case.

In recent months, dark clouds over Brussels began to gather.

Last 27 November 2014 the European Parliament passed a non-binding resolution, which called on the Commission to “properly enforce the EU competition rules in order to prevent excessive market concentration and abuse of dominant position and to monitor competition with regard to bundled content and services.” While the appetite of politicians to get involved in the Commission’s own turf may be understandable, that resolution left many perplexed nonetheless.

Yet, even more striking were certain passages of the public speech that EU Commissioner for Digital Economy and Society gave just a day before the Commission sent charges to Google. Commissioner Oettinger hinted at some forms of regulatory actions allegedly needed to fill, amongst others, the gap between EU and US Internet platforms.

That speech was not mere propaganda. In fact, a leaked Commission’s draft document “A Digital Single Market Strategy for Europe” stated that “The market power of some online platforms in the digital economy raises a number of issues that warrant further analysis. The Commission will carry out a comprehensive investigation and consultation on the role of platforms, including the growth of the Sharing Economy. The Commission’s analysis will cover i.a. issues like those arising from the lack of transparency in the search results (involving paid for links and/or advertisement) and the way Platforms use the information they acquire, possible issues relating to fair remuneration of rights-holders and limits on the ability of individuals and business to move from one platform to another [update after Google decision]”. Even a distracted reader may wonder whether that “update after Google decision”, should simply read that either way Google shall adapt its business model to much more stringent requirements. The final version of the Digital Single Market Strategy for Europe and its accompanying Commission Staff Working Document have been released after this issue of the Newsletter had been completed, so these will be addressed in the next issue.

And let’s not forget another leaked document of last March, albeit the leak came from the other side of the Atlantic. As it may be recalled, the Wall Street Journal published the staff report (actually, the document only included every other page of the report) from the US FTC’s bureau of competition recommending the FTC to bring a lawsuit against Google. The leak raised lots of eyebrows because, in early 2013, contrary to the staff recommendation, the FTC’s commissioners voted unanimously (5-0) to end the investigation into allegations of search bias after Google agreed to some voluntary changes to its practices. In that respect, the statement by the FTC reads “The totality of the evidence indicates that, in the main, Google adopted the design changes that the Commission investigated to improve the quality of its search results, and that any negative impact on actual or potential competitors was incidental to that purpose. While some of Google’s rivals may have lost sales due to an improvement in Google’s product, these types of adverse effects on particular competitors from vigorous rivalry are a common byproduct of “competition on the merits” and the competitive process that the law encourages.” Specifically, the Commissioners held that “Product design is an important dimension of competition and condemning legitimate product improvements risks harming consumers. Reasonable minds may differ as to the best way to design a search results page and the best way to allocate space among organic links, paid advertisements, and other features. And reasonable search algorithms may differ as to how best to rank any given website. Challenging Google’s product design decisions in this case would require the Commission – or a court – to second-guess a firm’s product design decisions where plausible procompetitive justifications have been offered, and where those justifications are supported by ample evidence.”

Interestingly, in its press release, the Commission acknowledged the close cooperation in this matter with the European Commission’s Directorate-General for Competition. In the wake of the recent developments, it is not clear whether that sense of cooperation still exists, or whether the European Commission has had an after-thought about cooperating with the FTC.

Against this background, Commissioner Vestager assured that competition investigations are independent from politics and commercial interests, noting that one out of four individual companies that complained in this case is a US company, and that US companies also play a major role in complaining business associations.

While there is no doubt that Commissioner Vestager is independent from political pressure, too many actors appear very interested to jump onto the stage. The risk of confusion is real, let alone the risk that good and much needed measures to achieve the Digital Single Market in Europe get mixed with or, worse, traded for far-reaching regulatory measures in a sector that has thrived, and can only thrive, thanks to innovation, not regulation.

The preliminary conclusions in the SO

The grievances concerning Google’s alleged abuse in the Internet search market are well known.

In essence, the statement of objections alleges that Google treats its own “Google Shopping” service more favourably in its general search results, compared to rival comparison shopping services. This artificially diverts traffic from these rival services stifling innovation and hindering their ability to compete to the detriment of consumers,

More specifically, the Commission’s preliminary conclusions are:

  • Since 2008, Google has systematically positioned and prominently displayed its comparison shopping service in its general search results pages, irrespective of its merits.
  • Google does not apply to its own comparison shopping service the system of penalties applied to competing services, which can lead to the lowering of the rank in which they appear in Google’s general search results pages.
  • Froogle, Google’s first comparison shopping service, did not benefit from any favourable treatment, and performed poorly, whereas its subsequent comparison shopping services “Google Product Search” and “Google Shopping” experienced higher rates of growth as a result of the alleged abusive conduct, to the detriment of rival comparison shopping services.
  • Users do not necessarily see the most relevant comparison shopping results in response to their queries. Incentives to innovate from rivals are lowered as they know that however good their product, they will not benefit from the same prominence as Google’s product.

