Archive for May 2012

Here’s Some Food for Thought…

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Have you ever considered what the prices on a restaurant menu cover? Undoubtedly the prices cover the cost of food, the services of the chefs, waiters, busboys, and even the rent and furniture. But have you ever thought that these prices might cover the background music in the restaurant too? In Title 17 of the United States Code, Congress expressly conferred to copyright holders – composers, songwriters, lyricists, and publishers – the exclusive right to perform or authorize the performance of their works publicly.  The statute expressly defines both “perform” and “in public”.  To “perform” a work is “to recite, render, play, dance, or act it, either directly or by means of any device or process.”  The statute characterizes “in public” as either “(1) to perform or display [a work] at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered” or “(2) to transmit or otherwise communicate a performance . . . by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.”  So, under these broad definitions, just playing a CD in a restaurant constitutes a “public performance” of those works. Although the statute does include certain enumerated exceptions, an infringer could otherwise be liable for severe financial sanctions: statutory damages currently range from $750 to $30,000 per copyrighted work, or for willful infringement, the court may increase the award to $150,000. Just last year, the Eastern District of North Carolina found Raleigh’s Fosters American Grille liable for statutory damages in the amount of $30,450 for playing only four unlicensed copyrighted songs – and awarded $10,742.25 in attorney’s fees.  In 2008, the Eastern District of Pennsylvania found Schwenksville’s Crazy Carol’s Sports Bar liable for statutory damages in the amount of $16,000 for playing only eight unlicensed copyrighted songs – and awarded $4,830 in attorney’s fees.  Law’s Lunch & Dinner (Riverside, CA), The Vibe (Riverside, CA), Mad Dogs & Englishmen (Tampa, FL), Empire Dine & Dance (Portland, ME), Doug’s Burger Bar (Imperial, MO), Foxy Lady Club (Raleigh, NC), Vanishing Point Bar and Grill, (Mt. Airy, NC) Ron’s Landing (Hampton, NH), Bolero Resort & Conference Center (Wildwood, NJ), and Bacchus (New Paltz, NY) are but ten of the thousands of other restaurants in this country that have been sued for illegally playing songs without proper licensing. A fine to that tune might seem rather severe, but our law nonetheless protects owners of musical works.  It assumes that the owner of a musical work has the right to be paid for use of his property.  Back in 1917, Justice Oliver Wendell Holmes, Jr. wrote that musical performances in restaurants are not “eleemosynary” but rather, “are part of a total for which the public pays” Herbert v. Shanley, 242 U.S. 591, 594 (1917).  While “music is not the sole object [of a patron’s visit to a restaurant],” he continued, “neither is the food, which probably could be got cheaper elsewhere. The object is a repast in surroundings that to people having limited powers of conversation or disliking the rival noise give a luxurious pleasure not to be had from eating a silent music.”  Justice Holmes believed that without pay, music would simply “be given up.”  He thus found it necessary to incentivize the production and dissemination of new works in order to serve the Constitution’s Congressional mandate: “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” No doubt, Justice Holmes saw the copyright owner’s exclusive right to perform or authorize the performance of their works publicly as an incentive that was indispensible to this end. What do you think? Should restaurateurs have to pay just for playing their iPods at their restaurants?

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May 30th, 2012 at 12:00 pm

Apple and the ITC: A Good Lesson for Students of Patent Law

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Recently, HTC announced that some sales of the One X and EVO 4G LTE smartphones would be delayed while they are examined for compliance with an exclusion order obtained by Apple from the International Trade Commission (ITC, a U.S. agency that is responsible for policies governing imports and exports).  The exclusion order was based on a finding of patent infringement related to software patent, Pat. No. 5,946,647, that detects data such as telephone numbers in otherwise plain text.  Since eBay v. MercExchange, 547 U.S. 388 (2006) held that injunctions are not automatic following a finding of patent infringement, patent law students are taught that a suit at the ITC is becoming more popular as a tool for enforcing patents.  This popularity is because the only remedy available from the ITC is an order excluding infringing products from entering the U.S., which for electronics such as smartphones, is effectively an injunction. However, two aspects of the exclusion order affecting the HTC phones demonstrate how an exclusion order is different from a injunction.  First, products already in the U.S. can be sold.  According the New York Times, AT&T has offered the One X for sale based on shipments prior to the exclusion order, but Sprint has delayed launch of the EVO 4G LTE.  If the patent owner, in this case Apple, later brings suit in Federal Court, they may recover damages for the infringement caused by selling the phones, but the costs of litigation for a small number of infringing devices may discourage such enforcement.  Second, because the ITC has a more active role in policing imports than a Federal Court in policing an injunction, delays just to examine whether imported products infringe is more likely to occur.  HTC claims that since the original finding of infringement, they have redesigned their software to work around the patent.  Although federal judges have the authority to tailor injunctions to the needs of the case, it is unlikely to examine new products without at least a request for a contempt proceeding from the patent owner.  Therefore, non-infringing products are more likely to suffer some delay that may impact sales if the finding of infringement comes from the ITC instead of a Federal Court. Given the differences between exclusion orders and permanent injunctions, the value of one over the other will vary from case to case.  Whether this particular exclusion order proves to be major victory or a "narrow, unsatisfying win for Apple" remains to be seen.  However, for a case that began under the belief that it would be a grand battle between the iPhone and Android powered phones, this lone exclusion order is something of a letdown.

