Normally, you don’t need anyone’s permission to use a copyrighted work. If you buy a book, you may read it. If you are given a painting, you may enjoy it. If you take a knick-knack from your grandma, you may display it with pride.¹It’s actually more complicated than this! Since there’s an exclusive right to public display, you actually need to rely on a version of the first-sale doctrine to display copyrighted works in public. This isn’t a big deal, assuming you work was made “legally”…

Computer software and many forms of digital content are exceptions. You need the copyright owner’s permission to use software and other digital content in their normal, intended ways. This is because software and other digital content is ordinarily stored in a way that the computer can’t readily digest. It’s a little like a mother bird chewing up a worm then regurgitating it so the chicks can eat it. Ok, that was gross. It’s also like cutting up a hot dog so your 2-year-old can safely eat it.

The Child’s Hot Dog Theory of Software

The computer file—containing the program or content—must be copied from where it’s stored into the computer’s memory. This memory is just a temporary way station for the computer’s processor.²There are memory chips with permanent information, but we’re assuming that the software or content you want to use is going into random-access memory. It’s as though you cut your child’s hot dog one piece at a time on your grown-up plate, then after you cut a piece, transferred it to a special small plate for your child. Upon consumption, you cut another piece, transfer it, and so on.

Nice analogy, except one thing. As you cut the hot dog, it doesn’t get any shorter. You aren’t so much cutting pieces off the hot dog but making copies of each piece you’re cutting and transferring. Thus, when you’re done feeding your child the hot dog, bit by bit, you still have an entire hot dog on your plate. Weird, right?

But the key here is you’ve made a copy, bit by bit, of the hot dog. And to make a copy of something protected by copyright requires the permission of the copyright owner.³Unless you have some legal excuse or defense, such as, fair use. But let’s just not right now, ok?

CONTU You

That might strike you as… not right. It’s not the same thing as, say, photocopying a magazine article, or even sending a copy of a word-processing file—a draft brief to a client, say—things that exist for an appreciable and useful (from a human point of view) amount of time. It’s on the child’s plate for but a moment before it’s scarfed. This intermediate copy is less a useful object than an accident of the way computers work.

Congress had the same concern way back in 1976, when the current Copyright Act was enacted. Should computer programs be protected by copyright at all? As source code (the code written by programmers), they were essentially literary works. Very boring, very functional literary works, but one versed in the programming language could “read” and understand the writing. Once converted (“compiled”) into a version computers can understand, they weren’t very easily understood by humans, but they were certainly a perfect analogue⁴Ha, ha. to the human-understandable version.

Congress formed a commission, called CONTU, to spend an extra two years study the problem. After CONTU’s report, Congress decided that, yes, computer programs could be protected as literary works. It added a few new provisions to the Copyright Act specific to computer programs and mostly left it to the courts to sort out the rest.⁵However, it’s quite possible that computer programs were protectable all along, for the reasons just given, and all Congress did was make that explicit and provide a (somewhat watered down) defense that was supposed to give you the right to make copies of the program to the extent necessary to use it, but that’s a subject for another day.

A Strange Fixation

That didn’t quite sort out everything about these intermediate copies. That’s because it’s not an infringement unless you make a copy, and it’s not a copy unless it’s “fixed in a tangible medium of expression,” and it’s not “fixed in a tangible medium of expression” unless… Well, here’s what the Copyright Act has to say about that:

A work is “fixed” in a tangible medium of expression when its embodiment in a copy … is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.

Well, that’s all sorted, then, eh? It isn’t? Perhaps the passive voice is throwing you a bit. Who, exactly, is to be doing the perceiving, reproducing or communicating? A human? Or would a machine (1978 era, remember) suffice? Oh, and how long is a “transitory duration”?

Mother MAI I?

It took until 1991 for these questions to reach a U.S. Court of Appeals. Here’s how it happened. A company called MAI Systems used to manufacture computers, and it also developed an operating system for those computers. Like most other software developers at the time, MAI Systems made a lot of money by servicing the computers. That’s regular income, which helps smooth out the ups and downs of computer sales. Peak Computer was in the business of servicing computers, and it would service MAI Systems computers along with other makes. MAI Systems tolerated this until a bunch of its employees left to joint Peak, and Peak started really eating into MAI Systems’ servicing business. MAI had had enough and sued… for copyright infringement.

A “terminal” device for a MAI Systems Basic Four system, at issue in the suit against Peak but from the wrong era (this is more like early 1970’s). Credit: By Bilby – Own work, CC BY 3.0, https://commons.wikimedia.org/w/index.php?curid=10981092. For more images, see: http://www.ardiehl.de/basicfour/

That might surprise you. You can, after all, bring your car to an independent repair shop, if you want. You don’t have to use a dealer. Why can’t you also just call Peak instead of MAI Systems for your MAI Systems computer? Peak might be cheaper and/or better, especially if much of MAI Systems’ talent went to Peak.

MAI Systems’ legal theory went like this. It licensed its operating system to its customers only. Peak wasn’t a customer, so it wasn’t entitled to “use” the operating system. That made Peak an infringer because it had no choice but to make intermediate copies of the computer programs that constituted the operating system—copying them from storage into memory.

Peak must have thought this bizarre, and with its livelihood threatened, it fought back pretty hard. And lost—at trial and again before the Ninth Circuit Court of Appeals.

There was no question that Peak made copies of the operating system simply by switching the computers on. It argued that a copy in memory isn’t fixed because memory is unstable: once you turn off the computer (or load too much other stuff into the memory), the copy degrades and disappears. But what about that business of “perceived, reproduced, or otherwise communicated”? Well, Peak didn’t really challenge that part.The parties agreed that requirement was met when the Peak technician reviewed the systems error log (which is produced by the operating system). So, checkmate.

A Peak Copyright Decision

MAI Systems v. Peak Computer is low-key one of the most important copyright decisions ever. This isn’t to say that it was insupportable or insane, just important. Consider: MAI Systems got a monopoly over servicing its own computers and customers were stuck with whatever quality and price MAI systems chose to offer, all because of an accident of how computers work. An entire business model was born (or perhaps just confirmed).⁶This business model would fade away as “enterprise solutions” were supplanted by smaller, cheaper, nimbler and more customizable applications and online services—all of which present their own copyright issues…

When mobile digital content came along, MAI Systems was already there for it. If you want to “perceive” the content, you needed to copy it into your device’s memory. That meant you didn’t necessarily own the the content you purchased. You might just be licensing it. In theory, the licensor could, if the license allowed it, limit or take away your right to enjoy “your” content. This is especially jarring with e-readers, because it feels so much like reading a book.

Don’t Blink!

But how far can MAI Systems be pushed? You could almost read “transitory duration” out of the statute by simply arguing that, to a computer, nearly any amount of time (no matter how short) is meaningful and thus not transitory.⁷I mean, “for limited times” has been read out of the U.S. Constitution. This would have profound implications for all manner of computer systems, which perform intermediate, temporary copies all the time in their ordinary course. Computer systems routinely buffer, parse, make little copies here and there, archive, and so forth.⁸There are a number of defenses that would allow several well-understood forms of intermediate copying, such as that performed by internet service providers.

In Cartoon Network v. CSC Holdings⁹CSC Holdings is basically just Cablevision, so everyone calls the case Cablevision., a cable company had developed a way of letting its customers watch scheduled cable shows on demand. The computer system that made this all possible is quite complex, but among other things, it required copying the plaintiffs’ content into two buffers: one to determine whether the program had been requested, and another for preparing the content to be copied onto more permanent storage.¹⁰This more permanent storage was held not to constitute copying by the cable provider because it was performed at the behest of the customer. This remains a controversial holding but is irrelevant to our discussion. The first buffer held content for about .1 of a second, the other 1.2 seconds.

This case ended up before the Second Circuit Court of Appeals (not the one that decided MAI Systems). It held that .1 and 1.2 seconds were of “transitory duration” and were, thus, not “fixed in a tangible medium of expression.” The content providers had argued that MAI Systems stood for the proposition that any duration was long enough, but the court here thought that would read “transitory duration” right out of the statutory definition of “fixed.”

One might have gone a bit further: a human cannot perceive, communicate or reproduce the content from those buffers. Even if you think humans aren’t necessary to meet the statutory requirements of “fixed,” even the machine the cable system was using wasn’t really reproducing the works in those tiny little buffers. It was taking vanishingly small parts of a much larger works at at time, so small that you couldn’t even say it was substantially similar to the work as a whole.¹¹Do not get me started about the de minimis defense.

Raising Arizona

More recently, the same court that decided MAI Systems had an opportunity to address the issue raised in Cartoon Network. Unlike the Cartoon Network court, this court was bound by MAI Systems. That case is CDK Global v. Brnovich.

The way the issue arose is almost bizarre. The case was really about an Arizona state law that addressed a problem I didn’t know was a problem (beyond generalized concerns about privacy). It turns out car dealers tend to use special software suites and proprietary databases managed by third parties. These databases contain a lot of juicy information about the dealers’ customers, like their social security numbers. The law in question empowered dealers to stop sharing their customers’ private data with these third-party providers (something, apparently, dealers were eager to do).

The Arizona law had an additional, pro-dealer provision. It required these third-party providers to let competitors access their data (in a manner that is supposed secure that data). The point of this provision was to reduce the third-party providers’ market power (and market was apparently pretty consolidated). And that point wasn’t lost on the third-party providers. So they sued the State of Arizona to block the law.

According to the third-party providers, to access their databases, you need to use their software. And to do that, you have to make a copy of the software. True, the software is actually remote from the user and resides on the third-party providers’ own servers, and so the nefarious copy would be made on their own servers. Never mind that: the copy is being made at the instigation of someone who lacks a license to make copies.

The third-party providers argued that the Copyright Act “preempted” the Arizona law. I don’t want to get into copyright preemption right now, but the idea is that, some (not all) federal laws, including the Copyright Act, can supersede state laws on the same subject matter. And the Arizona law “interferes” with the providers’ exclusive right to control use of their software.

