Does listening to music excerpts online amount to fair dealing?

Authors: Emir Aly Crowne-Mohammed (University of Windsor, Faculty of Law, Windsor, ON, Canada) and Yonatan Rozenszajn (former Law Clerk, Federal Court, Canada)

Society of Composers, Authors and Music Publishers of Canada v Bell Canada, et al., 2010 FCA 123, 14 May 2010

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpq089

In Canada the Federal Court of Appeal agrees with the Copyright Board that the fair dealing exception relating to ‘research’ is broad enough to cover 30-second ‘previews’ of songs online.

Legal context

Section 29 of Canada's Copyright Act, RSC 1985 provides (among other things) that ‘fair dealing for the purpose of research or private study does not infringe copyright’.

Facts

The Copyright Board, created under the Copyright Act, is ‘empowered to establish, either mandatorily or at the request of an interested party, the royalties to be paid for the use of copyrighted works, when the administration of such copyright is entrusted to a collective-administration society. The Board also has the right to supervise agreements between users and licensing bodies and issues licences when the copyright owner cannot be located’: Copyright Board of Canada: Our Mandate.

In 1995 the Society of Composers, Authors and Music Publishers (SOCAN), a collective society under the Copyright Act, which administers performing rights in Canada, applied to the Copyright Board for the approval of tariffs on musical works communicated over the internet. As part of this application, SOCAN called for a different (and higher) tariff rate for music downloads that offered 30-second previews (or less) versus downloads that were offered without previews.

A number of parties which included broadcasters, internet service providers (ISPs), and Apple Canada Inc. challenged one or more of the proposed tariffs on a number of grounds, but not on fair dealing. The Board on its own initiative raised the issue of whether offering previews of musical works online amounted to fair dealing for the purpose of research and was therefore not compensable by way of a tariff.

The first part of the Board's decision was released on 18 October 2007 (Collective Administration of Performing Rights and of Communication Rights (Re) Copyright Act, subsection 68(3) File: Public Performance of Musical Works Statement of Royalties to be Collected by SOCAN for the Communication to the public by Telecommunication, in Canada, of Musical or Dramatico-musical Works Tariff No. 22.A (internet – Online Music Services) 1996–2006 [2007] CBD No. 7). In this decision the Board concluded (among other things) that providers of online music previews were entitled to rely on the fair dealing provisions of the Copyright Act since listening to 30-second previews before deciding to permanently purchase a musical work should be regarded as a form of consumer research. SOCAN sought a judicial review of the decision by the Federal Court of Appeal.

Analysis

In deciding that the Board's reasoning was neither unreasonable nor in error, the Federal Court of Appeal adopted the ‘large and liberal’ approach to the research exemption under the Copyright Act's fair dealing exemptions as set out by the Chief Justice of the Supreme Court of Canada in CCH v Law Society of Upper Canada [2004] 1 SCR 339 at para. 51:

...‘Research’ must be given a large and liberal interpretation in order to ensure that users' rights are not unduly constrained. I agree with the Court of Appeal that research is not limited to non-commercial or private contexts.

That decision emphasized that the ‘fair dealing exception, like other exceptions in the Copyright Act, is a user's right. In order to maintain the proper balance between the rights of a copyright owner and users' interests, it must not be interpreted restrictively’ (para. 12). In keeping with this approach, the Federal Court of Appeal noted that the term ‘research’ as it was used in the Copyright Act, was not limited by qualifiers like ‘scientific’, ‘economic’ or ‘cultural’. Accordingly that term could be interpreted in a context-specific inquiry.

Given the nature of the ‘research’ involved in users listening to the 30-second clips or previews of songs online, the court felt that research be given its primary and ordinary meaning, this being the use of previews to help consumers in their search for a particular song as to ensure its authenticity and quality before purchasing it. In this context, ‘research’ included consumer research.

The court then examined whether a 30-second preview, or less, was fair. The Federal Court of Appeal agreed with the Copyright Board in holding that the amount of the dealing is presumptively fair, given the length of the complete work.

Practical significance

The Federal Court of Appeal ruling follows the clear guidance of the Chief Justice of the Supreme Court of Canada in CCH v Law Society of Upper Canada [2004] 1 SCR 339 and rightly expands the numbers of activities that may fall within the fair dealing exemption for research. Indeed, copyright law is often touted as a balance between users and creators. This decision goes beyond mere ‘lip service’ and empowers users with powerful rights – rights which become particularly relevant in the new digital economy.

Review of Community plant varieties decisions: the ECJ speaks

Author: Gert Würtenberger (Wuesthoff & Wuesthoff, Munich)

Ralf Schräder v Community Plant Variety Office (CPVO), Case C-38/09 P, Court of Justice of the European Union, 15 April 2010

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpq088

The European Court of Justice (ECJ) upheld the rejection of an application by the Community Plant Variety Office (CPVO), confirmed by the Board of Appeal of the Office and the Court of First Instance due to lack of distinctness of the candidate variety compared to a reference variety, while sustaining the General Court's opinion of the wide discretion of the CPVO. Finally, the ECJ discussed the extent to which the General Court may review decisions by the Office and its Board of Appeal and the scope of review of the ECJ concerning judgments of the General Court in plant variety matters.

Legal context

In the framework of the examination of whether a plant variety fulfils the protection requirements, distinctness, uniformity and stability, as defined in Article 6 of Council Regulation on Community Plant Variety Rights 2100/94, according to Article 76 of the Regulation the Office is obliged to conduct all necessary investigations on the facts of its motion to the extent that they fall under the examination as determined by Articles 54 and 55 of the Regulation. Moreover, the Office must disregard facts of items of evidence which have not been submitted within the time-limit set by the CPVO.

