Month: September 2015

Categories
Copyright Internet Uncategorized

Let’s Get Real About Kim Dotcom: The Indictment Clearly Alleges Felony Copyright Infringement

By Devlin Hartline & Terrica Carrington

After countless delays, the extradition hearing against Kim Dotcom began yesterday in New Zealand. Dotcom has been indicted on several charges, including criminal copyright infringement, racketeering, money laundering, and wire fraud, in connection with his notorious Megaupload website. He allegedly reproduced and distributed large amounts of copyrighted works, including movies, songs, TV programs, and computer software. In anticipation of the hearing, we’ve heard much opinion and speculation about the case against Dotcom.

Most recently, Harvard law professor Larry Lessig wrote a puzzling affidavit in which he argues that the superseding indictment and the summary of evidence against Dotcom are insufficient to establish a prima facie case of felony copyright infringement. Lessig has a long history of being on the losing end of things with his novel arguments concerning copyright law, and this affidavit appears to continue that trend. Lessig argues that “the DOJ fails to show direct criminal copyright infringement on the part of Megaupload personnel” and that “there is no showing that any specific Megaupload representative . . . had the requisite mens rea to willfully violate copyright law.”

Lessig is wrong: The superseding indictment and the summary of evidence allege direct criminal copyright infringement by Dotcom and his co-defendants. Looking at just two examples from the indictment, Count Four relates to the pre-release movie “Taken” that was uploaded to Megaupload by one of Dotcom’s co-defendants, and Count Eight concerns the scraping of YouTube done by the co-defendants at Dotcom’s command. There are smoking gun emails establishing that these crimes were done willfully. Remarkably, Lessig makes no mention whatsoever of the movie “Taken,” the scraping of YouTube, or the emails. It’s time to get real about Kim Dotcom.

Sufficiency of the Indictment

As a preliminary matter, it’s important to understand the procedural posture of this case. The case isn’t at trial, and it hasn’t even reached discovery yet—this is merely an indictment. Under federal law, a criminal indictment has two primary purposes: (1) to sufficiently outline the charges so that the accused is on notice and may prepare to defend against those charges, and (2) to enable the defendant to avoid double jeopardy by defining the scope of the charges.[1] At this early stage, courts assume that the prosecution’s alleged facts are true, and the indictment will only be dismissed if the allegations fail to state an offense.[2]

Lessig attacks the indictment’s sufficiency: “Counts Four through Eight allege that respondents themselves committed crimes of copyright infringement. General allegations in such Counts do not find support in specific facts set forth in the Record of the Case.” He further states that “no individual Megaupload defendant is shown to have . . . ‘willfully’ or criminally copied or distributed a copyrighted work.” While it’s true that these things haven’t been proved beyond a reasonable doubt after a trial on the merits, it’s simply not true that the indictment doesn’t allege these things sufficiently to put Dotcom on notice of the crimes he’s accused of committing.

As we’ll see below, Counts Four and Eight in the indictment simply follow the language of the applicable statutes, supported by the alleged facts that establish willfulness. The Supreme Court has stated numerous times that “[i]t is generally sufficient that an indictment set forth the offense in the words of the statute itself, as long as those words of themselves fully, directly, and expressly, without any uncertainty or ambiguity, set forth all the elements necessary to constitute the offence intended to be punished.”[3] The Counts here do just that—they quote the statutes and fully set forth the elements of the crimes.

Count Four: Pre-Release Movie “Taken”

Count Four of the indictment accuses Dotcom of felony copyright infringement for the pre-release distribution of the movie “Taken” in violation of Section 506(a)(1)(C) of the Copyright Act,[4] which provides:

Any person who willfully infringes a copyright shall be punished as provided under section 2319 of title 18, if the infringement was committed . . . by the distribution of a work being prepared for commercial distribution, by making it available on a computer network accessible to members of the public, if such person knew or should have known that the work was intended for commercial distribution.