Pretermitting with Preemption

This is… not a great argument.The Ninth Circuit had about fifteen different ways to flush this argument. Even if you’re not a lawyer, you can probably think of a few. The court was, for example, highly skeptical of the whole idea that mere “interference” can give rise to something as comprehensive as preemption. But the court chose to base its rejection of the preemption argument on… whether that copy of the software was fixed for more than a transitory duration, under MAI Systems.

It is as though the Ninth Circuit was champing at the bit to clarify MAI Systems.

The Ninth Circuit pointed out that the issue of “transitory duration” wasn’t really before the court in MAI Systems. The parties in that case agreed that the fixation there was for longer than a transitory duration because a human being was able to read the error logs generated by the operating system. The plaintiffs apparently argued that, because the copying and fixation was useful, the fixation had to be for more than a transitory duration. But “use” isn’t actually one of the exclusive rights of copyright. Copying (well, reproduction) is, and that right is only violated when the copy is fixed for more than a transitory duration. Thus, usefulness doesn’t answer the question of how long “transitory” is.

It seems to be me quite clear that “transitory duration” means long enough for a human being to understand or enjoy the copy. In a case where the human being doesn’t necessarily understand or enjoy the copy—such as when software is loaded into your computer’s memory—that understanding or enjoyment might be hypothetical: if you could read the error log, then the fixation isn’t transitory.

This might be a big deal for computer systems that make temporary intermediate copies in the ordinary course. But it isn’t going to have much effect on digital content. By the time you enjoy your digital content, the transitory duration will have expired.¹²You can also tie this into internet-connected devices, i.e., “Internet of Things.” If the device requires software to operate, and the software is pushed into your device via the internet, do you own that software? If you don’t, nothing really prevents the manufacturer from bricking your device, charging you a subscription to keep using the thing, or controlling who may repair the thing and how. That’s a whole other blog post, really.

But What About Aereo?

I’d like to tie this whole issue to another issue that’s on my mind. I call it the “looking under the hood” problem. Recall that I talk about computer systems that make all kinds of intermediate copies in the ordinary course. But these copies are made by processes that no one really pays any mind to, except maybe those who maintain the systems. From the user’s point of view, when you read an e-book, you’re just reading a book. You are unaware that your device is making an intermediate copy to do so.

So, when confronted with a complex computer system, do we dissect the system into components to see if copies are being made, or do we treat the system holistically and analogize it to traditional activity (like reading a book)?

The answer to that question was always assumed to be dissection. That is, until a notorious case called American Broadcast Co. v. Aereo. In that case, Aereo thought it could take ordinary over-the-air broadcast signals and transmit them over the internet. It made these banks of tiny little antennae. Each subscriber got their own personal antenna that they controlled. If you’re looking under the hood, tracing the literal wires to the tiny antennae, then this scheme should have been legal.

But the Supreme Court didn’t look under the hood. It looked at Aereo’s system holistically and analogized it to a re-transmitter. It certainly functioned like a re-transmitter, but it was not, strictly speaking, a re-transmitter.

Perhaps the difference is: if you look at an e-book reader holistically, you ignore an instance of copying (albeit incidental and hidden), whereas with Aereo, you don’t have to ignore anything. I dislike this distinction because it’s “tails I win, heads you lose.” Copyright owners can argue either dissecting or holistic approaches to technology, but defendants must prove their system doesn’t infringe whether you look under the hood or not.

Put another way, if you can use hidden and incidental copying to enforce copyright (with sometimes anti-competitive effects), then you should be able use the same logic to avoid copyright.

Thanks for reading!

The post When You Need Someone’s Permission to Use the Thing You Bought appeared first on Rick Sanders Law.

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You can’t enforce what you don’t own.¹For a certain value of “own.” That might seem fundamental to copyright law, but it’s frequently overlooked because it seems so obvious. Not knowing who owns a copyright is like not knowing who owns a house.²Actually, people sometimes don’t own the real property they think they own. That’s why there’s title insurance.

But copyright ownership isn’t always intuitive. In fact, it’s frequently downright counter-intuitive. The person who ordered the work might not own the copyright they thought they were buying. An artist doing work on the side might be surprised to find out their employer owns “their” copyrights.

Spot the “author” of the sound recording. Photo 103098497 / Music Studio © Ammentorp | Dreamstime.com

The basic rule is: “authors” are the initial owners of their works. OK, but authors are often not the people you think they are. Even if you’re quite sure who owns the copyright that’s being enforced, it pays to run through the following checklist (be sure to click on the footnotes for additional important information):

1. Identify what human being or beings created the work. If more than one person helped to create the work, then they might jointly own the copyright, which can be awkward.³For two or more persons to be joint authors, they not only have to have made substantial contributions to the finished work but intended their contributions to form a single work.
2. Find out if the creator created the work for their employer, and was acting within the scope of their employment, at the time.⁴Careful! “Employee” in this context doesn’t necessarily mean an “employee” for tax purposes! Even form-1099 independent contractors can be “employees,” and form W-2 employees can be independent contractors, under the right circumstances. If so, then the employer is the “author” and thus the copyright owner.
3. If not, find out if the creator was commissioned—in writing—to make the work AND the work falls into one of nine special categories.⁵Those categories are 1) contribution to a collective work, 2) part of a motion picture, 3) a translation, 4) a “supplementary work” (like an introduction or illustration for someone else’s work), 5) a compilation, 6) “instructional text,” 7) tests, 8) answers to tests, and 9) an atlas. If BOTH of those are true, then the commissioning party is the “author” and thus the copyright owner.
4. If not, find out if the creator assigned the copyright to someone in writing.⁶Alas, the writing requirement isn’t very straightforward, as we’ll see. In this case, the creator is the author, and was briefly—but is no longer—the copyright owner. The assignee is the copyright owner (at least until the next assignment)⁷This is a fine point, but it sometimes matters whether an employer or commissioning party acquired the copyright via authorship or assignment. If by assignment, then the creator will—much later—have an opportunity to claw back the copyright through what are known variously as “termination rights” and “reversionary rights.”.

There’s a great deal of nuance here, as the footnotes explain. But instead of explaining all the nuance, let’s look at a single case that explores all four paths to ownership, Yellowcake, Inc. v. Hyphy Music, Inc.

The Facts: A Copyright Is Born

Hyphy Music is a record label. This is to say, it produces recorded music. Hyphy asked a musician, Jesus Chavez, Sr., to record some music. Hyphy selected the songs, arranged the music, and (let’s assume) made all the major artistic decisions regarding Chavez’s performance.⁸I say “let’s assume” because it doesn’t make sense that you’d hire a guy because he’s a great musician then tell him how to do his job. Hyphy paid Chavez by the track (as opposed to, say, a salary). Chavez then assigned the copyrights in the sound recordings to Hyphy.

None of this was in writing. This would become a problem.

After the songs were successfully performed by Chavez and recorded by Hyphy, and after Hyphy began to distribute the sound recordings, another record label, Yellowcake, approached Chavez. Yellowcake believed that Chavez still owned the copyright to his performance in the sound recordings. (Guess why.) Chavez tried to explain that he assigned the copyrights to Hyphy, but Yellowcake wasn’t so sure. Chavez’s assignment wasn’t in writing, after all. And copyright assignments must be in writing…

So Yellowcake bought the copyrights from Chavez—or, at least, it hoped it did—and began selling the exact same Chavez sound recordings that Hyphy was selling. This pissed off Hyphy, which fired off a letter threatening a lawsuit. Yellowcake was feeling pretty confident in its position, so it sued first, seeking a declaration that it, not Hyphy, owned the copyrights. Hyphy countersued for copyright infringement.

The Ruling: Custody Battle

Hyphy is definitely in a spot of trouble, but things haven’t gone quite as Yellowcake hoped. Let’s run this situation through the checklist above.

First, who created the sound recordings? Obviously, Chavez did. But less obviously, so did a number of Hyphy employees—maybe! There’s a great deal of debate about whether sound engineers, for example, are co-creators of the sound recordings they help produce.⁹I personally like to take an expansive view of co-authorship, but courts generally don’t. If a Hyphy sound engineer is a co-creator, then Hyphy would be a co-author of the sound recordings with Chavez!

Well, this isn’t quite the slam dunk that Hyphy was hoping for. That’s because, even if it were true, Chavez would still be a co-author. That means, when he sold his copyright to Yellowcake, Yellowcake become a part owner of the copyright. That’s right, Hyphy and Yellowcake would each own half the copyright—awkward, but permissible. More important, co-owners can’t sue each other for infringement. Any co-owner of a copyright may exploit the copyright however it sees fit, without needing any of the other co-owners’ permission. It does have an obligation to “account” to the other co-owners for their share of the profits. Thus, if Yellowcake made $10,000, it would owe Hyphy $5,000, but Hyphy wouldn’t have a claim for copyright infringement against Yellowcake.

The court decided not to reach a definitive decision about co-ownership since it didn’t matter for current purposes. Hyphy had a claim for copyright infringement, and joint authorship didn’t actually help that claim.

Gainful Employment (But Gainful for Whom?)

Moving on, then. Second, was Chavez an employee? Maybe! At first, he doesn’t look much like an employee. Hyphy invited him for a project and paid him on a per-track basis. But: he used Hyphy’s resources to make the music. He used Hyphy’s recording studio, Hyphy’s sound engineers, maybe some in-house musicians, and Hyphy’s arrangements. More important, he also (allegedly) took artistic direction from Hyphy.

Whether a creator is an employee comes down to the putative employer’s “right to control the manner and means by which” the work is made. My hunch is that Chavez wasn’t an employee, but there are some missing facts that could change things. The court, at least, was at least open to the idea and gave Hyphy a second chance to explain how Chavez was an employee.

Third, did Hyphy specially commission Chavez to make the sound recordings? Absolutely! But it doesn’t matter because (1) the “work made for hire” agreement wasn’t in writing, and (2) sound recordings don’t fall into one of the nine special categories of works eligible for such treatment.¹⁰Once upon a time, for a very brief time, Congress surreptitiously made sound recordings a tenth special category eligible for commissioned works made for hire. What followed is the stuff of legend: recording artists, led by Sheryl Crow and Don Henley, among others, declared war and so annihilated the change that Congress extirpated the change, such that sound recordings were never a tenth special category.

