Top Cyberlaw Developments of 2006

By Eric Goldman and John Ottaviani

[Eric’s Note: I will be in Israel for the rest of the year. So while it’s a little premature to publish an end-of-the-year recap, this may be my last post for the year. John O. has the keys to the blog in my absence, so please keep coming back to see what he has to say. I’ll see you in 2007!]

For several years, we have developed a list of the top 10 Internet IP cases in the previous year (see the 2005 list). While we hope to continue that tradition, this year had a number of noteworthy Cyberlaw developments that seemed worth cataloging…and besides, who doesn’t like top 10 lists?

Before we get into the list, some developments we deliberately left off the list:

* National Federation for the Blind v. Target. Some have claimed that this case requires websites to comply with the ADA. At best, this overreads the case. The case reasoning only applies to entities that tightly integrate their websites with their physical retail stores. As a result, it should not apply to pure e-commerce sites, online content publishers or physical retailers that do not integrate their stores with the website.

* Grokster trial court ruling on remand. In September, the trial court held that StreamCast induced infringement. While the Grokster Supreme Court ruling was the Cyberlaw event of 2005, StreamCast’s loss on summary judgment was a non-event as the Supreme Court practically ordered the district court to rule for the plaintiffs.

* Congress’ failure to act on topics such as adware regulation and network neutrality. Keeping Congress from regulating the Internet is always noteworthy, but it can be hard to grasp the significance of non-events.

With those caveats in mind, our vote for the top 10 Cyberlaw developments of 2006:

#10: KinderStart v. Google.

Every online marketer wants a better search engine ranking, and if necessary, they’ll go to court to get it. After losing a lot of free Google traffic, KinderStart sought to restore its placement with a broad legal attack on Google’s ranking methodology. If a legal attack on search engine algorithm ever succeeds, expect to see a litigation tsunami from online marketers willing to invest in lawyers instead of SEM/SEO. Fortunately, they won’t succeed. In July, the judge dismissed KinderStart’s claims with a leave to amend; the ruling on KinderStart’s amended complaint is imminent, but its prognosis is also dim. This means that search engines can continue to manage their algorithms to maximize relevancy for consumers, rather than having judges tell them how to build their algorithms.

#9: EU Convention on Cybercrime.

The US ratified this treaty in August, joining a number of other countries to combat international cybercrime. However, this treaty may have unexpected and adverse procedural and substantive consequences. Procedurally, Declan believes that the treaty means that “Internet providers must cooperate with electronic searches and seizures without reimbursement; the FBI must conduct electronic surveillance ‘in real time’ on behalf of another government; U.S. businesses can be slapped with ‘expedited preservation’ orders preventing them from routinely deleting logs or other data.” Substantively, the EFF believes that the treaty allows US citizens to be prosecuted for breaking foreign country’s laws even if the behavior isn’t illegal in the US. Thus, they say “the Cybercrime treaty would introduce not just one bad Internet law into America’s lawbooks, but invite the enforcement of all the world’s worst Internet laws.” We’re not experts in international law, and it’s possible that these predictions overstate the substantive legal effect of signing an international treaty. Nevertheless, to the extent that the Cybercrime treaty removes some legal “borders” from enforcement on the borderless Internet, it is an important development.

#8: Click Fraud settlements.

The topic of click fraud just will not go away. The legal risks associated with it—potentially billions of dollars worth—cast a shadow over search engine valuations. Thus, when Google settled its past click fraud liability for <$90 million (of which only $30 million was out-of-pocket cash) and Yahoo settled its past liability for advertising credits plus $5 million of out-of-pocket cash, champagne corks popped throughout the Silicon Valley.

#7: Search Engines and Privacy (Gonzales v. Google; AOL Search Data leak).

John Battelle calls search engine logs the “database of intentions,” and lots of people would like to know more about searchers’ intentions—including law enforcement or the government thirsty to know more about its citizens. For example, in summer 2005, the DOJ asked Google to hand over lots of search data as part of the DOJ’s efforts to defend the Child Online Protection Act. Unlike the other search engines (who received similar requests), Google fought back—putatively to protect its users’ privacy, although Google was also concerned about engineers’ workloads and protecting Google’s trade secrets. In March, Google and the DOJ battled to a draw, with the judge issuing a Solomonic ruling that gave the DOJ some data (but not very much). This ruling caused the issue to fade a little until August, when AOL released a huge chunk of search engine log data in an effort to provide researchers with a useful dataset. Although the data was putatively anonymized, some enterprising reporters used the data to identify some searchers based on their search terms. AOL quickly backtracked and some heads rolled at AOL, but lawsuits are pending and the issue of search engines and privacy remains very, very hot. We guarantee that it will resurface in 2007.

#6: Trademark Dilution Revision Act.

