Although in general the entertainment industry’s position is that imposing responsibility on ISP’s to monitor illegal activity is about educating users and responding to a higher standard of evidence for illegal activity via their networks, ISP’s have consistently argued that it is not their job to police the Internet.  Perhaps France’s implementation of  a separate agency to work with the ISP’s in enforcing piracy policies will serve to alleviate some of the concerns of ISPs.

The new French law, which initially empowered French ISPs to terminate user accounts,  was first rejected back in April by the French Constitutional Council, which said  that free access to public communication services online was a human right that only a judge should have the power to disconnect.  Without this protection, the court said that the law would have violated free speech provisions.  The latest version was approved due to the inclusion of an amendment that requires judicial review prior to any account suspensions. 

Critics of the new law argue that it denies the accused the right to due process, pointing out that Internet subscribers will be held liable if someone uses their Internet connection to illegally download copyright works, even if the computer was under someone else’s control.  The critics further argue that the discontinuance of Internet access is an unfair penalty because of the increasing importance of the Web as a channel for expression and commerce.  It is believed that this new law could result in sanctions against 50,000 people per year.  David El Sayegh, the director general of the French music industry association,  Syndicat National de l’Edition Phonographique, counters those arguments by saying that the laws are not meant as a punishment against Internet users but instead hopes that the mandated warnings will have a strong deterrent effect, rendering termination of access a rarely invoked penalty.          

Many policy makers across Europe agree with the bill’s critics and have been apprehensive toward France’s adoption of the solution since they believe it is more important to increase broadband access, not deny citizens their rights to it.  Despite such skepticism, it appears that Britain will introduce similar legislation next month.

Dan Glickman, Chairman and CEO of the Motion Picture Association of America (MPAA), applauded the French court’s decision and said that it is an enormous victory for creators everywhere.  In addition,  Rick Cotton, Executive Vice President and General Counsel at NBC Universal and Chairman of the U.S. Chamber of Commerce-led Coalition Against Counterfeiting and Piracy (CACP), acknowledges that the new French law recognizes that jobs in the creative industries are under assault by digital theft.  Copyright piracy has taken a huge toll on the U.S. movie and music industry due to the current global economic situation.  The MPAA has determined that illegal downloads/streams are responsible for about 40 percent of the revenue the industry loses annually due to piracy.

Although the U.S. entertainment industry has not been as aggressive as the French in lobbying for a “three-strikes” law, the music and film industries are proponents of instituting a graduated-response program, which encourages the implementation of a warning system similar to the warning notices that will be issued to potential copyright infringers under the French law. In addition, the CACP is currently seeking to change federal law enforcement emphasis so that intellectual property crimes are given priority over other kinds of crime.   Although it seems unlikely that we will see a “three strikes” policy instituted in the U.S. anytime soon, the developments in this area of the law will inevitably influence the terms under which content providers distribute and protect their content as well as how consumers access such content.

*    Kari Hirsch, , who recently joined the Firm, assisted in the preparation of this article.

In its complaints against Smokewood Entertainment Group (the producers of Precious) and Cinetic Media, Inc. (which negotiated with The Weinstein Company on behalf of Smokewood), Weinstein Co. stated that several of its executives met with Cinetic and Smokewood during the 2009 Sundance Film Festival.  The complaint goes on to allege that on January 27, 2009, two days after Precious won three prestigious awards at the festival, Cinetic offered the distribution rights to Precious to Weinstein Co. provided that Weinstein Co. agree to several specific terms.  Weinstein Co. claims that it promptly and “unequivocally” accepted the deal.  Weinstein Co. also claims that Cinetic promised that it would provide the written licensing and distribution agreement detailing the terms of the deal. 

In an e-mail exchange with Cinetic regarding the delay the written agreement, Weinstein Co. indicated that it was “glad to confirm” the deal.  In response, an executive with Cinetic neither confirmed nor denied the deal but said that he was “explaining every detail” to the producers.  A few days later, on February 2, Smokewood and Cinetic announced an agreement with Lions Gate to distribute Precious.

