Northwest Business Litigation

Ninth Circuit limits recall remedy in trademark case

In a trademark infringement case, a product recall may be available as a remedy when defendant has sold products improperly displaying plaintiff's trademark.  Last week the Ninth Circuit Court of Appeals held that a court may order a product recall as part of a preliminary injunction only if the infringing product poses a substantial risk of danger to the public.

In Marlyn Nutraceuticals v. Mucos Pharma, plaintiff claimed defendant sold a dietary supplement that improperly showed plaintiff's trademark on the label.  The District Court judge issued a preliminary injunction ordering defendant to stop selling the product, and to recall the product it had already sold.  Defendant appealed the scope of the preliminary injunction, contending that it was error to require a recall of the supplements with the infringing mark. 

Adopting a test used in the Third Circuit, the Ninth Circuit held that defendant should not be required to incur the cost of a recall unless plaintiff can show the court granting the preliminary injunction that (1) the infringement was willful or intentional, (2) the risk of injury to the trademark holder is greater than the burden of the recall to defendant, and (3) the infringing activity creates a substantial risk of danger to the public.

In Marlyn, because there was insufficient evidence of a public health risk from allowing the product to remain in the hands of consumers, the District Court erroneously ordered a recall as part of the preliminary injunction.

Online video-sharing service not liable for users' copyright infringement

In an opinion issued last week, a federal district court in California dismissed a lawsuit against Veoh Networks, Inc., a self-described "Internet Television Network," which provides software and a website enabling the sharing of user-submitted video content over the Internet.  The lawsuit sought to impose liability on Veoh as a result of its website users' copyright-infringing postings on the video sharing website.

The court ruled that Veoh qualifies for the safe harbor provisions of the Digital Millennium Copyright Act, 17 U.S.C. sec. 512, because it does not “actively participate or supervise the uploading of files. . . .  Instead, video files are uploaded through an automated process which is initiated entirely at the volition of Veoh’s users.”  The court added that the evidence “demonstrates that, far from encouraging copyright infringement, Veoh has a strong DMCA policy, takes active steps to limit incidents of infringement on its website and works diligently to keep unauthorized works off its Web site.”  The court found that Veoh need not shoulder the entire burden of policing third-party copyrights on its website and risk losing its business if it cannot.  Rather, the crucial issue was whether Veoh took appropriate steps to deal with copyright infringement that took place.  Because Veoh did act appropriately under the facts, it was shielded from damages that may have resulted from its users' copyright violations.

In a similar case filed in a New York federal court, Viacom is suing Google for $1 billion, alleging that Google-owned YouTube has been illegally hosting Viacom's proprietary content.  Whether other courts adopt the analysis in the Veoh decision remains to be seen; however, the result may bolster the arguments of video-hosting services seeking the benefits of the DMCA safe harbor provisions.

Portland jury awards $304.6 million in shoe trademark case

Earlier this week a jury ordered Payless Shoesource, Inc. to pay more than $304 million in damages to Adidas America, Inc., for trademark infringement.  The federal court jury in Portland found that 267 Payless shoe styles infringe on Adidas' trademarks.  The infringing styles included shoes with 2 and 4 stripes, and not just the 3-stripe design long associated with Adidas.  The verdict, consisting of $30.6 million in actual damages, $137 million in punitive damages, and $137 million in Payless profits, is believed to be the largest ever in a trademark infringement case.

See coverage of the trial here and here.

I Tube, You Tube, We All Tube: Avoiding liability for user-generated content

Thanks to the rapid growth in the public's desire and ability to communicate through the internet, publication of User Generated Content ("UGC") has exploded.  Companies such as YouTube and MySpace are among the businesses that have capitalized on the distribution of online content by the internet audience.  But the use of UGC by companies doing business online can raise difficult legal issues.  Three such issues are copyright infringement, defamation, and violation of privacy rights.

Copyright infringement includes direct infringement, contributory infringement, and vicarious infringement.  Key elements of liability include knowledge of the infringing activity, inducement or contribution to the infringing conduct, and attaining a direct financial interest in the infringing activity when there is an ability to supervise the direct infringer.  Two significant cases alleging copyright infringement as a result of UGC are pending against YouTube (Viacom Intl., Inc. v. YouTube, Inc.) and MySpace (UMG Recordings Inc. v. MySpace Inc.).  These cases may provide an opportunity for the courts to analyze the safe harbor provisions of the Digital Millennium Copyright Act (DMCA),17 U.S.C. sec. 512, specifically section 512(c), which applies to user-directed storage of material on a system.

Defamation is a potential consequence of allowing UGC to be posted on a company's website.  The Communications Decency Act ("CDA") provides tort immunity to internet service providers in certain situations.  While this immunity provision is broad, it has its limits.  To read our earlier coverage of a recent CDA case in which the Ninth Circuit did not shield an on-line service as a result of UGC, click here.