Facts

The application for a Community plant variety right for the plant variety SUMCOL 01, a plant of the species Plectranthus ornatus and the result of the crossing of a plant of this species and a plant of the species Plectranthus ssp was rejected by the CPVO for lack of distinctness. Within examination proceedings, doubts arose about whether the variety was new as there were indications that the candidate variety was a wild form originating in South Africa, which had been marketed for years in that country as well as in Germany. The Bundessortenamt, as the Examination Office of the CPVO, approached Kirstenbosch Botanical Gardens (South Africa) with a request for cuttings or seeds of Plectranthus comoses or Plectranthus ornatus. Following this request, a gentleman from Kirstenbosch Botanical Gardens provided cuttings, which, however, originated from the private garden of the sender, a plant expert working with Kirstenbosch. In order to exclude the possibility that any differences between the candidate variety and the plant material from South Africa, used as the reference variety, were due to environmental factors, cuttings had been made from the reference variety. As a result of the comparison trials, the Examiner responsible for the technical examination regarded differences between the candidate variety and the variety obtained from South Africa as minimal although, according to an email from the Examiner, the differences were ‘significant’ but barely visible. Following an exchange of communications between the applicant and CPVO, the Office refused the application for a Community plant variety for lack of distinctness of the SUMCOL 01 variety in accordance with Article 7 of Regulation 2100/94.

The Board of Appeal, following a hearing, was not entirely convinced that the reference variety was a matter of common knowledge. For this reason, it ordered the taking of evidence, however making it dependent upon an advance payment of fees by the appellant of 6.000 under Article 62 of Regulation 1239/95. The appellant claimed that he was not required to provide evidence and had not sought the taking of evidence which had been ordered as it was the CPVO's duty to determine distinctness. For this reason, the appellant refused to pay the fees.

The Board of Appeal dismissed the appeal, concluding that the evidence at hand sufficed and that the requested taking of evidence was no longer necessary to enable it to decide on the question of distinctness of the candidate variety. As the Board considered SUMCOL 01 as not clearly distinguishable from a reference variety which was a matter of common knowledge at the time the applications were filed, the protection requirement ‘distinctness’ was not given.

The applicant appealed this decision to the General Court. Before dealing with the plea that the Board of Appeal had erred in the application of the criterion of distinctness, the General Court pointed to ‘preliminary considerations as to the scope of the Court's power of judicial review’. In that context, it referred to longstanding ECJ case law in other fields of Community law in which wide discretion of the Community authority had been confirmed when complex scientific or technical issues must be decided upon. The Court confirmed that case law might be generally applicable in cases in which administrative decisions are based upon complex appraisals in other scientific domains, such as botany or genetics. In these cases, the exercise of discretion is subject to a very limited judicial review, restricted to examination of the accuracy of the findings of fact and law and control of the Authority's activities; the exercise of this discretion must be neither excessive nor represent misuse of its powers. As the Court recognised the examination of distinctness as being of a complex scientific and technical nature, leading to limited possibility for reconsideration by the Court, the Court confirmed the correctness of the decisions of the CPVO and the BOA.

The applicant contested the judgement of the General Court by way of an action filed with the European Court of Justice.

Analysis

The applicant raised two main pleas, the first of which discussed procedural defects whereas, at first sight, the second dealt with material deficiencies.

With the first plea, the applicant pointed to procedural deficiencies leading to the finding that SUMCOL 01 was not distinct from the variety from which the plant material was obtained from South Africa. In proceedings before the CPVO the applicant alleged that the material provided from South Africa and used as a reference variety was plant material from SUMCOL 01. This was, however, refuted by the Office as well as by the Board of Appeal due to the differences between the candidate variety and the reference variety revealed during the technical examination. In addition, the applicant raised arguments before the CPVO and the Board of Appeal against the holding that the reference variety was of common knowledge. Before the Board of Appeal, reference was made, inter alia, to the discussion of Plectranthus ornatus in various scientific publications which, in the Board's opinion, confirmed the statements of the gentleman of Kirstenbosch about the common availability in South Africa of the plants of the variety supplied by him. As the applicant did not substantiate and offer proof of his argument that the varieties discussed in the scientific publications were not the same as those supplied from South Africa and used for the technical examination, the Court confirmed that the Board of Appeal was in a position to regard the variety supplied as the same as that discussed in scientific literature. As the Board of Appeal did not base its assessment that the candidate variety is of common knowledge on the description in scientific literature, but made reference to it only in support of its opinion that common knowledge was proven by the plant material supplied from South Africa, there were no deficiencies in the Board of Appeal's conclusion that the reference variety was of common knowledge. In proceedings before the Court, the applicant argued that this holding was based on incomplete recording of statements made before the Board of Appeal, rendering of the minutes of the hearing in breach of Article 63(2) of Regulation 1239/95 and the General Court's reliance on items of evidence not in the case file, resulting in findings based on mere speculation as far as a certain communication was made by the Examiner during the technical examination.

The ECJ emphasized that pleading that the General Court could not reasonably conclude that the facts and circumstances referred to were not sufficient to refute conclusions by the Examination Division, and confirmed by the Board of Appeal, was formally a plea on an error of law, but called into question the factual assessment carried out by the General Court and, in particular, it disputed the probative value it attached to those facts. Article 225(1) EC and the first paragraph of Article 58 of the Statute of the Court of Justice limit an appeal only to points of law. The General Court has exclusive jurisdiction to find and appraise the relevant facts and to assess the evidence. Consequently, the Court regarded the submitted pleas as inadmissible.

As regards the appellant's argument that the General Court distorted the facts and evidence when it assessed the argument on questions of the distinctness of the candidate variety, the ECJ made it clear that the General Court is the sole judge of any need to supplement the information available to it in respect of the cases before it. It emphasised that the General Court is the sole authority in judging whether the evidence before it is sufficient and thus is not subject to review by the Court of Justice on appeal, unless the evidence available has been distorted or the inaccuracy of the findings of the General Court becomes apparent from the documents in the case file. In this context, the Court also stressed that facts not submitted by the parties before the departments of the CPVO cannot be submitted at the stage of the action brought before the General Court, as the General Court is called upon to assess the legality of the decision of the Board of Appeal on the basis of facts submitted to the Office and the Board of Appeal.

