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Court of Justice of the EU clarifies when an action for infringement by SEP owner may amount to an abuse

By Gabriele Accardo

On 16 July, the Court of Justice of the European Union (“CJEU”) handed down its preliminary ruling following a reference by the Landgericht Düsseldorf (“Düsseldorf Regional Court”) in the context of the dispute between Huawei Technologies (“Huawei”) and ZTE Corp. (“ZTE”) on 4G/Long-Term-Evolution (“LTE”) technologies (see Newsletter 6/2014 p. 16 and Newsletter 2/2013, p. 9, for additional background).

Facts of the case

The issues at stake in the main case concerned the conditions of the “compulsory license defense” in standard-essential patents (“SEPs”) disputes, or, conversely, on the availability of remedies to the SEPs’ holder who has pledged to license them on Fair, Reasonable and Non-Discriminatory (“FRAND”) terms.

Huawei is the proprietor of, inter alia, a European patent concerning method and apparatus of establishing a synchronisation signal in a communication system, which Huawei notified to the European Telecommunications Standards Institute (“ETSI”), which ETSI granted the status of patent essential to the LTE standard.

Huawei and ZTE engaged in discussions concerning the alleged infringement of the SEP and the possibility of concluding a licence on FRAND terms in relation to the products that ZTE put on the market and that operate on the basis of the LTE standard, thus using the SEP held by Huawei.

In that context, Huawei indicated the amount which it considered to be a reasonable royalty, whereas ZTE sought a cross-licensing agreement, instead.

Ultimately, no offer relating to a licensing agreement was finalized, whilst ZTE continued to sell its products without paying a royalty to Huawei or rendering an account to Huawei in respect of past acts of use.

Huawei brought an action for infringement against ZTE before the referring court, seeking an injunction prohibiting the infringement, the rendering of accounts, the recall of products and an award of damages.

Conflicting precedents

The Düsseldorf Regional Court considered that a preliminary ruling was needed in the circumstances because there are conflicting precedents on the issue at stake, notably the German Supreme Court decision in the Orange-Book-Standard case (see Newsletter 3/2009, p. 4 for more background) and the case brought by the European Commission against Samsung (The case was recently closed with a commitment decision. See Newsletter 2/2014, p. 14 and Newsletter 6/2012, p. 11 for more background).

In the Orange-Book-Standard case, the German Supreme Court held that a defendant in a patent infringement case may successfully raise an antitrust defense against the issue of an injunction provided that i) it has made an unconditional offer to conclude a licensing agreement under terms that cannot be rejected by the patent holder without abusing its dominant position, and ii) to the extent that the defendant uses the teaching of the patent before the applicant accepts the unconditional offer, it is compliant with the obligations that will be incumbent on it, for use of the patent, under the future licensing agreement, namely to account for acts of use and to pay the sums resulting therefrom.

Thus, in principle, under the Orange Book case law, the Düsseldorf Regional Court considered that it ought to uphold Huawei’s action for a prohibitory injunction insofar as ZTE’s offers to conclude an agreement could not be regarded as “unconditional” (the offer related only to the products giving rise to the infringement, whereas ZTE did not pay Huawei any royalty).

However, the CJEU noted that in the Samsung case the Commission basically held that, in principle, the abusive nature of a refusal to license a SEP may successfully be raised as a defense where the defendant is “willing to negotiate” a license on FRAND terms. In other words, the referring court wondered whether the bringing of an action for a prohibitory injunction may be deemed as unlawful under Art. 102 TFEU, where that action relates to an SEP, the proprietor of that SEP has indicated to a standardisation body that it is prepared to grant licenses on FRAND terms and the infringer is itself willing to negotiate such a licence, thus being apparently irrelevant that the parties in question cannot agree on the content of certain clauses in the licensing agreement or, in particular, on the amount of the royalty to be paid.

Answer by the CJEU

In essence, the CJEU had to clarify whether, and in what circumstances, a SEP holder abuses its dominant position by requesting injunctive relief against an alleged infringer of its SEP.

Preliminarily, the CJEU considered that the particular circumstances of the SEP case in the main proceedings distinguished that case from all other cases where a company seeks to exercise its right to defend its intellectual property, as set out in previous EU case-law. Unlike that case law, the case at issue relates to the exercise of an exclusive right linked to a SEP established by a standardisation body that has granted such SEP status only in return for the proprietor’s irrevocable undertaking that it is prepared to grant licenses on FRAND terms.