On February 4, 2009, Weinstein Co. filed three separate suits in New York: one against Lions Gate, one against Cinetic, and one against Smokewood for breach of contract, alleging that Weinstein Co. had obtained the exclusive right to distribute the film.  (The Smokewood case was removed to Federal court on March 4.)  Smokewood responded with a motion to dismiss for failure to state a claim.  In response, Weinstein Co. filed an opposition to Smokewood’s motion asserting, amongst other things, that Weinstein Co. had acquired an exclusive license to distribute the film through either oral negotiations with Cinetic or the January 27th e-mail exchange.

In late September, District Judge Naomi Reice Buckwald ruled against Weinstein Co.  Specifically with regard to the claim of an exclusive license to distribute based on an oral agreement, the court held to the traditional rule that a writing signed by the copyright holder is required to transfer ownership interests, including an exclusive agreement for distribution rights.  The court also found the e-mail exchange, submitted by Weinstein Co. as evidence of an agreement, failed to meet the statutory requirements to transfer distribution rights.  The court noted that the intention of the copyright owner to transfer ownership interests “must be clear and unequivocal”  In this case, the court found that the friendly e-mail exchange did not endorse Weinstein Co.’s e-mail statements regarding confirmation of the deal and fell far short of the required unequivocal written intent to transfer.  In an attempt to bolster its case, Weinstein Co. asserted that it is entertainment industry custom to negotiate distribution agreements orally then follow-up with a note confirming the agreement.  But the court was unimpressed and remarked that “Congress did not exempt parties in the film industry from the requirements of the copyright act.”

It is also important to note that the court left open the possibility that an agreement involving a non-exclusive license to copyrighted material does not require a writing.  However, the court indicated that an “implied non-exclusive license” can be found only in a circumstance where one party created a work at the request of another and then delivered the work to the requesting party with the intent that the requesting party copy and distribute the work.  The court found that the facts alleged in this case did not warrant a finding of an implied non-exclusive license because Weinstein Co. clearly stated that negotiations for distribution rights began after Precious debuted at Sundance.

The court’s decision is consistent with many cases emphasizing the importance of protecting copyright interests through signed writings manifesting the clear intent of the copyright holder.  While the decision in this case, like all others involving copyright disputes, was based on its specific–and perhaps unique–set of facts, the lesson to be drawn is still useful.

*  Stuart Mitchell, who recently joined the Firm, assisted in the preparation of this article.

When it initially purchased Skype, eBay attempted to purchase Joltid as well but Friis and Zennstrom refused to sell, wanting instead to retain the intellectual property rights in GI.  They also refused to sell or directly license the GI source code to eBay.  eBay therefore purchased Skype subject to a license agreement for the GI code between Skype and Joltid.  That decision appears to be coming back to haunt eBay.

According to Friis and Zennstrom, the license agreement granted Skype the right to use an executable-only form of the GI code, known as the object code, which is un-editable.  Skype did not obtain any rights or license to the source code of the GI software.  This arrangement worked so long as Friis and Zennstrom remained with Skype because they were authorized to use and tinker with the GI source code.  However after their departure in 2007, Friis and Zennstrom began challenging eBay’s use of the GI technology, claiming that Skype (at that point owned by eBay) obtained unauthorized versions of the GI source code and breached the terms of its licensing agreement by continuing to modify and create derivatives of the source code.

In March of this year, Skype filed a claim in a U.K. court asking for declaratory relief and a finding that it is lawfully accessing, in possession of, using and modifying the GI code in accordance with the terms of the agreement.  Joltid disagreed, terminated the license agreement and filed defenses and counterclaims against Skype alleging that Skype had repudiated the license agreement, infringed upon Joltid’s copyright, and misused confidential information.  The case is scheduled for trial in June 2010.

