Content Distribution Online

The Second Circuit affirmed the district court's holding that ivi is not a “cable system” entitled to a '111 compulsory license. The court found that the “compulsory license scheme” was designed to “support localized ' rather than nationwide ' systems that use cable or optical fibers” to transmit signals through “point-to-point” connections between transmission facilities and the television sets of individual subscribers. By contrast, Internet transmission services “provide nationwide ' and arguably global ' services.” Although Congress has amended the Copyright Act to provide license procedures for satellite and microwave transmissions, it has not done so for the Internet.

The Court of Appeals also placed weight on the determination of the Copyright Office ' the agency that oversees the compulsory licensing scheme ' that Internet retransmission services are not cable systems that qualify under '111. The Copyright Office has opposed “an Internet statutory license” that “would effectively wrest control away from program producers who make significant investments in content and who power the creative engine in the U.S. economy. In addition, a government-mandated Internet license would likely undercut private negotiations leaving content owners with relatively little bargaining power in the distribution of broadcast programming.” The Second Circuit concluded that allowing Internet retransmission to continue unfettered “would drastically change the industry, to plaintiffs' detriment.”

Online Victory

WPIX comes on the heels of ABC v. AEREO, 2012 WL 2848158 (S.D.N.Y., July 11, 2012) (http://bit.ly/REugP6), a victory for an online distributor. That court denied a preliminary injunction sought against Aereo, which operates a service that allows subscribers to watch, record and shift to computers or mobile devices free over-the-air broadcast television. Because Aereo assigned a specific antenna to each individual subscriber, its system resulted in private, rather than public, performances, and therefore did not infringe the broadcasters' copyrights. The district court's decision turned on the unique technical characteristics of the Aereo service.

As these cases illustrate, online distributors will continue to play a role in the marketplace. In approving formation of a proposed joint venture among Comcast, GE and NBC Universal, federal regulators referred to the importance of online distribution and imposed conditions that encouraged licensing to online providers. The courts will need to strike the appropriate balance between ensuring appropriate compensation to copyright holders and allowing the broadcast medium to continue its evolution.

Patents

In Akamai Technologies v. Limelight Networks, 2012 WL 3764695 (Fed. Cir., Aug. 31, 2012) (http://1.usa.gov/SeoCCY), a deeply divided en banc U.S. Court of Appeals for the Federal Circuit tackled basic and significant questions concerning the law of induced patent infringement. There can be liability for direct patent infringement under '271(a) of the Patent Act only when a single actor commits, personally or vicariously, all acts necessary for infringement. And a party that intentionally “causes, urges, encourages, or aids” another to infringe is liable for inducing infringement under '271(b) of the Act. But may a party avoid liability for either direct or induced infringement by performing some required acts itself and inducing others to perform the remainder, or by inducing a group of others to perform collectively the required acts? In each case, there has been no direct infringement because no single actor has done everything necessary to practice the patent.

A bare majority of the Federal Circuit ' six of 11 ' decided that liability for induced infringement can be sustained in either case, because the patent has in fact been infringed, although not by any one party. According to the majority, “[r]equiring proof that there has been direct infringement as a predicate for induced infringement is not the same as requiring proof that a single party would be liable as a direct infringer.” If “an entity has induced conduct that infringes a patent, there is no justification for immunizing the inducer from liability simply because no single party commits all of the components of the appropriative act.” The en banc court therefore overruled BMC Resources v. Paymentech, 498 F.3d 1373 (Fed. Cir. 2007) (http://bit.ly/Vkv3mS), which held that there could be no induced infringement unless some other single entity is liable for direct infringement.

A vigorous dissent maintained that, under the text of the Patent Act, there can be no liability under '271(b) without direct infringement as defined in 271(a). The dissent argued that attempts to evade the rights of patent holders could be handled by applying the doctrine of vicarious liability, which “reaches joint enterprises acting together to infringe a patent.” Given the close result, Akamai is a clear candidate for Supreme Court review.