Unlike all other patents, patents that have obtained SEP status allow their proprietors to actually control the market, by preventing products manufactured by competitors from appearing or remaining on the market, if an SEP holder should threat them by seeking an injunction.

Yet, the CJEU made it clear that under Article 102 TFEU, the proprietor of the SEP is obliged only to grant a licence on FRAND terms, and that the proprietor’s irrevocable undertaking to grant licences on FRAND terms does not, in principle, negate the substance of the rights guaranteed to that proprietor by Article 17(2) and Article 47 of the Charter of Fundamental Rights of the European Union, including the right of access to a tribunal.

However, according to the CJEU, such “irrevocable undertaking” does, none the less, justify the imposition on that proprietor of an obligation to comply with specific requirements before bringing an action against an alleged infringer for a prohibitory injunction or for the recall of products. Specifically, the SEP owner would not abuse its dominant position, as long as:

  • first, before bringing such an action, the SEP holder alerts the infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed;
  • secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, the SEP holder has presented to the alleged infringer a specific, written offer for a license on FRAND terms, specifying, in particular, the amount of the royalty and the way in which that amount is calculated.

In turn, the alleged infringer must respond to that offer in a diligent and serious manner.

Accordingly, if the alleged infringer does not accept the SEP holder’s offer, it must promptly present the latter with a reasonable counter-offer that corresponds to FRAND terms, and has to provide a bank guarantee for the payment of royalties or deposit a provisional sum in respect of its past and future use of the patent, if that counter-offer is rejected. Where no agreement is reached on the details of the FRAND terms following the counter-offer by the alleged infringer, the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party, by decision without delay.

Conversely, if the conduct of the infringer is purely tactical and/or dilatory and/or not serious, an application for corrective measures or for an injunction does not constitute an abuse of a dominant position.

The CJEU thus clarified that the alleged infringer may rely -as a defence- on the abusive nature of an action for a prohibitory injunction or for the recall of products, only if it has submitted a counter-offer.

Also, the alleged infringer cannot be criticized if, during negotiations, it reserves the right to challenge the validity and/or essential nature and/or use of that patent.

Finally, the CJEU held that the SEP holder does not abuse a dominant position in taking legal action to secure the rendering of accounts in order to determine what use the infringer has made of the teaching of an SEP with a view to obtaining a FRAND royalty under that patent, and in bringing a claim for damages in respect of past use of the patent, for the sole purpose of obtaining compensation for previous infringements of its patent.

Germany’s Federal Cartel Office fines supplier of portable navigation devices for online RPM

By Gabriele Accardo

On 12 May 2015, Germany’s Federal Cartel Office (“FCO”) imposed a fine of 300,000 euros on United Navigation GmbH, Ostfildern, for enforcing resale price maintenance on retailers selling its portable navigation devices between 2009 and 2014. The investigation was launched upon an exchange of information with the Austrian Competition Authority.

During the relevant period, United Navigation monitored the prices of online retailers specifically, and requested them to raise prices up to the indicated level, so-called “street price”, as soon as prices dropped below the price level considered acceptable by United Navigation.

The FCO found that most of the retailers raised their prices after being contacted by United Navigation.

In other instances, United Navigation threatened stop supplying the retailers or bringing legal claims allegedly for unauthorized use of copyright material. Otherwise, in order to induce retailers to raise prices, United Navigation granted retailers certain advantages, such as bonuses.

EU Court of Justice’s Advocate General issues opinion on circumstances where the use of an online booking system by travel agents may amount to a concerted practice

By Gabriele Accardo

On 16 July 2015 Advocate General Szupnar handed down his opinion following a request for a preliminary ruling by the Court of Justice of the European Union in a case concerning the implementation of a maximum discount level via technical means by the administrator of the Eturas computer reservation system used by several travel agencies in Lithuania.

Advocate General Szupnar opined that where several travel agencies participate in a common booking system and that system’s administrator posts a notice informing its users that the discounts applicable to clients will be restricted to a uniform maximum rate, this notice being followed by a technical restriction on the choice of a discount rate, then such a situation may fall within the scope of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”), notably in the form of a concerted practice among those travel agencies.