Tracking the language of the statute, Count Four states:

On or about October 25, 2008, in the Eastern District of Virginia and elsewhere, the defendants . . . did willfully, and for purposes of commercial advantage and private financial gain, infringe a copyright by distributing a work being prepared for commercial distribution in the United States, to wit, the copyrighted motion picture “Taken ” (which would not be commercially distributed until on or about January 30, 2009) by making it available on a computer network accessible to members of the public, when defendants knew, and should have known, that the work was intended for commercial distribution.

The superseding indictment and summary of evidence clearly allege that this crime was committed willfully. “Taken” was released in the United States in January of 2009, and one of Dotcom’s co-defendants, Bram Van Der Kolk, uploaded it more than three months earlier in October of 2008:

On or about October 25, 2008, VAN DER KOLK uploaded an infringing copy of a copyrighted motion picture entitled “Taken 2008 DVDRip Repack [A Release Lounge H264 By Micky22].mp4” to Megaupload.com and e-mailed the URL link for the file to another individual. An infringing copy of this copyrighted work was still present as of October 27, 2011, on a server in the Eastern District of Virginia controlled by the Mega Conspiracy.

In February of 2009, Van Der Kolk told another co-defendant, Mathias Ortmann, that he had uploaded several movies, and then he sent Ortmann a link to “Taken”:

On or about February 7, 2009, via Skype, VAN DER KOLK told ORTMANN, “I have many old videos in my portfolio.” VAN DER KOLK then said, “I uploaded full dvd rips” and then sent ORTMANN a Mega URL to the copyrighted motion picture Taken and commented, “that was a 1013.05 MB upload :)” ORTMANN responded, “looks good :)” and VAN DER KOLK replied, “yeah.”

Three months later, another of Dotcom’s co-defendants, Finn Batato, emailed Ortmann with a message from a customer who had watched “Taken”:

On or about May 25, 2009, BATATO sent an e-mail to ORTMANN that contained customers’ e-mails. One of the customer e-mails indicated: “We watched Taken successfuly and then tried to watch the “Alphabet Killer ” a day later and got the message to upgrade if we wanted to continue watching.”

The alleged facts show that one of Dotcom’s co-defendants, Van Der Kolk, uploaded “Taken” and that two others, Ortmann and Batato, knew about it. Given his admission that he had “uploaded full dvd rips,” and given that the file was named “Taken 2008 DVDRip Repack [A Release Lounge H264 By Micky22].mp4,” it’s obvious that Van Der Kolk knew that this was infringement. These smoking gun emails establish that this infringement was done willfully, with the approval of two other co-defendants.

But what about Dotcom? Why is he charged with this crime? There is no evidence that Dotcom himself knew about this particular movie—nor does there have to be. Count Four of the indictment also alleges aiding and abetting, and Dotcom can be found guilty for the acts taken by his co-defendants since he’s their accomplice. Under federal criminal law, anyone who “aids, abets, counsels, commands, induces or procures” the commission of a federal crime can be punished as if he committed the crime himself. This “reflects a centuries-old view of culpability: that a person may be responsible for a crime he has not personally carried out if he helps another to complete its commission.”[5]

The test is whether Dotcom “(1) takes an affirmative act in furtherance of that offense, (2) with the intent of facilitating the offense’s commission.”[6] The government here alleges ample facts, including smoking gun emails, to show that Dotcom encouraged his co-defendants to commit copyright infringement on an incredible scale. For example, Dotcom forwarded an email from someone complaining about 130 “illegal links” to Ortmann and Van Der Kolk with the following instruction: “Never delete files from private requests like this.” In another email, Dotcom berated Van Der Kolk and two other co-defendants for deleting thousands of links after rightholders complained: “I told you many times not to delete links that are reported in batches of thousands from insignificant sources. . . . [T]he fact that we lost significant revenue because of it justifies my reaction.”

This evidence paints a picture of Dotcom creating Megaupload from the ground up as a profit-making, piracy-focused machine. To pin this crime on Dotcom, the government will have to prove that Van Der Kolk uploaded “Taken” as part of the venture Dotcom associated with, participated in, and sought by his own actions to make succeed.[7] This task hardly seems insurmountable.