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May 30th, 2012 at 12:00 pm

Posted in Commentary

Negligent Texting

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A New Jersey judge recently held that a person who sends a text message to a driver cannot be held liable if the driver causes an accident due to the text message. While most states have laws banning text messaging while driving and it is well settled that a driver is liable for causing an accident while texting, this case is the first of its kind.

The plaintiffs in this case brought the claim based on the theory of aiding and abetting negligence. According to a leading case on aiding and abetting, in order for liability to attach, the plaintiffs must prove (1) that the primary tortfeasor committed the negligence that injured the plaintiffs, (2) the defendant was aware of its role in promoting the negligence at the time, and (3) the defendant knowingly and substantially assisted the primary tortfeasor in committing the negligence. In this case, the plaintiffs alleged that the defendant knew or should have known that the person she was texting was driving. Interestingly, the plaintiffs also argued that the defendant was "electronically present" at the scene of the accident via the text message.

Currently, the plaintiffs plan on appealing the decision. If the holding is overturned on appeal, there could be broad implications on negligence liability.

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May 30th, 2012 at 10:47 am

Android v. Apple: The Latest Round of Legal Disputes in a Long Fight

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On April 24, Administrative Law Judge Thomas Pender of the U.S. International Trade Commission ruled that Apple was in violation of infringement of a Motorola patent  on 3G wireless technology. The violation is in regards to the use of the 3G wireless technology in Apple’s iPhone and iPad devices. Judge Pender’s initial ruling (available here) is still subject to review and approval by the ITC’s panel of six Commissioners. Apple has already appealed and has sued Samsung (the owner of the Motorola patent) for its own alleged patent infringements. This latest loss for Apple is certainly significant, but is just one piece in the ever growing patent disputes among smartphone makers. With the technology trend from 3G wireless technology to faster 4G wireless technology, the amount of patents—and subsequent litigation—is only likely to increase. Samsung, Apple’s opponent before the ITC, also happens to be among the industry leaders in regards to 4G technology and its patents. This would seemingly advantage Samsung in upcoming settlements with Apple. However, Apple is one of the industry leaders in user interface technology and has filed suit against Samsung for Samsung mobile products that run the Android operating system, which allegedly infringes on Apple patents. The only thing for certain is that the ITC ruling will not be the last in a continued legal battle between these two technology giants.

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May 27th, 2012 at 12:00 pm

Facebook Co-Founder Eduardo Saverin: Ex-PATRIOT?

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Concerned about Facebook co-founder Eduardo Saverin "renounc[ing] his U.S. citizenship just in time to avoid a large tax payment" on gains from Facebook's impending IPO, Senators Chuck Schumer and Bob Casey have proposed legislation that would penalize Saverin and others who "expatriate[] for a substantial tax purpose." Under the Ex-PATRIOT (Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy) Act," any expatriate with either a net worth of $2 million or an average income tax liability of at least $148,000 over the last five years will be presumed to have renounced their citizenship for tax avoidance purposes."  The person must convince the IRS otherwise or face a two-part penalty.  First, the expatriate would pay a 30% capital gains tax on his future U.S. investments.  Second, in Schumer's words, the expatriate "could not set foot in this country again." Schumer insists that the Ex-PATRIOT Act is "not targeting one person," explaining that the Act affects "all people who have done this over the past 10 years."  However, Schumer's public statements suggest that Saverin is at least his primary media target.  The senator has made liberal use of references to Facebook and its co-founder: he described the Act as "a status update," tweeted that Saverin "'defriended' [the] US to avoid taxes," and warned that "Mr. Saverin's social network is about to get a lot smaller."  These statements make Schumer sound less like a contemplative senator and more like the impulsive Governor William J. LePetomane.  As the fictional governor can attest, singling out individuals is unlikely to win the Ex-PATRIOT Act many supportive harumphs.

