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March 29, 2007
Ninth Circuit Opinion in Perfect 10 v. CCBill
By Eric Goldman
Perfect 10, Inc. v. CCBill LLC, No. 04-57143, 04-57207 (9th Cir. March 29, 2007)
The Ninth Circuit issued an important but characteristically quirky opinion in Perfect 10 v. CCBill. This omnibus opinion covered a lot of disparate legal points and sent the case back to the district court, making it impossible to characterize cleanly as a win for either side. However, there were a variety of defense-favorable rulings (especially the major expansion of 47 USC 230 to preempt state IP claims) that will help both these defendants and future defendants. However, because there are 2 other Perfect 10 copyright cases pending before the Ninth Circuit, it may be difficult to fully assess the state of Ninth Circuit law until we see the troika of opinions.
Background
Perfect 10 publishes a pornographic magazine and operates a pornography website. It appears that Perfect 10 photos are routinely infringed by others because Perfect 10 has been on a litigation frenzy. They have brought at least four enforcement actions that have produced important Internet law opinions (involving the defendants Cybernet Ventures, Visa and Google in addition to this one). In all of these cases, Perfect 10 is suing some intermediary instead of the direct infringers. In this case, the intermediaries are support providers to websites that allegedly host infringing photos--CCBill provides payment service processing plus links to sites it collects money for, and the other defendant CWIE appears to be a basic hosting service provider.
Perfect 10 has sued both for copyright infringement and various state claims, including the models' rights of publicity. In this opinion, the Ninth Circuit opines on the defendants' eligibility for 512 safe harbors (plus a few other copyright matters) and whether the defendants can claim 230 for the right of publicity claim.
Copyright and 512
There were several key points about copyright law in this case, including:
1) Perfect 10 tried to toss the defendants out of the 512 safe harbor by arguing that they didn't do enough to terminate repeat infringers. The court shut this down, saying that "[t]o identify and terminate repeat infringers, a service provider need not affirmatively police its users for evidence of repeat infringement."
2) Point #1 takes on even more significance in light of the court's discussion about 512(c)(3) notices. 512(c)(3) tries to allocate infringement-associated investigatory/remediation costs between copyright owners and service providers. The idea is that copyright owners have to do some homework (and incur some investigation costs) before they can force service providers to incur costs responding to their takedown notices. However, copyright owners constantly are looking for ways to short-circuit that work and reduce their costs by offloading more work to the service provider.
Thus, copyright owners often send notices that don't comply literally with 512(c)(3)'s technical requirements. For example, in this case, Perfect 10 never sent a complete 512(c)(3) notice; instead, it sent a variety of documents and tried to have the aggregation of those documents qualify as the 512(c)(3) notice. In a few cases, most notably the terrible ALS Scan v. RemarQ case, judges have been very generous about relaxing the technical requirements of 512(c)(3). [Disclosure note: I was counsel for RemarQ during the relevant time period, so I have a personal reason to hate that opinion!]
Here, the Ninth Circuit rejects more flexible standards for 512(c)(3), saying that "substantial compliance means substantial compliance with all of § 512(c)(3)’s clauses, not just some of them." As a result, the court implicitly rejects the ALS Scan v. RemarQ holding (in FN 3, it acknowledges the conflict obliquely).
As a further result, the court confirms that service providers can ignore deficient notices: "a service provider [does not need] to start potentially invasive proceedings if the complainant is unwilling to state under penalty of perjury that he is an authorized representative of the copyright owner, and that he has a good-faith belief that the material is unlicensed." The court confirms that it really means what it says by confirming that it seeks to push copyright owners to do more work before burdening service providers to react to notifications:
The DMCA notification procedures place the burden of policing copyright infringement—identifying the potentially infringing material and adequately documenting infringement—squarely on the owners of the copyright. We decline to shift a substantial burden from the copyright owner to the provider
This is a great ruling for defendants. This ruling from the Ninth Circuit should inhibit copyright owners' attempts to game the 512 cost allocations by sending incomplete notices. Or, from the service providers' perspectives, this ruling gives them the power to legitimately push back when copyright owners try to play such games.
3) Providing services to sites with domain names like "illegal.net" and "stolencelebritypics.com" does not constitute a "red flag" under the statute because such names may just be marketing hype. The court says that the service provider doesn't have the burden to determine whether photos at such sites are actually illegal. This is another nice ruling for the defense because it means website names can't trigger inquiry duties.
Similarly, the court rejected that a password-hacking website didn't create the red flags because "[t]here is simply no way for a service provider to conclude that the passwords enabled infringement without trying the passwords, and verifying that they enabled illegal access to copyrighted material. We impose no such investigative duties on service providers."
4) The court says that a service provider can be eligible for the more robust 512(a) harbor even if it doesn't transmit the allegedly infringing bits. This is a potentially major expansion of 512(a). The paradigmatic example of a 512(a) entity is a passive data carrier. However, the court says that 512(a) can apply to anyone transmitting digital online communications, so 512(a) may be available to any vendor who provides any types of services to an alleged infringer.
5) The 512(c) safe harbor does not apply if the service provider receives a "direct financial benefit" attributable to the infringement. The Ninth Circuit confirms that this phrase should be interpreted using the common law for vicarious copyright infringement. Unfortunately, this leaves open one of the basic questions raised by the Viacom-YouTube lawsuit--does 512(c) preempt all types (direct, contributory and vicarious) of copyright infringement based on user activities, or is vicarious infringement unaffected by 512(c)? The court doesn't answer this, but one might infer that the court's discussion was irrelevant if 512(c) preempted vicarious infringement. Either way, the court says CWIE lacked a direct financial benefit, so we won't get an answer to this in this case.
47 USC 230
HUGE ruling here! By its terms, 47 USC 230 doesn't preempt "IP claims." This has left open questions like whether 230 preempts right of publicity claims. See, e.g., the 11th Circuit Almeida case. In one brief yet bold stroke, the 9th Circuit ends that debate, saying simply that where Congress said "IP," they meant "federal IP." This means Perfect 10's publicity rights claim against the defendants are preempted by 230.
But this ruling appears to do far more than strike out publicity rights claims. Per the express terms of this ruling, defendants can now claim 230 for any state-based IP claims, including state trademark laws and state trade secret claims. I'm trying to think about how this plays out, but it seems like a plaintiff cannot seek a TRO or injunction against a website hosting user-posted material that misappropriates the plaintiff's trade secrets.
It also means that to the extent plaintiffs bring a state trademark claim predicated on user or third party behavior, the defendant can simply crunch the state claim per 230. This is only somewhat helpful to defendants when the state and federal TM laws are the same because the federal claim won't be touched. On the other hand, if a plaintiff only has state trademark rights because they don't engage in interstate commerce and tries to sue an intermediary for contributory infringement (or direct infringement) attributable to a user's or vendor's infringing activity, it seems like the intermediary instantly wins on 230. This could also apply to any state TM claims in the keyword-triggering cases if the ad vendor can show that the customer-supplied keyword/ads were the basis of the TM claim.
As regular readers know, I almost never meet a defense-side 230 ruling I don't like, but I must confess that I think the Ninth Circuit is out-of-bounds here. Just based on straight statutory interpretation, I don't see how the Ninth Circuit can conclude that the word "federal" is imported into the words "intellectual property."
More importantly, I'm worried that this ruling may be so disconcerting to IP owners that they prompt Congress to take a closer look at 230. The ruling practically invites Congress to consider doing so. But, given the already expansive sweep of 230, I can't imagine Congressional revisiting of 230 would lead to any improvements in the statute. If anything, that would be the opportunity for all of the aggrieved tort lawyers--such as those seeking to hold MySpace liable for sexual predators--to “clean up” a problematic statute. So the statutory blowback from this ruling could be severe and dangerous.
Conclusion
This Ninth Circuit panel clearly understood the dangers that copyright and publicity rights lawsuits pose to Internet intermediaries, and they took a number of useful steps to push back on a very aggressive plaintiff's novel but expansive theories. Kudos to them. But with two other Perfect 10 cases pending with the Ninth Circuit, I strongly suspect that the most interesting and powerful aspects of this ruling soon will be reshaped by the subsequent opinions.
Other Opinions on the Case
Posted by Eric at 05:53 PM | Copyright , Derivative Liability | TrackBack
March 28, 2007
New Discussion Draft of GPL3 is Posted
By John Ottaviani
The Free Software Foundation posted draft 3 of GPL3 on its website today.
The General Public License (GPL) is one of the most widely used open source licenses. Version 1 was released in 1981, and Version 2 in 1991.