Let It Be Written

Fourth, did Chavez assign the copyright to Hyphy in writing? Yes, he assigned it, but no, he didn’t do so in writing. Case closed? Well, it’s a harder question than that, actually. You see, the point of the writing requirement was to protect the author to make sure they knew what they were doing when they assigned their copyrights away. Another reason for the requirement was to make sure there wasn’t a dispute between the parties about who assigned what to whom.

In this case, the author was Chavez, so it’s his rights that are being protected. Yellowcake is a stranger to that transaction, so it can’t benefit from the writing requirement. Further, Chavez admits that he orally assigned the copyrights.

So, Hyphy owns the copyright after all (through assignment rather than through ownership)? No! Because Hyphy made a blunder. In its counterclaim, it not only sued Yellowcake, but it unnecessarily sued Chavez! And Chavez can insist on the writing requirement.

Whew!

I barely need to mention the moral of this story. It sure helps to put important agreements in writing. This happens to go double for relationships involving copyright.

Thanks for reading!

The post How Might I Own the Copyright? Let Me Count the Ways appeared first on Rick Sanders Law.

We are so thrilled to share this milestone with you. Ten years ago, Rick and Tara opened the doors on a law firm built to serve technology start-ups and small businesses in Nashville. We began as an intellectual property, technology and dispute resolution firm. Since that time, we have expanded our practice, with Tara becoming certified in both U.S. and EU data protection laws. We have also expanded our client base to include businesses of all sizes and clients around the world. Our clients are doers and makers in just about every field and we are so proud to serve each and every one of them.

THANK YOU!

We could not have done it without you. To the fellow lawyers who refer us work and all our colleagues who support us in so many ways, thank you. We are grateful for the vendors who set us up and keep our law firm running and engaged. Most especially, to the clients who put their trust in us, we give you our heartiest thanks and we look forward to being here to serve you in the coming years.  At Aaron | Sanders PLLC, we pledge to continue to be a firm that listens to you. We pledge to continue to be responsive, informed, and honest in our advice. We look forward to our own evolution and continued professional development and growth. Rick and Tara are proud of what we have built and what we have accomplished for our clients in the last ten years. We remember everyone who helped us along the way, and we can’t wait to do more.

The post Thank you for Ten Incredible Years appeared first on Rick Sanders Law.

The Court renewed the program despite acknowledging “widespread violations” of rules established to protect Americans’ privacy. This surveillance program was at the heart of the Schrems II Court’s reasoning for dismantling the Privacy Shield; it remains to be seen how Privacy Shield will be replaced when the surveillance program continues despite admitted knowledge of its ongoing violations of privacy.

Other News

Yesterday Apple released an operating system update that will require app developers to make users opt-in to having their data used to track them across the internet. Adtech is so far been fairly quiet on what this will mean, but surely it will mean a lot. A consortium of German companies has already filed an antitrust lawsuit against Apple for this move.

Google has promised to kill cookies and soon, but they may be around a while longer. Yesterday European Commission Executive Vice President Margrethe Vestager wrote Google’s “proposals to deprecate third-party cookies” are part of its ongoing antitrust investigation into the company.

Watch This Space

Between an end to the stalemate on data transfers, a new opt-in regime for mobile advertisers, and an EU antitrust suit against Google, there is much to keep an eye on these days. The sooner the first one gets resolved, though, the sooner we can all get back to work.

The post Schrems II left a mess, and other data protection news appeared first on Rick Sanders Law.

I was in the middle of writing a blog post about The Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith—you know, the one about Andy Warhol’s use of a photograph of Prince¹The musician, not Richard Prince, the prick-ish “appropriation artist” who might make an appearance later in this post, we’ll see. to make a so-so series of silkscreen prints²”Prints” not “prince.” Also, some pencil sketches were involved. I don’t care. and whether those were a fair use. And I was planning on talking about “transformative use” and how maybe the pendulum was swinging back against an expansive interpretation of “transformativeness.” Then the Supreme Court’s ruling on Google v. Oracle was handed down, and boom, there went my Warhol post.

That’s because transformative use is here to stay, and the pendulum is not “swinging back.”

“You see that, what I’m pointing to? That, my friend, is transformative use. And I will protect it at all costs.” —Optimus Prime in Michael Bay’s Transformers: The Dark Side of Sun, just before something blows up. (Photo by Juanpfotografia via Dreamstime)

The decision is huge, in my opinion. Yes, the copyrighted work at issue is “software” ³For a certain value of “software.”, and the result might’ve been different if the work had been almost anything else, make no mistake: this case was about fair use. It is applicable to every single copyright case.

At the same time, the Supreme Court’s holding isn’t that dramatic—just big. Much of it just confirms what we suspected (and some of us feared) was the law of fair use. Transformative use, for all its flaws, is an important element of fair use, and what’s more, the “expansive” reading of transformative use is the correct one. Many of us were hoping transformative use would be pared back, made more predictable, or even jettisoned altogether. None of that happened.

This decision does, however, provide some important correctives. Fair use really is a four-factor test.⁴Actually, the Court made clear that it’s AT LEAST a four-factor test. I was explicit that there can be other factors. It is not, as some courts have it, transformative use plus some other stuff. Neither is any one factor always dominant, not even market effects, which at one time was the most important. Copyright is too broad and varied for that.

This corrective comes at a cost. There is no guidance about how to apply the four factors. Which factor is most important and how to weigh the factors will depend on the case. Going into a fair-use argument in litigation, lawyers won’t have a roadmap that tells them which factors the judge will think are most important.

But I think the Court does give us a roadmap. Well, OK, maybe not so much a roadmap as a quest in a sandbox. Tell a story that puts the purposes of copyright front and center, as best you can. Tell the story in terms of the factors. You don’t even need to go in order (the Court here didn’t).

Google v. Oracle answered a lot of questions. Yes, it raised a bunch more, but that’s just the way it works.

For decades, there have been open, fundamental questions about copyright law. Like: What is the purpose of copyright law? What is the role of fair use? What does it mean to “transform” an underlying work? And who decides what’s “fair,” judges or juries?

We have answers to these questions (and more!), like them or not. They are our new reality, and we’re just going to have to get use to them.

For background, I wrote this primer on the case about a year ago, when we all thought it would be decided.⁵The pandemic delayed thing.

The Economic Theory of Copyright Prevails

The Court begins its analysis with an obligatory quotation of the Constitutional provision empowering Congress to enact copyright laws. Then it hit us with this:

Copyright statutes and case law have made clear that copyright has practical objectives. It grants an author an exclusive right to produce his work (sometimes for a hundred years or more), not as a special reward, but in order to encourage the production of works that others might reproduce more cheaply. At the same time, copyright has negative features. Protection can raise prices to consumers. It can impose special costs, such as the cost of contacting owners to obtain reproduction permission. And the exclusive rights it awards can sometimes stand in the way of others exercising their own creative powers.

OK, fine. The Supreme Court frequently describes copyright as a kind of social bargain: we get cool stuff, and you get paid. Beyond that, Congress is mostly free to implement that bargain how it wishes.

But this is different. The social bargain is only part of it the whole picture, and it’s the positive part. The negative part is the transaction costs of getting permission (as anyone who’s ever tried to “clear” a work can tell you) and potential interference with new works.

You might think this is a jaundiced view of copyright, but it reflects a couple of realities. First, copyright owners have little incentive to play ball. My first reaction to many of fair-use cases is: dang it, get a license! But you can grow old and die waiting for copyright owners to get back to you, assuming you can even figure out who they are.⁶Ironically, in this case, Google easily could have had a license, for no money, is it were willing to license back its modifications to the code. And Google also had the option of paying for a license that would let it keep its modifications secret.

Second, there used to be another part of the social bargain: public domain. If an artist were looking for works to build upon and, ahem, “transform,” she could just pluck them from the public domain. But the massive extensions of copyright, which were meant to provide continued remuneration for ultra-popular works⁷If your work is still in demand after your death, you’ve really achieved something. But your quotidian work, like that “Living with Psoriasis” pamphlet in your doctor’s office, doesn’t really need that, and the extensions just gum things up unnecessarily., means that the vast majority of works won’t pass into the public domain until they have lost all cultural relevance and a lot of artistic relevance.

Expanded Transformative Use Is Here to Stay

There are a couple of things going on here. First, believe it or not, there was a question whether transformative use really is something courts should be looking at when analyzing fair use. Yes, I know, every Circuit Court of Appeals seems to have accepted “transformative use” to some extent. But the only Supreme Court decision remotely about transformative use was 1994’s Campbell v. Acuff-Rose Music (the case about a parody of “Oh! Pretty Woman”).

There, the Court spoke of “transformative use” as if it had been established in copyright jurisprudence for decades. Indeed, the Court treated it as is it were the central inquiry. But the case was about a traditional parody, which is not only merely one flavor of “transformative use” but a really strong and unusual flavor. The more general discussion about transformative use was arguably dicta.

Furthermore, in the intervening years, transformative use became unmoored. Transformative use was supposed to help us understand fair use. A lot of us started to wonder if we merely substituted one wibbly-wobbly concept for another—and whether we should ditch the concept before it becomes a monster.

Well, I have good news and bad news. The bad news is: we’re stuck with transformative use. The good news is, the Court did not treat it as some kind of overarching central inquiry. Indeed, the Court almost seems embarrassed by the term.

Fair Use Will Always Be Impossible to Manage

If there’s a takeaway from Google v. Oracle that I fully support, it’s that courts have been too rote in the way they apply the fair-use factors. You know what I mean. The court just goes through the factors in order, adds them up (yet somehow they always end up 4-0 one way or the other), and rules based on that score (with the first and fourth factors as tie-breakers).