A few weeks ago, Friis and Zennstrom opened another front in the dispute by filing a lawsuit in Northern California U.S. District Court against eBay that also names the investors as defendants.  These investors include private-equity firm Silver Lake, venture-capital firms Index Ventures and Andreesen Horowitz and the Canada Pension Plan Investment Board.  The suit claims that the investors were aware of Skype’s copyright violations during negotiations of the deal and seeks an injunction on Skype’s use of the GI technology in addition to damages and profits that Skype has made while using the technology in breach of its license. Such damages are allegedly “amassing at a rate of more than $75 million daily”.  The pair also filed another lawsuit shortly after which alleges that new software being developed by Skype incorporated confidential information that was misappropriated by a former executive at one of Friis and Zennstrom’s companies who recently joined Index Ventures, part of the investor group paying $1.9 billion for Skype.

With the benefit of hindsight, many have wondered why eBay would have paid $2.6 billion for Skype without better securing rights to its underlying technology in a manner that would not be interrupted.  While the precise reasons eBay structured the deal in this manner may not be clear, the opportunities it missed to protect itself are apparent.

First, by allowing Joltid to retain rights to the GI code, eBay’s use of the code was subject to the restrictions and limitations that Joltid and Friis and Zennstrom placed on such use as set forth in the license agreement. 

Additionally, without obtaining rights to the source code, eBay was at the mercy of Friis and Zennstrom, the two individuals who understood how the GI code functioned.  While eBay likely felt that having Friis and Zennstrom on its payroll would mitigate any concerns, perhaps additional thought should have been given to what would transpire if and when Friis and Zennstrom were no longer affiliated with eBay.

eBay also apparently did not acquire sufficiently clear rights to develop derivatives and modifications of the GI technology.  Therefore, any next generation versions of the GI technology that eBay wished to develop would have been subject to the restrictions of the original license agreement, including the rights that Joltid, Friis and Zennstrom had in the technology and source code.

While the intrigue and tangled nature of this dispute are in many ways unique, the lesson is clear: the treatment of IP rights in an M&A transaction involves consideration of multiple factors, contingencies and interests.  Careful and deliberate analysis of possible future scenarios–however likely or unlikely–is necessary to avoid losing the competitive advantage that is one of the foundations of the underlying transaction.

The ”Act To Prevent Predatory Marketing Practices against Minors“, prohibits companies from collecting personal information–such as name and e-mail address–from minors without receiving verifiable parental consent.  The restrictions are considerably broader than the federal Children’s Online Privacy Protection Act (“COPPA”), applying to information related to everyone under 18 (COPPA is limited to children under 13) and extending to such information collected offline as well as on.  

If enforced, it would have compelled sites with broad appeal to teenagers, like Facebook and MySpace, as well as news, education and other sites requiring registration, to verify the ages of users from Maine and then obtain permission from the parents of minors from the state.  In addition, the Maine Independent Colleges Association, argued that the law would prevent Maine colleges from sending marketing materials to prospective students without first obtaining consent from their parents.

Before the attorney general decided to not to enforce the law, a group of companies including online advocacy coalition NetChoice (whose members include AOL, eBay, IAC, NewsCorp and Yahoo!, among others), challenged it in federal court, alleging that it violated the First Amendment and Commerce Clauses of the US Constitution and is preempted by COPPA.  The suit was dismissed last week on consent of the parties when the AG announced her decision.  However, prior to granting the dismissal, the federal judge to whom the case was assigned indicated that he agreed with the plaintiff’s that the law is likely unconstitutional.

The law was originally focused on protecting the health-related information of those under 18 in an attempt to prevent pharmaceutical companies from using such information to market drugs to minors.  As the proposed bill passed through the Maine legislature, “personal information” was included in the marketing prohibitions. 

While the potential upheaval to many companies that would result from enforcement of the Maine law was real, it does not appear that this law is signaling a trend by the states to dramatically expand the coverage of their privacy laws.  In fact, the law’s author, Maine state senator Elizabeth Schneider, admitted that she intended the law to be limited to health-related information.  Apparently, the broader coverage was added with little notice or debate.

The Maine Senate’s judiciary committee is planning on reviewing the bill in the upcoming legislative session in order to enact amendments to address the concerns that have been raised.  However, while the attorney general’s office will not be enforcing the law until then, the private right of action remains on the books.  It is unclear whether any such suits brought could survive a constitutional challenge on the same grounds as those brought in the dismissed lawsuit.  But the specter of incurring costs to defend any such suits hangs over any company conducting business online since doing so on the internet means doing business in Maine.

