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October 30, 2007
Roommates.com Motions over Batzel Briefing
By Eric Goldman
Now that the Roommates.com case is pending en banc, let the games begin! The first round: the Fair Housing Councils want to submit a brief arguing why the Ninth Circuit Batzel precedent should be overturned in light of the Seventh Circuit 2003 Doe v. GTE case. The Fair Housing Councils' request. Roommates.com's opposition.
Other documents in the case:
* The Ninth Circuit order granting the en banc hearing
* Fair Housing Councils' reply to the EFF et al amicus brief
* EFF et al amicus brief supporting a rehearing en banc
* Fair Housing Council's response to Roommates.com's request for an en banc rehearing
* Roommates.com's En Banc Request
* The original Ninth Circuit opinion
* My blog post on the Ninth Circuit opinion
UPDATE: 11/6/07 Filed Order (Alex KOZINSKI,) Plaintiffs' mtn for leave to file additional briefing is DENIED. (served EN BANC COURT & Parties) [04-56916, 04-57173] (af) [04-56916 04-57173]
Posted by Eric at 05:45 PM | Derivative Liability | TrackBack
Vendor of Illicit Phone Records Not Protected by 230--FTC v. Accusearch
By Eric Goldman
Federal Trade Commission v. Accusearch, Inc., 06-CV-105-D (D. Wy. Sept. 28, 2007)
Accusearch (a/k/a Abika) offers for sale records of telephone calls made by telephone subscribers. Abika doesn't acquire the records itself directly from the phone companies; third parties do that. Even so, I believe the collection and resale of these phone records was illegal throughout the relevant time period. (Michael Erdman explores this more).
The FTC brings an action against Abika for unfair trade practices. Abika defends on 230. The FTC argued that Abika was the retailer; Abika argues that it is just an intermediary making matches between buyers and sellers of the records. The court rejects the 230 defense for two separate reasons:
* the statutory terms publisher/speaker are ambiguous, at least as applied to this case. Thus, the court turns to 230's legislative history to conclude that Congress didn't mean to protect these types of claims. The court says snarkily "It is ironic that a law intended to reflect a policy aimed at deterring 'stalking and harassment by means of computer' is now being urged as a basis for immunizing the sale of phone records used for exactly those purposes." (Fair enough, but see Zeran!)
* reselling the records meant that Abika "participated in the creation or development of the information" and thus became an information content provider itself.
Both of these arguments are pretty strained. The statutory references to "publisher" and "speaker" aren't entirely clear, but dozens of cases have interpreted them. It would have been nice to see the court consider those precedents before jumping to the legislative history as if the court is reading a 10 year old statute for the first time. As for the interpretation of "creation and development," I don't see how anyone can interpret those words to include retailing a record without any modifications at all.
Despite these analytical deficiencies, I think the court reached the right result. In my opinion, the retailer/intermediary distinction is the critical linchpin. It's pretty well accepted that an intermediary between buyers and sellers is fully eligible for 230 even if the purchase/sale involves illegal goods--see, e.g., Gentry v. eBay (fake sports memorabilia), Stoner v. eBay (bootlegged recordings). In those cases, eBay was the venue to publish the seller's advertisements to buyers. (See also Ramey v. Darkside Productions, another case holding that a publisher of third party ads wasn't liable for the ads, even if the publisher helped prepare the ads).
In contrast, I think a retailer who acts as the merchant of record of third party goods generally should be liable for selling those goods, even if the goods were acquired for resale from third parties. I don't see how 230 protects a retailer selling goods for its own account--I don't think the claim is appropriately styled as either a "publisher" or "speaker" claim at that point. But see Prickett v. infoUSA, where infoUSA resold data it obtained from third parties but was still eligible for 230.
Unfortunately, I think the court's biggest mistake is that it apparently forgot that it was addressing summary judgment motions, because the court made numerous factual inferences (some apparently contested) against Abika. So I think this ruling is best understood not as an SJ motion, but instead as a bench ruling where the court simply disbelieved that Abika was an eBay-like intermediary and instead concluded that a retailer can't claim 230 for reselling illegal goods for its own account. Rephrased this way, I think the court reached the right result.
For more on this case, see Michael Erdman's nice writeup.
Posted by Eric at 11:26 AM | Derivative Liability , E-Commerce , Marketing , Privacy/Security | TrackBack
October 28, 2007
Blogger Wins Lawsuit Over Gripe Post--BidZirk v. Smith
By Eric Goldman
BidZirk, LLC v. Smith, 2007 WL 3119445 (D.S.C. Oct. 22, 2007)
I have previously blogged about BidZirk v. Smith, a flagship example of how a pernicious and misguided plaintiff with a thin skin can ruin a blogger's life. Fortunately, even though the blogger handled the case pro se, the court saw the case's lack of merit and finally ended the case.
The case started when Smith blogged a lengthy post on his negative experiences with BidZirk, an eBay drop-off company. BidZirk struck back with a lawsuit claiming defamation, privacy invasion and trademark violations. After losing its request for a preliminary injunction, BidZirk appealed to the Fourth Circuit, which denied its request. Very messy discovery followed, with both parties getting chastised for their conduct. Finally, in this ruling, the court granted Smith summary judgment, and threw in some sanctions against plaintiffs' counsel to boot.
Specifically, the court said:
* calling BidZirk's founder a "yes man" was an opinion and therefore not actionable as defamation
* South Carolina doesn't recognize the false light invasion, and even if it did, nothing portrayed the plaintiffs in a false light. Further, linking to a photo published on a third party website does not constitute a publicity rights violation
* Smith was immune from trademark claims because his reference to BidZirk was in the context of news reporting or news commentary. Though the court doesn't equate bloggers and journalists generally, it gives Smith the same protection given to journalists
* BidZirk's attorney filed a lis pendens on Smith's condo, and the court sanctioned the attorney $1,000 because the attorney had no basis to claim a right against Smith's property
As a result, BidZirk's lawsuit should be over unless it makes the unwise choice to appeal to the Fourth Circuit (a distinct possibility given its past practices). But the really unfortunate part is that the court signalled that its disinclination to support the plaintiff's claims very early in the lawsuit. A rational plaintiff would have taken the hint then. Instead, the plaintiff wasted everyone's time, money and emotional energy pursuing a fruitless case.
Meanwhile, I'm not clear what, if any, of Smith's counterclaims are still outstanding. Perhaps Smith will get some additional remedy beyond the moral vindication and $1,000 in sanctions. But even if he does, there really is no way to correct the fact that the plaintiff consumed the last year and a half of Smith's life, forcing him to defend a lawsuit that was ridiculous and ill-conceived from the outset. (The court declined to award Rule 11 sanctions, saying it was a close call).
As the court says, "In essence, this is a case in which the Plaintiffs have sued Smith because he published articles on the internet critical of the Plaintiffs' business." Thus, on the surface, this appears to a cautionary tale to all bloggers that we live in peril of being dragged into court whenever we negatively critique businesses. Yet I see this ruling as a redemption of sorts--it takes a lot of courage to blog, and it takes even more courage for bloggers to stand behind their words when challenged, but we have a responsibility to make sure we can't be bullied on either front. On behalf of bloggers everywhere, we applaud Philip Smith's courage and determination to defeat this case.
UPDATE: Comments from the defendant himself, Philip Smith, as well as Sam Bayard.
Posted by Eric at 10:57 AM | Publicity/Privacy Rights , Trademark | TrackBack
October 25, 2007
Google's Motion to Dismiss American Airlines' Lawsuit Denied
By Eric Goldman
American Airlines, Inc. v. Google, Inc., 4:07-cv-00487 (N.D. Tex. Oct. 24, 2007)
In an uninsightful one-page order, the court has denied Google's motion to dismiss American Airlines' lawsuit over Google's keyword advertising sales. Because the judge reveals nothing about his thinking, it's impossible to make any inferences about the long-term disposition of the lawsuit. If, in fact, Google ultimately wins this case, then the court's decision not to knock out the case early will result in a lot of wasted time and money for everyone. For that reason, I favor a categorical declaration that keyword triggering does not constitute a trademark use in commerce--a legal standard that would support a 12b6 motion and channel society's resources into more productive endeavors. I explain that argument in more detail here.