No, says the Court here. Fair use isn’t just highly sensitive to the facts, but the factual situation will dictate how you go about the analysis. Some factors might dominate in some situations, others in other situations. This is especially important in this case because we’re applying factors that were laid down before there were even programmable computers.

After setting forth the four traditional fair-use factors, the Court cautions:

The Fourth Fair-Use Factor Will Be Forever Impossible to Apply

Does anyone understand, in a principled way, the Court’s reasoning for the fourth factor (effect on actual and potential markets for underlying work)? I think the most generous interpretation is this: the (advisory) jury obviously found this factor to weigh in favor of fair use, and there’s enough evidence in the record to support that finding, so we’re just going to go with the jury on this one. (More on the jury’s role below.)

That interpretation makes sense because the fourth factor is the most fact-intensive, and finding facts is what juries are for. Oracle put on evidence about Sun’s (the original developer of Java) attempts to license Java, and Google put on evidence that Sun was never going to succeed in that endeavor. In my opinion that’s a slight edge against fair use, but Oracle chose to let a jury sit for this issue and it must suffer the consequences.

The Court’s own thoughts about the fourth factor are mostly about how other factors mitigate Oracle’s evidence of market factors. I would prefer the Court save this for a conclusion where all factors are considered together (and just admit that Oracle’s evidence was actually pretty strong). The point of having factors is to make sure courts focus on a set of facts. I’m concerned that, if you don’t keep the factors somewhat siloed, you’ll let one factor start to dominate the rest, the way “transformative use” was taking over all fair use factors not too long ago.

The fourth factor has always been a hot mess. This decision isn’t going make it any less hot or any less messy, alas. It’s the most important factor precisely because it goes to the economic theory behind copyright: the incentive to profit from your creations.

For the same reason, it’s almost impossible to apply. If we focus on developed markets for the underlying work, we punish artists who just aren’t that good at business. But if we expand our analysis to potential markets, then we almost unavoidably fall into circularity (which the Court, to its credit, warns against). One can almost always imagine some hypothetical market that the copyright holder just hasn’t thought to exploit.

Fair Use Isn’t a Jury Question (and That Strengthens It)

Oddly, given how old fair use is, we’ve never really known if the ultimate question of fair use is for the judge or the jury. This is an important question for three reasons. First, juries have their biases and rooting interests that (we hope) judges don’t have. Second, jury verdicts are nearly impossible to overturn on appeal. Third, questions for the judge can be resolved early in the case because we don’t need to wait for trial to get to the jury.

The Federal Circuit, to its credit, squarely confronted this question. It held that fair use is a question for the judge. I explain the whole thing in detail here. It also dealt with the awkward fact that the fair-use issue in this case was given to a jury, and the jury found for Google. It decided the jury was just an “advisory jury,” whose findings the judge can accept or reject. It then assumed the judge accepted all of the jury’s implicit findings of “historical facts” (i.e., facts that go to what actually happened). It purported to give full credit to those jury findings (then, part way through its fair-use analysis, seemed to forget that).

The Supreme Court endorsed the Federal Circuit’s reasoning. The ultimate question of fair use is for the judge. The judge, if he or she wishes, can give certain factual questions to an advisory jury, but that’s optional.

Every fair use case is different, but overall, I think this ruling strengthens fair use. Judges are going to be much more likely to rule earlier in the case about fair use, which benefits defendants (i.e., accused infringers) more than plaintiffs. Indeed, the trend of ruling on fair use at the very beginning of the case (on a “rule 12(b)(6) motion”) can continue.

This, in turn, will encourage fair use of copyrighted works—and the pushing of the boundaries of fair use. The main issue can be resolved early in the case, saving on the expenditure of legal fees. Furthermore, copyright holders can’t take advantage of juries’ natural inclination toward plaintiffs, or any “home court advantage” juries often bring for plaintiffs.¹⁴Some folks have drawn the opposite conclusion that I’ve drawn. They read the decision as requiring use of a jury for “historical facts.” The Court’s description of the jury’s role is infelicitous, but I’m fairly certain that the jury is optional and advisory. The key is that the Court adopted the Federal Circuit’s reasoning, and the Federal Circuit was explicit that juries are optional and advisories, and the only reason we even had one in this case is that everyone involved made a mistake.

Copyright Will Always Be a Bad Fit for Software

We’re still in the “hot take” phase of reacting to Google v. Oracle, and the two most prominent hot takes in my Twitter feed may be summarized as follows:

• Fair use is nice, but APIs are too functional to be entitled to any protection. That would’ve been a cleaner decision.
• What a terrible decision. Can you even protect software at all after this decision? (But at least the decision is limited to software.)

Although these viewpoints are nearly polar opposites, they are both frustrated with the way copyright law protects software. But copyright doesn’t do for software what you think it does.

I explain why copyright and software are a bad fit, in detail, here. But all problems arise from one source: software is expression that’s primarily functional. Copyright law doesn’t protect functionality, only expression. You need patent or trade secret law for that. At the same time, software isn’t completely devoid of expression, though we really don’t know what is expressive about software. Usually, we just equate expressiveness with “choice,” but that hardly seems adequate.

To make matters more complicated, where there are only a few reasonable ways to express something functional, copyright law won’t protect the expression. That would be giving copyright-length and -breadth protection to something useful. Oddly, this means good (“elegant”) code is harder to protect than bad code. There are lots of ways to write bad code, but just a few ways to write good code, and we’re not giving you a monopoly over one of the few good ways.

Under basic, plain-vanilla copyright law, computer programs are potentially copyrightable.¹⁵For strategic reasons, Google didn’t put on very much evidence about the protectability of the organization of the Java API library, so when the issue became front and center on appeal, it didn’t have much to fall back on in the record. Also under basic, plain-vanilla copyright law, computer programs are on the edge of what’s copyrightable and thus vulnerable to fair use. That’s exactly where the Supreme Court came down in Google v. Oracle.

Congress decided to make computer programs protectable by copyright in 1978¹⁶Effective 1980. Arguably, this changed nothing because, arguably, computer programs were already protectable by copyright.. As far as I can tell, Congress never gave protecting software another thought. It’s as though Congress thought it solved the problem forever, even though few industries have changed more since 1978 than software development.

Software needs its own protection regime. Until then, everyone is going to be unhappy with how it’s protected.

A Final Thought

Fair use has expanded because copyright has expanded, and because Congress won’t do its job. Copyright was once concerned solely with literal or near-literal copying, but “substantial similarity” came along and expanded what a copyright can protect—the the point where we get decisions like “Blurred Lines.”¹⁷And think about it: we’ve only recently have had any coherence brought to the law of substantial similarity. And once, copyright lasted just a decade or two. Now it lasts (typically) for over a 100 years. And once, copyright protected only a certain core set of works, like books and maps. Now it protects photographs, architectural works—and computer programs.

What the Supreme Court make clear in Google v. Oracle is that fair use is fundamental to copyright law as a whole. It is not an exception but an equal partner, not an intrusion into copyright but the other side of it.

Thanks for reading!

The post Oracle Fought Google. Transformativeness Won. appeared first on Rick Sanders Law.

While we wait for the Supreme Court to hand down its decision in Oracle v. Google, we can have some fun with a case that might be exactly what folks are afraid Oracle v. Google is: use of copyright law to inhibit  competition unrelated (or barely related) to the copyrighted work.

The case is Pyrotechnics Mgmt., inc. v. XFX Pyrotechnics LLC, and, yes, it involves fireworks. The decision, alas, is on a motion for preliminary injunction, so it’s hard to tell if we’re really getting the whole story here. But here’s how I understand it.

It takes a lot of technology to make a good fireworks show! Photo 16925686 © Carlosphotos – Dreamstime.com

Shooting Fireworks

At issue are “digital pyrotechnics firing systems,” which I take to be computerized equipment that controls the firing of fireworks. I’m guessing this greatly facilitates the process of firing complicated patterns at just the right time.

It seems there are at least two hardware components to the system: field modules, which I guess house and shoot the actual fireworks, and a control panel. It is the control panel that the (human) operator uses to program and communicate with the field modules—at a safe distance.

One of the defendants, fireTEK, wanted to sell wireless control panels compatible with the plaintiff’s system. (It seems the plaintiff’s system is also wireless, but the opinion doesn’t emphasize that.) To do that, fireTEK had to use the same “protocol” used and developed by plaintiff.

Protocol Droid

As near as I can tell, this “protocol” is just a code for commands that tell the field modules what to do. When developing the protocol, plaintiff wanted to avoid normal English expressions that might be ambiguous. You don’t want to accidentally fire pyrotechnics when you don’t mean to.

Reading between the lines somewhat, I think there may be another reason for the protocol’s avoidance of plain English. Plaintiff’s system was developed in the early 1990’s. Memory was at a premium then, and every additional alphanumeric character took up valuable memory.

Astoundingly, the court’s opinion provides no examples of the protocol, so we’ll just have to take its word for it that it’s “creative.” Again, the record isn’t very developed right now.

The Preliminary Injunction

After fireTEK bragged about how its control panels could work with plaintiff’s system, plaintiff got ahold of one and gave it to an expert for analysis. The expert concluded fireTEK’s product “contain[ed] an exact copy of [plaintiff’s] copyrighted Protocol.” Because the record is undeveloped, I’m honestly not sure what that means. Does it mean every command found in the protocol has been loaded into the device’s hardware? Does the order of the commands matter? (It does for copyright purposes.)

The plaintiff sued and asked the court for a preliminary injunction against sale or distribution of fireTEK’s compatible control panels. The court granted that relief.¹The injunction reads: “Defendants … are hereby enjoined from importing, distributing, or selling any products that infringe upon Plaintiff’s copyrighted command/control protocols as registered under Registration Number TX 8-738-709, including but not limited to the fireTK routers that incorporate or transmit those command/control protocols.”