I have not had time to review the new draft yet. However, it reportedly has made GPL3 more compatible with GPL2. One of the criticisms of the prior drafts was that it could cause a "fork" in GPL licensing, with some products remaining under GPL2 and other derivatives of those products falling under GPL3. There are also changes to the patent licensing and digital rights managment provisions to address concerns in the open source community with these provisions in earlier drafts.
According to FSF's press release, changes in this draft also include a provision where first time violators can automatically have their license restored if they remedy the breach within thirty days.
There is a 60 day comment period for this draft. Then the comments will be considered and a "last call" draft will follow with thirty days for discussion The final GPL 3 will then be approved by FSF's board of directors.
Posted by John Ottaviani at 01:31 PM | Licensing/Contracts | TrackBack
The End is Near – Bertelsmann Settles EMI Claims Over Napster
By John Ottaviani
Various sources are reporting that EMI has agreed to settle its copyright infringement lawsuit against Bertelsmann AG related to Bertelsmann’s investment in Napster.
The settlement removes the last large record label with claims against Bertelsmann in the Napster case. Terms of the settlement were not disclosed, but sources quoted by the LA Times put the estimate between $50M to $150M.
After Napster filed for bankruptcy protection in 2001, the record labels and music publishers dragged Bertelsmann and other investors, including Silicon Valley venture capital firm Hummer Winblad Venture Partners into the lawsuit. Infringement claims were filed against the investors, arguing that the investors were liable for contributory and vicarious copyright infringement because they had effective control of Napster. The court refused to dismiss the claims because the recording companies accused the investors of assuming control over Napster’s operations and directing the infringing activities that gave rise to Napster’s liability. UMG Recordings, Inc. v. Bertelsmann AG, 222 F.R.D. 408 (N.D. Cal. 2004).
The decision caused a great deal of discomfort among those firms, in the private equity community dealing with content distribution companies. Investors were forced to review and rethink commonly used structures to control a portfolio company, and evaluate whether and how those control structures exposed the investors to liability for copyright infringements of the portfolio company.
Last September, Bertelsmann agreed to pay Universal Music Group approximately $60M to settle Universal’s copyright claims. Hummer Winblad settled with Universal and EMI in December.
The case is still pending, with the songwriters and music publishers remaining as plaintiffs. Without the support of the record labels, it is unlikely that case will be actively pursued for much longer.
And we can finally turn off the lights on one of the longest-running Internet intellectual property disputes.
Posted by John Ottaviani at 01:21 PM | Copyright , Derivative Liability , Internet History | TrackBack
March 26, 2007
Consumer-Directed DVR Service Infringes Copyright--20th Century Fox v. Cablevision
By Eric Goldman
Twentieth Century Fox Films Corp. v. Cablevision Systems Corp., No. 06-Civ. 03390 (SDNY March 22, 2007)
Not infrequently, copyright defendants argue that they are offering a service that passively implements consumer directions to infringe. In some cases, such as web hosts of user content (such as YouTube or many blog service providers), this defense has some bite. In other cases, such as MP3.com's Beam-It service, the facts may be less supportive, although distinguishing between the two cases isn't easy. But even when the facts are fully supportive, we've repeatedly seen that there is no "passive effectuator" exception to copyright law. Statutory safe harbors, such as 17 USC 512, help a bit in some places, but only a bit, and there remains plenty of uncertainty about what those safe harbors mean.
Cablevision is the latest entity to claim that it's just passively following its users' instructions by offering a service that allegedly infringes copyright. Cablevision offered a service that simulated the function of DVRs, but instead of the hardware residing in the users' homes, Cablevision kept all of the hardware in its central facility and just stored and served files at users' requests. As Cablevision claimed, "Cablevision sees itself as entirely passive in the RS-DVR's recording process -- it is the customer, Cablevision contends, who is "doing" the copying." The court's response is terse and clear: NO. As the court says: "The RS-DVR is clearly a service, and I hold that, in providing this service, it is Cablevision that does the copying."
While I think the court accurately applied copyright law as it stands today, it's still anachronistic at best. Does it really matter if the hardware is in the users' possession or operated as a service for their benefit? It shouldn't! Few users buy DVRs for their aesthetic beauty or the value of the component parts; instead, most users buy DVRs for the functional output of the device--they just want their programs as requested. Therefore, distinguishing the physical product and the service it provides seems completely out-of-step with the underlying economic dynamics. Nevertheless, copyright law makes such formalistic distinctions, and so does this court.
Other comments on this case:
* Mark Cuban thinks the copyright owners made a mistake shutting down this service because the cable companies pay copyright owners for broadcasting their content, unlike other DVR manufacturers.
* Sherwin Siy said that Cablevision's service is like an in-the-home DVR with an extra long cable.
* John Murrell says it's "truly frustrating to see an important legal ruling turn on a question of where a hard drive resides."
* Mike Madison says the "decision seems to rely on an unsustainable technological distinction"
Posted by Eric at 10:53 AM | Copyright | TrackBack
March 25, 2007
Miva Securities Litigation Rejects Most Click Fraud/Syndication Fraud Claims
By Eric Goldman
In re Miva, Inc. Securities Litigation, 2007 WL 809686 (M.D. Fla. Mar. 15, 2007)
Stockholders of Miva (formerly FindWhat) sued Miva, alleging that Miva had inflated its stock price by making false public statements. In this ruling, Miva successfully dismisses most of the allegations, substantially narrowing the lawsuit. While Miva would have liked to dismiss the complaint entirely, Miva can still find some solace in the fact that the court clearly was underwhelmed by the overreaching nature of the plaintiffs' claims.
The Allegations
The court reports the plaintiffs' allegations at the center of the lawsuit:
two of FindWhat's main revenue generating distribution partners (Saveli Kossenko and Dmitri l/n/u), who represented 36% of FindWhat's revenues, were using illegal means to inflate revenues. This included the use of spyware, browser hijacking software, and “non-human traffic.” The use of such illicit methods of creating internet traffic, commonly referred to as “click-fraud,” meant that advertisers were not forwarded legitimate leads of consumers interested in acquiring their products. This resulted in advertisers refusing to place high bids with FindWhat, causing FindWhat's revenue shortfall to worsen…
Based on this, the plaintiffs introduced eleven public statements to show that Miva was painting a rosier picture than reality, including the following statements:
1) 9/3/03 press release: "Through FindWhat.com, online marketers are able to cost-effectively promote their websites and find highly qualified prospects who have already expressed an interest in their product or service." The court says that the plaintiffs did not allege that the defendants knew its two distributors were sketchy in September 2003.
2) 9/19/03 press release: "The FindWhat.com Network includes hundreds of distribution partners, such as CNET's Search.com, Excite, Webcrawler, MetaCrawler, Dogpile, and Microsoft Internet Explorer Autosearch." The implication is that the defendants had a high quality distribution network when they didn't. The court soundly rejects this contention, saying:
Stating that the FindWhat network “includes hundreds of distribution partners” and identifying seven of the well-known distribution partners says and implies nothing about the Saveli and Dmitri traffic. The press release did not claim these distribution partners were representative of the others, and made no assertion as to the traffic attributed to any of them.
3) 10/20/03 press release: "FindWhat.com's services are a source of revenue and relevant keyword-targeted listings for its partners, while providing its managed advertisers with exposure to potential customers across the Internet. As with the Yellow Pages in the offline world, FindWhat.com's managed advertisers get their message in front of prospects at the exact time they are looking for the advertisers' products and services. Unlike the Yellow Pages, advertisers only pay for those visitors that “walk” into their virtual stores." The court says that this quote does not address the quality of FindWhat's network.
4) 12/10/03 press release: "FindWhat.com operates online marketplaces that connect the consumers and businesses that are most likely to purchase specific goods and services with the advertisers that provide those goods and services....This cost-effective, pay-for-performance model allows Web advertisers to pay only for those prospects which click-through to their sites, and increase their potential for exposure through the millions of advertisements distributed throughout the network per day." The court says this press release predates Miva's alleged knowledge of click fraud in its network, which (as alleged by plaintiffs) started June 2004.