Rates Technology v. Speakeasy, 685 F.3d 163 (2d Cir. 2012) (http://bit.ly/R53CB), struck down, as a violation of public policy, a settlement agreement barring a licensee from challenging the validity of a patent, where the agreement was signed after the patent holder asserted infringement, but before litigation was filed. In Lear v. Adkins, 395 U.S. 653 (1969) (http://bit.ly/Q1zAKz), the Supreme Court rejected the application of licensee estoppel in patent law. Under that doctrine, the licensee of intellectual property is prohibited from challenging the validity of the property it has licensed. Lear held that the public interest in eliminating invalid patents demanded that licensees ' often the only parties with the necessary economic incentive ' always be permitted to contest validity.

The Second Circuit held that a pre-litigation no-challenge clause violated the policy Lear enunciated. Such a clause might be valid, however, where litigation has been filed and discovery conducted. Discovery, the court noted, gives the alleged infringer “a full opportunity to assess the validity of the patent,” and conducting discovery is evidence of a “genuine dispute” over validity.

Copyright

Monge v. Maya Magazines, 2012 WL 3290014 (9th Cir., Aug. 14, 2012) (http://bit.ly/QrCKnW) and Balsley v. LFP, 2012 WL 3517571 (6th Cir., Aug. 16, 2012) (http://bit.ly/QrCPYD), both rejected fair use defenses where magazines published photographs of public individuals. In Monge, a gossip magazine published by the defendants ' Maya Magazines and Maya Publishing Group ' published photos of the secret wedding of two Latin American celebrities, effectively disclosing the marriage. The photos were purchased along with hundreds of others on a flash drive that a third party claimed to find in a car he loaned to the couple.

The court found that “[a]lthough Maya's reporting on the clandestine wedding was newsworthy, newsworthiness, by itself, is insufficient to demonstrate fair use.” Maya's transformation of the photos, consisting of minor cropping and the addition of captions, was minimal and undercut by its commercial purpose. The fact that the works were unpublished also weighed against fair use. And Maya did not need to publish the photos to corroborate its story reporting that the marriage had occurred ' the court suggested publishing the marriage certificate instead. Lastly, the court noted that the couple was in the business of selling images of themselves, so that Maya's publication had caused market harm.

At issue in Balsley was a semi-nude photo of a female Ohio TV news anchor, Catherine Balsley, also known as Catherine Bosley. The photo, along with others, was taken by a third party and published online. Bosley then bought all rights to the photos. Later, Hustler magazine published one of the photos along with a short description after Bosley was nominated for Hustler's “Hot News Babes” contest by another third party. The U.S. Court of Appeals for the Sixth Circuit sustained the jury's rejection of Hustler's fair use defense. The use was commercial and not transformative because the slightly cropped photo was used to enhance readership rather than for social commentary. Using the entire photo, even though it was but one of several in a collection, also militated against fair use. Regarding market harm, the court found that Bosley's current desire not to enter the market for sales of the photo was immaterial.

In Society of the Holy Transfiguration Monastery v. Gregory, 2012 WL 3125120 (1st Cir., Aug. 2, 2012) (http://bit.ly/SIj7aF), a monastery sued an individual named Archbishop Gregory, one of its former members, claiming copyright infringement based on Gregory's posting on a website of the monastery English translations of several ancient religious texts. The court first found that even if the works were only a mixture of previous translations with minor edits, they had sufficient originality in language choice to be copyrightable. Additionally, the works' lack of copyright notice did not cause them to enter the public domain because the original dissemination of the works to selected religious congregations for the purpose of literary feedback was a limited publication that did not require notice.

Gregory's use was not fair, despite arguably being for non-commercial and educational purposes. In reviewing the fair use factors: 1) Gregory's near-identical versions were not transformative of the works' content or religious and educational purpose; 2) the works were creative because of the language choices involved; 3) too much of the works were taken given the identical purpose of the use; and 4) the use harmed the works' potential market value because anyone could freely access them through Gregory's website.