Controlling the Strategic Ground

How is this like Oracle v. Google? In that case, Google wanted to modify Java for use as a mobile operating system. The copyright to Java’s code belonged to Oracle (Sun’s successor in interest). Java was available for license—gratis—under the General Public License, but that would require Google to make available to the public—and competitors!—its source code for its modified version of Java. Oracle offered licensing terms that would preserved the secrecy of Google’s code, but apparently those terms were too rich for Google. Instead, Google developed its own versions of the APIs without reference to Oracle’s versions (which was hard but Google had the resources). This meant the API programs themselves—or at least the “implementing” or instructional portions—were “clean” because they were independently developed.

But that wasn’t good enough because Google kept the way the APIs were organized, which is reflected in “declaring code” of each API.²Each API starts with “declaring code,” which just encodes the module’s location in the organization of the API library. The rest of the API is the exciting part that tells the computer what to do. Google did this because the number of APIs, and the relationships between them, is very complex and extensive. Google could have come up with its own organization, but that would’ve discouraged Java programmers from using the new operating system. They wouldn’t immediately know which API was called what, where it could be found in the library, or what related APIs were called.³In retrospect, it sure looks as though Google could’ve gotten away with a complete re-organization—Android was that popular. But it must have looked very different at the time.

Oracle, the owner of the copyright of everything copyright-able in Java, owned the copyright in the way the APIs were organized. And Google was definitely using that organization. Oracle, thus, was able to control Google’s use of the entire Java system by controlling a small but crucial piece of it.

Competition Bias

Generally, the U.S. legal system is biased toward encouraging competition. Competition is supposed to keep prices low, increase quality and lead to innovation.

Now, fireTEK hardly sold any of its control panels in the U.S., but there’s a good chance that they would be either (a) cheaper or (b) better than the plaintiff’s. Otherwise, they’d just fail in the marketplace, regardless of court intervention. If your control panel broke, it might be nice to have a choice of replacements. Or maybe fireTEK’s controllers could do things plaintiff’s could not.

At the same time, almost all manufacturers want to control the “after market”: replacement parts for, repairs to, upgrades of, etc., the product. It’s not just extra money, but it’s a reliable cash flow that smooths out the balance sheets. And manufacturers aren’t shy about using (and stretching) “intellectual property” law to do so.

Here, the plaintiff is able to use the copyright in 25-year-old special-purpose quasi-computer language to prevent the sale of a replacement part.

This case is, thus, even more Oracle v. Google than Oracle v. Google. Google chose to re-use the organization of Java’s API library because it was convenient. Well, very, very, very, very convenient. But it was at least possible to organize the API library in a different way.

But, here, fireTEK didn’t really have a choice. You can’t make any replacement product for plaintiff’s system without using the protocol.

Fair Use?

As you know, the question of fair use in Oracle v. Google is pending before the Supreme Court. But, at a minimum, we know that at least 12 neutral observers—i.e., jurors—think Google’s use of the way the Java API library is organized was fair.

You can make a fairly similar case for fair use here, stronger in some points and weaker in others. FireTEK is seeking to make money from its reproduction and distribution of the protocol. And it’s not transforming the protocol in any way—perhaps because the protocol has such a specific purpose that it can’t be used in any other way. The protocol is about as uncreative as you can be and still be covered by copyright. The entirety of the protocol is (apparently) being used.⁴This isn’t 100% clear because plaintiff so far has gotten to define the scope of the work as just the “protocol,” but what if the protocol is part of a larger system? There is zero market for the protocol by itself.

That’s kind of a close call. My own view (expressed elsewhere) is that “transformative use” is a meaningless concept when applied to software, and I would tend to stress the other factors, which would tip this case toward fair use. This is particularly so if you think interoperability is a social good that has a role in fair use analyses for software.

Methods of Operation

The doomsday scenario for software developers observing Oracle v. Google is that the Supreme Court decides the organization of the Java API library is just a “method of operation” under § 102(b). As I’ve pointed out before, § 102(b) is just the inverse of what copyright will protect, so it doesn’t add anything to the party—except in connection with software. We have, hitherto, chosen to treat software like any other “literary work,” despite their obvious differences, and this has served us pretty OK so far.

The problem occurs when we consider things like this “Protocol” or the organization of the Java API library. They are creative methods of operation. Creative (if very dull) choices were involved in their development, but thereafter, they’re just methods of operation. So far, we’ve tended to say the “creative” takes precedence over the “method of operation.” The dichotomy has always been “creative” vs. “non-creative.”

But the Supreme Court could change all that, with respect to software. It could read Congressional intent as: “actual processes or methods embodied in the [computer] program are not within the scope of the copyright law,” and that “expression” is anything but that. In other words, “method of operation” controls over creativity, not the other way around, for software.⁵Why is this limited to software? Because Congress made clear it intended § 102(b) to change nothing about copyright law, except for computer programs, which were a new category of protectable work at the time.

So, just as we copyright lawyers cast an excited eye toward the Supreme Court in Oracle v. Google, spare a thought for a manufacturer of digital pyrotechnics control systems in Pennsylvania.

Thanks for reading!

The post Some Fireworks on Our Way to Oracle v Google appeared first on Rick Sanders Law.

I mentioned last time that the gigantic Consolidated Appropriations Act, 2021 (remember that?) had three “IP”-related Easter eggs, two for trademark and one for copyright. I blogged about the copyright one last time, the “copyright small claims court.” Tara has previously blogged about the trademark Easter Eggs, but I wanted to expand and emphasize one of them here: the restoration of the presumption of irreparable harm for trademark injunctions.

Is the damage here irreparable? Can we fix this by giving you money to buy a new one, or do we have to put all the pieces back together? Photo 50441948 © Jennifer Tatum – Dreamstime.com

I know that sounds kind of technical, but it’s a very big deal. When you own “intellectual property”¹Why the scare quotes? Not everyone agrees that “intellectual property” is a conceptually helpful term, or that trademarks are really “intellectual property.”, you usually want the infringer to stop infringing. Sometimes, you don’t even care about the money. You just want it to stop. It is, after all, yours, and the law has given you exclusive control over it. And the way you get people to stop infringing your right is with an injunction, which is just a court order telling the (likely) infringer to stop it.

There are different types of injunctions, but they all require two crucial things. First, you either won (in the case of a permanent injunction) or are likely to win (in the case of an emergency²I’m using “emergency injunction” to cover preliminary injunctions, temporary restraining orders and other temporary injunctions issued during the pendency of the case. injunction).³The difference between the two main types of injunction: a permanent injunction last forever (or at least indefinitely), but may be issued only at the end of a case; an emergency injunction is issued during the case (often right at the beginning) but lasts only while the case is pending. For more about preliminary and other emergency injunctions. Second, the harm you’re suffering from the infringement is “irreparable,” which means that money can’t make things right.

I Bought it on eBay

For a long time, the logic went like this. “IP” rights are “exclusive rights,” i.e., the right to “exclude” others from doing certain things with your “IP.” And how else can you exclude others doing those things but with an order telling them to stop it. Injunctions were inherent in exclusive rights. Therefore, they were pretty much automatically granted in “IP” cases.

But in 2006, the U.S. Supreme Court threw us all for a big loop. In eBay v. MercExchange, the Court held that, no, an injunction was not automatic or even presumptive, even after a jury found patent infringement. In terms of injunctions, at least, there’s nothing special about patents, even they’re described in the Patent Act as rights to exclude. The reasoning turned on a single word from the Patent Act: “may,” as in, “may grant injunctive relief.” If injunctions were automatic or nearly so, then the authors of the Patent Act would have written “must,” not “may.” eBay v MercExchange was quickly applied to copyright claims. This made sense because the Copyright Act also uses “may” not “must,” and the Supreme Court actually discussed copyright law in its opinion.

The question became: does eBay v. MercExchange extend to trademark claims? Just as the Patent and Copyright Acts used “may” instead of must, the statute governing federal⁴Why am I being so specific? It’s because both state and federal law govern trademark claims—simultaneous. I.e., the same act can violate both state and federal trademark law. By contrast, there is no such thing as state copyright or patent law, so I don’t need to specify. Having said that, state trademark law tends to follow federal trademark law. trademark claims (known to nerds as the “Lanham Act”) effectively did as well. The part of the Lanham Act governing injunctions says that courts “shall have the power to grant injunctions,” which clearly gives the courts discretion about whether to grant them or not.

Dr. MercExchange, I Presume?

Unlike in eBay v. MercExchange, trademark injunctions have never been automatic or even a “general rule.” But trademark law has something that is arguably close to this: a presumption of irreparable harm, if you can prove actual or likely infringement. Since irreparable harm is the other crucial component of an injunction, this presumption was functionally very similar to (if not quite identical to) the rule the Supreme Court reversed in eBay v. MercExchange. In all three areas, once you prove your substantive case (i.e., you win or are likely to win), the next crucial step is a lot easier.

Yet, eBay v. MercExchange wasn’t about a presumption, exactly, and that might be an important difference. The rule at issue in eBay v. MercExchange was that injunctions in patent (and copyright) cases are granted as a “general rule.” By that, the lower court meant that they will be granted except in highly unusual cases: “rare cases to protect the public interest.”

A presumption, by contrast, has to do with burdens of proof. A presumption that X is true just shifts the burden from whoever would normally need to prove X to the other party, which would need to prove that X wasn’t true. Thus, normally the mark-holder must prove irreparable harm in order to get an injunction, but with the presumption, the (likely) infringer must prove the harm is reparable, i.e., it can be fixed with money.

You could argue that a presumption of irreparable harm was entirely consistent with the statutory language (that courts “shall have the power to issue injunctions”). Courts still have discretion whether to grant them or not. The only difference is who bears the initial burden on the issue of irreparable harm.

Trademark Different

The reason for trademark law’s special presumption also differed from the “general rule” at issue in patent and copyright cases. In those cases, the “general rule” flowed from the exclusive nature of patent and copyright rights. It didn’t matter whether irreparable harm was really all that common, just that the right to exclude demanded injunctive relief. By contrast, the presumption of irreparable harm in trademark cases arose from the observation that the harm caused by trademark infringement was nearly always going to be irreparable, just because of the way trademarks worked.