5) 3/5/04 10-K: "We expect that our consultants, agents, resellers, distributors, subcontractors, and other business partners will adhere to lawful and ethical business practices. It is important to our company's reputation that we avoid doing business with companies which violate applicable laws or have reputations which could harm our business. Our policy prohibits engaging agents or other third parties to do indirectly what we as a company should not do under our own policies outlined in this code....The FindWhat.com Network is dedicated to delivering high-quality keyword ads as a result of an Internet user's search query. As such, we have written and strictly enforce advertising guidelines to try to ensure high relevancy standards....We are dedicated to delivering high-quality traffic to our advertisers' websites. We employ an integrated system of numerous automated and human processes that continually monitor traffic quality, often eliminating any charges for low quality traffic proactively from the advertisers' accounts. We enforce strict guidelines with our Network partners to ensure the quality of traffic on the system....We purchase Internet traffic from our distribution partners. Expressed as a percentage of revenue, Internet traffic purchases from one distribution partner represented over 10% of total revenue for each of fiscal 2003 and 2001 and Internet purchases from two individual distribution partners represented over 10% of total revenue for fiscal 2002....During the years ending December 31, 2003, 2002, and 2001, no advertiser represented more than 10% of the Company's total revenue. The Company purchases Internet traffic from distribution partners. Expressed as a percentage of revenues for the year ending December 31, 2003, Internet traffic purchases from one distribution partner represented over 10% of total revenue, for the year ending December 31, 2002, Internet traffic purchases from two distribution partners each represented over 10% of total revenue, and in the year ending December 31, 2001, Internet traffic purchases from one distribution partner represented over 10% of total revenue. However, none of these distribution partners represented more than 15% of total revenue during the three-year period ended December 31, 2003."
Plaintiffs take several swipes at this language, including (a) its 2 distribution partners had acted unethically, (b) the math doesn't add up when 2 distribution partners were about 1/3 of total revenues, and (c) Miva had failed to strictly enforce its policies against the distribution partners.
The court says that there was no promise that all business partners were ethical, dedication to a high-quality network isn't inconsistent with having some bad apples in the network, Miva properly disclosed that 2 distributors represented over 10% of revenue, and these statements were mostly protected forward-looking statements tempered with appropriate cautionary statements.
6) 7/6/04 conference call statements about revenue growth. The court says these statements weren't alleged to be untrue. Also, the plaintiffs alleged that Miva had an obligation to disclose bid deflation, but the court says that this wasn't required in a between-reporting-period conference call.
7) 11/1/04 conference call: an analyst asked about Miva's traffic sources, Although the Miva execs gave a garbled and ambiguous response, the court says that both execs' responses were the equivalent of "no comment."
8) 12/16/04 Jeffries research report. The court says that statements in that report don't bind Miva because they were made by an independent analyst.
9) 2/23/05 press release: Miva made some projections for 2005 revenue, which plaintiffs say were tainted by the fact that they included revenue from the questionable distributors. The court says that these projections were protected forward looking statements.
10) 2/23/05 conference call: Miva claimed that it has terminated specific rogue distributors, but plaintiffs introduced evidence that in fact Miva hadn't terminated those distributors. The court said that this was adequately pled.
11) 3/16/05 10-K. "Plaintiffs allege that statements made in the Form, “[w]e do not rely on ‘spyware’ for any purpose and it is not part of our product offering,” were false and misleading because the two largest distribution partners did in fact rely upon spyware. (¶¶ 89-90.) Additionally, statements made in the Form assuring that FindWhat was implementing screening policies and procedures to minimize fraudulent clicks were allegedly false and misleading because Defendants knew or should have known that the majority of their distribution network relied on click fraud, (¶¶ 91-92); statements made that “none of the traffic purchased from any of these distribution partners represented over 10% of consolidated revenue in 2004” were false and misleading because the percentage of revenue generated by two distribution partners exceeded the threshold without disclosure, (¶¶ 93-94); and statements that distribution partners were taken off line in the fourth quarter of 2004 were untrue. (¶ 96.)" The court said that these were adequately pled.
Implications
All told, the court dismissed the lawsuit for 9 of the 11 statements identified by the plaintiffs, leaving only statements #10 and 11 for further proceedings. As with the other recent Miva click-fraud ruling, Miva would have loved to see the entire lawsuit dismissed, but the lawsuit’s narrowing still represents good news for them.
This lawsuit also illustrates how hard it will be for the plaintiffs to succeed in the "syndication fraud" lawsuit against Yahoo from last year. Although Yahoo used different language, the court’s ruling regarding statements #2 and 3 pertain directly to the gist of the Yahoo plaintiffs’ allegations. That lawsuit is currently on hold while the parties try mediation and settlement discussions, but as part of those discussions I suspect Yahoo will be pointing this opinion out to the plaintiffs.
Posted by Eric at 03:05 PM | Adware/Spyware , E-Commerce , Marketing , Search Engines | TrackBack
March 24, 2007
Entrepreneurs & IP Talk
By Eric Goldman
I gave a talk to a group of local entrepreneurs on general IP issues in the process of being an entrepreneur. For most of you, this talk is very, very basic, but if you're interested, here are my slides.
Posted by Eric at 02:46 PM | General | TrackBack
March 20, 2007
KinderStart v. Google Dismissed--With Sanctions Against KinderStart's Counsel
By Eric Goldman
KinderStart.com LLC v. Google, Inc., C 06-2057 JF (N.D. Cal. March 16, 2007)
Copy of the opinion dismissing the lawsuit
Copy of the opinion granting sanctions against KinderStart's counsel Gregory Yu
Google has won big in the lawsuit brought by KinderStart due to their unhappiness with their search engine placement. Not only did Judge Fogel dismiss the complaint without leave to amend (meaning that the case is over unless KinderStart appeals to the Ninth Circuit), but he issued Rule 11 sanctions against KinderStart's counsel Gregory Yu--meaning that Yu will have to pay some of Google's legal fees (the amount will be determined later). The substantive result isn't surprising given the complete lack of merit in the lawsuit from day 1, but the Rule 11 sanctions show, once again, that Google plays hardball against plaintiffs when threatened (it also shows that Judge Fogel doesn't tolerate nonsense in his courtroom--good for him!).
UPDATE (3/21): I have finally had a chance to digest this very complicated set of opinions. Much of the substantive opinion is highly technical in nature, in that it parses the specific language of the filed complaint, the required elements of a valid complaint, and the judge's previous instructions when dismissing the complaint last July. As a result, the opinion isn't all that easy to read, nor is it all that interesting.
Overall, this opinion bears some resemblance to the Langdon and Person lawsuits against Google in that the plaintiff threw a laundry-list of grumbles and kvetches at Google, some of which were completely unrelated (such as KinderStart's attempt to link the Google Library endeavor with allegedly biased PageRank downgrading). Fortunately, courts are showing little tolerance for this "everything including the kitchen sink" type of pleadings; they are not stringing together disjointed facts to make the unsupported linkages sought by the plaintiffs. I trust that, in the future, plaintiffs with better lawyers will do a better job of getting to the right issues; those may pose more serious challenges for Google than the ones to date.
This opinion is very thoughtful. Judge Fogel did a meticulous job in sorting through a large volume of junk pleadings and other material to dissect the plaintiffs' arguments and provide legally grounded responses. I spend a lot of time bashing judges on this blog, but opinions like this give me some hope for our judiciary. As taxpayers, we got our moneys' worth from Judge Fogel's (and his clerks') work here.
Five highlights from the opinions:
1) The judge dismissed the antitrust claims for failing to identify an appropriate "relevant market." However, the judge showed a little sympathy to the possibility that Google may have antitrust exposure, saying "were KinderStart able to identify a relevant market for antitrust purposes, it might be able to allege a dangerous probability of achievement of monopoly power" based on the allegations that (1) Google's market share gains at the expense of Yahoo and Microsoft, (2) there are barriers to entry based on the investment required and entrenched buyer preferences, and (3) Google's user dataset may give it advantages over new entrants. I disagree with the concerns about market entry barriers for reasons I discuss here, but there's no doubt that Google's impressive market power can't be ignored.
2) The judge correctly understood that PageRank is an algorithmically generated opinion that can be modified at any time by changing either the data inputs or the algorithm. Therefore, there cannot be such a thing as a "wrong" PageRank. The court says: "PageRank is a creature of Google’s invention and does not constitute an independently-discoverable value. In fact, Google might choose to assign PageRanks randomly, whether as whole numbers or with many decimal places, but this would not create “incorrect” PageRanks."
This is 100% correct, and I hope this inhibits further legal arguments that there is such a thing as a "right" or "wrong" search result. On the other hand, note that Judge Fogel's statement doesn't address what happens if Google were to maliciously distort a PageRank. I've now read 2 draft law review articles in process by authors who are all worked up about the prospect of maliciously hand-manipulated downgrading, even though that appears to be a completely hypothetical circumstance currently.
3) The judge ducked any discussion about whether 47 USC 230(c)(2) would completely insulate Google's "filtering" decisions. Too bad; that statutory provision might have made short work of much of this lawsuit.