Flava Works v. Gunter, 2012 WL 3124826 (7th Cir., Aug. 2, 2012) (http://bit.ly/QpVRBD), rejected a contributory infringement claim against an online service that enables users to bookmark websites for others to view. Flava, a producer of pornographic videos, alleged that the service, myVidster, was a contributory infringer in situations where Flava customers uploaded copies of Flava's videos to the Internet, and websites hosting such copies were then bookmarked and viewed through myVidster by others.

The U.S. Court of Appeals for the Seventh Circuit defined “contributory infringement” as “personal conduct that encourages or assists the infringement.” It found no evidence that myVidster had encouraged infringement of Flava's copying and distribution rights, as the infringers were the uploaders, not the bookmarkers or viewers. The copyrighted content, moreover, was not copied by myVidster, but transmitted directly from the servers of the bookmarked websites. Mere knowledge that some of the bookmarked videos infringed did not make myVidster culpable. Nor did myVidster encourage or assist a public performance of the videos. Assuming that uploading the video is considered performance, myVidster did not influence that act. If transmission for viewing is considered performance, there was no evidence that Flava's videos were actually being viewed through myVidster.

Scholz Design v. Sard Custom Homes, 2012 WL 3329725 (2d Cir.,
Aug. 15, 2012) (http://bit.ly/QHGHoW), reversed the district court's ruling that copyright protection for architectural designs only extends to images with sufficient detail to allow for their actual construction. The works at issue were front elevation drawings created by Scholz Design that were registered with the Copyright Office, along with related blueprints, before enactment of the Architectural Works Copyright Protection Act (AWCPA), which added copyright protection for “architectural works.” The drawings were later posted online by Sard Custom Homes to advertise Sard's ability
to build the depicted homes.

The Second Circuit held that copyright protection of any pictorial work under 17 U.S.C. '102(a)(5), regardless of subject matter, does not depend on any level of detail and merely requires independent creation and originality. Before passage of the AWCPA, courts had held that it was not infringement to use copyrighted plans to build a building, but unauthorized copying of those plans has always been prohibited. Because Scholz's complaint was based on copying of his plans, rather than construction of a house, the AWCPA had no bearing on the case.

Trademark

Dudley v. HealthSource Chiropractic, 2012 WL 3253194 (W.D.N.Y., Aug. 7, 2012) (http://bit.ly/ShxK5l), considered whether the Internet can be a geographic zone of exclusivity for trademark rights. Donald Dudley had used the unregistered trademark HealthSource Chiropractic in the Rochester, NY, area and on his website since 2003. Defendants, who claimed no knowledge of Dudley's use, filed an intent-to-use application for HealthSource Chiropractic in 2005 and registered the mark in 2007.

Defendants launched a national franchise using the mark, including a website, but, after discovering Dudley's use, used an alternate mark in the Rochester area. Federal registration generally gives the registrant nationwide priority in use of the mark. Where another user can show use of the mark prior to registration, however, that senior user will be granted a zone of geographic exclusivity in the area in which he put the mark to use. Dudley argued that his zone of exclusivity included both the Rochester area and the Internet.

The court rejected that view, holding that “[t]he [I]nternet ' is not a geographic territory to be subdivided.” Federal registration is required to establish nationwide priority, and common law rights extend only to territories in which the user “sells its products, renders its services, establishes recognition of its mark, or draws its trade.” Noting that an Internet presence is crucial for businesses of all sizes, the court held that “[t]he rights of concurrent users would be substantially harmed if one user were able to monopolize the internet to the exclusion of other lawful users of the same mark,” and therefore neither party could claim exclusive rights on the Internet.

The speed and convenience of content distribution through the Internet has long posed a threat to traditional distribution channels and challenged courts to balance the benefits of freedom of access for the public with protection of the rights of intellectual property owners. Those issues were on display in WPIX v. ivi, 2012 WL 3645304 (2d Cir., Aug. 27, 2012) (http://bit.ly/NGAUlD), where the U.S. Court of Appeals for the Second Circuit upheld a preliminary injunction against a streaming video service.