In brief, as those who still go shopping at supermarkets may understand, this is no different than what supermarket chains do with their private labels. While supermarkets also know a lot about our tastes (guess what customer loyalty cards are made for), the main difference is that shelf space in supermarket alleys is rather scarce, whereas virtual space on Google search pages is not. One may wonder though whether another important difference is that Internet users are considered somewhat lazier when they browse the Internet than when the same individuals go shopping and browse the shelves in search of their favorite cola.

A remedy Google can’t refuse (to offer)?

Allegedly without the aim of seeking to interfere with either the algorithms Google applies or how it designs its search results pages, the Commission takes the preliminary view that in order to remedy the allegedly abusive conduct, Google should treat its own comparison shopping service and those of rivals in the same way. Accordingly, the Commission expects that when Google shows comparison shopping services in response to a user’s query, the most relevant service or services would be selected to appear in Google’s search results pages.

It is hard to imagine that the Commission’s wishes would not interfere with the algorithms applied by Google or the product design, an approach that clearly clashes with that of the Federal Trade Commission, briefly illustrated above.

Under Article 9 of Regulation 1/2003 Google may still offer commitments, albeit of a different nature than those offered last year (see Newsletter 1/2014).

But if Google is not willing to offer something more substantial than it did in 2014, under Article 7 of Regulation 1/2003, with the decision finding an infringement of the EU competition rules, the Commission may impose any behavioural or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end. In such cases, the Commission can also impose a fine of up to 10% of the worldwide turnover of the undertaking concerned.

The difference between a prohibition decision under Article 7 and a commitment decision pursuant to Article 9 of Regulation 1/2003 is that the former contains a finding of an infringement (and may come with a fine) while the latter makes the commitments binding without concluding on whether there was or still is an infringement.

  1. The investigation concerning the mobile operating system Android

The second investigation concerns Google’s mobile operating system Android, the leading operating system for smart mobile devices in the European Economic Area.

Other mobile operating systems include Apple’s iOS (which is proprietary to Apple and runs only on iPhones and iPads) and Windows Phone (which is used on Microsoft’s and other manufacturers’ smartphones and tablets).

Android is an open-source mobile operating system that can be freely used and developed by anyone. The majority of smartphone and tablet manufacturers, however, use the Android operating system in combination with a range of Google’s proprietary applications and services. In order to obtain the right to install these applications and services on their Android manufacturers need to enter into certain agreements with Google.

The investigation will focus on the following three allegations:

  • Whether Google has illegally hindered the development and market access of rival mobile applications or services by requiring or incentivizing smartphone and tablet manufacturers to exclusively pre-install Google’s own applications or services, in particular Google’s search engine;
  • Whether Google is hindering the ability of manufacturers of smartphones or tablets, who want to use the Android operating system, from being able to use and develop other open-source versions of Android (so-called “Android forks”);
  • Whether Google has illegally hindered the development and market access of rival applications and services by tying or bundling certain Google products with other apps and services.

In brief, the Commission will assess if, by entering into anticompetitive agreements and/or by abusing a possible dominant position, Google has illegally hindered the development and market access of rival mobile operating systems, mobile communication applications and services in breach of either Article 101 TFEU and/or Article 102 TFEU.

While there are some similarities with the Microsoft case concerning the PC operating system market, it is still too early to say whether the conclusion will be the same.

Some interim thoughts

The last four years have seen Google under the spotlight in different European venues, often portrayed as a villain or the 800-pound gorilla in the room.

What is striking, however, is that the debate in Europe has not done much to change the way we (Europeans) see and reward innovation, and more generally “merit”. Arguably, this is at the root of a bunch of problems that some in Brussels or in other European capitals believe can be solved with more regulation.

In a recent interview, US President Obama, answering a question concerning the investigations that Google and other US Internet companies face in Europe, somewhat provocatively said “We have owned the Internet. Our companies have created it, expanded it, perfected it in ways that they [European companies] can’t compete. And oftentimes what is portrayed as high-minded positions on issues sometimes is just designed to carve out some of their commercial interests.

President Obama’s statement, however exaggerated, should be taken as an encouragement to do more to support innovation: it is true that US companies are at the forefront of innovation, especially in the Internet space, but it is not true that European companies are mere followers that cannot compete but for the intervention of regulatory measures.

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