4) Google requested that the judge deem this lawsuit a SLAPP, which would have had the result of (1) dismissing the case entirely, and (2) requiring the plaintiff to pay Google's legal fees. Google got to #1 anyway, but #2 would have been a huge win for Google. The judge rejected Google's request, saying that this lawsuit did not sufficiently raise matters in the public interest because it involved a two-bit website (KinderStart's website) that no one really knows or cares about. This is the only place I think the judge made a mistake, because it's clear this case involved significant matters in the public interest (as the extensive media, blog and scholarly discussion about this case indicates). This lawsuit went to the very heart of the Internet's architecture--can a content database sort and configure its content delivery based on its discretion, or is that matter sufficiently important that we should remove the content database provider's editorial discretion in some/all cases? Stated differently, if KinderStart had won, it could have changed hundreds of millions of Google users' daily experiences.
Therefore, I think the judge was a little disingenuous by treating this case as solely about KinderStart's irrelevant existence. Nevertheless, I understand that the judge really didn't want to hit KinderStart for all of Google's legal fees, especially when the judge could give Google some fee relief through the Rule 11 sanctions.
5) The judge granted sanctions for two pleadings by Gregory Yu: the allegations that (1) Google takes payments to skew search results, and (2) Google distorts PageRank for political/religious reasons.
On the first, Yu's background research included interviews with 2 witnesses who say Google ran pay-to-play, but Yu didn't get written declarations from either, and each witness' testimony had further defects--the first would have said he heard this from another person, and the second would have testified that some results appeared to be mysterious. Therefore, Yu couldn't support the broad statement based on such inadmissible and not-credible evidence.
On the second, Yu had a number of declarations in support of the statement, but in all cases, these declarations merely stated that the witnesses believed Google engaged in such practices. Therefore, there was no solid evidence other than these third party suspicions.
Posted by Eric at 05:15 PM | Search Engines | TrackBack
Person v. Google Dismissed (with leave to amend)
By Eric Goldman
Person v. Google, C 06-7297 JF (RS) (N.D. Cal. Mar. 16, 2007)
As expected, Judge Fogel dismissed Person's antitrust lawsuit against Google but gave Person one more chance to refile a complaint. It would be foolish for him to do so, but he hasn't shown a great deal of litigation savvy to date. Sadly, this probably means one more futile round before Judge Fogel puts a stop to this nonsense.
The most interesting part of the opinion relates to the judge's definition of the "relevant market" for antitrust purposes. The judge rightly rejects the argument that the relevant market is search engine keyword-triggered advertising; instead, he defines it as "Internet advertising" generally. I think this is clearly right because advertisers are fairly willing to substitute between Internet advertising options so long as they deliver good value. However, by defining the market so broadly, the judge has implicitly thwarted attempts to declare Google a monopolist in its ad business--Google is a major player in the search keyword ad business, but it has a comparatively small slice of the overall online advertising pie.
Posted by Eric at 08:48 AM | Search Engines | TrackBack
March 19, 2007
Click Fraud Lawsuit Survives Motion to Dismiss--Payday Advance v. FindWhat
By Eric Goldman
Payday Advance Plus, Inc. v. Findwhat.com, Inc., 2007 WL 760437 (S.D.N.Y. Mar. 12, 2007)
The high-profile click fraud lawsuits against Google and Yahoo settled last summer, but other lesser-known lawsuits appear to be in the pipeline, such as this lawsuit against FindWhat (now Miva). In this ruling, the defendants attempt to shut down the lawsuit and they met with some success; the defendants eliminated 5 out of the plaintiff's 6 claims (at least temporarily). However, the most dangerous claim--breach of contract--survived the motion to dismiss. This case is a long way away from final resolution, but I'm sure FindWhat would have loved to have squashed the case entirely without incurring more litigation costs.
Introduction
The plaintiffs initially filed this lawsuit in 2005 in California, but it was dismissed for improper venue. The plaintiffs refiled the lawsuit in NY claiming 6 causes of action: breach of contract, unjust enrichment, negligence, civil conspiracy, "joint venture" and a violation of NY GBL Sec. 249 (a consumer protection statute). The plaintiffs voluntarily capitulated on the last 2 causes of action. In this ruling, the defendants moved to dismiss the remaining four causes of action per 12(b)(6).
The plaintiffs allege that FindWhat entered into an affiliate arrangement with Advertising.com where Advertising.com would drive traffic to FindWhat's search listings in exchange for a cut of the revenue. The plaintiffs allege that Advertising.com boosted the plaintiffs' costs by competitively bidding on the same keywords (thus raising keyword prices) and by engaging in both manual and automated click fraud.
The Court's Analysis
It sounds relatively simple--KEEP A COPY OF YOUR SIGNED CONTRACTS. But, the plaintiff can't find its copy. FindWhat introduced what it thinks is the governing contract, but the plaintiff disagreed that FindWhat's version is the contract it signed. On this basis alone, the court can't dismiss the contract claims because the parties don't even agree on the contract terms. Unless the plaintiff magically finds its signed contract, the judge ultimately may need to choose between various possible contracts.
The court also discuss the language that the plaintiffs would pay FindWhat for "actual clicks." I've said before that I hate the word "actual" in this phrase, which introduces unnecessary ambiguity. The right way to draft this language would be to say that advertisers pay for all clicks except those that FindWhat determines are illegitimate, or to define "actual clicks" that way.
Either way, the determination of clicks is governed by the "implied covenant of good faith and fair dealing." Courts apply this implied covenant inconsistently, so in many cases it has no effect so long as the parties engage in profit-maximizing behavior. In other cases, the covenant allows the judge to opine on the business ethics of the parties and declare some behavior out-of-bounds. For example, even if the contract said unambiguously that advertisers pay for each and every click, many courts nevertheless would use the implied covenant to dishonor any clicks by the search engine's employees done for illegitimate purposes. Thus, the court says:
The facts alleged in the Complaint, if taken to be true, suggest that Findwhat could have violated its implied covenant by inflating the bidding prices for search terms and by directing Advertising to generate “clicks” on Payday's website by people or “bots” who had no purpose for visiting the site other than to generate revenues for Findwhat and Advertising. Because this tactic would allow Findwhat to increase its profits solely at its discretion and with no benefit to Payday, it is plausible that it could be found to “destroy[ ] or injur[e]” Payday's rights under the contract. Dalton, 663 N.E.2d at 291. It is furthermore likely that a reasonable advertiser entering into such a contract would expect that, whatever the external risks of unproductive “clicks,” it would not be subjected to unbounded increases in its prices at the hands of its promisor or at its promisor's direction. (emphasis added)
This leaves open several inquiries, including (1) does outright click fraud engineered by the search engine constitute a breach of the good faith covenant, and (2) can the plaintiffs introduce evidence showing that FindWhat, in fact, engaged in such condemnable behavior? Therefore, the plaintiffs still have a lot of work to reach a payday here (sorry for the pun). But, they live another day to try to make that showing.
The court spent a lot less time dismissing the other claims. The unjust enrichment claim is dismissed because it is subsumed by the breach of contract claim. The negligence claim is dismissed because, under NY law, a contract relationship does not give rise to a duty to avoid tortious negligent behavior. The civil conspiracy claim is dismissed because there needs to be an underlying tort advanced by the conspiracy, and the plaintiffs didn't allege any. The plaintiffs want to allege that FindWhat engaged in fraudulent concealment but failed to make strong enough statements to support that. The judge gave them another chance to amend the complaint.
Conclusion
Due to the successful motion to dismiss, Advertising.com is now out of the lawsuit, leaving FindWhat/Miva as the only remaining defendant. It's too early to assess FindWhat/Miva's ultimate risk exposure, but presumably the plaintiffs will use this opportunity to do some hard-hitting discovery to see if they can get some juicy facts.
Posted by Eric at 01:40 PM | Licensing/Contracts , Search Engines | TrackBack
March 16, 2007
Dumb Domain Name Dispute Du Jour--Korb v. Maxmedia
By Eric Goldman
Korb v. Maxmedia, Inc., 2007 WL 734423 (E.D. Mich. Mar. 9, 2007)
I rarely blog on domain name disputes for two reasons. First, there are too many of them, and each one tends to look like the others. Second, most of them are completely stupid in that the parties spend way too much money to fight over an asset worth far less than the litigation costs.