Despite what Lessig would have us believe, Count Four clearly alleges facts sufficient to establish a prima facie case for felony copyright infringement of the pre-release movie “Taken.” The movie was uploaded by Van Der Kolk three months before it was released as part of the criminal enterprise Dotcom and his co-defendants participated in willfully. Remarkably, Lessig never even mentions the movie “Taken” in his affidavit.

Count Eight: Scraping YouTube Videos

A look at Count Eight of the indictment results in a similar conclusion. Count Eight accuses Dotcom of felony copyright infringement for scraping videos from YouTube in violation of Section 506(a)(1)(A) of the Copyright Act,[8] which provides:

Any person who willfully infringes a copyright shall be punished as provided under section 2319 of title 18, if the infringement was committed . . . for purposes of commercial advantage or private financial gain[.]

Tracking the language of the statute, Count Eight states:

For the 180 days up to and including October 31, 2007, in the Eastern District of Virginia and elsewhere, the defendants . . . did willfully, and for purposes of commercial advantage and private financial gain, infringe copyrights from the Youtube.com platform, by reproducing and distributing by electronic means, during a 180-day period, at least ten copies and phonorecords of one or more copyrighted works which had a total retail value of more than $2,500.

The superseding indictment and summary of evidence also clearly allege that this crime was committed willfully. The relevant 180-day period is from May of 2007 to October of 2007, but the scraping of YouTube started well before that. In April of 2006, Van Der Kolk messaged Ortmann to see if they had enough server space for the scraped YouTube videos that Dotcom himself had asked for:

On or about April 10, 2006, VAN DER KOLK sent an e-mail to ORTMANN asking “Do we have a server available to continue downloading of the Youtube’s vids? … Kim just mentioned again that this has really priority.”

Van Der Kolk also expressed concern that YouTube might detect the scraping:

On or about April 10, 2006, VAN DER KOLK sent an e-mail to ORTMANN indicating “Hope [Youtube.com is] not implementing a fraud detection system now… * praying *”.

Ortmann responded that this might not be a problem:

On or about April 10, 2006, ORTMANN sent an e-mail to VAN DER KOLK in reply to the “fraud detection” message indicating “Even if they did, the usefulness of their non-popular videos as a jumpstart for Megavideo is limited, in my opinion.”

Van Der Kolk then replied that they only had 30% of YouTube’s videos:

On or about April 10, 2006, VAN DER KOLK sent an e-mail to ORTMANN in reply to the “jumpstart for Megavideo ” message indicating that “Well we only have 30% of their videos yet.. In my opinion it’s nice to have everything so we can descide and brainstorm later how we’re going to benefit from it.”

In February of 2007, Van Der Kolk reminded Ortmann that Dotcom wanted every single YouTube video:

On or about February 11, 2007, VAN DER KOLK sent an e-mail to ORTMANN indicating that “Kim really wants to copy Youtube one to one.”

These emails establish that the co-defendants willfully infringed by scraping as many videos from YouTube as they could at Dotcom’s insistence. These scraped YouTube videos were part of their plan to “jumpstart” the popularity of their websites, and the co-defendants were concerned that YouTube would catch on to what they were doing. In order to cover their tracks, the government explains how the scraped YouTube videos would be made to appear under random users’ accounts:

A preliminary investigation of the data bases and associated software code shows that the Mega Conspiracy implemented a software tool to copy videos from Youtube.com. After copying a video from Youtube.com, the tool would import the video into the account of a randomly-selected, already-existing user of the Mega Sites. In addition, the tool would assign the video a random, false “view” count. This is consistent with what is discussed in Paragraph 28(d), which describes an August 12, 2007 e-mail, where a copyright owner complains that a video from his Youtube.com account appeared to have been infringed by a user on Megavideo.com, but that the Megavideo.com user had not logged on during that time period.