Further, the appellant claimed infringement of principles governing the taking of evidence, by stating that the General Court imposed excessive demands upon the Applicant and that the General Court's decision was finally based on distortion of facts and evidence. This lead to the incorrect appraisal of the probative value of the statements made by the South African person, Mr van Jaarsveld, who supplied the material of the candidate variety. This gentleman elucidated in detail to the Bundessortenamt the origin of the plant material in his garden, leaving the Board of Appeal no doubt that the variety was commonly known long before the application for SUMCOL 01. The Court found, however, that the appeal judgement was not marred by an error of law.

The second plea alleged contradictions, errors and breach of Community law concerning the account taken of scientific publications in order to establish that the reference variety was a matter of common knowledge, that the General Court erred in law in failing to take account of the Applicant's arguments concerning the infringement of Article 62 of the Regulation and finally alleging errors in law in assessing the Examiner's participation in the hearing.

The General Court accepted in the appeal decision that the detailed description of a variety appearing in a scientific publication can be taken into account as evidence that a variety is a matter of common knowledge within the meaning of Article 7(2) of Regulation 2100/94. Apart from the fact that scientific literature was referred to merely as confirmation of Mr van Jaarveld's statement, the General Court included the reference purely for the sake of completeness. According to settled case law, the complaint directed against grounds of a judgement of the General Court included purely for the sake of completeness will be rejected outright since it cannot lead to the judgement being set aside and is therefore nugatory.

In proceedings before the Board of Appeal, the Board of Appeal heard the Examiner who performed the technical examination. The applicant argued that, due to lack of a decision ordering a measure to take evidence, the Examiner should not have been heard. However, the General Court regarded the Examiner as an agent of the CPVO and therefore measures to take evidence did not have to be decided upon in order to hear her. In the applicant's opinion, this holding was based on an error in law. The European Court of Justice confirmed the General Court's holding under Article 15(2) of Regulation 1239/95, that the acts performed by the Examiner of an office appointed by the CPVO as an examination office must be regarded as acts of the CPVO as far as third parties are concerned. As it is entirely for the President of the CPVO to decide upon the composition of his delegation, the Examiner had to be regarded as an agent. For this reason, her presence at the hearing did not require the adoption of a measure for taking evidence within Article 60(1) of Regulation 1239/95.

Practical significance

This case raised issues of the scope of discretion of the CPVO, of new facts in further proceedings, admissibility and the scope of judicial review of decisions of the CPVO and its Board of Appeal.

As is the case with regard to Community designs and Community trade marks, decisions taken by the CPVO are potentially subject to a three-tier review system, unless the CPVO does not change its decision appealed by an interlocutory revision. Decisions of the CPVO may be appealed to the Board of Appeal, followed by the possibility of judicial review by the General Court and, under Article 225 EC, by the Court of Justice on appeal.

The subject matter of review differs at each of those levels. While, according to Articles 71 and 72 of Regulation 2100/94, the Board of Appeal may re-examine the case and, in doing so, may itself exercise any power which lies within the competence of the CPVO, including conducting a new full examination as to the merits of the appeal in terms of both law and fact, proceedings before the General Court and the Court of Justice are much narrower. The General Court is called upon to review the lawfulness of an appeal, whereas the Court of Justice is limited to the control of legality of the decision or judgement of the General Court (Article 225 EC). Consequently the General Court considers whether a decision is, by reference to the time of its adoption by the Board of Appeal, initiated by one of the grounds mentioned in Article 73(1) of Regulation 2100/94, namely lack of competence, infringement of an essential procedural requirement, infringement of the Treaty of the Regulation on Community Plant Variety Rights, or of any rule of law related to their application or misuse of power. In contrast, the Court of Justice has no jurisdiction to review the decision taken by the Board of Appeal or the decision originally taken by the CPVO, nor is the appeals procedure intended as a general re-examination of the application brought before the General Court. In proceedings before the Court of Justice, its jurisdiction is limited to reviewing the findings of law of the General Court on the pleas argued before that court.

In this case the General Court as well as the Court of Justice declared case law applicable according to which judicial review of decisions of Community institutions is limited. These are cases where Community authorities are called upon to make complex assessments of a technical, scientific, economic or social nature. When reviewing an administrative decision based on such an appraisal, the Community adjudicator should not substitute its own assessment for that of the competent authority. Consequently, judicial review in such cases is limited to verifying that the measure in question is not vitiated by any manifest errors or misuse of power and that the authority concerned has not manifestly exceeded the limits of its discretion. In such cases, the court can only examine whether the evidence relied upon is factually accurate, reliable and consistent and whether that evidence contains all the information that must be taken into account in order to assess the complex situation concerned.

As the administrative decision in Community Plant Variety Rights is a result of complex assessment of the type referred to in that case law, as is the case when appraising the distinctive character of a plant variety in light of the criteria laid down in the Regulation, decisions of the CPVO and its Board of Appeal are subject to very limited judicial review. As this case shows, the CPVO has extremely wide discretion in the evaluation of the results of the technical examination. While it is the duty of the Office to examine ex officio all reasonable sources in order to decide upon the protection requirements – distinctness, stability and uniformity – applicants need to introduce substantiated evidence of facts in support of the protection criteria even if, in the opinion of the CPVO, they are of minor significance. Otherwise there is a risk that such facts will not be considered and followed up in greater detail ex officio, whereas – for procedural reasons – the applicant will be precluded from submitting such facts and evidence in further proceedings.

DNA Sequence Patents and that JIPLP article: the sequel

Early this month, this weblog announced the publication in JIPLP of a major article by Michael Kock, "Purpose-bound protection for DNA sequences: in through the back door?" This article was a lengthy critique of the Opinion of Advocate General Mengozzi in Case C-428/08 Monsanto Technology LLC v Cefetra BV and others, in which the Court of Justice of the European Union was expected to deliver its ruling later this year in an important dispute arising from the importation into the European Union of soya meal derived from Monsanto's Roundup Ready patented soybeans.