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May 19th, 2012 at 8:53 am

Posted in Commentary

Instagram Acquisition: Not So Insta(nt)

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Just over a month after Facebook's widely-reported acquisition of Instagram for one billion dollars, there are strong signals that the purchase may be delayed by the FTC.  Although Facebook's CEO (and majority shareholder) Mark Zuckerberg was able to single-handedly approve the deal without consulting the company's Board of Directors, he does not have control of the Federal Trade Commission, and a deal won't be ratified unless the federal agency approves the purchase. As reported by the New York Times, the FTC is investigating whether the acquisition of Instagram by Facebook would raise antitrust problems.  The deal is still expected to go forward, but could certainly be delayed by the government regulators.

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May 16th, 2012 at 7:43 pm

Posted in Legal/Tech News

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Will Legal Troubles Ground Planetary Resources?

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Planetary Resources, a company backed by investors such as Google Chairman Eric Schmidt and director James Cameron, has announced a plan to mine asteroids. The company says it will initially mine water and platinum, hoping to “provide stability on Earth, increase humanity’s prosperity, and help establish and maintain a human presence in space.” Considering rare metal's cost, perhaps the company will also turn a profit. While the United States can generally regulate the activities of U.S. corporations as it sees fit, it is also bound by its treaty obligations. There is some concern that the 1967 Outer Space Treaty bans asteroid mining. Article II provides that “Outer space, including the Moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.” Article VI requires states to ensure that their nationals also comply with these terms. Wired Science has argued that the ban on “appropriation” is not a ban on mining because the Treaty also allows the free exploration and use of outer space. Since the treaty entered into force, it is evident from the subsequent practice of states that taking resources from a celestial object conforms with the Treaty. The Apollo missions, for example, brought back 842 pounds of lunar material. NASA has exercised rights in the lunar samples tantamount to ownership, and the U.S. government has prosecuted individuals for improperly obtaining them. Further, some lunar samples given to the Soviet Union were sold to private individuals. It would seem clear from this example that a private company may acquire and sell interests in celestial material.

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May 9th, 2012 at 2:28 pm

Can Computer Code Be Stolen? The Second Circuit Says No.

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Sergey Aleynikov, a former programmer for Goldman Sachs, recently became a free man. His conviction was overturned by the 2nd Circuit Court of Appeals after serving a year of his original eight year prison sentence. Aleynikov’s crime? He downloaded the highly sensitive source code of Goldman Sachs incredibly lucrative high frequency trading system. The system used a series of algorithms to make complex trades in a fraction of a second, and it provided Goldman with an important edge on the rest of the market. Needless to say, Goldman was not pleased to see a former employee provide the same code for a competitor. Aleynikov was quickly arrested by the FBI and charged with violations under the National Stolen Property Act (NSPA) and the Electronic Espionage Act (EEA). In 2010, Aleynikov was found guilty under both statutes for theft and economic espionage. This case was largely seen as an “example of the Justice Department’s serious intent to prosecute the theft of intellectual property and trade secrets.” Aleynikov appealed and the 2nd Circuit conducted de novo review of both statutes. After review, the 2nd Circuit reversed the convictions and found that Aleynikov’s acts did not “constitute an offense under either the NSPA or the EEA, and the indictment was therefore legally insufficient.” In regards to the NSPA, the Court stated that source code is intangible in its digital form. They held that intangible computer code does not qualify as “goods,” “wares,” or “merchandise” under the NSPA. Therefore, Aleynikov never “assume[d] physical control” of anything that would violate the statute when he downloaded the code. In its decision, the court relied on Dowling v. United States 473 U.S. 207 (1985) for the “proposition that the theft and subsequent interstate transmission of purely intangible property is beyond the scope of the NSPA.” Additionally, according to the Court, Aleynikov could not have committed electronic espionage. “Goldman’s HFT system was neither ‘produced for’ nor ‘placed in’ interstate or foreign commerce.” Without satisfying one of those conditions, there can be no violation of the EEA. So what does this mean? For Aleynikov it means freedom, but can thieves now take this kind of sensitive proprietary information without fear of legal action? Can a thief avoid charges by keeping code in the cloud? Currently, the answer to these questions is yes. However, this does not mean that all code is now fair game. It must be code that was not produced for or placed in interstate or foreign commerce to escape suit entirely. This subset is small enough that repeat cases are unlikely to occur in large quantities. Furthermore,  in a concurring opinion, Circuit Judge Guido Calabresi urged Congress to update and broaden the scope of the NSPA. Hopefully Congress heeds the suggestion. In this age of ever advancing technology, the law needs to reflect or at least be able to adapt to these new digital realities. Otherwise, it may just become obsolete. For the full decision - Click Here