HT: Las Vegas Trademark Attorney Blog
Posted by Eric at 07:46 PM | Search Engines , Trademark | TrackBack
October 24, 2007
Interesting Contract Interpretations in Eighth Circuit Fantasy Baseball Case--CBC v. MLB
By Eric Goldman
CBC Distribution and Marketing, Inc., v. Major League Baseball Advanced Media, L.P., No. 06-3357/3358 (8th Cir. Oct. 16, 2007)
You've already heard about this case, which held that MLB's right of publicity claim against a fantasy baseball league provider was barred by the First Amendment. Personally, I found that ruling only mildly interesting. The First Amendment defense to ROP claims is so squirrelly that I have no idea when we'll see it again, so the precedential impact of this ruling is unfortunately low. Instead, the court should have ruled that publishing player statistics in an online commercial database isn't a commercial exploitation (i.e., lacked the requisite "commercial advantage") of any player's publicity rights any more than publishing a book compiling such statistics would be. That would have been a more sensible ruling and would have provided a lot greater certainty for the future.
In any case, I think the discussion about the expired CBC-MLB contract is way more interesting than the right of publicity discussion. The court lays waste to the standard interpretation of at least 2 very commonly used contract provisions, and this provides a cautionary tale to drafters.
Representation/Warranty of Authority
The contract said that the licensor "represents and warrants that it has the authority to grant the rights licensed herein." Normally, this R&W is made as part of a series of ownership R&Ws--typically that the licensor (1) owns its licensed stuff, (2) has the right to grant licenses to the stuff, and (3) use of the licensed stuff won't infringe any third party rights. When these R&Ws are poorly drafted, they can be effectively redundant (i.e., a third party claim of infringement triggers all three R&Ws), but #2 does pick up two additional situations compared to #1: (a) where the licensor owns the stuff but has granted an exclusive license to a third party that would conflict with the newly granted license, and (b) where the licensor itself in-licenses stuff, in which case the R&W tests if the licensor has appropriate sublicensing rights.
Here, the court rejects the licensee's argument that the Players Association (the licensor) breached the R&W because it didn't have good title (because there were no enforceable publicity rights). Instead, the court reads the R&W as an R&W of agency--that is, that the Players Association is the agent of the players.
FWIW, personally, I rarely use R&Ws of ownership. Usually, I handle infringement risks solely through an indemnity. So I would be unlikely to encounter this issue in a contract I drafted. But I have seen this language hundreds of times in other contracts, and I believe the parties have always intended to ascertain the licensor's good title. As a result, this court seems to have completely misread this provision, and its interpretation jeopardizes the interpretation of the language in the many, many other contracts where it appears.
Declaration of Ownership
The court also interprets the language that the Players Association "is the sole and exclusive holder of all right, title and interest" in and to the players' names/statistics. I call this type of provision a declaration of ownership--typically intended to clarify the respective ownership rights between the parties. Personally, I hate these provisions, especially in licenses of public domain data. What does it mean to declare the licensor the "owner" of public domain data? And I've had way too many pointless/fruitless negotiations over the ownership about user data that are unquestionably hindered by the weak grammatical structure of such a declaration.
The Eighth Circuit gives us another reason to hate the declaration of ownership clauses. They say that "quite obviously" the language is an R&W of ownership, which the Players Association breached because, in fact, it didn't have enforceable right of publicity rights. So watch out for those declaration of ownership clauses--they could become an unintended backdoor warranty of ownership!
Enforceability of Post-Termination Restrictions
The MLB contract had provisions waiving a licensee's right to challenge MLB's ownership rights (the no-challenge clause) and restricting post-termination use of the data (the no-use clause). The no-challenge clause isn't that unusual in the trademark license context, but it's extremely aggressive with respect to licenses of public domain data. (I can't recall ever seeing it in a right of publicity license). The no-use provision is very common among licenses of public domain data. Without the clause, immediately after the license, the licensee will have an electronic copy of the data and can exploit it freely without paying for it, thus undermining the licensor's business model.
The district court struck down both clauses on public policy grounds. This was a sensible approach with respect to the no-challenge clause, which has the effect of precluding judicial oversight over dubious claims of ownership. As for the no-use clause, I'm reminded of the Listerine case and the survival of confidentiality restrictions in a trade secret license even after a trade secret has lapsed in the public domain. Normally we tolerate these trade secret restrictions that make the licensee worse off than if the licensee had never signed the contract in the first place. I'm not sure it's a good policy result, but it's well-established as a legal doctrine.
Whenever I did data in-licenses, I would always contractually preserve our post-termination ability to procure replacement data from other sources for this very reason (just like I always include a provision in trade secret licenses/NDAs removing the confidentiality obligations if the trade secret is in the public domain). My guess is that MLB was a real bear about such negotiations, so they probably would have resisted the inclusion of such a provision. But without that provision, there is a risk that the court would enforce the post-termination obligation in a way that effectively made the data licensor a monopoly supplier of the data in the future.
The court sidesteps all of this by finding the declaration of ownership provision was a warranty that the licensor breached and thus released CBC from the reciprocal obligations. This sure seems like a roundabout way to reach the result that CBC isn't contractually restricted from using public domain data. It would have been cleaner if the court would have categorically restricted such clauses on public policy grounds. Instead, because the court took this convoluted process, licensees of public domain data either have to (a) include sufficient warranties (or clauses that a court will misinterpret as a warranty) that will allow the licensee to escape post-termination restrictions on public domain data, or (b) as I always do, include a post-termination right to obtain the data from other sources, which is usually painful to negotiate.
Posted by Eric at 06:13 PM | Licensing/Contracts , Publicity/Privacy Rights | TrackBack
October 23, 2007
Telephone Numbers as Identity Authenticators--Abrams v. Facebook
By Eric Goldman
I think it's interesting to read these two developments side-by-side:
Development #1: Abrams v. Facebook, Inc., C07-05378 (N.D. Cal. complaint filed Oct. 22, 2007). A woman initiates a class action lawsuit against Facebook because Facebook's users send text messages through Facebook to their friends' outdated cellphone numbers. (Sounds like an easy 47 USC 230 12b6 dismissal to me). The gravamen of Abrams' complaint--Facebook shouldn't assume that a cellphone number is still attached to the same owner over time, but instead it should build a system to dynamically check if the phone number has been reassigned.
Development #2: The FTC isn't planning to purge any phone numbers from the Do Not Call registry despite the longstanding announcement that registrations expire after 5 years--even though, of course, phone numbers are reassigned to new subscribers all the time. The FTC does have a formally announced protocol for dropping phone numbers from the DNC registry when a phone number changes subscribers, but I would love to see some evidence of how well that protocol works (UPDATE: According to Bob Sullivan's article, "list hygiene" appears to remain an issue). If that protocol isn't working well, the 5 year expiration could be the main way for the system to acknowledge that a telephone number subscriber, who may have different preferences about the DNC registry, has changed.
I explored the issues associated with using telephone numbers as proxies for identity here.
Posted by Eric at 10:07 AM | Marketing | TrackBack
Utah Trademark Protection Act Dying a Slow Death
By Eric Goldman
As I reported before, the backroom negotiations over the Utah Trademark Protection Act have produced a compromise where Utah would still create a mark registry but there would no legal consequences to selling/purchasing a registered mark. Obviously, this is completely pointless, but even so, it would be an improvement over the misguided statute currently on the books.
Wisely, the Utah Department of Commerce is asking some questions about this compromise. According to BNA (subscription required), the department's executive director has observed that the department hasn't received any legislative appropriations to build the registry--which, to the executive director, provides another reason to kibosh the effort entirely. Recall that the Utah legislature initially expected the registry to generate lots of money for the state, so there is some irony seeing this ill-conceived initiative devolve into money squabbles between various branches of the Utah government.
