Top Cyberspace IP Cases of 2005

By John Ottaviani (with help from Eric)

Cyberspace continues to present fascinating and novel intellectual property issues. What follows is our attempt at identifying some of the more significant “Cyberspace Intellectual Property” decisions of 2005. Once again, it was quite a year, with the Supreme Court’s decision in the Grokster case heading the list. (The Grokster case is the only one to make our “Top 10” list in each of 2003, 2004 and 2005!) Cyberspace intellectual property law is maturing, as evidenced by the fact that among our top ten cases are one U.S. Supreme Court and five U.S. Circuit Court of Appeals cases. And we are also seeing the courts struggling with the boundaries of trademark law, as they recognize that not every use of someone else’s trademark in Cyberspace provides a basis for an infringement claim.

Here are our “top ten” cases (thirteen, actually), followed by other cases which we felt are significant enough to mention. This list is not meant to be exhaustive, nor are the cases presented in any particular order of importance.

1. Supreme Court Finds Grokster Liable For Inducing Copyright Infringement “On A Gigantic Scale”

• Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., ___ U.S. ___, 125 S. Ct. 2764, 162 L. Ed. 2d 781 (2005). Leave it to the U.S. Supreme Court to figure out a way to find Grokster liable for inducing copyright infringement “on a gigantic scale” without overturning or affirming the 1984 Sony decision. The Supreme Court’s unanimous holding is pretty succinct: “We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.” The Court also limited the Sony decision to situations where a claim of liability is based solely on distributing a product with alternative infringing and non-infringing uses, with knowledge that some users would follow the unlawful course. The concurring opinions analyze the case in terms of Sony, with Justice Ginsberg concluding that ten percent non-infringing use probably would not be enough to avoid liability, while Justice Breyer concludes that ten percent probably would qualify as substantial non-infringing use.

2. Not Seeing Eye-to-Eye – Use of Trademark in Directory That Triggers Pop-Up Ads Is Not Trademark Infringement

• 1-800 Contacts, Inc. v. WhenU. Com, Inc., 414 F.3d 400 (2d Cir.), cert. denied, 126 S.Ct. 749 (2005). The owner of a website and the mark “1-800 Contacts” sued a competitor and WhenU.com, to enjoin them from delivering to computer users competitive “pop-up” Internet advertisements, in violation of federal and state copyright, trademark, and unfair competition laws. As reported in our list of Selected 2003 Cyberspace Intellectual Property Cases, the District Court held that: (1) 1-800 Contacts failed to establish a likelihood of success on its copyright claims, but (2) 1-800 Contacts established a likelihood of success on its trademark infringement claims.

On appeal, the Second Circuit threw out the trademark claims: “We hold that as a matter of law, WhenU does not “use” 1-800’s trademarks within the meaning of the Lanham Act, 15 U.S.C. §1127, when it: (1) includes 1-800’s website address, which is almost identical to 1-800’s trademark, in an unpublished directory of terms that trigger delivery of WhenU’s contextually relevant advertising to [computer users]; or (2) causes separate, branded pop-up ads to appear on a [computer user’s] computer screen either above, below or along the bottom edge of the 1-800 website window.” This brings the Second Circuit law in line with that of other federal courts that have found that WhenU’s use of the trademarks in a database that is not seen by the computer user is not a “trademark use.” See U-Haul International, Inc. v. WhenU.com, Inc., 279 F. Supp. 2d 723 (E.D. Va. 2003); Wells Fargo & Co., Inc. v. WhenU.com, Inc., 293 F. Supp. 2d 734 (E.D. Mich. 2003), (both of which appeared in our list of Selected 2003 Cyberspace Intellectual Property Cases).

Disclosure Note: In the Second Circuit appeal, Eric filed an amicus curiae brief on behalf of the Electronic Frontier Foundation urging reversal of the district court decision.

3. When Will It All End? – Maintaining An Index of Infringing Works, Without More, is Not Distribution of Infringing Works.

• In re Napster, Inc. Copyright Litigation, 377 F. Supp. 2d 796 (N.D. Cal. 2005). After the “old” Napster was shut down for infringing the record companies’ copyrights, the record companies have continued to pursue the entities that invested in Napster before it ceased operations. The record companies have alleged that, by investing in Napster and assuming control of the operation of the Napster file-sharing network, the investors contributorily and vicariously infringed the record companies’ copyrights.