Not Cable System

In WPIX, owners of copyrighted television programming, including major broadcast networks, brought copyright infringement claims against ivi, an online video distributor. ivi retransmitted live signals from various broadcast stations, charging subscribers $4.99 a month for access to live streaming video and an additional $.99 a month to record, pause, fast-forward and rewind. While the Copyright Act grants copyright owners the exclusive right to authorize retransmission of broadcast signals, '111 of the Act provides an exception to this rule, allowing “cable systems” to retransmit broadcast signals provided they pay a compulsory license rate and abide by the statute's procedures. The compulsory license was established to facilitate the expansion of cable systems and encourage television service in areas that had difficulty receiving over-the-air broadcasts.

The Second Circuit affirmed the district court's holding that ivi is not a “cable system” entitled to a '111 compulsory license. The court found that the “compulsory license scheme” was designed to “support localized ' rather than nationwide ' systems that use cable or optical fibers” to transmit signals through “point-to-point” connections between transmission facilities and the television sets of individual subscribers. By contrast, Internet transmission services “provide nationwide ' and arguably global ' services.” Although Congress has amended the Copyright Act to provide license procedures for satellite and microwave transmissions, it has not done so for the Internet.

The Court of Appeals also placed weight on the determination of the Copyright Office ' the agency that oversees the compulsory licensing scheme ' that Internet retransmission services are not cable systems that qualify under '111. The Copyright Office has opposed “an Internet statutory license” that “would effectively wrest control away from program producers who make significant investments in content and who power the creative engine in the U.S. economy. In addition, a government-mandated Internet license would likely undercut private negotiations leaving content owners with relatively little bargaining power in the distribution of broadcast programming.” The Second Circuit concluded that allowing Internet retransmission to continue unfettered “would drastically change the industry, to plaintiffs' detriment.”

Online Victory

WPIX comes on the heels of ABC v. AEREO, 2012 WL 2848158 (S.D.N.Y., July 11, 2012) (http://bit.ly/REugP6), a victory for an online distributor. That court denied a preliminary injunction sought against Aereo, which operates a service that allows subscribers to watch, record and shift to computers or mobile devices free over-the-air broadcast television. Because Aereo assigned a specific antenna to each individual subscriber, its system resulted in private, rather than public, performances, and therefore did not infringe the broadcasters' copyrights. The district court's decision turned on the unique technical characteristics of the Aereo service.

As these cases illustrate, online distributors will continue to play a role in the marketplace. In approving formation of a proposed joint venture among Comcast, GE and NBC Universal, federal regulators referred to the importance of online distribution and imposed conditions that encouraged licensing to online providers. The courts will need to strike the appropriate balance between ensuring appropriate compensation to copyright holders and allowing the broadcast medium to continue its evolution.

Patents

In Akamai Technologies v. Limelight Networks, 2012 WL 3764695 (Fed. Cir., Aug. 31, 2012) (http://1.usa.gov/SeoCCY), a deeply divided en banc U.S. Court of Appeals for the Federal Circuit tackled basic and significant questions concerning the law of induced patent infringement. There can be liability for direct patent infringement under '271(a) of the Patent Act only when a single actor commits, personally or vicariously, all acts necessary for infringement. And a party that intentionally “causes, urges, encourages, or aids” another to infringe is liable for inducing infringement under '271(b) of the Act. But may a party avoid liability for either direct or induced infringement by performing some required acts itself and inducing others to perform the remainder, or by inducing a group of others to perform collectively the required acts? In each case, there has been no direct infringement because no single actor has done everything necessary to practice the patent.

A bare majority of the Federal Circuit ' six of 11 ' decided that liability for induced infringement can be sustained in either case, because the patent has in fact been infringed, although not by any one party. According to the majority, “[r]equiring proof that there has been direct infringement as a predicate for induced infringement is not the same as requiring proof that a single party would be liable as a direct infringer.” If “an entity has induced conduct that infringes a patent, there is no justification for immunizing the inducer from liability simply because no single party commits all of the components of the appropriative act.” The en banc court therefore overruled BMC Resources v. Paymentech , 498 F.3d 1373 (Fed. Cir. 2007) (http://bit.ly/Vkv3mS), which held that there could be no induced infringement unless some other single entity is liable for direct infringement.