A testament to the significance of this concern is last week’s victory of the Office of the Privacy Commissioner of Canada.  Facebook was charged with violating Canada’s privacy laws, both with respect to the disclosure of personally identifiable information of Facebook users to over one million third party Facebook application developers, as well as keeping a user’s personal information indefinitely (including after deactivation of a user’s account).  Along with the attention of other social network providers, Canada’s investigation certainly elicited global attention, as it became the first country to legally examine Facebook’s privacy policies and procedures.  This investigation has also led the Canadian privacy commission to examine the privacy policies and practices of six other social networking sites.  The Privacy Commissioner’s chief complaint was that the way in which Facebook provides information about its privacy policies to its users is often confusing or incomplete.

As a result of the investigation, Facebook announced that it will implement new privacy safeguards and modify its privacy policy accordingly.  Among other things, Facebook has agreed to compel third-party developers to disclose to Facebook users the precise types of information they plan to access and use.  Under the current policy, users who want to utilize the third-party applications via their Facebook account are required to agree to share all of their data with such third party developers. 

The new procedures are intended to ensure that users are given the opportunity to consent to use of each type of personal information (such as date of birth, hometown, etc.), but more importantly have the ability to refrain from approving the use/disclosure of certain types of information while still being able to utilize the third party applications.  Facebook will also provide users clearer explanations and information in terms of deactivating their user accounts, specifically to make it clearer to users the difference between deactivation and deleting their information permanently.  Although Facebook plans to begin updating their privacy policy within the next month or so, implementing the technical changes will be performed over the course of the next year. 

While Facebook was the primary target of the investigation, we believe that the Canadian government’s actions, and Facebook’s response, will have a substantial ripple effect, with businesses carefully reconsidering their terms of use and privacy policies to ensure compliance with both the letter and spirit of privacy laws and regulations throughout the world. 

• Structuring relationships between developers and publishers and the ownership issues that arise in development agreements, including work-for-hire, joint ownership and cross-licensing issues;
• Protecting against developer default or insolvency, including the pros and cons of source code escrow arrangements and the applicability of Section 365(n) of the Bankruptcy Code;
• How clearances and consents have become critically important with the increased incorporation in games of real world elements (cities, buildings, people, etc.) and third party IP (e.g. music, video clips, characters, logos, etc.), with an examination of recent case law (Kirby v. Sega and Grand Theft Auto/Pig Pen); and
• Strategies to maximize revenues from online and mobile games, including sponsored exclusive features and content, “in-game” ads, syndicated games, and tiered subscriptions.

The one-hour Webinar will also feature “live chat” functionality to enable viewers to ask questions and comment on the presentation in real-time.  Presentation materials will be available for download.

The Webinar will be held on September 16, 2009 from 1:00 pm to 2:00 pm EDT.  To register, click here.

The suit, originally filed in 2001 by several labels owned by Sony BMG, including Arista, Bad Boy and Zomba, alleged that LAUNCHcast, a webcasting service run by Yahoo’s Launch Media unit, which enables users to create “stations” that play songs within a particular genre or similar to a particular artist or song, violated provisions of the DMCA that required payment of licensing fees for the use of sound recordings in an “interactive” service.” 

The DMCA defines an interactive service as one “that enables a member of the public to receive a transmission of a program specially created for the recipient, or on request, a transmission of a particular sound recording . . . which is selected by or on behalf of the recipient.”   The provision was intended to distinguish individual playbacks from transmissions “whose primary purposes . . . is to provide to the public such audio or other entertainment programming.” 

That distinction was critical.  The DMCA requires payment of royalties, based on a negotiated license, to the owner of a sound recording (in most instances, a record label) for use in an interactive service.  For non-interactive services, webcasters need only pay a compulsory or statutory licensing fees set by the Copyright Royalty Board, which are considerably lower than individual, negotiated license fees. 