In order to find the investors liable for contributory or vicarious infringement, the record companies first have to prove that there was an act of direct copyright infringement. The record companies have offered three theories of direct infringement as a basis for their secondary claims against the investors: (1) the Napster users who uploaded and made MP-3 files available on the Napster network engaged in the unauthorized distribution of the record companies’ copyrighted works in violation of Section 106(3) of the Copyright Act; (2) the downloading of MP-3 files by Napster users infringed the record companies exclusive rights to reproduce their copyrighted works under Section 106(1) of the Copyright Act; and (3) that Napster itself violated the record companies exclusive distribution rights under Section 106(3) by indexing MP-3 files that its users posted on the Napster network.

In this decision, Judge Patel shot down the third theory. The record companies relied primarily on the Fourth Circuit’s 1997 decision in Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199 (4th Cir. 1997), pointing to language that a copyrighted work is “distributed” within the meaning of Section 106(3) whenever it is “made available” to the public without authorization of the copyright owner. Judge Patel distinguished Hotaling, because the infringing works in this case never resided on the Napster system, while the library in that case had possession of the infringing copies in addition to listing them in its index. Interestingly, she went on to find that, to the extent that the Hotaling decision suggests that a mere offer to distribute a copyrighted work gives rise to liability under Section 106(3), that view is inconsistent with the text and legislative history of the Copyright Act. As a result, maintaining an index of infringing works, without more, is not “distributing” the infringing works. The case proceeds with further discovery on the “uploading” and “downloading” theories, however, so stay tuned next year for updates.

Editorial Note: John has never liked the Hotaling decision so he hopes Judge Patel’s decision stands.

• In re Napster Copyright Litigation, No. M:00-CY-61369-MHP, slip op. (N.D. Cal. May 11, 2005). Prior to deciding the summary judgment motion, Judge Patel denied the record companies’ leave to file a supplemental memorandum in opposition to Napster’s summary judgment motion, arguing that the recently passed Artists’ Rights and Theft Prevention Act of 2005 (“Art Act”) supported their argument that maintaining the index of downloadable files does infringe the distribution right under §106(3) of the Copyright Act. Judge Patel ruled that the record companies could not file the supplemental brief, because she found that the Art Act did not change anything as to how §106(3) should be interpreted.

4. Incredible Hulk Rescues Paragon City! Use Of Comic Book Character Names By Players For Video Game Characters Is Not Trademark Infringement.

• Marvel Enterprises Inc. v. NCSoft Corp., 74 U.S.P.Q. 2d 1303 (C.D. Cal. 2005). NCSoft creates, markets, distributes and hosts “City of Heroes”, a computer video game that allows players to play online and create characters that are virtually identical in name, appearance and characteristics to the comic book characters owned by Marvel. There are a number of procedural motions dealt with in this opinion, but the interesting discussion is the court’s dismissal of the contributory trademark infringement and vicarious trademark infringement claims. Although game users create character names that are the same as Marvel’s registered trademarks, the court concludes that the game users are not using these names in commerce in connection with any “sale or advertising of goods and services.” Thus, there is no “use in commerce” of the marks, so there is no direct trademark infringement on the part of the game users for which NCSoft could be contributorily or vicariously liable, and these claims were dismissed. Marvel was allowed to proceed on its contributory and vicarious copyright infringement claims theories.

• Marvel Enterprises Inc. v. NCSoft Corp., No. CV 04-9253-RGK (C.D. Cal. Aug. 22, 2005). In a later ruling, NCSoft’s claims that Marvel sent bogus takedown notices under the false DMCA notification provisions of 17 U.S.C. §512(f) survived a motion to dismiss. The court also rejected Marvel’s argument that a “service provider” under Section §512(f) has to be “passive” and “innocent.” Among other things, NCSoft alleged that Marvel employees created the infringing knock off characters that Marvel then demanded be removed from NCSoft’s network.

• The case settled in December 2005. The terms of the settlement have not been publicly reported.

5. Making a Mark – Patent Marking Statute Applies To Websites

A pair of patent cases illustrates how the traditional patent concept of “marking” should be applied in Cyberspace. Under 35 U.S.C. §287(a), one who owns a patent is entitled to recover damages from the time when it actually notifies the infringer of its infringement, or when it begins marking its products with a patent notice containing the number of the patent and otherwise complying with §287(a), whichever is earlier. This “marking statute” does not apply to patent claims that are addressed to a method of doing something (as opposed to a tangible article or apparatus), because ordinarily there is nothing to mark. When a patent contains both method and apparatus claims, the patent owner is required to mark “to the extent that there is a tangible item to mark by which notice of the asserted method claims can be given.” Am. Med. Sys., Inc. v. Med. Eng. Corp., 6 F.3d 1523, 1537 (Fed. Cir. 1993).