Posted by Eric at 09:42 AM | Search Engines , Trademark | TrackBack
October 22, 2007
AOIR Regulating Virtual Worlds Panel, and My Notes on Investment Expectations in Virtual Worlds
By Eric Goldman
Last week at AOIR's annual meeting (AOIR 8.0) in Vancouver, Greg Lastowka, James Grimmelmann, Tyler Ochoa and I presented on the topic of regulation of virtual worlds. My notes from the presentations are below. See Mark Bell's recap too.
Greg Lastowka, Rules of Play
Greg discussed how game rules can increase the fullness and beauty of life. Yet, legal rules may be too rational. For example, a traditional economic analysis would encourage the development of markets for virtual property, regardless of any EULA restrictions, because these markets would facilitate Pareto exchanges (i.e., both parties better off; no one worse off). However, lawyers can't understand peoples' need to live in beauty or how gameplay can facilitate this.
My comment to Greg: how much are rules of play exogenous to the players (i.e., imposed from the top down by the VW providers) and how much are just codifications of rules that the community of players demand on a bottoms-up basis. At Epinions, our users demanded that we vigilantly police the conduct of other players, in many cases forcing us to impose more rules or police them more vigorously than we would have done if the choice was solely ours.
James Grimmelmann
James talked about the metaphysics of virtual objects/experiences. The VW provider has the power to determine people's perceptions within the world. For example, if the VW provider deletes an object, everyone agrees that the object ceases to exist in the world.
Also, the VW software is proprietary, so there's no check on a provider's autocracy. Even if the software creation was open sourced, it still wouldn't solve the normative determination of what's fair to do to players.
James thinks that virtual worlds need healthy virtual governance--specifically, that there should be a public sphere within virtual worlds as a way for players to discuss the providers' autocratic decisions.
I made two comments: (1) is there anything unusual about the metaphysics in virtual worlds? It seems to me that we have many shared hallucinations in realspace (like when our government lies to us, and we accept the lie rather than listen to our inner skepticism). (2) If the risk of provider exercise of arbitrary autocratic power is a problem, couldn't providers outsource an auditing function to third parties? For example, accounting firms audit the financial statements of companies.
Tyler asked what's so good about liberty and fairness? I think he was driving at the fact that VWs could in fact involve benevolent dictators, and this could lead to better outcomes than we could accomplish in the real world.
There was a good Q for James that if virtual property is real, does that mean that cybertorts committed in the virtual world equally "real"? For example, is hate speech in a virtual world just as tangible as virtual property?
Tyler Ochoa, Who Owns Avatars?
Tyler acknowledged that the first response to this topic is that avatar ownership should be determined by the EULA. He made his arguments why the default ownership of avatars matters:
1) EULAs may not be binding (see, e.g., the Bragg decision, which put Second Life's EULA in serious jeopardy)
2) some things can't be assigned by contract, such as the 17 USC 203 termination of transfer right. (So, in 35 years, someone might come back and demand the copyrights to their avatar!)
3) the default copyright rules may determine the applicability/enforceability of contract rules
He noted the numerous aspects of an avatar that may be protected, including the avatar's appearance, capabilities, behavior and communications.
He thinks the more that a provider gives choices to consumers to configure avatars, the more that the avatar looks like the creation of a user. As a result, he advocated that avatars should be thought of as a contribution to a collective work (although, depending on the facts, they could be a derivative work, a compilation or a joint work). He explained why this solved some of the problems about avatar ownership.
I asked Tyler whether the more appropriate model would be for providers to treat avatars as a specially commissioned work for hire as part of an audiovisual work. This would require providers to characterize the avatar as a work for hire in their EULA, but this seems like a complete solution for providers (maybe not for users!).
In his talk, Tyler asked about the appropriate remedies if a hacker deleted someone's avatar. This seems like a problem outside of copyright law, but tangible property law could in theory apply. See, e.g., Kremen v. Cohen.
Tyler also asked what remedies users would have if their avatars were included in a derivative work (like a movie based on the VW). Again, copyright may or may not provide an adequate remedy, but it made me wonder if users have a publicity right in their avatar. I haven't researched it, but I assume that the ROP can cover pseudonyms, nicknames, etc. If so, it seems like a derivative work may need permission from avatar alter egos irrespective of the copyright disposition.
Eric Goldman, Investment Decisions on a Shaky Virtual Foundation
Here are my notes from my talk. I am thinking about writing this up into a short essay, so I would gratefully welcome any comments.
_______________________________________________
Investment Decisions on a Shaky Virtual Foundation
There has been lots of discussion in literature about who owns virtual property. However, I’m more interested in *how* virtual property comes into existence in the first place because it gets created in a seemingly poor environment for investment decisions.
Obviously, some virtual property is generated as part of the ordinary course of gameplay. We generally don’t need to worry about the incentives to create this property; the gameplay provides the needed incentive. And I believe we don’t need to protect the investment “expectations” for this property—because the gameplay provides the motivation, there are no *investment* expectations to protect. (There may still be unhappy users who feel screwed by gameplay or providers’ monkeying with the gameplay, but this seems wholly internal to the game itself).
In other cases, virtual property will be protected by default IP laws (such as copyrightable works created within the context of Second Life). These investment decisions are no different than the creation of any other IP.
Despite these two motivations, there is still plenty of other investments made on spec or with the hope of a return, and these investments can be wiped away in a moment. There can be in-world reasons, like inflation, exploits or in-game theft. More importantly, the VW’s user agreement may give the provider unlimited ability to moot the agreement, such as by kicking the user off the site or stripping the user of assets.
The most obvious example is Second Life, where there is no gameplay per se but still plenty of real-world investment capital being invested. Second Life's EULA makes it clear that all of this investment could be wiped away at its discretion. From its user agreement:
Sec. 1.4: You agree that Linden Lab has the absolute right to manage, regulate, control, modify and/or eliminate such Currency as it sees fit in its sole discretion, in any general or specific case, and that Linden Lab will have no liability to you based on its exercise of such right.
Sec. 2.6: Linden Lab has the right at any time for any reason or no reason to suspend or terminate your Account, terminate this Agreement, and/or refuse any and all current or future use of the Service without notice or liability to you. In the event that Linden Lab suspends or terminates your Account or this Agreement, you understand and agree that you shall receive no refund or exchange for any unused time on a subscription, any license or subscription fees, any content or data associated with your Account, or for anything else.
Sec. 5.3: When using the Service, you may accumulate Content, Currency, objects, items, scripts, equipment, or other value or status indicators that reside as data on Linden Lab's servers. THESE DATA, AND ANY OTHER DATA, ACCOUNT HISTORY AND ACCOUNT NAMES RESIDING ON LINDEN LAB'S SERVERS, MAY BE DELETED, ALTERED, MOVED OR TRANSFERRED AT ANY TIME FOR ANY REASON IN LINDEN LAB'S SOLE DISCRETION.
So investment decisions in Second Life are made on the foundation that Second Life can moot those investments at any time for any reason. This should substantially shorten the time horizon for investment return, or at least increase the discount rate of future cash flows substantially. Yet, users still make substantial/sizable investments in Second Life and other VWs with similar policies. Why?
Hypothesis #1: Users are making irrational investment decisions because (1) they don’t know the rules governing their investments, and/or (2) they apply too low a discount rate
Evidence: <1% of users read user agreements; consumers may make mistaken inferences from the user agreements (i.e., majority of users think that the existence of a privacy policy automatically means their data must be protected-see Annenberg studies and http://www.law.berkeley.edu/clinics/samuelson/techade_report_final.pdf)
Possible policy implications: (1) improve user education, (2) match legal terms to reflect consumer expectations, (3) caveat emptor
Hypothesis #2: People are making rational investment decisions because (1) they are applying appropriate discount rate and expect short-term payoffs, or (2) they are trusting appropriate exercise of provider discretion based on market forces/brand/reputation
Possible policy implications: do nothing—market is working fine. But what if people are underinvesting due to investment uncertainty? (1) Market gives providers incentives to provide greater certainty if profitable, or (2) regulatory intervention is necessary to stabilize markets.