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May 4th, 2012 at 9:19 am

ITU to Host Internet Treaty Conference This Year

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Michael Gross writes in this month's Vanity Fair about an internet treaty conference to be held in Dubai later this year.  The International Telecommunications Union, about which I've blogged in the past, will attempt to forge some sort of consensus between countries favoring the status quo (the United States), and other countries wanting more or less control. Whether or not any treaty comes out of this conference, it is sure to further illuminate the differences between countries of the global north and south.  As more and more of the developing world has internet access, developing countries may try to challenge the United State's hegemony over DNS servers and IP protocol. As the United States wrestles over its own Internet legislation, this conference could have just as much of an effect.  That it doesn't start until after the presidential election leaves one to speculate even further.

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May 3rd, 2012 at 9:02 am

Posted in Commentary

New Washington State Law Stopping Trafficking in its Track’s? Not Likely

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According to the government in the State of Washington, “Human trafficking is the fastest growing criminal industry in the world today.” In response to this crime, the Washington State website against trafficking boasts that the state has passed the “most stringent law in the country”. The state added to this stance earlier this year when the state congress unanimously passed a new law directed at media sources of all kinds that include ads for escort services. The Washington State government found that many of the ads show depictions of children, and have responded by making it a Class C felony for anyone that “knowingly publishes, disseminates, or displays, or causes directly or indirectly, to be published, disseminated, or displayed, any advertisement for a commercial sex act…that includes the depiction of a minor”. While at first glance Washington’s new stance seems positive, in reality the law will most probably prove to be unenforceable, and may even be counterproductive to the fight against human trafficking. Washington State’s plan for enforcing the new law is a new “photo-ID” requirement: the language of the enactment indicates that a potential advertiser must make a “reasonable bona fide attempt” to determine the age of anyone depicted in advertisements through some sort of identification. Sources have indicated, howevernumerous flaws with the enforcement system. Most notably, the law will include an “in-person verification system” for its photo-ID requirement of online advertisers. This requirement is seemingly directed at online escort advertisers like Backpage.com. Backpage.com, a site similar to Craigslist.com, has filled the void left by the online classified giant when the company removed its escort service in 2010. Since that time, according to a recent article written in the New York Times by Nicholas Kristof, Backpage.com has become the biggest forum for sex trafficking in the United States. While this in-person verification requirement sounds good, in reality it seems highly unlikely websites like Backpage.com will suddenly be able (or willing: “The law relating to online commercial advertising is unfortunately practically unworkable in the Internet realm,” says Liz McDougall, general counsel for Village Voice Media.) to make in-person ID checks of all those that would put escort ads on their website. Furthermore, the law doesn’t seem to address the real possibility of fake ID’s being used, or having adult pictures used while then offering minor escorts. Beyond looking at an ID, the law doesn’t even define what a “reasonable bona fide attempt” means. This lack of clarity most probably means that the enforceability of the law is, as critics have said, “left up to prosecutorial discretion”. And as Washington state prosecutors had yet to file a single trafficking related case five years after the “most stringent law in the country” was passed, don’t hold your breath waiting for the attorney general to enforce the newly passed law. While proponents of the bill have acknowledged its limits, they remain positive that it will provide another burden for a would-be trafficker. Some critics argue, however, that the law’s future goal of taking down sites like Backpage.com may actually hurt the fight against human trafficking in the long run. In his recent New York Times article, Kristof stated that Backpage.com has become the biggest forum for sex trafficking in the United States. In attempting to hold those with ownership stake in Backpage.com accountable, Kristof’s article also pointed out that one of the companies with stock in Village Voice Media (the company that owns Backpage.com) was Goldman Sachs. In exposing this ownership, Kristof hoped to take a step further than the Washington law by having these owners pressure Village Voice into getting rid of all the escort adds on Backpage.com. Village Voice, however, argues that it is the very existence of sites like Backpage.com that allow for human traffickers to be found and prosecuted. Ina response to Kristof’s article, the company argues, “for the first time in the history of sex work, law enforcement has, because of the Internet, the ability to shine a light upon those who would abuse children.” Citing several studies done by the likes of USC and Harvard, Village Voice believes that Kristof’s approach “would drive victims back to the shadows”. And they may be right: forcing domestic servers to close their escort ads down may simply lead to foreign sources stepping in to take their place. While sites like Backpage.com employ hundreds of staff members to patrol the site for underage exploitation and provide law enforcement with information pertaining to potential traffickers, internationally-based servers would be under no obligation to act accordingly. So while the Washington State law may sound to some like a step in the right direction, its inevitable lack of enforceability and potential destructive nature may make it just the opposite.

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May 2nd, 2012 at 9:17 am

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