The rationale behind the differing licensing schemes was to protect the recording industry from lost sales.  As the Second Circuit stated “If the user has sufficient control over the interactive service such that she can predict the songs she will hear, much as she would if she owned the music herself and could play each song at will, she would have no need to purchase the music she wishes to hear.” 

In affirming the jury’s finding that LAUNCHcast’s service is not “interactive” under the DMCA, the Second Circuit analyzed the functions and features of the service itself, focusing on whether a user can receive a transmission of a program “specially created” for him or her.  For the Court, the key issue was “predictability”–to fall within the provisions requiring payment of a sound recording license fee, a service must provide “a degree of predictability-based on choices made by the user-that approximates the predictability the music listener seeks when purchasing music.”  The appellate panel found that the LAUNCHcast service does not provide sufficient control to users such that the playlists selected are so predictable that users will choose to listen to the service instead of purchasing music. 

The court reached that conclusion based on three primary factors.  First, the rules governing what songs are pooled in a playlist ensure that the user has no ability to control–much less predict–which songs are pooled for selection.  The panel noted that at least 60% of the songs are generated by factors entirely beyond the user’s control. 

Second, the service’s rules prevent a user’s explicitly rated songs–presumably the ones he or she wants to listen to–from being anywhere near a majority of the songs on a playlist.  At a minimum, 20% of the songs are unrated.  In addition, when a user rates a particular song, the service “implicitly” rates all the other songs by that artist, subjecting the user to many songs the user may never have heard or may not like.

Lastly, the court noted that LAUNCHcast randomly orders playlists–taking into account the DMCA’s restrictions on the consecutive play of artists or albums–further restricting the user’s ability to choose artists or albums they wish to hear.

The court concluded that the only thing a user can predict with certainty is that by rating a song at “zero” the user will not hear that song on that station again.

The decision is significant for several reasons.  It is the first time a federal appeals court has undertaken a careful, detailed and well-reasoned analysis of the DMCA’s provisions related to sound recording performance rights.  The decision clearly sets forth the rationale for the different licensing schemes for web transmission of music established by the DMCA, removing a considerable amount of uncertainty to webcasters and others who feared that their business models might be in jeopardy if they faced additional licensing fees.  And it parsed the features and functions of the LAUNCHcast service.  In doing so, the court has provided significant guidance on the legal, business and technical fronts which may enable future growth and innovation in the space.

This is yet another in a long list of cases brought by former athletes from the NFL, MLB, and NCAA seeking limits on the right to exploit players’ likenesses. In fact, just last year, a number of retired NFL players won a class action lawsuit against the NFL Players Association, arguing that the union conspired with Electronic Arts to use their likenesses in the Madden video game series without proper compensation, in which the retired players earned a $26 million settlement.

This time around, the league itself, not the union, is being sued by retired players who are challenging the exploitation of their images, names and likenesses in connection with the promotion of the league and the packaging, advertising and sales of products distributed by NFL Films–a division of NFL Properties which produces feature films, commercials, television programs, and documentaries on the NFL.

Each side is now preparing to do battle over both the scope (how broad) and term (how long) of the rights the players granted the NFL in the standard form player contracts and the corresponding collective bargaining agreements. The case will no doubt hinge on good old fashioned contract analysis and whether the NFL’s exploitation of the players’ likenesses falls squarely within the four corners of the documents. According to the players’ lawyer, “During [the players’] time in the league the players’ contracts gave the NFL authority to use their names and pictures for publicity and promotion in news, television and motion pictures, but they included no perpetuity clauses.” The players’ attorney also stated that beginning in 1993, the NFL’s collective bargaining agreement with the NFL Players Association altered the standard form player contract to contain broader rights to use the players’ names, images, and likenesses, apparently plugging the loophole.

The court’s contract analysis will have its own share of intricacies. First, the statute of limitations for right of publicity violations and other contract-based claims will bar a considerable amount of the alleged infringements and possibly reduce the amount of the “fair share of the revenue the NFL has earned”, which the players demand in their complaint. Second, the provisions granting the NFL a license to the players’ images, names, and likenesses may not have expired when the individual contracts themselves expired, as the plaintiffs claim, since the license grants incorporated therein may have been perpetual or drafted to survive any termination or expiration of the contract.