The EPLaw Patent Blog has reported that Monsanto now has withdrawn its actions in the underlying litigation which led to the reference to Europe's top court and that the reference proceedings are now terminated. Argentina is reported to have objected since it wished to continue the proceedings but. according to the court, this is not possible since Argentina was not actually party to the proceedings.

No extensions allowed

Author: Peter Jabaly (Rutgers Law School)

Autodesk, Inc. v Dassault Systemes SolidWorks Corp. 2009 WL 5218009, 31 December 2009

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpq076

A California district court finds that the non-functional use of a file extension (eg marketing and advertising) may be trade marked. Protection, however, may not be extended to the functional uses of file extensions, as when the file extension is necessary to achieve the interoperability of the brand name with the generic version.

Legal context

Where a computer file extension is useful and innately functional, trade mark law, which protects reputation rather than functionality, is inapplicable and any attempt to apply it would inhibit competition.

Facts

Software programs store data in files. To locate these files more easily, each file is given a unique name. A file name is generally held in the form of a prefix and suffix separated by a period (eg ‘acrobat.pdf’). The prefix describes the content while the suffix, or file extension, describes the category of data being stored. The purpose of the extension, when combined with the suffix, is to allow the user to identify and locate the file when it is sought. The file names are useful in grouping the files (eg ‘.jpg’ for photos or ‘.dat’ for numerical data). Though programmers follow these conventions for the sake of convenience, they are by no means required to do so and some file extensions are shared among different computer programs. This is unsurprising since there are a limited number of permutations in the three-character file extension.

In this action, Autodesk Inc. sued Dassault Systemes SolidWorks Corp. under a theory of common law trade mark infringement. In its complaint, Autodesk alleged that it held a common law trade mark right in the ‘DWG’ file extension in connection with and related to the marketing and advertising of its AutoCAD program. In its defence, Solidwork maintained out that no one could hold a right to a trade mark that is functional.

Analysis

At the hearing, Autodesk reluctantly accepted the Court's call to disavow the trade mark law claim and solely pursue a wordmark claim. A wordmark right would provide Autodesk with the exclusive use of the .dwg file extension in connection with its product packaging, marketing, and advertising. In taking this nuanced approach, Autodesk hoped to disarm SolidWork's most compelling argument that registered trade mark law does not apply to functional marks. Autodesk, however, mistakenly believed that it could make this argument without rejecting the claim to full trade mark protection. In other words, Autodesk wanted to have its cake and eat it too, possibly in an effort to obtain a favourable ruling on this narrow legal question, revisiting a larger, more contentious issue later.

The Court did not take kindly to this position in the oral arguments. In the written transcript of the exchange, it strained to understand the legal basis for Autodesk's claim of trade mark infringement. After lengthy semantic wrangling, the plaintiff (through counsel) asserted that other companies may only use the .dwg file extension when it was necessary to the interoperability of the software with Autodesk's own AutoCAD program. Satisfied it had received an admission of an incontrovertible truth, the Court issued an order granting summary judgment in favour of Autodesk 5 days later.

Realizing what it had disclaimed, Autodesk adjusted its argument after-the-fact. After its victory, Autodesk claimed that what it truly meant to assert was that other programmers were only allowed to put ‘.dwg’ at the end of a computer file when ‘the file format is Autodesk's proprietary technology or completely interoperable therewith’. Autodesk blamed its misstatement on the youth and inexperience of the attorney who argued the case. The Court dismissed this scapegoating by restating the doctrine of judicial estoppel, which precludes a party from gaining an advantage by asserting one position and then later—after a tribunal had relied on that position—taking a clearly inconsistent position.

In other words, Autodesk could have made a correction at any time prior to the issuance of the decision. Had that correction been made, the Court would have not ruled in favour of Autodesk because of the functionality issue. No one has the ownership of file extension designations. To do so would contravene the spirit of the Lanham Act and would clog up commerce. Trade mark law seeks to prevent consumer confusion in connection with a commercial transaction. In contrast, file extensions tell the computer the type and the location of a certain file. As the Court succinctly said, ‘A computer is not a consumer’. A computer or a computer user, for that matter, is unconcerned with the maker of the file. The primary function of a file extension is to identify a file.

Practical significance

The case stands for the proposition that file extensions are not eligible for trade mark protection, but may be eligible for wordmark protection. The decision is also a cautionary tale: a winning argument may result in a larger defeat. In order to obtain wordmark protection, Autodesk was required to disavow broader trade mark protection. Further, the case provides a lesson in lawyering. Skirting an issue may be tactful in certain circumstances but, when a favourable outcome hinges on taking a position on a central issue, it is important to consider that issue carefully and take the long view. It is clearly preferable to lose the battle but win the war. Autodesk's counsel took the short view. It made the admission and relinquished Autodesk's colourable claim of right.

Louis Vuitton Holds ISP Accountable for Combined $21.6 Million

Authors: James L. Bikoff, David K. Heasley and Phillip V. Marano (Silverberg, Goldman & Bikoff LLP, Washington DC)

Louis Vuitton Malletier, S.A. v Akanoc Solutions, Inc. et al., No. 07-03952 JW, slip op. (N.D.Cal., 19 March 2010); see also 591 F. Supp. 2d 1098 (N.D.Cal. 2008)

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpq079

In the summer of 2009, a jury in the US District Court for the Northern District of California found a web host contributorily liable for copyright and trade mark infringement because it harboured websites selling counterfeit Louis Vuitton goods from China.

Legal context

Despite a relative wealth of jurisprudence on indirect liability, US federal courts have struggled in the digital millennium to apply these theories in the converging areas of IP and internet law. What duty does a web host owe to a copyright owner when third parties store infringing content on the web host's servers? And what duty does an online auction house owe to a brand owner when third parties use the service to sell counterfeit goods? As both legislation and judicial precedent in the USA have evolved to address questions such as these, two primary theories of indirect liability—vicarious and contributory—have driven the law forward.