With those principles in mind, this domain name dispute nevertheless caught my eye because of the omigod mistakes by both parties. Here's the background: Both Korb and Maxmedia are in the "interactive media" business and both (apparently independently) adopted the "maxmedia" trademark in 1996. Korb scored the domain name maxmedia.com in Nov. 1996. The opinion doesn't say what kinds of interactions the parties had from 1996 to 2005, but in April 2005, Maxmedia approaches Korb, first to buy the domain name and then to propose an employment relationship. On May 19, 2005, the parties sign a 1 year employment agreement that includes a $10,000 "signing bonus" that was conditioned on Korb's transfer of the domain name. The check is cut and Korb apparently changes the domain name's IP address, and Maxmedia launches a website under its new domain name. However, Korb didn't change the domain name's registrant information.
Not surprisingly, the relationship doesn't work out, and Maxmedia fires Korb on Sept. 1, 2005. But surprise! Maxmedia can't control the domain name, and suddenly Korb is nowhere to be found. Litigation ensues, with both parties suing each other. In this March 9 ruling, the court addresses Korb's effort to dismiss Maxmedia's claim that Korb is infringing Maxmedia's trademark. The court says that the trademark issue is a fact issue that can't be dismissed on summary judgment.
OK, but let's rewind. How many mistakes can we find in this scenario? Based on the court's description of the facts, some obvious mistakes on Maxmedia's part:
1) Bundling the employment and domain name acquisition. This leaves open the question of whether the signing bonus was just a signing bonus, or was it an acquisition payment for the domain name? It would have been better to use separate agreements to keep the domain name acquisition independent of the employment arrangement. Otherwise, the documentation appears to leave open the possibility that the domain name transfer will fail if Maxmedia ended the employment relationship early (as it did).
2) Not buying the trademarks as part of the domain name. A domain name buyer should always acquire any trademark rights of the seller--especially in a case like this, where the parties apparently co-existed/competed for 9 years.
3) Not completing the domain name transfer ASAP. This is an easy one. A domain name buyer should require the seller to fill out the transfer paperwork as part of the transaction documents--and DEFINITELY before the check is cut.
4) Not doing housekeeping before terminating Korb. Another obvious one. Before you can an employee, you make sure you've identified all of the assets in the employee's control and taken as many steps as possible to get those assets back in your possession. Because, as we know, a canned employee typically isn't a cooperative former employee.
And how about Korb's mistakes? Based on the court's writeup of the facts, there's no way that Korb is going to keep the domain name (probably based on breach of contract, but maybe other theories too). So this looks like a doomed-to-fail attempt to extract some extra cash for a domain name that he already sold once. Or, if he can find a way to keep the domain name, it seems pretty likely that he's going to have to cough up the $10,000 bonus. Either way, what a waste of time and money.
Posted by Eric at 10:23 AM | Domain Names , Licensing/Contracts | TrackBack
March 14, 2007
Can A Spider Enter Into A Binding Contract?--Internet Archive v. Shell
By John Ottaviani
Can a spider enter into a binding contract when the terms and conditions on the website declare that copying or distributing anything on the site indicates an agreement to or acceptance of terms, and the spider copies the website content? Does the result depend on whether or not the terms have been viewed by a “live” individual?
In Internet Archive v. Shell, No. 06-cv-01726-LTB-CBS (D.Col. 2/13/2007), the Colorado federal district court decided that more facts were needed and refused to dismiss the breach of contract claim for failure to state a cause of action. Whether or not the claim will survive a summary judgment motion remains to be seen.
The case involved the Internet Archive’s “Wayback Machine,” which systematically browses the Internet, reproducing content from websites and placing it in a searchable Internet Archive. The Wayback Machine does not actively seek the permission of website owners prior to reproducing website content. However, the Internet Archive’s website explains how website owners can remove material from the Archive and prevent it from being copied. According to the decision, Internet Archive also removes material on request from website owners.
Shell owns a website devoted to providing information, services and other advocacy on behalf of individuals accused of child abuse or neglect. Her website contains a copyright notice, stating that:
“IF YOU COPY OR DISTRIBUTE ANYTHING ON THIS SITE—YOU ARE ENTERING INTO A CONTRACT. READ THE CONTRACT BEFORE YOU COPY OR DISTRIBUTE. YOUR ACT OF COPYING AND/OR DISTRIBUTING OBJECTIVELY AND EXPRESSLY INDICATES YOUR AGREEMENT TO AN ACCEPTANCE OF THE FOLLOWING TERMS:”
These terms include charging the user $5,000 for each individual page copied, granting Shell a perfected security interest of $250,000 “per each occurrence of unauthorized use” of the website in all of the user’s assets and personal property, a charge of $50,000 for each occurrence of failure to prepay for use of the website, “plus costs and triple damages,” as well as provisions waiving various defenses.
According to the decision, the copyright notice was accessible through an icon located on Shell’s website. According to Internet Archive, the notice did not pop up as a separate screen that the user must “click through” in order to access web material and did not require users to agree to these terms before accessing material. The record was not clear on what statement actually appeared on Shell’s home page, precisely where the copyright statement was located on the Website, nor on how the user was informed of the existence of terms of the copyright notice.
After Ms. Shell unsuccessfully demanded payment of $100,000 from Internet Archive for copying her website, Internet Archive filed its action seeking a determination that it did not violate Shell’s copyrights. Shell filed counterclaims against the Internet Archive for copyright infringement, conversion, civil theft, breach of contract, and racketeering under the federal and Colorado racketeering statutes.
A few thoughts about this decision:
· The Court properly dismissed the state law conversion and civil theft claims for failing to state a claim. Dismissing the conversion claim, the court analogized to cases where it was held that the possession of copies of documents, as opposed to documents themselves, does not amount to an interference with the owner’s properties sufficient to constitute conversion. There is no reason the rule should be different in Cyberspace.
· The Court properly refused to dismiss the contract claim because it did not have all of the facts in front of it. There were contradictory statements as to the location of various notices of the terms.
· Several colleagues and I wrote a paper a few years ago entitled “Browse-Wrap Agreements: Validity of Implied Assent in Electronic Form Agreements” (59 Business Lawyer, 279 (2003)), in which we set forth a four-part test for courts to use in determining whether a user has validly assented to the terms of a browse-wrap Agreement: (1) the user is provided with adequate notice of the existence of the proposed terms; (2) the user has a meaningful opportunity to review the terms; (3) the User is provided with adequate notice that the taking of a specified action manifests assent to the terms; and (4) the user takes the action specified in the notice. While the Colorado court did not cite our article or explicitly use our test, maybe it will do so if it is required to address a summary judgment motion.
o It appears that, in this case, there is adequate notice that taking an action manifests assent to the terms, and the user (or the spider) took the action specified. The notice seemed to be adequate to put a reader on notice that an act of copying or distributing indicates agreement and acceptance to the terms.
o The bigger problem seems to be whether there was “an adequate notice of the existence of the terms” and a “meaningful opportunity to review” the terms. What constitutes adequate notice of the existence of terms should be judged both in terms of the physical presentation of the notice and the content of the notice. According to the court, the record does not disclose this in insufficient detail. The parties will need to develop a more detailed record.
o Ms. Shell’s website today shows a statement at the bottom of the home page which says: “IF YOU COPY OR DISTRIBUTE ANYTHING ON THIS WEBSITE, YOU ARE ENTERING INTO A CONTRACT. SEE COPYRIGHT NOTICE AND SECURITY AGREEMENT (READ BEFORE ACCESSING THE WEBSITE)”, with a link to the terms. Clicking on the link brings up a pop-up box that says: “I agree to the site’s terms of use and purchase” but does not provide one with an opportunity to review the terms. It is not clear, however, whether or not this is the same notice that was in effect at the time Internet Archive was visiting the site. (The Wayback machine no longer provides access to archived pages of Ms. Shell’s website). If so, there is no meaningful opportunity to review the terms before one is required to assent to the terms, and Ms. Shell’s contract claim would fail.
· Another interesting aspect of this case is Internet Archive’s attempts to have the conversion and civil theft and breach of contract claims dismissed as being pre-empted by the federal Copyright Act. The court properly found that the conversion, breach of contract claim and civil theft claim are not pre-empted, as each contains an “extra element” which makes the claim qualitatively different from, not subsumed within, a copyright infringement claim.
· What about capacity? The Uniform Electronic Transactions Act (UETA) validates contracts formed by electronic agents. The Internet Archive made the argument that Shell’s breach of contract argument failed because no human being at Internet Archive was ever aware that the agreement existed. The court sidestepped the issue, holding that the complaint was sufficient to put Internet Archive on notice of the claim, and that more facts were needed before the motion to dismiss could be resolved. If it comes up again, section 14 of UETA should defeat Internet Archive’s argument. Section 14 provides that “[a] contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agent’s actions or the resulting terms and agreements.” Clearly, this section negates any claim that lack of human intent, at the time of contract formation, prevents contract formation. The lack of human interaction may still be relevant to the issue of whether the terms have been adequately presented, but should not bar contract formation.