This practice of scraping YouTube continued for many years—presumably resulting in millions of intentional infringements. In January of 2011, one of the co-defendants, Sven Echternach, forwarded an email from an employee to Van Der Kolk and another co-defendant, Julius Bencko, acknowledging that YouTube was still a go-to video source:

On or about January 27, 2011, ECHTERNACH forwarded an e-mail to VAN DER KOLK and BENCKO that an employee from the Megateam in the Philippines wrote that asked about access to Youtube. In that e-mail, the employee admits, “Even video resource sites such as Youtube which is our source for videos which we upload to Megavideo.”

The alleged facts show that several of the co-defendants were involved in the scraping of YouTube under Dotcom’s direct command. This wasn’t some one-off fluke—it was deliberate infringement on an incredible scale. Dotcom’s role in the matter is obvious since he was the one who gave the order to the co-defendants to scrape every single YouTube video. And as with Count Four, this makes him guilty of the crime as if he had committed it himself since he’s an aider and abettor.

Remarkably, Lessig makes no mention of any of this evidence either. The years-long scraping of YouTube videos is not discussed anywhere in his affidavit. Despite Lessig’s claims to the contrary, Count Eight of the indictment clearly alleges facts sufficient to establish a prima facie case for felony copyright infringement.

Conclusion

As the Megaupload saga evolves, we’ll surely hear many more claims about the legal and moral implications of the case. Lessig is not the first, and he will certainly not be the last, to argue that Dotcom and his co-defendants should not be punished for their behavior. Nonetheless, it is important to keep in mind what allegedly happened here: Dotcom and his co-defendants made millions of dollars through the rampant theft and dissemination of countless artists’ and creators’ copyrighted works. For the sake of these artists and creators, who worked hard to produce the works that were unmercifully stolen, let us hope that Dotcom and his co-defendants are held accountable for their crimes.

[1] United States v. Williams, 152 F.3d 294, 299 (4th Cir.1998); Russell v. United States, 369 U.S. 749, 763-64 (2013).

[2] United States v. Thomas, 367 F.3d 194, 197 (4th Cir.2004).

[3] Hamling v. United States, 418 U.S. 87, 117 (1974) (quotations and citation omitted); see also Fed. R. Crim. P. 7(c)(1) (“The indictment or information must be a plain, concise, and definite written statement of the essential facts constituting the offense charged . . . . For each count, the indictment . . . must give the official or customary citation of the statute, rule, regulation, or other provision of law that the defendant is alleged to have violated.”).

[4] See also 18 U.S.C. § 2319(d)(2) (“Any person who commits an offense under section 506(a)(1)(C) of title 17 . . . shall be imprisoned not more than 5 years, fined under this title, or both, if the offense was committed for purposes of commercial advantage or private financial gain[.]”).

[5] Rosemond v. United States, 134 S. Ct. 1240, 1245 (2014).

[6] Id.

[7] United States v. Peoni, 100 F.2d 401, 402 (2d Cir. 1938) (L. Hand, J.) (“It will be observed that all these definitions . . . demand that [the defendant] in some sort associate himself with the venture, that he participate in it as in something that he wishes to bring about, that he seek by his action to make it succeed.”).

[8] See also 18 U.S.C. § 2319(b)(1) (“Any person who commits an offense under section 506(a)(1)(A) of title 17 . . . shall be imprisoned not more than 5 years, or fined in the amount set forth in this title, or both, if the offense consists of the reproduction or distribution, including by electronic means, during any 180-day period, of at least 10 copies or phonorecords, of 1 or more copyrighted works, which have a total retail value of more than $2,500[.]”).

Categories
Copyright Copyright Theory Internet Uncategorized

Ninth Circuit Gets Fair Use Wrong to the Detriment of Creators

The Ninth Circuit’s opinion in Lenz v. Universal is out, and it’s a doozy. The main issue in the case is whether a rightholder has to consider fair use before sending a DMCA takedown notice. Section 512 requires the sender to state that she “has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.” Section 107 says that “the fair use of a copyrighted work . . . is not an infringement of copyright.” The question is whether fair use, which “is not an infringement” under Section 107, is therefore “authorized by . . . the law” under Section 512.