This got me thinking about alternative situations where people make investment decisions predicated on contracts that may be terminated for convenience. In general, US law tolerates this construct and does not establish limits on, in fact, exercising contractual rights of termination for convenience. See, e.g., United Airlines Inc. v. Good Taste (Alaska Sup. Ct. 1999). Catering company gets 3 year contract to cater United Airlines flights from Alaska, but 90 day termination for convenience clause. To perform the contract, the catering company invests $1M that (apparently) was designed to be amortized over the 3 year term. Instead, United terminates for convenience after 1 year. Catering company is unable to avoid this termination and, presumably, loses some of its investment. Indeed, in most cases involving termination for convenience, parties make some investments to perform, and contract law normally stays on the sidelines.
But in the case of franchises and distributor protection laws, we restrict a vendor’s ability to terminate for convenience even if both parties agree to a termination for convenience clause (the provider must terminate for cause or pay damages). Analogies to VW investors:
• both require upfront investment predicated on long-term support from the vendor
• vendors have substantially more leverage over contracting party—in VW context, presented on take-it-or-leave-it basis.
But noticeable differences:
• franchisors/vendors get long-lasting benefit from work of franchisees/distributors—get marketing investments/building of customer base. No direct equivalent in VWs
• franchises are heavily regulated investment decisions
More generally, does it still make sense to restrict contract freedom among franchise/distributor contracts? Or is this just an archaic paternalism?
In the case of VWs, no reason to restrict contract freedom without evidence of a problem.
• no evidence of market failure. Investments still growing rapidly
• We can rely on existing consumer protection laws (such as false advertising) provide substantial protection for any VW provider deception
Posted by Eric at 12:07 PM | Licensing/Contracts , Virtual Worlds | TrackBack
October 21, 2007
Ticketmaster Wins Big Injunction in Hannah Montana Case, But Did the Public Interest Get Screwed?--Ticketmaster v. RMG
By Eric Goldman
Ticketmaster L.L.C. v. RMG Technologies, Inc., 2007 WL 2988403 (C.D. Cal. Oct. 16, 2007)
You may remember Ticketmaster's multi-year battle against Tickets.com over data aggregation and deep linking. Ticketmaster never got a solid win in that case, but here Ticketmaster successfully advances the same legal theories against someone gaming its allocation of tickets. Hannah Montana fans might cheer this ruling, but some of the court’s analysis makes this a troubling Cyberlaw development.
Introduction
This case involves what I'll call "ticket sniping"--the practice of quickly snapping up highly-sought-after tickets when they first go on sale and then reselling them at higher prices. When it comes to hot concerts--such as the upcoming Hannah Montana tour--Ticketmaster's price may be well below the prices people are willing to pay in the secondary market. Why don't event promoters use auctions or other dynamic pricing scheme to capture this upside on the first sale? I'm reminded of the odd pricing systems for IPOs--just like that market, perhaps Ticketmaster (as an intermediary) deliberately underprices below the market-clearing price to increase its profits.
In any case, initial ticket buyers from Ticketmaster can get an economic windfall, which naturally motivates people to game the initial first-come, first-served ticket allocation system. RMS was one such gamer. They developed software that helped its customers beat other buyers in the rush to get hot tickets. Ticketmaster sued RMS to stop their gaming activities; the court issues a preliminary injunction:
Copyright
The court says that RMS directly infringed Ticketmaster's copyright in its web pages by browsing them to test the operation of its software tool. Effectively, then, the court says that web browsing is copyright infringement. This isn't the first time a court intimated as much, but it's troubling every time we see it.
The court overlooks any implied license to browse because Ticketmaster's "browsewrap" on its home page (which says "Use of this website is subject to express Terms of Use which prohibit commercial use of this site. By continuing past this page, you agree to abide by these terms") acts as an express restriction on browsing, so any access in contravention of those terms constitutes copyright infringement.
One of the key Qs is how RMS's software differs from other search engine robots. The court skirts this Q, simply pointing to Perfect 10 v. Amazon as excusing the cache copies made by web users who follow search engine links. Of course, search engine robots make lots of other copies, and we think these copies are excused because the final presentation (the display of search results snippets) doesn’t infringe. The court doesn't address this at all.
The court also says that RMS is indirectly infringing based on a Grokster inducement theory because RMS's marketing said it's offering "stealth technology [that] lets you hide your IP address, so you never get blocked by Ticketmaster." This is a pretty expansive interpretation of copyright inducement because the marketing references IP address blocks, not copyright infringement, but it's very consistent with the court's moral condemnation of RMS's behavior.
Anti-Circumvention
The court says that website pages are protected by copyright, and the website used a CAPTCHA to restrict access to these copyrighted works. Thus, distributing the software tool designed to circumvent the CAPTCHA to access the copyrighted website violates 1201(a)(2) and 1201(b)(1). Not only does this give unexpected copyright protection for CAPTCHAs, this ruling seems inconsistent with several precedents holding that bypassing a password protection system doesn't violate 1201.
Breach of Contract
As indicated above, the court upholds Ticketmaster's browsewrap. Admittedly, Ticketmaster has improved its contract formation processes since it litigated against Tickets.com, but I'm not sure this was as easy as the court treated it.
Computer Fraud & Abuse Act
Surprisingly, the court denies relief for this claim because Ticketmaster couldn't allege $5,000 of loss. I tell my students that if they can't construct $5,000 of loss under the CFAA, then they aren't thinking creatively enough.
Conclusion
It's easy to point at RMS and its customers as the bad guys. After all, they are trying to get an unfair advantage in the first-come, first-served allocation of scarce tickets for their economic benefit, with the result that later comers have to pay more to get the same tickets.
But what about Ticketmaster's role in this situation? They haven't designed a technologically gaming-resistant allocation of tickets, so they need legal help to solve that deficiency. I also remain suspicious about Ticketmaster's incentives here, both in setting prices and in policing against ticket allocation gaming. Their motives may not be nearly so consumer-friendly as they try to portray.
And this opinion is hardly pro-consumer either. This ruling won't be a problem if future courts limit this ruling solely to a company's efforts to legally protect a competently designed anti-gaming strategy. But some of the more dramatic rulings are anything but consumer-friendly, such as the implicit holding that browsing is copyright infringement and the upholding of Ticketmaster's browsewrap. If other courts apply these principles more broadly, Hannah Montana concertgoers may have gotten a benefit at the expense of us all.
Posted by Eric at 03:45 PM | Copyright , Derivative Liability , E-Commerce , Internet History , Licensing/Contracts , Privacy/Security | TrackBack
October 15, 2007
Online Trust Conference Recap
By Eric Goldman
On October 2, Santa Clara University held a half-day conference called "Trust Online." This event was co-sponsored by the Center for Science, Technology and Society, the High Tech Law Institute, the Markkula Center for Applied Ethics and Microsoft. We brought together policymakers, technologists, lawyers and academics to explore the process by which online companies engender trust from their customers. The topic of "trust" is complicated because it cuts across privacy, security and branding issues. In the end, we discussed all that and more.
The day started off with a keynote by Richard Clarke, formerly Bush's chief cybersecurity czar. His talk started out on a disconcerting note as he described cyberspace as a place of "chaos" and "crime" (shades of California CIO Clark Kelso calling the Internet a "sewer"). But he got onto more productive grounds when talking about how consumers develop trust in different entities:
* trust in the government. Americans' trust in government has fallen to an all-time low. This lack of trust in the government undermines trust across-the-board because, for example, consumers may be reluctant to disclose personal data to websites knowing that the government could get access to it.
* trust in the private sector. He echoed the conventional sentiment among privacy advocates that we need to worry more about Little Brother than Big Brother.
* trust in individuals. He blamed the Internet for the "pandemic" of identity theft--especially lax security.