Posted by John Ottaviani at 01:51 PM | Copyright , Licensing/Contracts , Search Engines | TrackBack
Eric Goldman Road Show Spring 2007
By Eric Goldman
I have a busy schedule over the next 3 months. As always, I'd welcome the opportunity to meet, either at the events below or if I am in your neighborhood.
March 14: [TODAY!] Radio interview with David Levine on "Hearsay Culture." The live broadcast will air in the Bay Area between 5-6 pm on KZSU, 90.1 fm, or the podcast will be loaded here in the next week or so. David and I discuss domain name regulation, my Coasean Analysis of Marketing paper, online trademark law and anti-adware laws.
UPDATE: Podcast available here.
March 22: Originality, Software and Moral Rights with Prof. Bobbi Kwall
March 26: Virtues and Vices of Open Source Software with Prof. Eben Moglen
March 28: Bay Area Blawgers (about 2 dozen blawgers coming!)
April 5 (noon): Faculty Colloquium at SCU Law. Topic: Brand Spillovers. Please email me if you want to come (space is very limited).
April 6 (10 am): Law, Science & Technology LLM Colloquium, Stanford Law School. Topic: Brand Spillovers (yes, same topic as the day before). This event may have limited access to the public; contact me if you want to come.
April 13: Emerging Issues in Computer and Technology Law, SMU Dedman School of Law, Dallas, TX. Topic: Keyword Law.
April 30: When Spam Isn't Spam: An Unfiltered Look at Self-Regulation and the Law Behind E-mail, Touro Law School, Central Islip, NY. Topic: Anti-Spam and Anti-Blocklist Lawsuits: Past and Future.
May 14: American Law Institute meeting, San Francisco
June 7: 2007 International IT Law Conference, Southwestern Law School (Los Angeles). Topic: On-line Marketing Issues and What to Do About Them.
June 18: Fourth Annual Ecommerce Best Practices Conference, Stanford Law School. Topic: Navigating the Shoals of State Regulation.
Posted by Eric at 09:10 AM | General | TrackBack
March 13, 2007
Viacom Sues YouTube
By Eric Goldman
Viacom International, Inc. v. YouTube, Inc. (SDNY complaint filed March 13, 2007). Complaint available here.
After public saber-rattling by Viacom and significant negotiations between the parties, Viacom finally pulled the trigger and sued YouTube for copyright infringement. Two quick points about this lawsuit:
1) I would be very surprised if this lawsuit reached a final judgment on its merits. Instead, I suspect Viacom is using the complaint to increase the pressure on Google to negotiate. This is an expensive escalation of the negotiation, but to me, it's entirely consistent with a logical negotiation strategy.
2) If this case does reach a final judgment on its merits, I have no idea what the court will say. I know what the court SHOULD say (regular readers are well aware of my defense-side orientation), but trying to do a neutral assessment the law, the precedent isn't so clear that one side is an obvious winner. I thought the complaint did a good job telling its story of YouTube as a piracy-based business, and some judges might be swayed by that story (see, e.g., Napster, Aimster). On the other hand, Congress has enacted the 512 safe harbors for precisely this situation, and I think many judges will find those safe harbors apply. Even so, Viacom does a good job pointing out the limits of the 512 notice-and-takedown scheme by noting that it has no viable mechanism to identify videos shared only with "friends," in which case some judges might be sympathetic that the safe harbors aren't a complete solution for Viacom. So, what will a judge do? I don't know. All the more reason for the parties to work out a settlement before they spend too much money on litigation.
Posted by Eric at 10:54 AM | Copyright , Derivative Liability | TrackBack
March 12, 2007
Affiliate Spam Liability is Fact Question--US v. Cyberheat
By Eric Goldman
U.S. v. Cyberheat, Inc., 2007 WL 686678 (D. Ariz. March 2, 2007)
This case deals with one of the great unresolved Cyberlaw questions: when is an online advertiser liable for the downstream behavior of its media outlets? This question is so important because advertising fuels the Internet economy, both the good--such as the great social benefits produced by ad-supported search engines--and the bad--such as unwanted spam and pernicious spyware. Accordingly, it is critical that advertiser liability policy be set very carefully. Set correctly, bad spam/spyware could dry up. Set incorrectly, the Internet ecology could be destroyed.
Typically, consumer protection advocates favor strict liability for online advertisers. Thus, regardless of advertiser scienter, advertisers should have absolute liability for running ads via unwanted adware or spam. On the plus side, such a theory would probably have the desired benefit of cutting off the flow of advertising to spam and adware.
On the minus side, strict liability for online advertisers also would reduce online advertising across-the-board. Advertisers don’t want the additional liability, nor would they want to spend the time/money to monitor downstream behavior. Perhaps more importantly, I am not aware of any equivalent liability on the part of offline advertisers, so strict liability for online advertisers would represent a type of cyberspace exceptionalism that would likely direct dollars away from online advertisement back to offline advertising.
Interestingly, we have surprisingly little law involving online advertiser liability for media outlets. Statutorily, advertiser liability was enacted in CAN-SPAM and the Utah/Alaska anti-adware laws, but I'm not aware of other statutes. From a case law standpoint, there is surprisingly little precedent. Two relatively recent spam cases, Fenn and Hypertouch, have implicitly rejected strict liability for advertisers (the Fenn case dealt with Utah's anti-spam statute, not CAN-SPAM); in both cases, the advertiser’s use of a contract prohibiting advertising by spam was sufficient to cut off liability for downstream behavior. The Cyberheat case pointed to another case I hadn’t caught before, the Fare Deals v. World Choice Travel.com case, 180 F. Supp. 2d 678 (D. Md. 2001), which also rejected advertiser liability (in that case, for ads running on a website that allegedly infringed trademarks). Finally, there was the recently hyped settlement between the NY Attorney Generals' office and three adware advertisers. However, it's hard to divine much precedent from a settlement, and the chicken-scratch settlement terms imply that the defendants didn't settle because they were quaking in their boots over their legal liability.
(There are other cases, and I haven't done a complete regression to validate this point--but I trust the point is clear that the case law is scrappy and defense-favorable).
The dearth of relevant case law makes the newest case on the topic, US v. Cyberheat, so interesting. The FTC went guns ablazin’ after a porn website for spam sent by its affiliates that allegedly violated CAN-SPAM, arguing under the terms of the statutory advertising liability provision that the advertiser is strictly liable for these spam or should be liable under an implied negligence theory (the case doesn’t use the term “implied negligence,” but the term is designed to characterize the FTC's theory that the facts so clearly establish negligence that the defendant should be liable without any further showing about its mental state).
This tussle over the appropriate scienter requirement appeared to overwhelm the judge, and we get a pretty garbled opinion in response. However, we get one clear statement here: the judge unambiguously rejects strict liability for the affiliate's behavior. Instead, after chasing his tail articulating various vicarious liability/respondeat superior/agency theories, the judge concludes that the advertiser is liable for the affiliate spam only if the advertiser had sufficient knowledge of and control over the affiliates' behavior.
But...how much knowledge and control is sufficient? I have no idea, and frankly, I don't think the judge does either. However, let's look at the facts alleged by the FTC that weren't sufficient to win summary judgment:
* the advertiser didn't have a significant screening process for retaining affiliates
* the advertiser didn't ask affiliates if they planned to do email marketing
* the advertiser had an agreement prohibiting spam but terminated affiliates slowly/inconsistently even when the advertiser received consumer complaints about an affiliate's behavior
* when the advertiser terminated affiliates, it didn't always terminate multiple accounts held by the same affiliate
* the advertiser provided web hosting, marketing and promotional tools to affiliates, including (I believe) serving up the porn images displayed in the emails when opened
The advertiser's principal counterarguments were that it had its contract restriction against spam and that the affiliates were independent contractors. (It was unclear to what extent the advertiser disputed the other facts alleged by the FTC).
So this case will go to trial to determine the advertiser's knowledge/control and whether it acted reasonably under these circumstances. While the FTC might still win this case, this ruling nevertheless must be a sobering wake-up call that the government can't simply allege that liability follows ad dollars and expect to win.
More commentary on this case: Venkat and Reasonable Basis.
Posted by Eric at 03:42 PM | Adware/Spyware , Derivative Liability , Marketing , Spam | TrackBack
March 10, 2007
Person v. Google Hearing
By Eric Goldman
Person v. Google, C 06-7297 JF (RS) (N.D. Cal.)