Prof. McCarthy, the leading authority on trademark law⁵In my opinion., explained the reason for the presumption: if a customer mistakenly buys an infringer’s product believing it to be the mark-holder’s, and if the product is of lower quality, either now or in the future, then the customer will also mistakenly ascribe that low quality to the mark holder. Such injury is real but almost impossible to track down, let alone quantify into money. In other words, irreparable harm was baked into trademark infringement.

I would add that that consumer protection is a separate, independent reason for the presumption. Customers have a right to know what they’re buying, and confusion wrought by trademark infringement interferes with a customer’s ability to make rational choices. Since customers can’t be represented in lawsuits between mark-holders and alleged infringers, we do the next best thing: err on the side of protecting the customers. Thus, the quality of a mistakenly purchased product doesn’t matter. Even if the mistaken product was of a higher quality, the customer would mistakenly believe the mark-holder’s products are better than they are. That might be OK for the mark-holder, but it’s not OK for customers. And once a consumer is confused, there’s no easy way to reverse that.

In addition, trademark law differs from copyright and patent law in that infringement occurs before any real harm has to take place. An infringing act in trademark law isn’t just one that causes confusion among consumers but is also one that is likely to cause such confusion. That language is also in the statute. Trademark law is there to prevent confusion from happening in the first place (within reason), before you even know what form the future harm will cause (for better or for worse).

But Not Different Enough

Slowly and hesitantly at first, courts began to apply eBay v. MercExchange to trademark cases. They tended to ignore how trademark law’s presumption of irreparable harm rested on different premises from copyright’s and patent’s premises. Instead, they focus on the language of the statutes. Unless the statute says injunctions are effectively automatic, then a presumption of irreparable harm is unwarranted.

Since I represent mark-holders who might need emergency injunctions—and their potential litigation targets—it was important to my practice to keep track of how courts were implementing eBay v. MercExchange in trademark cases. Alas, I didn’t keep strict count because I was mostly interested in what arguments seem and seem not to work. But my sense was that, in about half the cases, the presumption was kept but under a new guise. Such courts would accept almost any evidence, including self-serving, conclusory testimony from the mark-holder, to find irreparable harm. It seemed, in these cases, all you had to say was something, something, something, lose control of goodwill.

In the others, however, where the court required real proof of irreparable harm, the mark-holders were really struggling, especially at the emergency injunction stage. If there was already some actual confusion you could prove, you could argue that these lost sales are just the tip of the iceberg and thus a complete accounting of damages is impossible.⁶This argument is undermined by the availability of the infringer’s profits from infringing sales as money damages. But even that only reflects the harm at a moment in time and can’t account for ongoing damage. The trouble with this approach is: (a) actual confusion is something you’re trying to avoid, (b) proving actual confusion is very hard, and (c) the actual confusion has to be so bad that you’re able to link lost sales to it. Another approach is to attack the quality of the infringing products⁷By “infringing products” I mean products sold in connection with the infringing trademark. Except in certain rare trade-dress cases, products themselves aren’t infringing, but it’s a convenient short-hand., but this was usually impossible at the state of an emergency injunction. There just isn’t time to line up the necessary experts, and “quality” isn’t easily measured for many products, especially services.⁸As an aside, it is difficult to say how much any of this mattered. Trademark law rests on certain psychological assumptions about consumers and certain economic assumptions about the effects of confusion. Was there more consumer confusion during the period after courts began to apply eBay v. MercExchange to trademark cases? Did mark holders generally lose sales to infringers during this period? And was the harm really that irreversible?

Trademark Law Is Presumptuous Again

Well, we can put such deep questions aside. Congress fixed it. Congress amended the U.S. trademark statute (“Lanham Act”) to include this sentence into the part governing the issuance of injunctions: “A plaintiff seeking any such injunction shall be entitled to a rebuttable presumption of irreparable harm upon” a finding of actual infringement (in the case of permanent injunctions) or likely infringement (in the case of emergency injunctions).

So things can go back to the way they were before. If you have a trademark emergency—e.g., you just found out your competitor will be rolling out a new product line under a mark similar to yours, next week—you can rush into court and focus just on proving up your infringement case.

But It’s Just a Presumption

It does not mean injunctions for trademark infringement are automatic or even a “general rule.” All it means is the burden of proof is shifted to the actual/likely infringer (again, depending on whether it’s a permanent or emergency injunction) to prove that the harm caused by the actual/likely infringement isn’t “irreparable.” If I’m representing the accused infringer, I prefer not to have that burden, naturally. But I’m not without hope either. For example, in those (relatively uncommon) cases that involve either expensive products or highly discriminating buyers⁹These are also factors against a finding of likelihood of confusion., I can argue that any confusion isn’t likely to linger beyond identifiable purchases because so much deliberation goes into each purchase.

It also does not mean that mark-holders should ignore irreparable harm. If there’s a positive case for irreparable harm to be made, the mark-holder should consider making it. Not only might the defendant come up with some strong arguments that you’ll need to counter, but the rest of your case for injunctive relief might not be strong enough to rely on a mere presumption. For motions for emergency injunction, the analysis is supposed to weigh the strength of the claim (i.e., how likely the plaintiff is to win at the end) against the strength of the irreparable harm (i.e., how bad it will be for the plaintiff if nothing is done). A strong case for irreparable harm can make up for a weaker case for likelihood of success (and vice-versa). But if you’re relying on just the presumption, how much weight is the judge giving the irreparable harm prong, and is it enough in light of your infringement case?

A final thought: eBay v. MercExchange remains good law. It’s just been legislatively overturned as to trademark claims. Further, it is applicable to more than just intellectual-property cases. For example, in Monstanto v. Geerston Seed Farms (which admittedly looks like a patent case), the Supreme Court applied eBay in an environmental-regulation matter.¹⁰I’ll add that I don’t think anything in Monsanto changes any of my analysis in this blog post. The rule at issue is almost exactly like the one reversed in eBay.

Thanks for reading!

The post Trademark Law Is Presumptuous Again appeared first on Rick Sanders Law.

The copyright Easter egg is a kind of small-claims court for copyright claims. It’s supposed to deal with a problem—a real problem, I’d say: there’s lots of casual copyright infringement on the Internet, but they’re so small that it’s not possible to enforce the copyright economically. Copyright owners have resorted to various strategies to address this problem. Some sue in a public way that hopes to deter other infringers. Others hire lawyers who, in effect, bundle the claims into massive lawsuits. Still others have hired lawyers who just file a huge number of lawsuits. And, finally, some just resign themselves to the infringement.

None of these strategies has come close to working. The strategies that result in massive lawsuits (whether in size or in number) have resulted in near-farcical abuses of the legal system. Some copyright lawyers I know would go so far at to say these suit-driven strategies have, if anything, made things worse by creating bad precedent and generally sullying the business of copyright enforcement.

“Small claims”? Yes, for a certain value of “small.” “Court”? Not really, no. Photo 169282032 © Andrei Dodonov – Dreamstime.com

A small-claims court is supposed to solve this problem by creating a streamlined judicial-adjacent procedure for enforcing copyrights in clear cases of infringement. I’m going to hit some of the highpoint and point out some serious flaws in the procedure. If you want a really detailed analysis of the procedure, I recommend this exhaustive analysis by Morgan Lewis. I also got more than a few insights from this shorter piece from Phelps (particularly the insight that the claims that may be brought aren’t necessarily all that “small”). You can read the statutory language here¹This is actually the language of the CASE Act from earlier in 2020, but I believe it’s identical to the operative language in the reconciliation bill..

What Is This “Court”?

Well, it’s not a “court.” It’s a board—the Copyright Claims Board—of three “copyright officers” nominated by the Register of Copyrights and appointed by the Librarian of Congress.²Will they need to be confirmed by the Senate? The law says the officers are to have experience on “both sides” of copyright disputes, but I don’t see how that’s enforceable³Can you disqualify one of the Board members because they have insufficient experience on, say, the copyright defense side? I also have concerns about the workload. If this program is at all popular, the Board will become swiftly overwhelmed (with unpredictable results).

If it’s not a “court,” what is it? You might think it’s an administrative proceeding, like a proceeding before the TTAB or the FTC. But that’s not quite it, either. It’s really a form of state-provided arbitration, with a lot of rules. It’s essentially voluntary (more on that in a moment), it handles disputes between parties (rather than brought by the government), and it can award money damages. This is in stark contrast to the TTAB, which handles disputes between parties (who can’t opt out), but whose power is limited to undoing what its parent office (the USPTO) can do: grant or deny trademark registrations. It can’t award money damages or even attorney’s fees. It can’t even issue injunctions. The Copyright Claims Board is more powerful than that—it can award money damages (to a limited extent), but also can’t issue injunctions—but only if you let it have that power.

The proceedings are handled “on the papers,” which is to say, nothing happens “in person” (even remotely). Instead, the parties just submit documents, arguments and even testimony in written form, and the Board makes its decisions “on the record” before it.

What Types of Cases Can the Board Hear?

First, the Board can hear garden-variety infringement actions, naturally, though the damages are limited. How limited? In two ways. First, each proceeding is capped at $30,000. Second, statutory damages are capped at $15,000 per work if the work was timely registered, and at $7,500 per work if the work wasn’t timely registered. Third, there is special cap for statutory damages if the works weren’t timely registered, and that cap is $15,000. Actual damages don’t have a specific cap, but it’s subject to the overall $30,000 cap. Thus, if you brought a claim for infringement of four timely registered works, you might get $15,000 per work, but you’ll be capped at $30,000 overall. If you brought a claim for four untimely registered works, you might get $7,500 per work but be subject to the special $15,000 cap, unless you proved actual damages, in which you’d be capped at $30,000.

Second, the Board can hear an action for “declaration of noninfringement.” As the Phelps folks point out, this is a sneaky big deal. What this means is that, if you’ve been accused of copyright infringement and sufficiently threatened with a lawsuit (for a certain value of “sufficiently threatened”), you can ask the Board to declare that your activities don’t infringe—regardless of how much money is at stake. This is what the Phelps folks mean when they say that not every claim will be “small.” If your allegedly infringing activity has a value of $1 million, the Board could still hear the claim, so long as you (the accused infringer) are the one to bring it.