• Soverain Software LLC v. Amazon.com, Inc., 383 F. Supp. 2d 904 (E.D. Tex. 2005). In this case, Soverain alleged that Amazon.com infringed three patents owned by Soverain covering a network based sales system that included a buyer computer, a selling computer, a payment computer and virtual shopping cart. All of the patents contained both method and apparatus claims. Amazon moved for partial summary judgment to limit its damages, claiming that Amazon did not have notice of the alleged infringement until the suit was filed because Soverain did not comply with the marking statute. The court rejected Soverain’s argument that a website is an intangible object for which marking is not required. The court took notice of numerous websites that contain patent notices, and found in favor of Amazon on this issue.

• IMX, Inc. v. Lending Tree, LLC, No. Civ. 03-1067-SLR, 2005 WL 3465555 (D. Del. Dec. 15, 2005). IMX alleged patent infringement against Lending Tree for infringement of a patent owned by IMX for a method and system for trading loans in real time and placing loan applications up for bid by a plurality of potential lenders. The patent was implemented through software that was accessed through an Internet website, but the website itself was not part of the patent claims. Information on the website talked about “patented technology,” but one reached the patent number and a copy of the patent only after a number of obscure links. Lending Tree moved for partial summary judgment limiting damages, due to IMX’s failure to comply with the patent marking statute. IMX tried to distinguish Soverain by arguing that the website itself was not the patented invention, and did not practice the patent, but was just a means through which the public and the brokers accessed the patented technology. The court, however, found that the website is “intrinsic to the patented system and constitutes a tangible item to mark by which notice of the asserted method can be given,” and granted Lending Tree’s motion.

6. GripeSites I – Use of Expressive Domain Names That Are Unlikely to Cause Confusion Is Not Trademark Infringement

• Faegre & Benson, LLP v. Purdy, 367 F. Supp. 2d 1238 (D. Minn. 2005). Yet another chapter in the long-running saga between the Minnesota law firm and an anti-abortion activist, who is of the opinion that Faegre & Benson is supporting abortion and is attempting to silence his speech criticizing his alleged support of abortion. Purdy typically posted his opinions on a webpage that mimics Faegre’s webpage, generally with a disclaimer such as “Official Faegre Website Parody” or similar language. The source code of his counterfeit pages also contained metatags, including the trademarked term “Faegre & Benson” and some meta-descriptions taken from Faegre’s webpage. Faegre & Benson obtained a preliminary injunction in January 2004. After Mr. Purdy continued his behavior, Faegre & Benson filed a motion for contempt. After reviewing the situation, the court found: (1) there is no trade dress infringement because of the overall dissimilarity of the webpages and the clear disclaimer; (2) that Purdy has the right to use “expressive domain names that are unlikely to cause confusion” (such as faegre-law-love-democraticjudgemichaeldavis-judgeanmontgomery.com), even if they include the term “Faegre” or “Faegre & Benson,” because this constitutes a statement of Purdy’s opinion rather than a bad faith intent to profit from Faegre’s protected mark; and (3) that Purdy could legitimately use Faegre’s trademarks in the metatags for his webpages in order to refer to Faegre and to describe the content of his website (but not in order to divert Internet users from Faegre’s website).

7. Yes, Virginia, Unauthorized Downloading Of Copyrighted Music Does Constitute Copyright Infringement

• BMG Music v. Gonzalez, 430 F.3d 888 (7th Cir. 2005). Ms. Gonzalez downloaded more than 1,370 copyrighted songs during a few weeks and kept them on her computer until she was caught. She tried to argue that, despite the assumption in Grokster and Aimster that people who download music are primary infringers, her activities were protected by the “fair use” defense under the terms of 17 U.S.C. §107. With respect to 30 songs in question in this lawsuit that she downloaded, played and retained on her hard drive (and which she did not previously own), the court rejected her fair use argument. In doing so, the court noted that there are various alternative ways for Ms. Gonzalez to have sampled songs for purchase on an authorized basis, including radio, streaming Internet radio, iTunes, and other Internet licensing intermediaries such as Yahoo!, Real Rhapsody and SNOCAP.