He proposed five solutions:
1) Biometric ID cards--we need 2 factor authentication online
2) We should ask the government to regulate. He thinks the FCC has the authority to regulate the Internet, and the FCC could instruct ISPs to take specific actions that would reduce risks. He acknowledged that when a person suggests the government should regulate the Internet, others want to take the person away in shackles. That pretty much summed up my reaction to this proposal!
3) We should keep critical infrastructure from being Internet-connected.
4) Industry should improve the security of its code.
5) We should form a government entity that people could trust to safeguard their privacy and civil liberties concerns
Next was a panel on Enforcing and Enabling Trust, moderated by Lise Buyer (one of the star Internet analysts from the dot com boom). Panelists: Scott Charney of Microsoft, Mozelle Thompson (a former FTC Commissioner who is doing a lot of consulting work for Facebook) and Jim Ransome from Cisco. Some notes I made during this panel:
* Charney: consumers need just-in-tirme, actionable information to make trust decisions
* Thompson: people are clamoring for context
* Charney: security and privacy are conflated in the concept of "safety." People just want to feel safe.
* Thompson: people don't want anonymity, then want control over their data (Eric's comment: this makes sense in a Facebook context; not sure if it is more broadly extensible)
* Charney: goal should be risk management, not risk elimination
* Charney: we think of security as binary (is it secure or not), but privacy is a continuum
* Charney: we accept the fact that people may die in the name of privacy (examples: anthrax mailed without a return address; disposable cellphone to make bomb threat)
* Charney: we need to marry authentication with reputation
Next was a panel on Branding and Building Trust. Lise also moderated. Panelists: Alessandro Acquisti of Carnegie Mellon, Chris Hoofnagle of UC Berkeley, and Fran Maier of TRUSTe. Some notes I made:
* [not sure who made this point]: there is a positive correlation between good business practices and consumer perceptions that the company has good privacy practices (Eric's comment: this would certainly explain sentiments towards Google)
* Acquisti: a study showed that stock prices drop after companies announce a security breach, but they quickly rebound after a few days
* Q: what is trust worth? Acquisti: according to his study, people will pay extra for privacy in some cases. Maier: TRUSTe has a case study showing that their logos improve consumer willingness to provide data (Eric's comment: I'd need to look through this case study to see how it regresses possible co-variables)
* Hoofnagle: consumers erroneously believe that companies' ability to use their data is regulated
* [not sure who made this point]: we should give kids amnesty for their youthful postings. i.e., we need to forget some information
* Maier: 15-20% of TRUSTe applicants don't get certified.
The day ended with a keynote by Dave Cullinane, eBay's Chief Information Security Officer who recently joined the company from Washington Mutual. A few notes from his talk:
* eBay employs 2,000 people in its trust & safety department
* eBay/PayPal investigators currently assist in over 2 arrests per day
* He implied that the Department of Homeland Security was trying to get a dataset from eBay to see if they can crunch the data to identify patterns that look like terrorism. I'd like to know more about this!
* Rootkitted Linux boxes--not (as commonly believed) Microsoft boxes--are the vast majority of security threats
Other comments on the event:
* SCU Law student Erik Schmidt at TechLawForum on Richard Clarke's talk
* Cade Metz at the Register on Richard Clarke's talk
* Cade Metz at the Register on Dave Cullinane's talk
* Robert McMillan at InfoWorld on Dave Cullinane's talk
UPDATE: Listen to the podcasts!
Posted by Eric at 01:42 PM | E-Commerce , Privacy/Security | TrackBack
October 12, 2007
Roommates.com En Banc Rehearing GRANTED!
By Eric Goldman
Terrific news from the Ninth Circuit this morning! They have granted an en banc hearing in the Fair Housing Council v. Roommates.com case and (as their rules require) designated the prior opinion non-precedential. The full text of the order:
Upon the vote of a majority of nonrecused regular active judges of this court,1 it is ordered that this case be reheard by the en banc court pursuant to Circuit Rule 35-3. The three-judge panel opinion shall not be cited as precedent by or to this court or any district court of the Ninth Circuit, except to the extent adopted by the en banc court.
The pertinent part of Circuit Rule 35-3:
The en banc court, for each case or group of related cases taken en banc, shall consist of the Chief Judge of this circuit and 10 additional judges to be drawn by lot from the active judges of the Court. In the absence of the Chief Judge, an 11th active judge shall be drawn by lot, and the most senior active judge on the panel shall preside....
When the court votes to rehear a matter en banc, the Chief Judge will enter an order so indicating. The vote tally is not communicated to the parties. The three-judge panel opinion shall not be cited as precedent by or to this court or any district court of the Ninth Circuit, except to the extent adopted by the en banc court. (Rev. 1/1/2000)
After the en banc court is chosen, the judges on the panel decide whether there will be oral argument or additional briefing. If there is to be oral argument, the Chief Judge (or the next senior active judge as the case may be) will enter an order designating the date, time and place of argument. If no oral argument is to be heard, the Chief Judge will designate a date, time, and place for a conference of the en banc court. That date will ordinarily be the submission date of the case. If any issues have been isolated for specific attention, the order may also set forth those issues and additional briefing may be ordered. The opinion of the three-judge panel shall not be cited as precedent by or to this court or any district court of the Ninth Circuit, except to the extent adopted by the en banc court.
I don't know anything more about timing or procedure than this. Fortunately, in the interim, the old ruling is off the books and should not be able to do more damage.
Other documents in the case:
* Fair Housing Councils' reply to the EFF et al amicus brief
* EFF et al amicus brief supporting a rehearing en banc
* Fair Housing Council's response to Roommates.com's request for an en banc rehearing
* Roommates.com's En Banc Request
* The original Ninth Circuit opinion
* My blog post on the Ninth Circuit opinion
Posted by Eric at 10:16 AM | Derivative Liability | TrackBack
Bay Area Blawgers 2.0
By Eric Goldman
The High Tech Law Institute at Santa Clara Law School and Six Apart are pleased to announce Bay Area Blawgers 2.0, the second gathering of legal bloggers in the Bay Area. See a recap of the first gathering. This time, we'll spend an hour in a structured discussion starting around 6:15 (see some possible discussion topics). We'll spend the rest of the time schmoozing/chit-chatting.
When: November 5, 6-8 pm.
Where: San Francisco office of Fenwick & West, 555 California Street, 12th Floor, San Francisco, CA. Directions.
Who: Everyone is welcome, but this event principally will cater to active legal bloggers. People who have indicated they plan to attend: Tsan Abrahamson, Ann Althouse, Harry Boadwee, Michael Bond, Brian Crossman, Aviva Cuyler, Robert Eisenbach, David Friedman, Sujatha Ganesan, Cathy Gellis, Eric Goldman, Joe Gratz, Beth Grimm, Chris Hoofnagle, Kimberly Kralowec, Matthew Lasar, David Levine, Tom Levis, Ethan Leib, Susan Nevelow Mart, Mike Masnick (maybe), Mary Minow, Cathy Moran, Amy Morganstern, Joe Mullin, Keith Nagayama, Deborah Neville, David Newdorf, Bruce Nye, Kevin O'Keefe, Jay Parkhill, Bertrand Pautrot, Aaron Perzanowski, Benjamin Reyes, Scott Righthand, Colin Samuels, Jason Schultz, Derek Slater, Peter Smith, Tim Stanley, John Steele, Stacy Stern, Kelly Stewart, Victoria Stodden, Gene Takagi, Chris Vail, Colette Vogele, Fred von Lohmann, Julia Wei and Cicely Wilson.
Cost: Admission is free, but parking is not!
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.
RSVPs: RSVP are ESSENTIAL for this event because of security procedures at 555 California Street. RSVP to Eric Goldman (egoldman@gmail.com).
UPDATE: Michael Atkins of Seattle Trademark Lawyer Blog is organizing a similar gathering for Seattle-area blawgers.
UPDATE 2: Stanford CIS/SLATA scheduled an attractive complementary event for the same day (Nov 5 at noon) entitled "How Blogs Impact Legal Discourse."