The roots of vicarious liability lie in the agency principles of respondeat superior, ‘let the superior answer’ for the torts of the agent. Accordingly, vicarious liability for copyright infringement requires that an intermediary defendant hold both (1) the right and ability to supervise directly infringing conduct and (2) a direct financial interest in the infringing activity. This standard differs markedly from trade mark law. Vicarious liability for trade mark infringement requires that an intermediary defendant and a direct infringer have an apparent or actual partnership or exercise joint ownership or control over an infringing product or service.

In contrast, contributory liability is based on tort principles of enterprise liability and imputed intent. Contributory liability for copyright infringement requires that an intermediary defendant have (1) actual or constructive knowledge of another's direct infringement and (2) either intentionally induced a direct infringer or materially contributed to direct infringement. Again, this standard differs markedly from trade mark law. Contributory liability for trade mark infringement, a much less solidified area, requires actual knowledge of specific infringement and either intentional inducement or continued assistance by supplying an infringing product. When an intermediary defendant supplies a service rather than a product, federal courts typically consider the extent of control exercised by that defendant over the third party's means of infringement. Although these standards may appear to be similar, the US Supreme Court has explicitly instructed that the tests for indirect trade mark infringement are more difficult to satisfy than for indirect copyright infringement.

Courts often struggle in applying these theories to intermediaries on the internet because analogies to traditional brick-and-mortar entities can be difficult. Cases involving IP and contributory liability often turn on whether an internet service provider is more like a landlord or a flea market operator than a telephone service provider or some other type of public utility. In addition, courts attach great significance to the actions taken by an internet service provider once it has knowledge of direct infringement. Akanoc Solutions represents the relatively rare circumstance where an internet service provider entirely fails to mitigate direct infringement by taking appropriate action.

Facts

Louis Vuitton Malletier (‘LVM’), which owns trade mark and copyright registrations relating to a variety of handbags and other goods, is the sole and exclusive distributor of its luxury merchandise. In late 2006 it discovered five websites it believed to be selling counterfeit LVM merchandise. By tracing the internet protocol addresses of the websites, LVM was able to send repeated takedown notices to the entity harbouring the websites on its servers—Akanoc Solutions, Inc. (‘Akanoc’). As a web host, Akanoc provided its customers with ‘internet protocol addresses, routers that link internet traffic to websites, and servers that store internet content and allow the content to be accessed through the internet’.

Shortly after sending its takedown notices, LVM purchased and tested items from the websites. Each item was sent using a return address located in China—Akanoc's website advertised an ‘extensive background knowledge of the Chinese economy’ and specialization in ‘creating unique solutions’ for Chinese companies seeking to sell goods in the USA. Each item was determined by LVM to be a counterfeit replica of its products. As its investigation progressed, LVM observed that the infringing websites either remained operable or were moved to different internet protocol addresses that were also owned by Akanoc.

Faced with such persistence, LVM sued Akanoc, its principal—Stephen Chen—and Managed Solutions Group, Inc. (‘MSGI’)—another entity controlled by Chen that owned Akanoc's servers. The complaint, filed in the US District Court for the Northern District of California, alleged four causes of action: (1) vicarious copyright infringement, (2) vicarious trade mark infringement, (3) contributory copyright infringement, and (4) contributory trade mark infringement. After conducting discovery, LVM filed an amended complaint that extended its allegations of indirect copyright and trade mark infringement from the five original websites to an additional 72 counterfeiting websites.

Analysis

In late 2008 the Northern District of California issued a decision granting the defendant's motion for summary judgment with respect to LVM's vicarious liability claims and denying the motion with respect to LVM's contributory liability claims. The Court held that:

• No reasonable jury could find the defendants vicariously liable for copyright infringement because there was no evidence of a ‘direct financial interest’ in the underlying infringing activity. In the Ninth Circuit, ‘the central question of the "direct financial benefit" inquiry ... is whether the infringing activity constitutes a draw for subscribers, not just an added benefit’. The ‘essential aspect’ of the inquiry is ‘whether there is a causal relationship between the infringing activity and any financial benefit a defendant reaps’. LVM's claim for vicarious copyright liability was denied because there was no evidence that third parties sought or abandoned the defendants' web hosting services based on their ability to infringe, or that the defendants ‘made more money when they allowed infringement to continue’ and ‘less money when they did not’. The defendants' wilful blindness of the direct infringement was not enough to carry the claim.
  
  
• No reasonable trier of fact could find the defendants vicariously liable for trade mark infringement because no ‘actual or apparent partnership’ existed. The defendants only sold their web hosting services to ‘resellers’, not individual websites, and thus did not deal directly with or receive money from any website operators. Again, wilful blindness was not enough to carry the claim.
  
  
• The defendants could be held contributorily liable for copyright infringement because they had actual knowledge, or at least should have known, of specific pirated material available on their servers and failed to purge such material from the system. To establish the defendants' knowledge of infringement LVM proffered a number of its takedown notices, letters between counsel for the parties, and the defendants' internal emails discussing the takedown notices. LVM also proffered evidence on the ‘simple measures’ the defendants could have taken to purge infringing material from the system, including internal emails discussing their ability to remove individual websites by disabling a single internet protocol address. Moreover, Stephen Chen's deposition testimony illuminated the defendants' apathy toward takedown notices, ‘[We] just don't have a lot of experience with [complaint letters], and we don't have any mechanism to take care of letter complaints’.
  
  
• The defendants could be held contributorily liable for trade mark infringement because they had actual knowledge of specific counterfeiting websites on their servers and continued to provide their web hosting services while remaining wilfully blind to infringing activity. The evidence proffered by LVM to establish specific knowledge of direct infringement sufficed for both its contributory copyright and trade mark infringement claims. However, the Court struggled to determine whether the defendants exercised sufficiently ‘direct control and monitoring’ of the web hosting service. In order to find such direct control, the Court analogized web hosts to brick-and-mortar flea market operators, ‘Defendants physically host web sites on their servers and route internet traffic to and from those websites. This service is the internet equivalent of leasing real estate’.