Publication of UGC content can also implicate privacy and publicity rights as a result of the unauthorized use of photos and other media protected by privacy laws.  Common claims for damages include causing embarrassment and damage to reputation.

To minimize liability for the use of UGC, companies should be vigilant about complying with the requirements of the DMCA Section 512(c) safe harbor provision.  Companies utilizing UGC should also seek out licenses from content owners and use comprehensive click-wrap agreements to which  submitting users must agree.  Examples of such agreements can be found on YouTube and MySpace.  Finally, companies choosing to use UGC on their websites should conduct routine scrutiny of the UGC content to ensure liability exposure is minimized.

There's no claim for trademark disparagement in the Ninth Circuit

Federal trademark law can't stop an individual from expressing an opinion about the validity of a mark.  That was the holding last week from the Ninth Circuit in The Freecycle Network, Inc. v. Oey. 

In that case, defendant made statements on the internet to the effect that the term "freecycle" is a generic term  -- referring to a practice where people give to others goods they no longer want -- and that The Freecycle Network (TFN) should not obtain a trademark on the term.  TFN claimed these statements constituted trademark infringement and trademark disparagement under the Lanham Act, and the District Court agreed, issuing a preliminary injunction against defendant.  The Ninth Circuit reversed, holding that the law prohibits neither the airing of opinions about trademarks nor statements encouraging others to use a mark in its generic sense.

There's plenty of commentary in the blogosphere supporting the Ninth Circuit's conclusion.  See this post on the Likelihood of Confusion blog and this one on The Trademark Blog.

Ninth Circuit shields credit card companies from secondary copyright liability

On Tuesday, the Ninth Circuit Court of Appeals refused to extend liability for copyright infringement to credit card companies that process payments made to web sites selling infringing photographs.  Perfect 10, Inc., a subscription service that features copyrighted photographs of models, contended that Visa International and other major financial institutions could be held liable under a theory of contributory copyright infringement for processing payments to websites that infringe on Perfect 10's copyrights.  The Ninth Circuit held that Perfect 10 failed to state a claim against the credit card companies, even if the companies knew of the infringing conduct, because the mere act of processing payments neither materially contributed to nor induced the infringement. 

Unlike the recent case against Napster, the infringing images did not pass through the servers of the credit card companies, and unlike Perfect 10's earlier case against Amazon in which Perfect 10 prevailed, the credit card companies did not substantially assist websites to distribute the infringing material.  Moreover, the credit card companies did not induce the infringement, unlike the Grokster case that involved distribution of a file sharing program to enable infringement, because they took no affirmative steps to foster infringement.  Accordingly, while Amazon may be held liable for assisting sales of infringing material on the Internet, credit card companies remain immune, at least in the Ninth Circuit. 

Two cases shape the legal contours of the Internet

This week the Ninth Circuit issued two opinions that apply longstanding legal concepts to novel, Internet-based disputes.

The first case addresses a clash between two federal statutes: the Fair Housing Act and the 10-year-old Communications Decency Act.  The FHA prohibits, among other things, publishing discriminatory advertisements for housing.  The CDA, meanwhile, states that a provider of an "interactive computer service" cannot be treated as a publisher of content provided by others.  In Fair Housing Council v. Roommate.com, plaintiff claimed that Roommate.com, an online roommate matching web site, violated the FHA by publishing listings stating discriminatory preferences.  Roommate.com argued that it was merely an Internet-based conduit for information provided by others, shielding it from liability
under the CDA.  Judge Alex Kozinski disagreed, noting that the listings were in the form of questionnaires provided by Roommate.com, thus making Roommate.com responsible for the creation or development of the content and taking it outside of the CDA shield.

For further discussion of the CDA shield, see this Oregon Business Litigation blog item from November 2006.

In Perfect 10, Inc. v. Amazon.com, Inc., the issue was whether the Google search engine violates copyright law.  In particular, do links on a Google search illegally facilitate access to a third party's images and web sites which infringe on plaintiff's copyright?  The Ninth Circuit considered the legality of both thumbnail images from infringing web sites accompanying Google search results, and search results providing links to infringing web sites.  Judge Sandra S. Ikuta wrote that the thumbnail images constituted "fair use" and did not infringe on plaintiff's copyright.  But the court remanded the second issue to the district court, directing it to reconsider whether Google's links illegally assist users to access infringing sites.

Changes to copyright law survive First Amendment challenge, Ninth Circuit holds

The Ninth Circuit Court of Appeals has rejected a First Amendment challenge to recent statutes that allegedly changed the "traditional contour" of copyright law.  The court issued its opinion yesterday in Kahle v. Gonzales, a case brought by Professor Lawrence Lessig and the Center for Internet and Society at Stanford.