Posted by Eric at 09:21 AM | General | TrackBack
October 11, 2007
230 Applies Even if Website Retains Content That Author Asked to Remove--Global Royalties v. Ripoff Report
By Eric Goldman
Global Royalties, Ltd. v. Xcentric Ventures, LLC, 07-956-PHX-FJM (D. Ariz. Oct. 10, 2007)
Surprise! Ripoff Report/Xcentric/badbusinessbureau/Magedson are in court again (I've lost count of the number of times I've blogged on them--check here and do a find for your preferred term). This time, they get a great 230 win.
Sullivan made three posts to Ripoff Report about Global Royalties and their management, including a post calling the company a "scam." After being contacted by lawyers for Global Royalties, Sullivan asked Ripoff Report to take down his posts--something that Ripoff Report adamantly refuses to do.
In 2006, Global Royalties sued Sullivan and Xcentric in an Ontario court and ultimately got a default injunction against Xcentric. Global Royalties then sought to have the injunction enforced in the US. The Arizona court declines to do so, saying that the international treaties don't require cross-border enforcement of injunctions.
Since the parties were in court anyway to try to enforce the Canadian injunction, Global Royalties made a defamation claim against Xcentric under US law. As it has done many times in the past, Xcentric moves to dismiss (12b6) per 47 USC 230. The court says it isn't sure if 230 supports a 12b6 (see, e.g., the Subway case) but it dismisses anyway (with leave to amend) saying that discovery would be irrelevant. Ripoff Report's decision to leave up third party content (Sullivan's posts) in the face of a takedown request is an editorial judgment protected by 47 USC 230. Case dismissed.
I can see why plaintiffs would be upset about this ruling. Unlike many other 230 cases, the original author tried to retract the content but the publishing website (Ripoff Report) refused the request. This is, of course, a quintessential editorial decision, but it's also one where the original author has disavowed his original statements, putatively leaving the publishing website as the only one standing behind those words. If, in fact, those words are untrue and the author has disavowed them, the continuing publication of those words without anyone being liable is troubling. On the other hand, 230 immunization leads plaintiffs to routinely put pressure on individual/poorly-funded authors to take down their words regardless of the plaintiff's merit, so the 230 defense acts as a buttress against that bypass.
One other interesting note. The court notes that Ripoff Report provided Sullivan with a choice of titles for his posts, including "Con Artists." This sounds a lot like the structured data at issue in the Roommates.com case, but just like the recent Doe v. SexSearch case, the court simply ignores the Roommates.com opinion (which is binding precedent on an Arizona federal court). Instead, the court dismisses this interaction, saying "[t]his minor and passive participation in the development of content will not defeat CDA immunity."
Posted by Eric at 12:29 PM | Derivative Liability | TrackBack
AFP v. Google News Redux--AP v. Moreover
By Eric Goldman
Associated Press v. Moreover Technologies, Inc., 07 CIV 8699 (SDNY complaint filed Oct. 9, 2007)
I don't understand Moreover. From their website, they describe themselves as:
the premier provider of real-time news, current awareness and business information, pioneering the way online news is gathered, refined, categorized and delivered. Moreover products are trusted by hundreds of leading organizations to deliver real-time current awareness and actionable news intelligence that drives informed business decisions.
Huh? Someone needs to rein in the marketing department. In any case, I glean that Moreover is a news aggregator, building a real-time news database in a manner not dissimilar to Google News--they send robots to collect information in near real time, index the content and then publish extractions. However, it looks like Moreover is focusing on B2B solutions rather than Google's consumer-facing B2C service. I'm not sure if that will make a legal difference.
After a failed licensing negotiation (see complaint para. 55), the AP decided that it would rather make war, not love, and sued Moreover for gathering and republishing AP content. The AP claims the following causes of action: hot news misappropriation, copyright infringement, removal of CMI (17 USC 1202), Lanham Act 43(a) false association, NY trademark infringement, and trespass to chattels. These are generally the appropriate claims (although I'm surprised they couldn't find a breach of contract to allege), but there are a few odd claims, like the false association/trademark claim based on the fact that Moreover publicizes that it indexes AP content (this is a little like truthfully announcing third party branded ingredients--see Mark McKenna's post on that topic); and the claim that VeriSign is responsible for the acts of its wholly-owned subsidiary and data supplier.
In most respects, this lawsuit raises the same issues as the AFP v. Google News lawsuit filed in 2005 and settled in April. However, unlike the AFP case, the AP put the hot news claim front and center. Also, the AP may have selected a more favorable venue than AFP did. By filing in a 2nd Circuit jurisdiction, this case will be governed by the Second Circuit's rulings in Register.com v. Verio (trespass to chattels) and Motorola (hot news), both of which may be more favorable to AP's case than the law of other circuits. On the other hand, as I've noted before, the AP makes its news available via RSS feeds, and this could raise some interesting questions about the scope of explicit or implicit consent granted by providing RSS feeds.
More generally, this case is yet another battlefront in the war between content producers and content aggregators over the scope of permissible aggregation. I'm not sure if this case will provide the last word on that topic, but we would significantly benefit from more clarity about what constitutes legitimate aggregation.
Posted by Eric at 10:45 AM | Copyright , Search Engines , Trademark | TrackBack
October 10, 2007
Pandora Founder Westergren Speaks at SCU
By Eric Goldman
I *love* Internet radio. I typically listen to it all day long while I'm pounding out emails, articles and blog posts (like this one). I've tried a number of services, including Accuradio, Sky.fm and Last.fm. However, now I listen exclusively to Pandora, which in my opinion is the best of the bunch. Pandora really does get better based on the feedback I give it, which gives me enough incentive to customize it to my tastes. (I won't embarrass myself by exposing my idiosyncratic music preferences here, other than to say that I don't think I've seeded Pandora with any band that started after 1990. Hey, I'm a product of my time.)
In any case, when the High Tech Law Institute was contacted by the Santa Clara University's Center for Innovation and Entrepreneurship to co-sponsor a talk by Tim Westergren, one of Pandora's founders, we jumped on the opportunity. Tim gave an outstanding talk last night to an enthusiastic audience of at least 200 people.
Pandora was founded in 1999 and raised $1.5M in early 2000. That money ran out in 2001 when no more VC money was available. For the next 2 1/2 years, the company went on 300+ VC pitches with no luck, but was able to run on fumes in large part by mostly deferring employee salaries (a total of $1.4M deferred). This is an amazing feat for a number of reasons, including the fact that most employees need to put food on their table, plus I don't think the labor laws really tolerate employee salary deferrals. In any case, in 2004, the company raised new money and revamped the business model. In October 2005, the company launched a consumer-oriented Internet radio, and the rocket ship took off.
This roller-coaster ride was partially tied to the company's search for a viable business model. Pandora first thought it would be an online music retailer (typical thinking circa 1999). Then, it focused on B2B licensing of its services to other online retailers (typical thinking circa 2001). By 2004, there had been enough external changes to contemplate a consumer radio service--broadband had become more widespread, and the webcasting license fees were set at a more palatable level. In their October 2005 relaunch, they first started with a consumer subscription model but quickly realized the futility of getting people to pay for Internet radio. Now, they are effectively ad-supported, and Tim thinks that they can reach profitability at the end of next year assuming the webcasting royalty rate will be reset. (After the tribunal issued the new webcasting rate, the company held a board meeting to decide if they should just fold up their tents and give the remaining money back to investors--instead, they pushed for a listener grass-roots campaign, which was wildly successful).
Pandora's main competitive differentiator is its "Music Genome Project." 50 trained musicians with at least a college degree in music (called "music analysts") listen to songs all day long and rate each song on 400 different musical attributes. See the 2005 WSJ article discussing them. By profiling songs this way, the system can predict that a person who likes an artist's song might like other songs with similar musical attributes. From listening to Pandora for many, many hours, IMO the system isn't perfect, but it does a pretty good job, and it has definitely hooked me on music that I wouldn't have listened to otherwise.