Third, the Board can hear claims under § 512(f) of the Copyright Act. This is the provision that governs the accuracy of DMCA-takedown notifications and counter-notifications. I discuss these notifications and counter-notifications a lot, but here are my favorite posts on the topic, if you’d like to learn more: the one about Barstool Sports and the comedian who sang “Slob My Nob” to Carol of the Bells; and the one about Prince and the dancing baby. The short version is: this is a nothingburger because courts have interpreted § 512(f) to be nearly impossible to violate.

Unpacking the Money Limitations

If you already know the difference between statutory and actual damages in copyright case, you can probably skip this section.

OK, ready? In copyright cases, the copyright owner has a choice between two types of damages: statutory and actual. In a normal copyright case, you (the copyright owner) can recover between $750 and $30,000 in statutory damages, per work infringed, without having to prove any actual harm. If the infringement is “willful,” that ceiling extends up to $150,000 (but that doesn’t automatically mean the award will exceed $30,000 per work, only that it can). If the infringement is “innocent,” the floor drops to $200 (again, that doesn’t guarantee the award will be less than $750 per work, only that it can be).

Actual damages consists of (typically) profits that you didn’t realize because of the infringement (known as “lost profits”) plus profits the infringer wrongfully made from the infringement, minus any overlap between the two.⁴These different types of actual damages often overlap completely: the profits the infringer wrongfully made is completely subsumed by the profits you lost, or vice versa. So, as a practical matter, you usually get the larger of your lost profits or the infringer’s wrongful profits. Proving up the infringer’s wrongful profits might me difficult (verging on impossible) if discovery is sufficiently limited, however (see more below).

However, the copyright owner still has to prove a connection between the infringement at the profits it lost, and infringers often don’t make much money from their infringement. It is, thus, often impossible to prove actual damages. That’s why statutory damages are an option: so the copyright owner has a chance to recover some damages.

The big news here is that statutory damages are available for “unregistered” works. Normally (and simplified), to be eligible for statutory damages, you have to register the work with the U.S. Copyright Office before the infringement started.⁵It’s slightly more complicated than this. Since many copyright owners are unaware of their copyrights or their importance until after their violation, this serves as a rather significant brake on copyright claims. It’s so difficult to prove up actual damages, and without entitlement to statutory damages, there’s no way the claim will be economically worthwhile. The reason for this odd rule is to encourage quick registration of works.⁶You might wonder why THAT’S important.

But the Board can award up to $7,500 per work in statutory damages for unregistered works (capped overall at $15,000). That’s less than for timely registered works, but it’s still a big deal.

Registration Preferred but Not Required

In contrast to regular copyright litigation, you don’t need to have a copyright registration in hand (or a refusal from the Copyright Office) before suing. It will be enough to have applied (properly) for registration. In regular litigation, you have to wait until the registration issues before suing. Since many copyright owners don’t have a plan to regularly register their works with the Copyright Office (you should), this appears to be another nod toward helping the small-time copyright owner, like photographers.⁷This is twice I’ve referred to copyright registrations as a prerequisite for something. Earlier, I said a TIMELY registration was a prerequisite for damages. Now I’m saying a registration (no matter the timing) is a prerequisite to even bring the lawsuit. These are two different prerequisites, though they can overlap. It’s possible to have a registration that will let you sue but was obtained too late to entitle you to statutory damages. It’s also possible to have applied to register your work in time to be eligible to statutory damages but not yet have the registration in hand so that you can sue. If you regularly register your works, however, you’ll solve both problems, which is the point.

So You Want to Bring a Small-Claims Case

Well, all you have to do is submit a “statement of material facts.” That statement will need to be “certified” as to “accuracy and truthfulness.” That could mean a lot of things, actually. It could mean swearing under penalty of perjury, which would be pretty burdensome. Or it could mean that you feel fairly certain that you aren’t telling any whoppers (like in regular court), which wouldn’t be very burdensome at all but also wouldn’t serve as much of a gatekeeper. We won’t know the answer until the Register of Copyright issues regulations on this point.

You’ll also need to submit a filing fee. We don’t know what this is, either, but it’s safe to assume that it won’t be very much.

After you submit your certified statement of material facts, the Board’s clerks will review it to “ensure it complies with this chapter and applicable regulations.” That, again, can mean lots of different things. Does the clerk determine whether the statement states a claim of infringement (or § 512(f) violation), or is it more of a technical check? And, again, we’ll have to wait for the Register’s regulations to tell us more. There’s a reason for this exercise, though. It’s expected that this small-claims procedure will be used mainly by unrepresented copyright owners. The clerks are there to make sure the submissions are useful (and, incidentally, guide unrepresented copyright owners). If the submission is rejected, the claimant can try to fix the mistakes within 30 days. The claimant is allowed several attempts, though there’s a filing fee for every try.

If the statement is approved, then you have 90 days to “serve” the defendant with the statement. Such service must be “either by personal service or pursuant to a waiver of personal service, as prescribed in regulations established by the Register of Copyrights.” Personal service is regular old being handed the papers by a process server. The “waiver” is more interesting. In a normal lawsuit, it’s just a way to effectuate service via plain old U.S. mail, but it’s also optional as to the defendant. It’s not often used. But, here, the Register might issue regulations that would permit, say, an attempt to achieve waiver via email or even social media (“first-class mail or other reasonable means”).⁸There is a Constitutional right to adequate notice that you’ve been sued, so the Register won’t have unlimited discretion on this.

But no matter what the Register says, the waiver of service is still voluntary and will require affirmative action by the defendant. If the defendant is pseudonymous, she’ll probably just ignore it and see if you can track her down physically.

Oh, one more thing. The statement needs to be accompanied by a “notice.” The notice has to tell the defendant that she has the right to opt out of the proceeding. Further, the notice has to say: if the defendant doesn’t opt out, she will lose her (Constitutional) right to have the claim heard in a court, and her (even more Constitutional) right to a jury.

Opting Out

Whoa, whoa, whoa. You mean, after all this effort, the defendant can just… opt out?

Yes, that’s right. There’s no sugar-coating this. If the defendant is even remotely sophisticated, she’s just going to opt out. And then, if you want to continue to go after her, you’ll need to do it in U.S. court. You are right back in the soup.

If you are a defendant, there is almost no reason to stay in this small-claims proceeding. I’ll get to some major reasons in a moment. The only exception I can think of is: if you think the claimant really means business (i.e., they’ll go after you no matter what), you don’t really have a good defense, and you fear the damages would be significant. In such a case, this procedure would at least get it over with at a lower cost and with a cap on your potential losses. Beyond that, you would need to be insane not to opt out.

Thus, the only people this small-claims procedure will work against are the overconfident (“I have nothing to fear”), the panicky (“Oh, no! What do I do? I’m so screwed!”) and classic rug-sweeper-unders (“Maybe if I’m quiet they’ll just go away.”). And even then, they might actually read that notice and realize: wait, I don’t need to do this (“Oh no! I’m so scr– Oh, wait a minute. I can just say no.”).

Let’s go back to that notice, because now it’s pretty important. How prominent will the “opt out” language be? We don’t know, yet—that awaits another regulation from the Register. In my experience with federal document subpoenas, however, I’d say that about half of recipients read the fine print on the back that lays out their considerable rights.

Procedure

Let’s say the defendant choose not to opt own, what then? First, the defendant must respond to the statement of facts (probably admitting or denying the facts, but it’s unclear right now). Apparently, this response doesn’t need to be “certified” (which is interesting). The response must also include any defenses or counterclaims. Remember that a lot of things that sound like non-liability (“I didn’t do it”) are actually defenses (“I did it, but…”). Things like: fair use, license, and de minimis. Counterclaims are subject to the same procedure as claims.

The next stage will be “discovery,” where the parties try to find out more about the other’s case and try to get information to build their own cases. You’re generally limited to requesting documents, asking written questions (“interrogatories”) and trying to get written admissions. There is (generally speaking) no right to take live testimony. If everyone is on the up-and-up, this shouldn’t be a problem. But if a party is withholding information, forging documents, or just straight-up lying, it’ll be hard to get at the truth—or even know you’re missing something.

For example, if the claimant says he was making $50,000 a year in profits before the infringement, but now it’s only $10,000, and he produces “Quickbooks” printouts to back that up, it’ll be very hard to look behind those figures and documents. If a defendant says she made zero money from her infringing activity and says she has no receipts related to the infringing activity, it’ll be even harder to challenge that assertion.

Just as important, there is (generally) no right to expert testimony. You often need expert testimony in copyright cases, and this will significantly cut down on the types of cases that can be brought in small-claims “court.” You often need an accountant to establish the amount of damages, or an economist to establish the fact of damages, or an industry expert to discuss the market for the infringed work (in a fair use case), or a software engineer to establish even rudimentary substantial similarity in software cases. These types of cases just shouldn’t be brought in small-claims “court.”⁹I don’t want to overstate this, either. Most people can’t afford experts, so there may be no practical difference.

One last thing. There are no rules of evidence. It’s up to the Board to decide whether evidence is reliable or not. (It’s clear that it has to at least by relevant, though.) This means no formal rules against hearsay, or requiring proof of authenticity of documents, or against overly prejudicial information (i.e., where the prejudice to a party significantly outweighs the relevance). One suspects that overall norms will more or less substitute for the rules of evidence. After all, one instinctively “knows” that hearsay is unreliable. But if the Board is motivated to rule one way or the other, it can be very choosey about what evidence it decides to hear and to reject.

No Appeal

If you don’t like the Board’s ruling, tough.

Well, there might be a way to challenge it. Again, it depends on what regulations the Register issues. If you don’t like the ruling, you can ask the Board to reconsider, but only if there has been a “clear error.” Good luck with that. If they reject you, you can ask the Register to assess the Board’s refusal to reconsider, but only if the Board “abused its discretion.” That’s right: abuse of its discretion of finding clear error. That, on the face of it, sounds like an impossible burden. But it’s just possible that the Register will issue regulations that would make this appeal a little more meaningful.