Plaintiffs characterized the copyright system as historically an "opt-in" system, meaning that copyright protections were available only to those who acted affirmatively to secure them.  In the 1990's Congress changed the system to one plaintiffs called "opt-out," meaning that copyright is granted automatically unless disclaimed. Plaintiffs in Kahle claimed that this change will radically decrease the number of works entering the public domain, altering the "traditional contours" of copyright and violating of the free speech protections of the First Amendment. 

Plaintiffs further argued that the current copyright term is too long, violating the provision in the Copyright Clause of the Constitution that copyright be secured "for limited Times."

Plaintiffs sought to frame their arguments in such a way as to avoid the 2003 U.S. Supreme Court holding in Eldred v.Ashcroft that statutory extensions of existing copyrights did not violate the Constitution.  But the Ninth Circuit concluded that both the "opt-in/opt-out" argument and the "limited Times" argument were disposed of by Eldred, and that plaintiffs' claims must be dismissed.

An antitrust challenge to open-source software fails in the Seventh Circuit

Oregon's many adherents to the open-source movement can rest easy:  the antitrust laws are no threat to the distribution of software under the GNU General Public License (GPL).    At least that was the conclusion of the Seventh Circuit Court of Appeals in an opinion issued today.  Authors who distribute software under the GPL authorize copying and the creation of derivative works, but prohibit charging for the copies and derivatives.  The license ensures that all open-source software, such as the Linux operating system, is disseminated free of charge. 
In Wallace v. IBM, plaintiff claimed that the GPL made it impossible for him to compete with Linux, either by offering a derivative work or by writing his own operating system, because no one would buy his product as long as Linux is free.   Plaintiff claimed predatory pricing by IBM and others.  Judge Frank Easterbrook, writing for the majority, concluded that the free distribution of software does not fit the test for unlawful predatory pricing under the Brooke Group case, that nothing in the law requires copyright owners to charge for their intellectual property, and that the widespread use of Linux does not threaten consumer welfare.  The court affirmed the judgment dismissing the complaint.

Trademark Owner Waited Too Long to Raise Its Beef with Alleged Infringer

The Tillamook County Creamery Association, a well-known maker of cheese and other dairy products, began using the TILLAMOOK mark for its products as early as 1918.  It registered the mark with the US Patent and Trademark Office in 1921 and 1950.  Years later, a different entity, the Tillamook Country Smoker began processing meat products.  The general manager of the Creamery Association informed the Country Smoker that he did not object to the Country Smoker provided that it did not build a cheese factory. 

The Country Smoker expanded and started selling its products under the name TILLAMOOK COUNTRY SMOKER in grocery stores as well as at the Tillamook Creamery.  In 1985, the Country Smoker applied for a trademark.  While the Creamery did not object, the PTO rejected the application because the mark was confusingly similar to the Creamery's TILLAMOOK mark.  Nonetheless, the Country Smoker continued to use its mark without objection from the Creamery, and in 1995, the Country Smoker filed a new application that combined the words TILLAMOOK COUNTRY SMOKER with a ribbon design.  The Creamery did not object and the PTO granted the registration.  The Country Smoker later reapplied to register the words TILLAMOOK COUNTRY SMOKER and the PTO granted the registration over the opposition of the Creamery. 

The Creamery began recording instances of actual confusion between the two marks in grocery stores.  The Creamery then sent a cease and desist letter to the Country Smoker which prompted the Country Smoker to file a declaratory judgment action to seek a ruling that it was not infringing the Creamery's mark.  The trial court ruled, in part, that the Creamery's objections to use of TILLAMOOK COUNTRY SMOKER were barred by laches (i.e., the expiration of the limitations period for filing a claim).  In a recent ruling, the Ninth Circuit Court of Appeals agreed. 

The appellate court ruled that the limitations period for laches starts from the time that plaintiff knew or should have known about its potential cause of action.  The court found that the Creamery knew about the use of the infringing mark on complementary products in the same geographical area but did nothing for 25 years to prevent it.  The Creamery argued that the delay in enforcement was excused by the doctrine of progressive encroachment, which allows a trademark owner to wait to sue a junior user until the junior user engages in direct competition.  The Creamery claimed that the Country Smoker's sales expanded significantly in the late 1990s, making the infringement claim timely.  The court held that the doctrine of progressive encroachment does not apply under these circumstances because the Country Smoker merely grew its existing business and did not expand into a new product market in competition with the Creamery.

The court also rejected the Creamery's argument that an injunction should issue to protect the public from inevitable confusion, holding that inevitable confusion is actionable only where the product is harmful or a threat to public safety, which was not the case here.  Accordingly, the Tillamook Creamery was barred from asserting claims for infringement and from obtaining injunctive relief to stop the use of the TILLAMOOK COUNTRY SMOKER mark.   This case may be found here.