The court will also have to address another thorny issue.  Specifically, even if the players granted the NFL a perpetual license to their likenesses, was that grant broad enough to encompass distribution across platforms and media, such as the internet, wireless devices, and other technologies that did not exist at the time the grants were made?  This is an especially tricky issue because the grants were made in connection with what amounts to the players’ employment or services agreements with the league.  

We will keep an eye out for developments in this case which, regardless of its outcome, will likely provide useful and interesting guidance on drafting similar license grants in the future.

The program enables individuals and companies to register a Facebook URL with an address format of www.facebook.com/[username].  Applicant for usernames are generally allowed to choose them freely, without need to prove any connection or ownership to the name itself.  This wide-open nature raises potential concerns for intellectual property rights holders, particularly trademark owners, worried about unauthorized use of their trademarks in connection with the service. 

Facebook has sought to maintain as much of control over the usernames as possible, including the right to remove or reclaim a username at any time for any reason.  This strong proactive stance is probably partially motivated by a desire to preempt and prevent widespread buying or selling of usernames, and the cyber-squatting practices that follow.  (Such concerns are not unfounded; Facebook usernames are already up for sale on Assetize, an online website specializing in the buying and selling of online accounts.)

But back to the ownership issue–Can Facebook actually “own” a username that contains a registered and widely used trademark owned by someone else?  And if Facebook “owns” the username, what happens when a trademark owner seeks to register the username containing its mark?  Is “ownership” (i.e., title) to the username conveyed?  Or does Facebook license the username?  Take for example the username “facebook.com/burgerking”.  As of the date of this posting, Burger King has not yet registered the username, but if it does choose to register it, is it accurate to say that Facebook is transferring ownership over the username to Burger King?  Or is it licensing it?  Either way, how can Facebook transfer to Burger King something Burger King already owns?

Also, Facebook claims that when a Facebook account is cancelled, that account’s username will not become available to anyone else.  If Burger King registers for the user name, and then cancels it, can Facebook prevent Burger King from re-registering the user name if it later changes its mind?  In the end it is not clear or likely that Facebook can legitimately assert power over trademark holders when it comes to the use of their trademarks in the Usernames program. 

Facebook’s terms of service do not help to clarify the matter.  They make no mention of the Usernames program.  On the other hand, Facebook’s “Help Center” does have a section devoted to answering common questions about the program.  When the program was launched, the Help Center materials contained a few scant paragraphs of information.  Since that time, it has become much more developed, but that initial lack of clarity exemplifies the legal ambiguity with which the initiative got off the ground.  The uncertainties surrounding the Usernames program may be of particular concern for businesses in light of their increasing reliance on Facebook as an avenue through which to connect with customers (and concerns about businesses’ dependence on Facebook are not new).

We will eventually see if Facebook’s experience with the Usernames program proves a cautionary tale as to the pitfalls of rolling out new programs without fully anticipating the potential legal issues.  As the Username feature develops and more companies become aware of it, Facebook may see both disputes and angry markholders multiply. 

This may turn into yet another cyber-battleground over trademarks.  Numerous trademark infringement claims have been brought against Google in connection with its search ad business.  The claims are based on Google’s sale of trademarked keywords through its AdWords program.  In large part, the plaintiffs have asserted that such sales constitute trademark infringement because consumers could be confused by links to competitors’ ads that pop up alongside a search for the plaintiff’s marks.  While Google suffered a litigation setback in April when the Second Circuit reversed a dismissal of a suit brought by Rescuecom Corp., two separate actions against Google, one by Daniel Jurin and the other by Ascentive LLC, were both recently dismissed.

We will continue to monitor these matters and keep an eye out for developments.  In the meantime, our group would be happy to discuss any specific questions you might have about the impact of Facebook’s Usernames program on your trademark portfolio and help you develop strategies to protect your intellectual property rights.

*  We would like to thank Yoshinori Sasao, a summer associate at the Firm, who assisted in preparing this article.