The Advocate General further clarified under what circumstances the travel agencies who become aware of the illicit initiative of the system’s administrator and who continue to use the booking system, without publicly distancing themselves from that initiative or reporting it to the administrative authorities, may be held liable for the infringement of Article 101(1) TFEU.

The Advocate General first noted that the questions referred by the national court do not concern the liability of Eturas itself as a cartel facilitator (i.e. a third party which is not active on the relevant market or a related market, but serves merely as cartel secretariat), since Eturas is a contractual partner of all travel agencies concerned, with which it has concluded licensing agreements, and it is also an undertaking active on the market of licensing of online booking systems, which is related to the market of travel agents.

In order to establish the existence of concertation in circumstances which involve both an indirect communication via a third party and the absence of explicit response, the context of the interaction must be such that the addressee may be deemed to appreciate that the illicit initiative comes from a competitor or at least is also communicated to a competitor or competitors, who will rely on mutual action, even in the absence of response

While undertakings using the same computerized system are not partners in a commercial dialogue, and therefore the sending of a message via the information notices field of a computerized system may not be fully treated as equivalent to other methods of communication in the business world, such as the participation in a meeting or an exchange of emails, the form of the communication may be relevant in assessing the context of the interaction.

In this respect, the Advocate General observed that the unusual nature of the method of communication in the main proceedings was counterbalanced by other circumstances:

  • The system notice implemented by the system’s administrator conveyed a clear message which could not be understood otherwise than as an initiative to engage in an illicit anti‑competitive practice.
  • The terms of that notice and the mode of communication were such that undertakings who became aware of the system notice, should have appreciated that – absent their expeditious reaction – the initiative would be automatically and immediately implemented with respect to all users of the system.
  • The restriction of competition in question, i.e. the application of a uniform maximum discount rate by competitors, was clearly of a horizontal nature insofar as it required their mutual reliance, and an undertaking would comply with such an initiative only on the condition that the same restriction applies horizontally to its competitors.

Interestingly, the Advocate General rejected the contention of the applicants that the case at hand falls within the orbit of the so-called hub and spoke collusion, which involves exchange of information between competitors via a common trading partner in vertical relations, such as exchanges between distributors via a common supplier.

In such indirect exchanges, disclosure of sensitive market information between a distributor and its supplier may be considered as a legitimate commercial practice, whereas the present case concerns a message which was conveyed simultaneously to all undertakings concerned by their common trading partner and which, given its content, could under no circumstances be considered as forming a part of legitimate commercial dialogue.

Finally, the Advocate General considered under what circumstance the undertaking who became aware of the system notice and who continued to use the system, could escape antitrust liability.

Undertaking using an online booking system which is exploited as a platform for an anti-competitive practice, may have effective recourse to the two possibilities resulting from the Court’s case-law in order to dissociate itself from that practice: it may publicly distance itself from the content of the illicit initiative or, otherwise, report it to the administrative authorities.

While it would be unreasonable to require an undertaking to express its opposition to all participants in the concerted practice (the identities of the competitors concerned may not be discerned immediately), the undertaking should have, at least, informed the system’s administrator who announced the restriction and those other companies the identities of which might be known.

On the contrary, it would not be sufficient to ignore the communication or to instruct employees not to conform to the practice. Similarly, it would also be insufficient to oppose the practice by mere conduct on the market, for instance by giving individual discounts in order to counterbalance the general restriction, since, without public opposition such conduct could not be easily distinguished from mere cheating on other cartel members.

The case at hand ventures in somewhat unchartered territory of antitrust enforcement in the online commerce, to the extent that the Advocate General intends to apply case law on collusion arising in the context of meetings or other direct/indirect contacts among competitors to participation in a computerized system and failure to distance from an illicit “unilateral” measure implemented by the administrator of that system.

It may be recalled that last 6 April 2015, the US Department of Justice’s Antitrust Division announced the first criminal prosecution against an online conspiracy, whereby certain companies selling posters on the Amazon Marketplace adopted specific pricing algorithms with the goal of coordinating changes to their respective prices and wrote a computer code that instructed algorithm-based software to set prices in line with the agreement (see Newsletter 2/2015 for additional background). Unlike in the case referred to the Court of Justice, the US investigation showed that conspirators entered into direct contacts and exchanged information.

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.


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