8. Avalanche! Software Developers Contracted Away Their Right To Reverse Engineer Blizzard’s Games

• Davidson & Associates d/b/a Blizzard Entertainment, Inc. v Jung, 422 F.3d 630 (8th Cir. 2005). Blizzard creates and sells software games for personal computers, and operates “battle.net”, a 24-hour online gaming service available exclusively for purchasers of its computer games via the Internet or local area networks. In order to play the game contained on a CD-ROM, a user must first install the game onto a computer and agree to the terms of an end-user license agreement and terms of use, both of which prohibit reverse engineering, by clicking on an “I agree” button during the installation process. First time users of battle.net are also shown terms of use which, among other things, prohibit reverse engineering. The outside of the package for the game contains a statement that use of the game is subject to the end user license agreement and that use of battle.net is subject to the terms of use. The defendants are lead developers for a volunteer project that developed a service that emulates the battle.net service and permits users to play on line without use of battle.net. The developers attempted to mirror all of the user visible features of battle.net. In order to make its service compatible with battle.net and Blizzard’s game software, defendants used reversed engineering to learn Blizzard’s protocol language and to make sure the new service worked with Blizzard games.

After the parties settled a number of claims, the district court granted summary judgment for Blizzard and determined that: (1) Blizzard’s software end-user license and terms of usage agreements were enforceable contracts; (2) the defendants waived any “fair use” defense; (3) the agreements did not constitute misuse of copyright; and (4) the defendants violated the anti-circumvention and anti-trafficking provisions of the Digital Millennium Copyright Act.

On appeal, the Seventh Circuit rejected the defendants’ argument, relying upon Vault v. Quaid Software Ltd. 847 F. 2d 255 (5th Cir. 1988), that the state breach of contract claims were preempted by federal copyright law, The Seventh Circuit distinguished the Vault decision because the state contract law in Blizzard neither conflicted with the interoperability exception of the DMCA (17 U.S.C. §1201(f)), nor restricts rights given under federal law. Citing Bowers v. Bay State Technologies, Inc., 320 F. 3d 1317 Fed. Cir. 2003), the Seventh Circuit stated that private parties are free to contractually forego the limited ability to reverse engineer a software product under the exemptions of the Copyright Act. By agreeing to the terms of use under the end user license agreements, the court concluded that the defendants expressly relinquished their rights to reverse engineer.

The Seventh Circuit also affirmed that the defendants’ reverse engineering violated the anti-circumvention and anti-trafficking prohibitions of the DMCA, and were not protected by the “interoperability” exception because the circumvention in this case constitutes infringement.

9. GripeSites II – Another Gripe Site’s Prayers Are Answered

• Lamparello v. Falwell, 420 F.3d 309 (4th Cir. 2005). Lamparello registered the domain name www.fallwell.com after hearing Reverend Jerry Falwell give an interview in which he expressed opinions about gay people and homosexuality that Lamparello considered offensive. The site contained in depth criticism of Reverend Falwell’s views. The home page prominently stated “this website is not affiliated with Jerry Falwell or his ministry” and provided a hyperlink to Reverend Falwell’s website. Lamparello never sold goods or services on his website. After receiving cease and desist letters from Reverend Falwell, and losing a UDRP arbitration proceeding over the domain name, Lamparello filed an action seeking a declaratory judgment of non-infringement in order to avoid losing the domain name. The District Court granted summary judgment to Reverend Falwell on his claims of trademark infringement, false designation of origin, federal and state unfair competition and violations of the Anti-cybersquatting Act.

On appeal, the Fourth Circuit reversed. The Fourth Circuit found that Lamparello’s use of Reverend Farwell’s name was not likely to cause confusion as to the source of the website and found that www.fallwell.com did not infringe. Important factors in the court’s decision were: (1) the websites looked nothing alike; (2) Lamparello clearly created his website intending only to provide a forum to criticize Reverend Falwell’s ideas, not to steal customers; (3) Reverend Falwell and Lamparello offer opposing ideas and commentary, not similar goods and services; and (4) anecdotal evidence indicated that those searching for Reverend Falwell’s site and arriving at Lamparello’s site quickly realized that Reverend Falwell was not the source of the content.