However, the human capital required to build this database is significant and expensive. Sure, the supply of people with a music degree willing to be paid to listen to music all day long should be favorable, but still, a low salary multiplied by 50 people is still a big number. As Tim acknowledged, this is the opposite of scalability--a song can take up to 1/2 hour to catalog--which reduces Pandora's ability to comprehensively catalog the "long tail." On the other hand, they already have a database of 500,000 profiled songs, and they are adding 15,000 songs a month. Plus, having found a way to survive while building such a large database, the database is now a big barrier to entry, because any competitor seeking to take a similar approach (patents permitting) would have to incur serious upfront costs to replicate a competitive system.
Pandora does a little search engine marketing, but principally they rely on viral marketing--build a better product and let the customers evangelize it to their friends. They claim 8.5M registered listeners, growing at the rate of 500k new registrants per month. Listeners interact with Pandora on average 7-8 times per hour to give feedback or configure things (that sounds about right from my personal experience), which is remarkable as a stickiness measure. The result of this interaction is a database of 1B thumbs up/down opinions, a gargantuan database of user preferences. Tim said that Pandora uses this database for some collaborative filtering, but it sounds like this database is could be a globally important resource if made available more widely. (I'm sure the privacy folks are running through all the ways this data could be misused.)
A couple of other interesting factoids:
* at peak hours, Pandora's traffic represents 1.5% of global Internet data
* they block International users because of the lack of Internet webcasting statutory licenses parallel to the rights enacted in the DMCA
* 94% of their database of 500,000 cataloged songs are played every day--powerful evidence of the long tail effect that consumers will enjoy otherwise obscure content if the transaction costs are low enough
* Tim said Pandora's biggest competitor is ClearChannel. Clearly, they want to own the entire radio industry, not just the Internet radio market.
Check out Pandora and see what you think. If you want a jump start and you promise not to laugh at my tastes, I can email you my heavily customized stations.
Posted by Eric at 06:00 PM | Copyright , Internet History | TrackBack
October 09, 2007
Spam Crime Loss Not Measured by Defendant's Gain--US v. Kilbride
By Eric Goldman
US v. Kilbride, 2007 WL 2774487 (D. Ariz. Sept. 21, 2007)
Kilbride and his co-defendants are porn spammers who have been convicted of obscenity charges and criminal violations of CAN-SPAM. They face very long jail sentences. Their prosecution has produced a number of interesting/groundbreaking rulings, but this post focuses on the court's discussion about sentencing for CAN-SPAM crimes.
Spam crime sentences are governed by Sec. 2B1.1, the sentencing guideline applicable to theft. In 2004 comments to the Sentencing Commission, my former Marquette colleague Michael O'Hear and I expressed some concern about this model for measuring spam losses, particularly that it would significantly overcount the harms caused by spam.
As far as I know, this is the first case discussing the measurement of harm/loss in a CAN-SPAM crime sentencing. The court does a good job evaluating the evidence. First, contrary to the fears Michael and I expressed, the judge correctly ignores any alleged harm to end user-recipients because there was no evidence these individuals suffered a pecuniary loss. Second, the court largely rejects the government's argument that the loss should be measured by the defendants' gain (over $1.1M in profits). Instead, the judge only gives credit to the evidence showing that AOL suffered less than $10,000 of "loss" from the porn spam, computed by AOL's cost to investigate complaints over the spam (the government did not present evidence for other email service providers). As Michael and I explained in our comment, I'm not even sure AOL's investigation costs should count as a loss attributable to the defendants, but at least the dollar amount is comparatively low.
So while I'm still not sure 2B1.1's loss table is the right way to measure spam harms, it's heartening to see the judge resist overcounting. At the same time, it's impossible to ignore the significant litigation costs over this issue. Porn spammers have lots of money and face long jail sentences, so it isn't surprising that they will fight vociferously over loss calculations. Perhaps there are better ways of measuring loss that would reach fair results without these heavy litigation costs.
UPDATE: The defendants were sentenced to 5 years each.
Posted by Eric at 01:19 PM | Spam | TrackBack
October 08, 2007
Yet Another NY Court Says Keyword Ads & Metatags Aren't TM Use in Commerce--S&L Vitamins v. Australian Gold
By Eric Goldman
S & L Vitamins, Inc. v. Australian Gold, Inc., 2:05-cv-1217 (E.D.N.Y. Sept. 30, 2007)
If it wasn't so painful for all involved, I would enjoy watching the legal contortions of companies whose outdated business models are being destroyed by the Internet. Typically, these companies go into a litigation frenzy to suppress Internet-mediated activity that is good for consumers and bad for profit-maximization. Most of these lawsuits can't and don't fix the architectural problems of the business model, so at best they are a futile last stand.
I don't know much about the products of Australian Gold (I now live in the land of perpetual sun anyway), but the Internet appears to be ripping apart their business model. Australian Gold distributes its various tanning products exclusively through tanning salons, and they try to keep these products from leaking out of that channel so that they can support very high salon prices (according to the S&L case, Internet prices are 50% of salon prices). But with ridiculous overpricing like this, it's inevitable that products will leak out of the chain and consumers will get the exact same products for less dough. But this is bad for profits, which has led to the courthouse. Australian Gold now has been involved in at least 2 enforcement actions against Internet resellers, including this ruling and last year's big but analytically deficient win against one of the resellers. See Australian Gold v. Hatfield.
Keyword Ads, Metatags and Trademarks
In this case, S&L initiated a declaratory judgment against Australian Gold. By bringing a DJ, S&L kept the case in a Second Circuit jurisdiction--where courts recently have regularly rejected trademark lawsuits over keyword advertising and metatag inclusion. S&L's move paid off when the court says that buying keyword advertising and using metatags, without more, doesn't constitute a trademark use in commerce. This is now the fifth consecutive opinion in a NY federal court saying that advertisers don't make a trademark use in commerce when buying keywords, joining the Merck, Hamzik, Site Pro-1 and FrangranceNet courts (a sixth NY federal court opinion, the Rescuecom case, reached the same conclusion with respect to keyword sales).
Other Issues
The remainder of the opinion includes lots of other interesting discussion, including:
* S&L took its own product shots of Australian Gold's products. The court rejects Australian Gold's claim that S&L declaring "All Rights Reserved" with respect to those product shots constituted false advertising.
* The "Australian Gold" trademark lacked sufficient fame to support a dilution claim.
* Australian Gold claimed that S&L violated its copyrights in its labels by taking the product shots. This is an obviously spurious claim because after-market product shots are exactly what 17 USC 113(c) was designed to permit--and Australian Gold's effort to invoke copyright to restrict product shots shows its desperation to restrict legitimate after-market activities (as the court says, "AG is attempting to force a claim with facts that do not really fit"). Unfortunately, the court sidesteps 113(c). Fortunately, the court nevertheless finds that S&L's product shots were fair use of the labels' copyrights.
Conclusion
It's not hard to see why Australian Gold is trying to control its channel--if it can get its retailers (tanning salons) to sell its products at 2X the price that would be charged in an open market, Australian Gold is minting some big profits for its retailers, which seems like it would motivate salon salespeople to push those products hard. Enjoy the ride while it lasts, guys, because the Internet will destroy this model, despite any regressive attempts to use IP rights to put the genie back in the bottle. If nothing else, the Internet has demonstrated how Australian Gold products are overpriced when sold through salons, and loyal buyers are probably going to be pretty mad when they realize just how much they've overpaid.
UPDATE: Matthew Sag also questions the 113(c) reading and discusses the fair use aspects in more detail.
Posted by Eric at 04:49 PM | Copyright , Trademark | TrackBack
October 07, 2007
September 2007 Quick Links Part II
By Eric Goldman
Contracts
* Manasher v. NECC Telecom, No. 06-cv-10749 (E.D. Mich. Sept. 18, 2007). NECC included the following language on its invoices: "NECC's Agreement 'Disclosure and Liabilities' can be found online at www.necc.us or you could request a copy by calling us at (800) 766 2642." Not surprisingly, an arbitration clause in the referenced document wasn't incorporated into the contract because (among other deficiencies) there was no "call to action" that communicated that the referenced document was part of the agreement. HT: Tom O'Toole.