Carl Person is on a losing streak. First, he sought the Green Party nomination for New York Attorney General, but he lost that election in April 2006. Then, he sued Google for antitrust violations based on his frustrations trying to buy advertising. As I blogged about before, last October this lawsuit got soundly thumped for improper venue due to the mandatory venue clause in Google's AdWords contract. Finally, he sued New York for banning payment for petition signature collection and lost that lawsuit in October as well.
With that run of luck, one might think that Person would redirect his energies elsewhere. But, he blames Google for costing him the election because he was the "best qualified" candidate (as he claimed at the hearing) and Google's ad pricing structure kept him from getting the word out cost-effectively. And apparently he has some free time on his hands given that he doesn't have the day job of being NY's Attorney General.
So, despite insurmountable odds, he is still trying to bust Google for antitrust violations. After his lawsuit was rejected for improper venue, Person's case was transferred to Google's home court in the Northern District of California, where it is now before Judge Fogel--who, not coincidentally, is also handling the KinderStart v. Google lawsuit.
Yesterday, there was a 20 minute hearing in the case to decide if the judge would grant Google's motion to dismiss or permit Person to amend his complaint. The judge immediately removed all suspense when he began the hearing by saying that he will ask Person for a amended complaint. However, it will be interesting to see if Judge Fogel changes his mind after his first-hand exposure to Person's advocacy, which bordered on the ridiculous (and occasionally crossed over). Person's rambling and unfocused arguments made it crystal-clear that his case has no hope, so the judge would be doing himself and a lot of other people a favor by putting a clean end to the case now. But Fogel probably will give Person one more chance before clearing his docket.
Judge Fogel asked Person about the definition of the relevant market, saying that Person couldn't define the market tautologically to be co-extensive with Google's offerings. Person answered the question in two different ways--first, he said the "pay-per-click" market; then, he said the "keyword targeted Internet advertising" market. Either way, these definitions include lots of ancillary markets, such as second-tier search engines, adware and intermediate sites like Shopping.com, so either definition collectively reduces Google's footprint in the market. Jonathan Jacobson, one of Google's lawyers, went further and said the relevant market definition was irrelevant because Person claims he was a customer of Google, not a competitor, and thus lacks antitrust standing.
Judge Fogel appears to be considering the interactions of this case with the KinderStart case. Judge Fogel observed that Person may be arguing that Google has gotten so big that it's an essential medium for people to get their message out, so Fogel asked what recourse consumers have if they think Google's practices are unfair. Jacobson replied that the consumer would have to take it up with the legislature. I think this answer is right but incomplete. Even legislators have constitutional limits in their ability to regulate the media, so in some cases, consumers have no effective remedy against "unfair" media other than to (in this situation) vote with their mouses.
So both the KinderStart and Person cases are now sitting on Fogel's desk. I remain hopeful he'll see the wisdom of shutting down both cases quickly.
Posted by Eric at 08:09 AM | Search Engines | TrackBack
March 07, 2007
March High Tech Law Institute Events
By Eric Goldman
The High Tech Law Institute at Santa Clara University School of Law has a terrific series of three events over the next few weeks. I hope to you can join us.
Originality, Software and Moral Rights (details here)
March 22, 2007, 5-7pm
Professor Roberta Rosenthal Kwall, DePaul University College of Law, will lead a discussion on the nature of creative endeavors, the role of moral rights, protection, and the application of these principles to software development. This should be a great event for technology lawyers who wrestle with moral rights issues when doing overseas development. RSVP to Jasmine Pilgeram by March 19, 2007.
This event qualifies for 1 hour of general CLE credit. Santa Clara University School of Law is a State Bar of California approved MCLE provider.
Virtues and Vices of Open Source Software with Eben Moglen (details here)
March 26, 2007, 5:30-6:45pm
Professor Eben Moglen, Columbia Law School, of GPL fame/infamy, will discuss his views on the merits of open source software development (and, I anticipate, the demerits of commercial software development), followed by some commentary/pushback by Prof. Geof Bowker and myself. Eben is a colorful, dynamic and frequently hyperbolic speaker, so I expect this event will be very fun and maybe a little controversial. If you work with open source software, this should be an especially interesting event. RSVP to Sherrill Dale by March 22, 2007
Bay Area Legal Blawgers Event (details here)
March 28, 2007, 6-8pm
We now have over 20 Bay area blawgers who have said they are coming, plus a few other non-blogging luminaries. (I'm constantly updating the original post to reflect the master list of attendees). This should be a great opportunity for local bloggers to meet-and-greet and trade tips. RSVP to me by March 26, 2007
This event qualifies for 1 hour of general CLE credit. Santa Clara University School of Law is a State Bar of California approved MCLE provider.
Posted by Eric at 03:40 PM | General | TrackBack
University Report on Tech Transfer and the Public Interest
By Eric Goldman
Twelve academic institutions have released a white paper entitled In the Public Interest: Nine Points to Consider in Licensing University Technology. The report purports to articulate "best" practices by universities in the technology transfer business. The report contains pearls of wisdom such as "it reflects poorly on universities to be involved in 'nuisance suits'" (true, but this statement applies to all plaintiffs, not just universities!) and "universities would better serve the public interest by ensuring appropriate use of their technology by requiring their licensees to operate under a business model that encourages commercialization and does not rely primarily on threats of infringement litigation to generate revenue."
Generally draped in high-minded rhetoric (e.g., "Universities have a social compact with society"), the report reads more like the kind of pronouncements that a cartel would issue to conform the behavior of rogue constituents--complete with example licensing provisions that are designed to become industry standards. Nevertheless, it's a implicit admission from universities that they can do serious violence to social innovation when they engage in regressive and rent-seeking licensing practices. But so long as universities view tech transfer as an important revenue source that's not dependent on capricious legislators or government bureaucrats, what incentives will university tech transfer offices have to fold public interests into their licensing or enforcement equations?
Posted by Eric at 09:43 AM | Licensing/Contracts , Patents | TrackBack
March 06, 2007
Rescuecom Files Reply Brief in Rescuecom v. Google
By Eric Goldman
In the Second Circuit appeal of Rescuecom v. Google, Rescuecom has filed its reply brief to Google's first brief and the various amicus briefs filed in support of Google's position. Rescuecom's brief relies heavily on McCarthy's recent treatise entry that took the position that "trademark use in commerce" isn't a predicate requirement of the plaintiff's prima facie case. McCarthy's argument has a little support in the statutory text, but it also ignores various words plainly in the statute. Personally, at this point I don't think either side can make a persuasive textual argument because the statute is fatally ambiguous.
In response to the law professors' amicus brief, Rescuecom argues (1) we mischaracterized their position to say they wanted to block all trademark uses (not true), and (2) even if our argument that Google is more properly analyzed under contributory infringement doctrines, Rescuecom has made sufficient allegations on that front--especially because the allegedly most confusing aspects (the allegedly poor delineation between ads and organic search results) are in Google's control, not the advertisers'.
One clarification. The reply brief says that all courts outside of the 2nd circuit evaluating trademark use in commerce have rejected the argument that keyword purchases/sales aren't a trademark use in commerce. This is true only if we ignore the WhenU adware cases. See slide #4 from my slides on keyword law. It also ignores domain name cases such as Bird v. Parsons (6th Cir. 2002), which held that a domain name auction site didn't make a trademark use when selling a domain name.