LVM's contributory copyright and trade mark claims continued on to trial and, in August 2009, the jury returned a verdict in favour of LVM for a total of $34.2 million. Each individual defendant was found liable for $10.5 million and $300,000 in damages for wilful contributory infringement of 13 LVM trade marks and two LVM copyrights, respectively.

In March 2010, the Northern District of California issued a decision granting the defendant's motion for judgment as a matter of law with respect to MSGI and denying the motion with respect to Akanoc and Stephen Chen. On consideration of the motion, the Court found that evidence was insufficient with respect to MSGI, which merely ‘owned servers that were operated by ... Akanoc’ because ‘[t]here was no evidence that [it] sold domain names or operate[d] the servers’. Accordingly, the jury verdict regarding MSGI was vacated and the overall damages were reduced by $10.8 million.

The Court, however, upheld the jury's consideration of Akanoc's and Stephen Chen's ‘action or inaction after receiving notice of infringement’ because they had ‘numerous tools at their disposal for monitoring their servers and terminating abusive users’ including ‘the ability to suspend a particular user, disable IP addresses used by a particular website or if necessary, unplug a server that contained the data for a particular website’. The Court also denied Akanoc's attempt to seek Digital Millennium Copyright Act (‘DMCA’) immunity from damages for contributory copyright infringement. Stephen Chen ‘testified that he did not understand the DMCA’ or its requirement to reasonably implement a policy to terminate web hosting service for repeat infringers. Moreover, ‘evidence indicated that Defendants had not terminated certain repeat offenders’.

Finally, the Court issued a permanent injunction against Akanoc and Stephen Chen, enjoining them from knowingly hosting internet web sites that display, advertise for sale, offer for sale, or actually sell, export or distribute goods or services that exhibit unauthorized reproductions of the LVM trade marks or copyrights. The injunction left in place a reasonable notice and takedown policy with Akanoc.

Legal significance

Akanoc continued to supply its web hosting services to known pirates and counterfeiters and was held to be contributorily liable for copyright and trade mark infringement. It invited spurious Chinese goods into the USA, it ignored takedown notices from rights holders, it failed to implement a reasonable takedown policy, and it even took steps to obscure the internet protocol addresses of counterfeiting websites.

This case builds on a fairly well-established jurisprudence on indirect liability for copyright infringement. It also adds to a rapidly evolving jurisprudence on indirect liability for trade mark infringement. Most importantly, it highlights the disparity between theories of indirect infringement for these two forms of IP on the internet. The Northern District of California's copyright analysis was well supported with direct precedent, whereas its analysis of trade mark law followed doctrinal trends in favour of protecting trade mark owners. Although this case may appear to be run-of-the-mill in the copyright arena, it is a significant advancement in trade mark jurisprudence. As the law of the internet evolves, federal courts are likely to become increasingly open to a notice and takedown regime for brand owners, similar to that of the Digital Millennium Copyright Act.

Latest IJLIT now available

One of JIPLP's sister journals is the International Journal of Law and Information Technology (IJLIT), which Oxford University Press is now publishing four times a year. While this title is not specifically dedicated to intellectual property issues, it is inevitable that a title of this nature will sometimes tackle topics that overlap with the interests of JIPLP's readership. The current issue carries a piece by Cheng Lim Saw, "The Case for Criminalising Primary Infringements of Copyright– Perspectives from Singapore".

You can view the full contents of the current issue of IJLIT here.

From (A) to (B): use of a similar sign in keyword advertising

Author: Kristof Neefs (Altius, Brussels)

Bergspechte/Günter Guni and trekking.at Reisen, Case C-278/08, Court of Justice of the European Union, 25 March 2010

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpq068

The Court of Justice of the European Union has ruled that the proprietor of a trade mark is entitled ‘to prohibit an advertiser from advertising, on the basis of a keyword identical with or similar to that trade mark which that advertiser has, without the consent of that proprietor, selected in connection with an internet referencing service, goods or services identical with those for which that mark is registered, in the case where that advertising does not enable an average internet user, or enables that user only with difficulty, to ascertain whether the goods or services referred to therein originate from the proprietor of the trade mark or an undertaking which is economically connected to it or, on the contrary, originate from a third party’.

Legal context

Article 5(1) of Directive 2008/95 to approximate the laws of the Member States relating to trade marks (‘TMD’) provides that the proprietor of a registered trade mark is entitled to prevent third parties not having his consent from using, in the course of trade:

a. any sign which is identical with the trade mark in relation to goods or services which are identical with those for which the trade mark is registered;
b. any sign where, because of its identity with, or similarity to, the trade mark and the identity or similarity of the goods or services covered by the trade mark and the sign, there exists a likelihood of confusion on part of the public, which includes the likelihood of association between the sign and the trade mark.

The Oberster Gerichtshof inquired, in essence, whether Article 5(1) TMD is to be interpreted as meaning that a trade mark proprietor is entitled to enjoin an advertiser's use of a sign that is similar or identical to a trade mark as a keyword in a paid internet referencing service.

Facts

Bergspechte, an Austrian company, organizes outdoor tours such as mountain biking, skiing, and alpine climbing and owns the Austrian composite trade mark.

Bergspechte noticed that typing the keywords ‘bergspechte’ or ‘edi koblmüller’ in an internet search engine resulted in the display, in the sponsored links section, of advertisements of its competitor trekking.at Reisen. Relying on its composite mark, Bergspechte sought an injunction against these advertisements. After two instances, the case went to the Austrian Oberster Gerichtshof on a point of law. In turn, the Oberster Gerichtshof stayed the proceedings and referred the matter to the CJEU for a preliminary ruling.