* Hofer v. The Gap Inc., No. 05-40170 (D. Mass. Sept. 28, 2007). 2 friends decide to vacation together in Jamaica. Friend 1 books the travel arrangements for both of them through Expedia. Friend 2 suffers a personal injury at the resort and wants to hold Expedia liable. Expedia invokes the liability protections in its user agreement, but Friend 2 never consented to or even saw that user agreement. No problem, says the court--Friend 1 was Friend 2's agent and therefore automatically bound Friend 2 to Expedia's agreement. For an analogous case involving software installed on a home computer, see here. HT: Tom O'Toole.
Web 2.0
* Video Professor, Inc. v. Doe (D. Colo.). Video Professor believes a bunch of individuals are committing false advertising, disparagement and other torts by bashing Video Professor's products. Video Professor knows it can't sue the intermediaries per 47 USC 230, so instead it's seeking subpoenas to unmask the gripers. This lawsuit seems misarchitected from a legal standpoint (at least, the Lanham Act portions), but it's also a really bad idea from a business standpoint--the chance of this lawsuit rehabilitating their online reputation is near-zero, and the chance of raising the profile of the gripers' comments in the search engines is near-one. Fortunately, Paul Levy is fighting back. HT: Consumer Law & Policy Blog.
* Michael Erdman reports that the Chicago Lawyers Committee v. Craigslist appeal is moving again. For a while, the case was deliberately sitting idle at the Seventh Circuit, presumably to facilitate settlement, but the Seventh Circuit has now issued a briefing schedule.
* Gary Price reports on the move in Wikipedia Germany to have all page edits reviewed by "trusted editors." More on this from the New Scientist. Yet more evidence that Wikipedia is looking increasingly like other editorially controlled content databases.
* Want to see a user community in the midst of turmoil? Check out the troubles at RateItAll. The consequence: 4 power users are gone, taking 20,000 items of content with them.
* News.com: 9 Fun Ways Web 2.0 Startups Can Commit Legal Suicide
Search Engines
* Jayne v. Google Internet Search Engine Founders, 2007 WL 2852383 (M.D. Pa. Sept. 27, 2007). This was a ridiculous pro se lawsuit that the court easily dismisses on its face. The interesting aspect is that the court says that Google isn't a state actor. This isn't the first court to say so, but it reinforces that Google and other search engines aren't subject to Constitutional restrictions.
* Google filed a motion to dismiss the American Airlines lawsuit. HT Gary Price.
* MediaPost: Personalized search results expand the number of search results that users look at and strongly improve clickthrough rate.
Content Regulation
* I missed this when it was first filed: Interactive Media Entertainment & Gaming Association v. Gonzales (D.N.J. complaint filed June 5, 2007), a First Amendment challenge to the Unlawful Internet Gambling Enforcement Act of 2006.
* American Booksellers Foundation for Free Expression v. Strickland, 2007 WL 2783678 (S.D. Ohio Sept. 24, 2007). Another state level anti-Internet porn law was struck down (this time in Ohio), but only on First Amendment grounds. Influenced by the upholding of state anti-spam laws, the court rejects a challenge to the law on dormant commerce clause grounds. This is a rare opinion saying that a baby CDA state law didn’t violate the DCC.
For Fun
Posted by Eric at 08:33 AM | Content Regulation , Derivative Liability , Internet History , Licensing/Contracts , Search Engines , Trademark | TrackBack
October 06, 2007
September 2007 Quick Links Part I
By Eric Goldman
Marketing
* From the NYT: There are 200+ auto repair shops in the "Iron Triangle" area in New York, and apparently they compete fiercely with each other, shouting out price quotes as cars needing repairs drive by. But according to one business owner, "Competition is fierce, but we got ground rules here for pulling in customers...For one, you got to stand in front of your own business. You can’t come and stand in front of my shop and steal my customers."
* Cowan v. Hotwire, LASC Case No. BC328621 (Los Angeles Superior Court complaint filed Feb. 10, 2005). I just found out about this case because apparently I'm a potential class member. The gist of the lawsuit is that Hotwire overpromised the hotel quality based on the star ratings assigned to specific hotels. Whether or not this lawsuit is meritorious, it's another reminder that companies need to precisely characterize their rating systems.
* You may recall the lawsuit over James Frey's A Million Little Pieces, a non-fiction story that was a little fictional. The case settled with a class remedy of a refund for book purchasers who went through a fairly complicated process. Care to guess how many purchasers tendered claims? Try 1,345--meaning about $20,000 of actual cash will go into the hands of "harmed" class members. Transaction costs to award this $20,000 of relief? Lawyers want almost $800,000, plus the costs to communicate with the class were about $335,000--in total, about $56 for every $1 of relief.
* In this article, I discussed how intermediaries would seek to mine a person's various methods of communication as source material for ad targeting (that is, unless the law restricts the intermediaries' ability to mine such data sources). The latest example? Pudding Media, which provides free Internet-based calls for the opportunity to deliver contextually relevant ads triggered by the contents of the phone call.
* The "perfect schwag"? One obvious option that didn't make the list...slinkies!
Intellectual Property
* We usually assume that copyright owners won't license their content to critics seeking to disparage them; hence, fair use is needed to permit such critical secondary uses. But a counterexample from the NYT: Naomi Klein licensed the Canadian "National Post" to display excerpts of her book alongside a critical review. There is some evidence Klein didn't know the hatchet job was coming, but even if she did, would it have been a bad choice on Klein's part? Not necessarily. See this study showing that even a critical New York Times book review lifts sales.
* Chang v. Virgin Mobile USA (D. Tex). See the NYT article on this case. Virgin Mobile allegedly downloaded photos from Flickr to use in an advertising campaign without getting publicity consents from the individuals depicted. This is a lawsuit by one of the depicted individuals. I'm very surprised by this apparent oversight because most ad agencies are thoroughly aware of publicity rights issues. Maybe someone mistakenly thought that Flickr's Creative Commons license extended to publicity rights?
* Freecycle Network, Inc. v. Oey (9th Cir. Sept. 26, 2007). Defendant does not make a trademark "use in commerce" when his actions were not "made to promote any competing service or reap any commercial benefit whatsoever."
* WSJ: "Web-Address Theft Is Everyday Event"
* WSJ: Some franchisors are loosening restrictions on franchisees’ ability to make independent choices.
Posted by Eric at 10:10 PM | Copyright , Domain Names , Marketing , Publicity/Privacy Rights , Trademark | TrackBack
October 04, 2007
"Making Available" as Copyright Infringement--Capitol v. Thomas
By Ethan Ackerman
Capitol v. Thomas has been widely covered (even simul-blogged) as the first RIAA copyright lawsuit against an individual P2P downloader to reach a jury trial. But, to poorly paraphrase Stephen Sondheim, "a funny thing happened on the way to the jury room..." Despite all the trial theatrics and pre-trial preparations and motions, both sides' counsel and the judge forgot to decide on the relevant law until the last minute.
Jury instructions are statements of law given to juries so they can apply "the law" to the facts they just heard and saw during the trial to come to a decision. The instructions are decided by the judge with the input of both counsel. Since jury instructions are just "legal" issues controlled by a judge, ideally there will be no disagreement over them at trial, as "legal" issues can usually be decided by various pre-trial motions. But in reality, jury instructions are often the focus of continuing disagreements and are fertile grounds for appeal. With marked protests from counsel and last-minute-reversals by the judge, the jury instructions in this case looks to be no exception.
The legal dispute focuses on whether "making available" an electronic file constitutes an infringement of the Copyright Act's exclusive "distribution" right, independent of any other copying. The Copyright Act prohibits illegal "copying" and illegal "distribution," but is mostly silent as to what constitutes distribution of an electronic file and whether "making available" a file electronically is enough to infringe that right. Complicating the issue is history -- the right was written into the Copyright Act at a time when distribution necessarily did require a transfer or copying of some physical object. This blog has tackled the legal issue before (see here and here and here), and the issue doesn't look like it's going away any time soon. The "making