A vigorous dissent maintained that, under the text of the Patent Act, there can be no liability under '271(b) without direct infringement as defined in 271(a). The dissent argued that attempts to evade the rights of patent holders could be handled by applying the doctrine of vicarious liability, which “reaches joint enterprises acting together to infringe a patent.” Given the close result, Akamai is a clear candidate for Supreme Court review.

Rates Technology v. Speakeasy , 685 F.3d 163 (2d Cir. 2012) ( http://bit.ly/R53CB ), struck down, as a violation of public policy, a settlement agreement barring a licensee from challenging the validity of a patent, where the agreement was signed after the patent holder asserted infringement, but before litigation was filed. In Lear v. Adkins , 395 U.S. 653 (1969) ( http://bit.ly/Q1zAKz ), the Supreme Court rejected the application of licensee estoppel in patent law. Under that doctrine, the licensee of intellectual property is prohibited from challenging the validity of the property it has licensed. Lear held that the public interest in eliminating invalid patents demanded that licensees ' often the only parties with the necessary economic incentive ' always be permitted to contest validity.

The Second Circuit held that a pre-litigation no-challenge clause violated the policy Lear enunciated. Such a clause might be valid, however, where litigation has been filed and discovery conducted. Discovery, the court noted, gives the alleged infringer “a full opportunity to assess the validity of the patent,” and conducting discovery is evidence of a “genuine dispute” over validity.

Copyright

Monge v. Maya Magazines, 2012 WL 3290014 (9th Cir., Aug. 14, 2012) (http://bit.ly/QrCKnW) and Balsley v. LFP, 2012 WL 3517571 (6th Cir., Aug. 16, 2012) (http://bit.ly/QrCPYD), both rejected fair use defenses where magazines published photographs of public individuals. In Monge, a gossip magazine published by the defendants ' Maya Magazines and Maya Publishing Group ' published photos of the secret wedding of two Latin American celebrities, effectively disclosing the marriage. The photos were purchased along with hundreds of others on a flash drive that a third party claimed to find in a car he loaned to the couple.

The court found that “[a]lthough Maya's reporting on the clandestine wedding was newsworthy, newsworthiness, by itself, is insufficient to demonstrate fair use.” Maya's transformation of the photos, consisting of minor cropping and the addition of captions, was minimal and undercut by its commercial purpose. The fact that the works were unpublished also weighed against fair use. And Maya did not need to publish the photos to corroborate its story reporting that the marriage had occurred ' the court suggested publishing the marriage certificate instead. Lastly, the court noted that the couple was in the business of selling images of themselves, so that Maya's publication had caused market harm.

At issue in Balsley was a semi-nude photo of a female Ohio TV news anchor, Catherine Balsley, also known as Catherine Bosley. The photo, along with others, was taken by a third party and published online. Bosley then bought all rights to the photos. Later, Hustler magazine published one of the photos along with a short description after Bosley was nominated for Hustler's “Hot News Babes” contest by another third party. The U.S. Court of Appeals for the Sixth Circuit sustained the jury's rejection of Hustler's fair use defense. The use was commercial and not transformative because the slightly cropped photo was used to enhance readership rather than for social commentary. Using the entire photo, even though it was but one of several in a collection, also militated against fair use. Regarding market harm, the court found that Bosley's current desire not to enter the market for sales of the photo was immaterial.

In Society of the Holy Transfiguration Monastery v. Gregory, 2012 WL 3125120 (1st Cir., Aug. 2, 2012) (http://bit.ly/SIj7aF), a monastery sued an individual named Archbishop Gregory, one of its former members, claiming copyright infringement based on Gregory's posting on a website of the monastery English translations of several ancient religious texts. The court first found that even if the works were only a mixture of previous translations with minor edits, they had sufficient originality in language choice to be copyrightable. Additionally, the works' lack of copyright notice did not cause them to enter the public domain because the original dissemination of the works to selected religious congregations for the purpose of literary feedback was a limited publication that did not require notice.