The TDRA isn’t specific to the Internet, but it routinely arises in Internet trademark cases. For a while following the Moseley Supreme Court decision, dilution became somewhat of an afterthought. The TDRA revives dilution as a viable claim, so we expect plenty of litigation over dilution in Internet trademark cases in the future. However, the TDRA’s more rigorous definition of famous marks may restrict the impact of the revitalized dilution theory.

#5: Omega Travel v. Mummagraphics.

In a relatively short opinion in November, the Fourth Circuit undid three years of state anti-spam legislative activity, virtually eliminated one of the anti-spam litigants’ favorite CAN-SPAM provisions (the prohibition on forged headers) and (by extending the California Supreme Court’s Intel v. Hamidi holding to the Fourth Circuit) limited anti-spammers’ claims for common law trespass to chattels. A hat trick of wins for email marketers.

#4: Unlawful Internet Gambling Enforcement Act of 2006.

This law forces payment systems to starve Internet gambling sites of cash. While the law’s poor drafting makes it a litigator’s dream, we don’t expect a lot of litigation interpreting it. Instead, financial services will likely interpret the law conservatively, proactively cutting off money flows to even potentially legitimate sites. So even if the law’s legal requirements are unclear, the law will change the complexion of Internet gambling.

#3: Keyword Triggering and Trademark Law.

This year, five cases addressed the topic of trademark liability for using trademarked keywords to trigger ads:

* Edina Realty—advertiser’s purchase of trademarked keyword was a trademark use in commerce but plaintiff did not get SJ on likelihood of confusion. The case subsequently settled.

* Merck—directly contradicting Edina Realty, the Merck court said that an advertiser’s purchase of trademarked keyword was not a trademark use in commerce. In a subsequent rehearing, the court emphasized that it really meant to reject the Edina Realty case.

* 800-JR Cigar—search engine selling trademarked keywords made a trademark use in commerce, but plaintiff did not win SJ on likelihood of confusion.

* Rescuecom—search engine selling trademarked keyword did not make a trademark use in commerce. This case is noteworthy because it extended the landmark Second Circuit 1-800 Contacts v. WhenU case from its adware context to the search engine context. This case is on appeal to the Second Circuit (disclosure: Eric expects to file an amicus brief on behalf of Google in that case).

* Buying for the Home—an advertiser’s purchase of trademarked keyword was a trademark use in commerce, but in a counterclaim, the plaintiff’s purchase of the defendant’s keyword was excused as nominative fair use.

Given the inconsistency of these rulings, there’s really not much to say except that this topic will remain hot in 2007…

#2: Search Engines and Copyright.

While everyone was obsessing about Google Book Search, there was a troika of important Google copyright cases from early 2006: Field (Google’s “cache” function), Perfect 10 (image search) and Parker (Google Groups/Usenet). Field was a dream ruling for Google; they couldn’t have done better if they had written the opinion themselves. It adopted five different rationales why Google wasn’t liable for putting copyrighted works in Google’s misnomered “cache,” including the provocative conclusion that Google lacks volition when it delivers copies out of Google’s “cache.” The Parker case showed the power of the Field precedent, because the judge repeatedly rejected the plaintiff’s arguments with cites to the Field case. On the other hand, the Perfect 10 case resulted in a dangerous loss for Google, putting its image search function at legal risk (and, by implication, threatening many other core search engine functions). Looking at the Field and Perfect 10 cases side-by-side, there is no way to reconcile the Field and Perfect 10 cases regarding Google’s volition (the Perfect 10 case doesn’t even address the concept). The Perfect 10 case is on appeal to the Ninth Circuit (along with two other Perfect 10 cases involving Visa and ccBill), so maybe the Ninth Circuit will resolve the inconsistency. If the Ninth Circuit upholds the district court ruling in Perfect 10 v. Google, this could have significant ramifications for the basic operation of search engines.

#1: Barrett v. Rosenthal.

Since the Internet’s beginning, plaintiffs have sought to hold intermediaries liable for user content. However, since 1996, these efforts have run into the 47 USC 230 brick wall, as interpreted by the Zeran case, which held that 230 preempts both publisher and distributor liability. However, two appellate courts—both in California—expressly disagreed with Zeran and held (as opposed to ruminating in dicta) that 230 does not preempt distributor liability: the Grace case, which the California Supreme Court later depublished, and the Barrett case. In this opinion, the California Supreme Court overturns those cases, embraces Zeran as California law, and emphatically slams the door on plaintiffs’ attempts to plead around 230. Without either the Grace or Barrett cases to cite, plaintiffs are left only with precedential scraps—some law review literature and some caselaw dicta—in their efforts to hold intermediaries liable. Despite this, no doubt that plaintiffs will keep trying, but eventually courts will have to consider Rule 11 sanctions when plaintiffs raise tired arguments that were rejected over nine years ago.

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