Analysis

The Bergspechte judgment rides (to use CJEU terminology) on the coat-tails of its Google France judgment which was issued 2 days earlier in Joined Cases C-236 to 238/08 Google France v Louis Vuitton Malletier.

In Google France, the Court had already decided on some of the main trade mark questions in respect to keyword advertising. It had maintained, first, that an advertiser purchasing a paid referencing service and selecting a keyword to trigger the display of an advertisement uses that keyword in the course of trade in the sense of Article 5 TMD. Secondly, such use was ‘in relation to goods or services’, regardless of whether the sign was actually displayed in the advertisement. Thirdly, the advertising function of a trade mark was not adversely affected by use of an identical sign in a paid internet referencing service. Finally, whether the function of indicating origin of the trade mark is adversely affected by keyword advertising depends, in particular, on the manner in which the advertisement was presented. That function would, according to the CJEU, be affected where the advertisement of which the display is triggered by a keyword identical to the trade mark

does not enable an average internet user, or enables that user only with difficulty, to ascertain whether the goods or services referred to therein originate from the proprietor of the trade mark or an undertaking economically connected to it or, on the contrary, originate from a third party.

In those cases, the trade mark proprietor is entitled to prohibit use of a keyword identical to its trade mark in a paid internet referencing service under Article 5(1)(a) TMD.

In Bergspechte, the CJEU held that Article 5(1) TMD must be interpreted as meaning that

the proprietor of a trade mark is entitled to prohibit an advertiser from advertising, on the basis of a keyword identical with or similar to that trade mark which that advertiser has, without the consent of that proprietor, selected in connection with an internet referencing service, goods or services identical with those for which that mark is registered, in the case where that advertising does not enable an average internet user, or enables that user only with difficulty, to ascertain whether the goods or services referred to therein originate from the proprietor of the trade mark or an undertaking which is economically connected to it or, on the contrary, originate from a third party.

At first glance, the second in the series of AdWords judgments does not add much to the principles laid down in Google France. However, Google France concerned use of signs identical to a trade mark in keyword advertising. In Bergspechte, at least one of the contested uses was that of a sign similar to the trade mark invoked. The judgment therefore provides guidance in respect to Article 5(1)(b) TMD.

In addressing whether keyword advertising is likely to lead to confusion, the CJEU first refers to Lloyd Schuhfabrik Meyer. There the Court maintained that a likelihood of confusion constitutes a risk that the public might believe that the goods or services in question come from the same or economically linked undertakings (Case C-342/97, Lloyd Schuhfabrik Meyer v Klijsen, 17). Next, the CJEU applied the principles set out in Google France, in particular the considerations in respect to detriment to the function of indication the origin of the goods, to infringement under Article 5(1)(b) TMD.

Although it is not expressly mentioned, I understand from the Court's reference to Lloyd Schuhfabrik Meyer that the established principles for the assessment of a likelihood of confusion equally apply to use of a keyword in a paid referencing service. That is to say, whether such a likelihood of confusion, or

the impossibility or difficulty to ascertain whether the goods or services referred to therein originate from the proprietor of the trade mark or an undertaking which is economically connected to it or, on the contrary, originate from a third party

exists must be appreciated globally, taking into account all factors relevant to the circumstances of the case (ibid, 18).

One such factor is the relevant public. According to settled CJEU case law, the relevant public to be taken into account is the average consumer of the goods or services for which the trade mark was registered (Case C-251/95, Sabel v Puma, 22). That consumer is deemed to be reasonably well-informed and reasonably observant and circumspect (Lloyd Schuhfabrik Meyer, 25–26).

Against this backdrop, it is remarkable that the CJEU states, both in Google France and in Bergspechte, that ‘the average internet user’ must be able to distinguish the origin of the goods or services concerned without difficulty. In paragraph 87 of Google France, this statement is linked to the essential function of the trade mark in the area of electronic commerce, ie the enablement of internet users browsing advertisements to distinguish the origin of the goods and services concerned. In so ruling, the Court has seemingly drawn focus to the public of the medium by way of which advertisements are delivered, rather than to the target audience of the trade mark.

The way the public processes advertisements on the internet is relevant. Advocate-General Poiares Maduro had suggested as much in his Opinion in Google France (at 90–91). However, the level of attention of the target public of a trade mark and that of the average internet user do not necessarily correspond. This is especially so where the goods or services for which the trade mark was registered are only purchased after careful examination (see, eg, Case C-361/04, Picasso, 39–40). In those cases, the level of attention of the consumer of the goods is likely to be higher than that of an average internet user. Paragraph 35 of Bergspechte teaches that the relevant internet user is normally informed and reasonably attentive. It would have been helpful if the Court had qualified this by stipulating that the level of attention of the internet user depends on the nature of the goods and services for which the trade mark was registered. In any case, the objective characteristics of the goods and services concerned must be weighed as a relevant factor in determining whether the advertisement causes or is likely to cause confusion in respect to the origin of those goods and services. Any other interpretation would in my view lead to an unjustified discrepancy between the assessment of infringement by way of internet keyword advertising and by way of its brick-and-mortar counterparts.

Practical significance

In Bergspechte, the Court has unsurprisingly stated that use of a sign that is similar rather than identical to a trade mark in internet keyword advertising can be prohibited by the trade mark proprietor when that advertising leads or is likely to lead to confusion. The conditions for infringement under Article 5(1)(b) TMD are brought in line with those set out in Google France for detriment to the function of designating origin under Article 5(1)(a) TMD. Thus an advertiser's use of a similar sign as a keyword infringes where the advertising does not enable an average internet user, or enables that user only with difficulty, to ascertain whether the goods or services referred to in it originate from the proprietor of the trade mark or an undertaking which is economically connected to it or, in contrast, originate from a third party. While both Bergspechte and Google France have provided useful guidance to trade mark proprietors and internet advertisers, it is hoped that the CJEU will further refine the principles in the references that are still pending before it in respect to the AdWords service.