Finally, you can go complain to a real court. But this, again, isn’t really an appeal. The only bases for going to a real court are in case of fraud or corruption, the Board heard a case it shouldn’t have, or if you were defaulted through no fault of your own. (This is a lot like challenging an arbitration award.)

Enforcement

Let’s say you’re the claimant and you like the result. You’ve been awarded money. Congratulations!

What if the infringer refuses to pay up? Don’t worry! There’s a streamlined process for registering the Board’s judgment with an “appropriate” U.S. District Court.¹⁰The statute says you can register the judgment in the District of Columbia or any other “appropriate” U.S. District Court. Does this mean D.C. is ALWAYS an appropriate venue, i.e., it automatically has personal jurisdiction over the defendant for purposes of enforcing the judgment? I don’t think that comports with the Fifth and Fourteenth Amendments. I think you probably need to establish personal jurisdiction independently. This probably means you’ll have to go to the defendant’s home venue and enforce the order there. (You might as well, since any attach the defendant’s property, bank accounts, etc., will be easiest from the defendant’s home state.) The defendant’s ability to resist this is very limited, as explained above.

To encourage compliance, defendant who refuses to pay up will be made responsible for the copyright owner’s attorneys’ fees incurred in registering the judgment. This isn’t as big a deterrent as you might think, though. The process is so streamlined that it won’t take your attorney more than an hour, plus expenses in serving the infringer (assuming you’re even using a lawyer).

And, you also get an injunction against further infringement by the infringement. No! Just kidding! The Board doesn’t have that power! If stopping the infringement is important, the small-claims process won’t work for you. Sorry!

Oh, but at least, you’ll have a judicial finding that you can use in a lawsuit for an injunction, right? Because that’s how it works in the trademark world. Well, it doesn’t work in the copyright world. Sorry! The statute is clear that the small-claims proceeding has no “preclusive” effect.

Protections Against Abuse

But what about potential for abuse? If certain law firms make lots of money by filing hundreds of “real” lawsuits for copyright infringement, doesn’t a streamlined process just make that much more profitable?

Well, yes, but the drafters and proponents of the small-claims proceeding recognized the danger and threw in some speed bumps that, it is hoped, will prevent abuse. First, the cap on damages will prevent claims-bundling (i.e., suing lots of defendants all at once). But that practice has been on the decline for a while. Second, that cap might make the claims less lucrative and make legal bullying less scary. But $15,000/$30,000 is still a lot of money to the vast majority of Americans, so the difference a judgment of $15,000 versus $150,000 is just the difference between being ruined and utterly ruined.

The other safeguards are more speculative. If the Board thinks a party (the copyright owner or the accused infringer) are engaged in shenanigans, it can award attorneys’ fees to be paid up to $5,000 (if you have an attorney, only $2,500 if you don’t). Professional litigants can probably price that risk in, and much will depend on the Board’s willingness to exercise this power. If the Board is anything like a real court, it will be very reluctant to exercise this power.

If a party engages in shenanigans twice in the same 12-month period, the Board must suspend the party from using the small-claims proceeding for 12 months and dismiss all pending claims. Again, this will depend the Board’s willingness to call shenanigans in the first place.

Finally, the Register may (if she feels like it) issue regulations about how many small-claims actions a given party is allowed to bring in a year. This will be a tough call. On the one hand, the process has to be as available as possible if it’s going to get any traction at all. On the other hand, if abusive proceedings dominate the system, the experiment will have failed. Since she doesn’t have to issue any regulations, I suspect the Register will take a wait-and-see approach. I’d be concerned that, once abuse become apparent, it’ll be too late to root it out by regulation.

Conclusion

If you are a copyright owner, the small-claims process is a positive development. Now you have a cost-effective way to enforce your copyrights for those common, minor acts of obvious infringement. You don’t even really need a lawyer.

If you are an accused infringer, stay away. There’s only a tiny percentage of cases where agreeing to the small-claims proceeding make sense for you. Otherwise, opt out. There’s virtually no upside for you and lots of downside.

Thanks for reading!

The post New Small-Claims Court for Copyright Claims (But Don’t Get Too Excited) appeared first on Rick Sanders Law.

Cleaning up the Register

The Trademark Modernization Act was first introduced in March of this year. It makes substantial changes to trademark practice that are largely designed to do two things – allow for speedier examinations, and get rid of or prevent bad registrations. By “bad registrations,” I’m referring to two kinds of registrations for now. There are those that do nothing to further consumer protection and are in fact likely to confuse consumers because they are too similar to another prior registration to sufficiently distinguish the source of goods. There are also those that have never been used in commerce and therefore never should have been granted. Later, after a decluttering study is conducted by the trademark office, we may also be able to include straight-up fraudulent registrations with fake specimens in the definition of “bad.”

The law attempts to accomplish these goals with the following provisions.

Formalizing Letters of Protest

The US Trademark Office has long supported an informal process for brand owners to try to stop an application from reaching publication by submitting a “Letter of Protest” via a petition to the Director. The petitioner includes evidence in a Letter of Protest demonstrating why the petitioner believes that the pending application should be refused. The Director considers the evidence and determines whether it should be passed to the examining attorney for consideration. The process has always been loose and timelines were undefined. The Act formalizes this process and sets a 2 month time frame for the Director to make the decision to pass the evidence to the examining attorney or not.

Shortening Office Action Response Times

Currently, any Office Action that an applicant receives refusing registration for any reason comes with a 6-month timeline to respond. Sometimes the Office Action is nothing more than a request for a disclaimer of exclusive rights to the word “Association,” for example, and yet the applicant has six months to respond. Under the Act, the Director can determine of certain types of Office Actions should have a response deadline of 60 days (or more) instead of 6 months. Of course, an applicant will always be able to pay a fee for the privilege of extending her response time to the six months she was entitled to before the effective date of the Act.

Expungement and Re-examination of Never-Used Marks

This is one of the most significant changes coming to U.S. trademark practice as a result of the Act. This creates an entirely new ground to deal with registrations of marks that “have never been used” in commerce. There are two primary differences between this new expungement option and a traditional cancellation proceeding. First, “any person” may file a petition to expunge a registration, as opposed to “any person who believes he is or will be damaged.” Petitioners for expungement will evidently not need to show that they are harmed by the continued presence of this mark on the register in its current form.

The second primary difference is that the expungement proceeding is ex parte, meaning that the Trademark Trial and Appeal Board is not involved. The petitioner for expungement in fact has to do very little past the initial complaint.

A whole new ground for removal

The Act creates a new section of the Lanham Act, 15 USC 1067, under which a petition is filed to the Director for expungement of a mark “that has never been used in commerce.” The Director determines if there is sufficient evidence in the petition to send it forward. If the Director determines there is enough evidence, the mark will be subject to the same examination process as if it were in the initial application stages for registration. This process will include the same response times for Office Action responses as in the initial ex parte examination of a new application.

One significant difference from the initial application process, however, is that the owner of the mark that is the subject of the expungement proceeding does not have to meet the more stringent requirements regarding specimens of use – the registration owner has more flexibility in the defense of his registration.

Finer points about Expungement and Re-examination

Excusable non-use is a defense to an expungement proceeding, although a registrant may have a hard time showing excusable non-use when he wasn’t using the mark at the time he declared that he was may prove difficult. Expungement petitions can be filed any time after the registration is 3 years old until it is 10 years old. There is one exception – for two years after the Effective Date, a petition may be filed against a registration of any age over 3 years. If the proceeding finds that the mark has never been used for some or all of the goods and services claimed under the mark, then those goods and services will be removed from the registration.

Re-examination petitions will follow the same process as expungement petitions, and are the option when a party doesn’t wait until the registration ages 3 years. If a party can show that the mark was not in use on the goods and service on the relevant date – either the application date of a 1(a) in-use application or the Statement of Use date on a 1(b) application, then the party can ask that the registration be re-examined. This option will be open for the first 5 years of the life of the registration.

Since the expungement and re-examination proceedings are relatively inexpensive and painless for the petitioner and the USPTO shoulders much of the burden, the Act also allows the Director to put a cap on how many petitions a particular party can file. The goal here is to cut down on trolls and abuse of the process.

The Director may institute expungement or re-examination proceedings on his own initiative.

The Decluttering Study

The Act calls for the Trademark Office to produce, within 30 months of the enactment, a study on addressing “innacurate and false claims of use.” This is the latest effort to address the increasing use of fake and fraudulent specimens in order to obtain a trademark registration.

Resolving a Circuit Split on Presumption of Harm in Injunctions

The Act resolves a circuit split as to the standard for issuing an injunction in trademark infringement, cybersquatting, and false advertising cases brought under the Lanham Act. In 2006, a patent case at the Supreme Court, eBay v. MercExchange, LLC, 547 U.S. 388 (2006), found that the patent owner was not automatically entitled to an injunction even if infringement was found or likely to be found. Instead, the plaintiff also had to satisfy the traditional four-factor test for granting an injunction. The Third, Ninth and Eleventh Circuits had similarly raised the bar for obtaining injunctions in trademark cases. The Act confirms that the eBay case does not apply in trademark cases. It provides that a trademark owner is entitled to a rebuttable presumption of irreparable harm when either (i) a Lanham Act violation is found, or (ii) it has shown a likelihood of success of prevailing on its claims in either a motion for a preliminary injunction or temporary restraining order.

Focus On Use

The Trademark Office has given a lot more scrutiny to use claims in the last few years, first with the Post-Registration Audit Program and through other pilot programs to stream cancellations for non-use and to allow for reporting of fake and fraudulent specimens.  As the Trademark Modernization Act takes effect on December 27, 2021, we will wait to see if it is an effective check against bad registrations, or a frustrating obstacle to good ones, or both. How these revisions act in practice will depend on the rules put forward by the Trademark Office. We will be waiting for those proposed rules and will report back as these new practices start to take shape.

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