Gregory's use was not fair, despite arguably being for non-commercial and educational purposes. In reviewing the fair use factors: 1) Gregory's near-identical versions were not transformative of the works' content or religious and educational purpose; 2) the works were creative because of the language choices involved; 3) too much of the works were taken given the identical purpose of the use; and 4) the use harmed the works' potential market value because anyone could freely access them through Gregory's website.

Flava Works v. Gunter, 2012 WL 3124826 (7th Cir., Aug. 2, 2012) (http://bit.ly/QpVRBD), rejected a contributory infringement claim against an online service that enables users to bookmark websites for others to view. Flava, a producer of pornographic videos, alleged that the service, myVidster, was a contributory infringer in situations where Flava customers uploaded copies of Flava's videos to the Internet, and websites hosting such copies were then bookmarked and viewed through myVidster by others.

The U.S. Court of Appeals for the Seventh Circuit defined “contributory infringement” as “personal conduct that encourages or assists the infringement.” It found no evidence that myVidster had encouraged infringement of Flava's copying and distribution rights, as the infringers were the uploaders, not the bookmarkers or viewers. The copyrighted content, moreover, was not copied by myVidster, but transmitted directly from the servers of the bookmarked websites. Mere knowledge that some of the bookmarked videos infringed did not make myVidster culpable. Nor did myVidster encourage or assist a public performance of the videos. Assuming that uploading the video is considered performance, myVidster did not influence that act. If transmission for viewing is considered performance, there was no evidence that Flava's videos were actually being viewed through myVidster.

Scholz Design v. Sard Custom Homes, 2012 WL 3329725 (2d Cir.,
Aug. 15, 2012) (http://bit.ly/QHGHoW), reversed the district court's ruling that copyright protection for architectural designs only extends to images with sufficient detail to allow for their actual construction. The works at issue were front elevation drawings created by Scholz Design that were registered with the Copyright Office, along with related blueprints, before enactment of the Architectural Works Copyright Protection Act (AWCPA), which added copyright protection for “architectural works.” The drawings were later posted online by Sard Custom Homes to advertise Sard's ability
to build the depicted homes.

The Second Circuit held that copyright protection of any pictorial work under 17 U.S.C. '102(a)(5), regardless of subject matter, does not depend on any level of detail and merely requires independent creation and originality. Before passage of the AWCPA, courts had held that it was not infringement to use copyrighted plans to build a building, but unauthorized copying of those plans has always been prohibited. Because Scholz's complaint was based on copying of his plans, rather than construction of a house, the AWCPA had no bearing on the case.

Trademark

Dudley v. HealthSource Chiropractic, 2012 WL 3253194 (W.D.N.Y., Aug. 7, 2012) (http://bit.ly/ShxK5l), considered whether the Internet can be a geographic zone of exclusivity for trademark rights. Donald Dudley had used the unregistered trademark HealthSource Chiropractic in the Rochester, NY, area and on his website since 2003. Defendants, who claimed no knowledge of Dudley's use, filed an intent-to-use application for HealthSource Chiropractic in 2005 and registered the mark in 2007.

Defendants launched a national franchise using the mark, including a website, but, after discovering Dudley's use, used an alternate mark in the Rochester area. Federal registration generally gives the registrant nationwide priority in use of the mark. Where another user can show use of the mark prior to registration, however, that senior user will be granted a zone of geographic exclusivity in the area in which he put the mark to use. Dudley argued that his zone of exclusivity included both the Rochester area and the Internet.

The court rejected that view, holding that “[t]he [I]nternet ' is not a geographic territory to be subdivided.” Federal registration is required to establish nationwide priority, and common law rights extend only to territories in which the user “sells its products, renders its services, establishes recognition of its mark, or draws its trade.” Noting that an Internet presence is crucial for businesses of all sizes, the court held that “[t]he rights of concurrent users would be substantially harmed if one user were able to monopolize the internet to the exclusion of other lawful users of the same mark,” and therefore neither party could claim exclusive rights on the Internet.