Next month's JIPLP now available online

The July 2010 issue of the Journal of Intellectual Property Law & Practice (JIPLP) is now available to its online subscribers. You can view the contents of this issue here. The Editorial, "No votes, no idea", reads as follows:

"The world's great free economies make great play of the importance of IP rights to their domestic prosperity. IP rights protect investment, create jobs, empower creators, facilitate the delivery of deliverables, enhance communication, and enrich the leisure and entertainment sectors. With the exception of minor political entities such as the anarchists, the extreme socialist left, and the Pirate Party—whose positions are consonant with a lower level of IP protection or even its abolition—there is general consensus among political leaders that IP is somehow a good thing. Since debate on IP protection does not split along party lines, it is unsurprising that the subject is rarely, if ever, raised in electoral manifestos or debated between political rivals.

The absence of debate may be viewed as a good thing, but it is also a bad one. Since party leaders do not take issue with each other's positions on patentability, parallel trade, peer-to-peer file sharing, or design poaching, there is never any real need for them to master the subjects. This is in sharp contrast with topics such as defence spending, development aid, and foreign policy, which impinge little if at all on the daily life of the voter, as well as subjects of more immediate relevance to the electorate such as the environment, education, and public health. Yet IP touches us all every day: the TV and radio programmes we consume to the food in our shops, the medicines in our bathroom cabinets, the downloads on our portable entertainment units, and even the clothes on our backs, IP is everywhere.

Curiously, given the importance of IP and its pervasive quality, the subject is not only off the political agenda—it is almost kept shrouded from any sort of contemplation by the electoral community at large. Thus in the eyes of the governments of some of the world's most open and democratic jurisdictions, and their main trading partners, IP enforcement is believed to be so sensitive an issue that it has been necessary to negotiate the terms of the Anti Counterfeiting Trade Agreement (ACTA) behind closed doors, lest the momentum of the negotiations be stalled by public awareness.

With IP off the political agenda, the degree of coverage to which IP issues are treated by the mass media is low and generally trivial. Disputes are newsworthy because they concern popular works such as The Da Vinci Code, A Whiter Shade of Pale, or the Harry Potter series rather than on account of their legal significance. The other way IP issues get to press is when celebrities are involved. Thus Beyoncé's allegedly pirated bikini, the loss of sponsorships and endorsements by golfer Tiger Woods and any number of kiss-and-tell indiscretions in which confidentiality arguments are balanced against free speech will be known to many sentient voters, though they may not easily discern the IP issues among the generous cleavages and contrived sound-bites that frame the text.

Many people criticize IP laws, either in principle (because they believe them to be inherently wrong) or in practice (because they accept the principle but object to the manner of its execution). It would be unkind to respond to their critical analysis with the refrain: ‘Well, that's what Parliament enacted and Parliament must be taken to represent the will of the people in any duly constituted democracy’. However, it would not be unfair to remind both critics and supporters of IP that the path to better laws is the achievement of a better understanding of them. Just as in the case of fiscal policy or regulation of the financial sector, the system itself is not easy to grasp; yet we cannot expect either our political leaders or their watchdog, the media, to grasp it for us.

Sadly for those of us who believe that IP is a force for good and that a better understanding of how it works will lead to better laws, there are no votes in IP because it is a subject which is not in general a political issue—and which is likely to remain so for the foreseeable future".

Patent protection, DNA sequences and the ECJ

"Purpose-bound protection for DNA sequences: in through the back door?" is the title of an article by Michael A. Kock (Seeds & Biotechnology, Syngenta International AG, Switzerland). This article is extremely timely, being a lengthy critique of the Opinion of Advocate General Mengozzi in Case C-428/08 Monsanto Technology LLC v Cefetra BV and others, an Opinion on which the Court of Justice of the European Union will be giving their ruling later this year on an important dispute arising from the importation into the European Union of soya meal derived from Monsanto's Roundup Ready patented soybeans. The abstract of Dr Kock's article reads as follows:

"Legal context: In the first litigation case regarding the interpretation of the Biopatent Directive 98/44/EC, the European Court of Justice is asked to clarify whether a DNA sequence is entitled to patent protection as a compound as such, or only under circumstances where the DNA performs its function.

Key points: Advocate General Mengozzi issued an opinion concluding, ‘"that the protection for a patent relating to a DNA sequence is limited to the situations in which the genetic information is currently performing the functions described in the patent’", thereby arguing for both a purpose-bound and time-limited scope of protection. In his view, the Directive constitutes an exhaustive body of rules and precludes national legislation from conferring wider protection.

This interpretation finds no base in the legislative history of the Directive, which was intended to extent but not to limit protection for biotech inventions.

Practical significance: A ruling following the opinion would have severe consequences for EU biotechnology patent holder. Not only isolated DNA will become unprotected, a patentee would also lose rights against the importation of harvested goods produced outside the EU without his authorization".

If you are not a subscriber to JIPLP, you can still purchase this article by itself from Oxford University Press by clicking here and scrolling down to "Purchase short-term access".

Coexistence agreements: JIPLP in court again

For the second time in just over a week, the Journal of Intellectual Property Law & Practice (JIPLP) has featured in an appellate judgment. Last time, the citation was by the Court of Appeal; this time the citation comes in an appeal to the Chancery Division, England and Wales, from the decision of a hearing officer acting on behalf of the Registrar of Trade Marks in Omega Engineering Incorporated v Omega SA (Omega AG) (Omega Ltd) [2010] EWHC 1211 (Ch), 28 May 2010.

The article discussed by the court, and analytically reviewed by Mr Justice Arnold, is "Coexistence in Community trade mark disputes: conditions and implications" [2006] JIPLP 703 by Arnaud Folliard-Monguiral. Arnaud, who works in the Cancellation and Litigation Department of the Office for Harmonisation in the Internal Market (OHIM), Alicante, has been an editorial panellist of JIPLP since its inception.

You can view the abstract of this article here.