Other source material in the case:
* Law professors' brief by Stacey Dogan and me
* Electronic Frontier Foundation amicus brief by Jason Schultz, Corynne McSherry and Fred von Lohmann
* Public Citizen amicus brief by Paul Levy
* eBay/Yahoo/AOL amicus brief by Celia Goldwag Barenholtz, Janet Cullum and others of Cooley Godward Kronish (warning: 1.8MB file)
* Google's initial brief
* Rescuecom's initial brief
* District Court's opinion
Posted by Eric at 09:41 AM | Search Engines , Trademark | TrackBack
March 01, 2007
Bay Area Blawgers Get-Together, March 28, 6-8 pm
By Eric Goldman
The High Tech Law Institute at SCU Law is sponsoring a gathering for Bay Area legal bloggers/blawgers. Our goal is to get all of us together in a room to meet each other, socialize a bit, and discuss topics of common interest in a group discussion. Light refreshments will be served. The details:
Who: The event will cater principally to legal bloggers in the Bay Area, but everyone is welcome. Confirmed blogger-attendees so far include Harry Boadwee, the Blawg Review editor, Matt Cutts of Google (75% confirmed), Stephen Diamond, Mike Dillon of Sun, Sean Garrett of 463 Communications (trying to make it), Cathy Gellis, Eric Goldman of SCU, Joe Gratz of Keker & Van Nest, Beth Grimm, Patrick Guevara of Randick O'Dea, Matt Holohan, Chris Hoofnagle of Boalt, Cathy Kirkman of Wilson Sonsini, Kim Kralowec of the Furth firm, David Levine of Stanford Law CIS, Mike Masnick of TechDirt, Mary Minow, Kurt Opsahl of EFF, Jay Parkhill, Leah Peachey of Meyers Nave, Aaron Perzanowski of Boalt, Elizabeth Pianca of Meyers Nave, Kristie Prinz, Colin Rule of eBay/PayPal, Colin Samuels, Erik Schmidt of SCU, Jason Schultz of EFF, Mark Smith of SCU, John Steele of Fish & Richardson, Transmogriflaw, Kevin Underhill of Shook Hardy, and Colette Vogele. Other expected attendees include Craig Anderson of the SF Daily Journal, Bob Cullen, Rudy Guyon of Fujitsu, Tom Levis of Backweb, Jan Lewis of Wilson Sonsini, Kevin Martin of Randick O'Dea, Amy Morganstern, Elizabeth Nevis, Benedict O'Mahoney, Risa Schwartz of Cisco, Martin Stone, Andrew Tolve, Cicely Wilson of Justia and Louis Wu.
When: March 28, 6-8 pm
Where: Wiegand Room, Arts & Sciences Building, Santa Clara University. Directions to campus.
Cost: Free. Parking is available for $5
CLE: This event qualifies for 1 hour of general CLE credit. Santa Clara University School of Law is a State Bar of California approved MCLE provider.
How: Please RSVP to Eric Goldman.
Feel free to pass along this notice to anyone you think might be interested.
UPDATE: A superset of possible discussion topics we might address at the event.
UPDATE 2: A roster of the Bay Area Blawgers I could find.
UPDATE 3: My recap from the event.
Posted by Eric at 12:20 PM | General | TrackBack
February 2007 Quick Links
By Eric Goldman
* The California Highway Patrol (which, for reasons unclear to me, has investigatory power here) has concluded that the Angelides campaign did not break any laws when they reverse-guessed URLs on Schwarzenegger's website and found an unrestricted page with a video of the Gov wondering about Assemblywoman Bonnie Garcia's "hot'' temperament because of her mixture of "black blood'' and "Latino blood'' and referring to Assembly Republicans as a "wild bunch." The CHP did recommend that Schwarzenegger's team tighten up their website security. Silly reminder: if you really want keep information a secret, don't put it on a website without password protection.
UPDATE: Greg Haverkamp points me to this document, which explains that the CHP has enforcement power over Penal Code 502 violations involving state computers. Interesting. In my mind, I see Erik Estrada revving up his PowerBook to bust some baddies...
* Voda v. Cordis Corp., 2007 WL 269431 (Fed. Cir. Feb. 1, 2007). Patent owner can't litigate infringement of foreign patent rights in US court as part of supplemental jurisdiction over a US patent infringement claim. Patry's writeup.
* NYT on how YouTube indirectly motivates teens to deliberately do stupid things just for the opportunity to post them and perhaps get notoriety. I had a first-hand observation of this when I trolled through YouTube looking for a Listerine commercial that I might show in class while teaching a case involving Listerine. A search for the word "Listerine" in YouTube produces video after video of people doing stupid things with Listerine, like eating big stacks of their breath film or snorting the breath spray and then writhing in pain. Watching video after video of people repetitively doing stupid stunts, I felt like shouting to these people: "IF YOU'RE GOING TO DO SOMETHING STUPID ON YOUTUBE, AT LEAST BE ORIGINAL!"
* From Steve Bryant at eWeek: Shannon Stovall sues Yahoo for including her photo in Yahoo's welcome email, claiming Yahoo violated her rights of publicity/privacy to the tune of $10M compensatory damages and $10M punitive damages.
* Digg users may mark content they don't agree with as "spam." The most recent example is Danny Sullivan's post on SEO, which got Dugg and then was eliminated when anti-SEO Digg users flagged it as spam. If a website defers content grading to its users, it has to trust that they are reporting their feedback accurately. If they aren't, the whole user grading process breaks down. And speaking of breakdowns, there is an active secondary market for Digg votes--check out how Annalee Newitz bought front page placement on Digg for about $100.
* The always-colorful Chris Hoofnagle has released a new paper, "The Denialists' Deck of Cards: An Illustrated Taxonomy of Rhetoric Used to Frustrate Consumer Protection Efforts." By his standards, I suspect I've dealt a full house with some of my rhetoric! Now, I wonder if he's going to create a complementary deck for bogus rhetorical tactics used by consumer protection "advocates"?
* From the EFF: "Debbie Foster, a single mom who was improperly sued by the RIAA back in 2004 for file sharing, has won back her attorneys' fees." Capitol Records v. Foster, No. 04-1569-W (W.D. Okla. Feb. 6, 2007). Unfortunately, that hasn't stopped the plaintiff from advancing nonsense arguments in the case, including the specious argument that a computer owner is automatically responsible if third parties use the computer to infringe copyrights. Fred at the EFF rightly debunks this argument.
* Wikipedia article: "Wikipedia is Failing." Your perspective about success or failure may be influenced by the impressive traffic gains that Wikipedia is experiencing--Wikipedia is now one of the top 10 most trafficked websites. Most of that traffic is coming from Google.
* Doe v. Josef Silney & Assoc., No 07-04167CA15 (Fla. Cir. Ct. complaint dated Feb., 13, 2007). Golfer Fuzzy Zoeller sues an alleged vandal of his Wikipedia page for defamation and related torts. Fortunately, he left Wikipedia out of the suit. However, he only knows the IP address of the person who modified the page, and that IP address is registered to the defendant. Is owning the IP address enough to establish liability? Or is this like an RIAA blunderbuss sue-first, ask-questions-later approach? It seems like the lawsuit should have been against a Doe, with a subpoena to find out who actually edited the page using that IP address.
* US v. Twombly, 2007 U.S. Dist. Lexis 12664 (S.D. Cal. Feb. 22, 2007). A spammer challenges some criminal provisions of CAN-SPAM as vague and overbroad, but the judge has no problems reading the statute to facilitate sending spammers to the slammer. Venkat's writeup.
* CDT groks (and mostly bashes) a variety of online kid-protection bills proposed in Congress.
* From the NYT: Nancy Pelosi posted some videos from C-SPAN to her blog. The Republicans immediately attack her for "pirating" the videos. Turns out that those videos were actually recorded by the government, so they are in the public domain. Whoops! The Republicans had to issue a mea culpa retraction. However, Nancy did grab a C-SPAN-owned video elsewhere which she had to take down. If our legislative leaders can't figure out what video they can recycle, how in the world can less-trained lay people do so? Patry has more.
* A bearish view on domain name speculation from CircleID. I share the sentiment that domain names don't matter, so domaining and typosquatting strike me as a short-term arbitrage opportunity that inevitably will be mooted by a variety of forces. Thus, the idea of paying 40 or 60 years worth of revenue for a domain name is laugh-out-loud funny to me.
* The Long Tail notes that some brands, trying to build a more esoteric image, try to hide their ownership by mainstream mass-market brands, a phenomenon he calls "brand dis-synergy." Examples: Dagoba Organic Chocolate, Joseph Schmidt, Cacao Reserve and Scharffen Berger chocolates (all owned by Hershey) and Converse (owned by Nike).
* Veritas busted for manufacturing revenues via round-tripping with AOL (Veritas bought AOL ads and AOL bought Veritas software; each at inflated prices).
* What does "or" mean? According to the 8th Circuit, it can mean "and." Ken Adams is on the case.
* Ricky Hoggard Holman, a 18 year old high schooler in Sudbury, Canada, correctly blogged all 24 of the American Idol finalists. How? Online research, such as researching the MySpace pages of contestants and emailing their MySpace friends. He also talked to some of the booted final 40 contestants, a few of whom broke their punitive-laden confidentiality agreement to dish some dirt. Maybe he wasn't studying, but clearly he's learned a few things about the power of good old-fashioned research. (The article says he's a straight A student, so he clearly can balance many things). Nice job, Ricky!
Posted by Eric at 12:03 PM | Content Regulation , Copyright , Derivative Liability , Domain Names , Licensing/Contracts , Marketing , Patents , Privacy/Security , Publicity/Privacy Rights , Search Engines , Spam , Trademark | TrackBack