In an interesting discussion, the Fourth Circuit expressly refused to adopt “the “initial interest confusion” doctrine and interpreted the use of that doctrine by the Ninth Circuit as applying only in cases involving one business’s use of another’s mark for its own financial gain, not in cases involving gripe sites. The Fourth Circuit also rejected the ACPA claim because Reverend Falwell could not demonstrate that Lamparello “had a bad faith intent to profit from using the www.fallwell.com domain name, citing TMI, Inc. v. Maxwell, 368 F.3d 433 (5th Cir. 2004) and Lucas Nursery and Landscaping, Inc. v. Grosse, 359 F3d 806 (6th Cir. 2004) [both of which appeared in our list of Selected 2004 Cyberspace Intellectual Property Cases].

10. GripeSites III – Bosley Medical Scalped By Ninth Circuit

• Bosley Medical Institute, Inc. v. Kremer, 403 F.3d 672 (9th Cir. 2005). Mr. Kremer was dissatisfied with the hair restoration services provided to him by Bosley Medical Institute. To get even, Mr. Kremer started a website at www.bosleymedical.com, which was uncomplimentary of Bosley. Shortly after registering the domain name, and before posting its content, Mr. Kremer went to Bosley’s office and offered Bosley an opportunity to discuss the issue but did not mention domain names or make any references to the Internet.

The Ninth Circuit held that Kremer’s use of “Bosley Medical” in the domain name was non-commercial and unlikely to cause confusion, and affirmed the dismissal of Bosley’s trademark infringement and dilution claims. “We hold today that the noncommercial use of a trademark as the domain name of a website—the subject of which is consumer commentary about the products and services represented by the mark—does not constitute infringement under the Lanham Act.” The court found that Congress intended that the Lanham Act and the Federal Trademark Dilution Act apply only to marks used “in connection with the sale, offering for sale, distribution, or advertising of any goods or services”. The court found that Kremer’s website contained no commercial links and at no time offered for sale any products or service, nor contained paid advertisements from any other commercial entity. The Ninth Circuit also rejected an argument that one could reach a discussion group site, which in turn contained advertising, by following links from Kremer’s website as being “too attenuated”. The Ninth Circuit also rejected Bosley’s claims that Kremer used the mark in connection with Bosley’s goods and services, because Kremer’s use of Bosley’s mark was in connection with the expression of his opinion about Bosley’s goods and services, not in connection with the sale or advertising of goods and services. The court also reversed the dismissal of the ACPA claims because the ACPA did not contain a commercial use requirement and remanded this claim to district court.

Here are several other cases that did not make the “top 10” but are also of interest:

American Girl, LLC. v. Nameview, Inc., 301 F. Supp. 2d 876 (E.D. Wis. 2005) (domain name registrar who simply accepts the registration of a domain name generally is not liable for trademark infringement or dilution, unfair competition or ACPA violations) (citing several other cases with consistent holdings).

Egilman v. Keller & Heckman, LLP, 401 F. Supp. 2d 105 (D.D.C. 2005) (accessing a computer system through unauthorized use of validly created user name and password does not “circumvent a technological measure” in violation of anti-circumvention provisions of DMCA).

Century 21 Real Estate Corp. v. Lending Tree, Inc., 425 F.3d 211 (3d Cir. 2005). Third Circuit joins Ninth Circuit in expressly adopting “nominative fair use” defense to trademark infringement claims. See New Kids on the Block v. News America Pub. Inc., 971 F.2d 302 (9th Cir. 1992). Third Circuit adopted a two-part test: (1) first, a plaintiff must prove that confusion is likely due to the defendant’s use of plaintiff’s mark; (2) then the burden shifts to the defendant to show that its use of the plaintiff’s mark is nonetheless “fair.” Relevant factors for the second step are: whether use of the plaintiff’s mark is necessary to describe plaintiff’s and defendant’s products and services; whether only so much of plaintiff’s mark was used as is necessary to describe plaintiff’s products and services; and whether defendant’s conduct or language reflect the true and accurate relationship between plaintiff’s and defendant’s products and services.

SMC Promotions, Inc. v. SMC Promotions, 355 F. Supp. 2d 1127 (C.D. Cal. 2005). License agreement that allows a wholesaler’s retail customers to download wholesaler’s copyrighted product images and descriptions onto the retailers’ websites, was not broad enough to cover the retailers’ practice of engaging a third party vendor to download images on the retailers’ behalf as part of the process of creating websites for the retailers.