The court concludes that Section 512 “unambiguously contemplates fair use as a use authorized by the law.” This means that rightholders in the Ninth Circuit are now obligated to consider and reject fair use before sending a takedown notice. The court’s new spin on the DMCA places additional obstacles in the way of rightholders—particularly individual creators. The system is already confusing and onerous, and now it burdens people who are not lawyers with the duty to reach legal conclusions. The DMCA notice and takedown regime is a joke, often providing creators and rightholders less than a few minutes of relief before infringing works are reposted, and this opinion only makes the problem worse. But rather than rehash commentary you can read elsewhere, I want to highlight one startling error in the court’s reasoning.

In a bizarre section of the opinion, the Ninth Circuit declares that fair use is not an affirmative defense that excuses infringement: “Given that 17 U.S.C. § 107 expressly authorizes fair use, labeling it as an affirmative defense that excuses conduct is a misnomer[.]” In support, the court purports to quote a footnote from the Eleventh Circuit’s opinion in Bateman for the proposition that fair use is a right:

Although the traditional approach is to view “fair use” as an affirmative defense, . . . it is better viewed as a right granted by the Copyright Act of 1976. Originally, as a judicial doctrine without any statutory basis, fair use was an infringement that was excused—this is presumably why it was treated as a defense. As a statutory doctrine, however, fair use is not an infringement. Thus, since the passage of the 1976 Act, fair use should no longer be considered an infringement to be excused; instead, it is logical to view fair use as a right. Regardless of how fair use is viewed, it is clear that the burden of proving fair use is always on the putative infringer.

This is extremely misleading. The Ninth Circuit makes it sound like the Eleventh Circuit rejects the notion that fair use is an affirmative defense that excuses otherwise infringing conduct. The reality is that the Eleventh Circuit does no such thing. Here’s the full footnote from Bateman, with a paragraph break added:

Fair use traditionally has been treated as an affirmative defense to a charge of copyright infringement See Campbell v. Acuff–Rose Music, Inc., 510 U.S. 569, ––––, 114 S.Ct. 1164, 1177, 127 L.Ed.2d 500 (1994) (stating that “fair use is an affirmative defense”). In viewing fair use as an excused infringement, the court must, in addressing this mixed question of law and fact, determine whether the use made of the original components of a copyrighted work is “fair” under 17 U.S.C. § 107. See Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 560, 105 S.Ct. 2218, 2230, 85 L.Ed.2d 588 (1985) (citing Pacific & Southern Co. v. Duncan, 744 F.2d 1490, 1495 n. 8 (11th Cir.1984), cert. denied, 471 U.S. 1004, 105 S.Ct. 1867, 85 L.Ed.2d 161 (1985)).

Although the traditional approach is to view “fair use” as an affirmative defense, this writer, speaking only for himself, is of the opinion that it is better viewed as a right granted by the Copyright Act of 1976. Originally, as a judicial doctrine without any statutory basis, fair use was an infringement that was excused—this is presumably why it was treated as a defense. As a statutory doctrine, however, fair use is not an infringement. Thus, since the passage of the 1976 Act, fair use should no longer be considered an infringement to be excused; instead, it is logical to view fair use as a right. Regardless of how fair use is viewed, it is clear that the burden of proving fair use is always on the putative infringer.

The Ninth Circuit here cut out the first half of the footnote, where the Eleventh Circuit quotes binding Supreme Court precedent explicitly saying that “fair use is an affirmative defense” and then explains what must be done when analyzing such an “excused infringement.” Even worse, the Ninth Circuit uses an ellipsis to cut out the part in the second half of the footnote where Judge Birch, who authored Bateman, makes clear that he’s “speaking only for himself” when he says that fair use is not an “infringement to be excused.” The Ninth Circuit pretends to be adopting the Eleventh Circuit’s reasoning, when in fact it’s rejecting it.

Judge Birch himself even reiterates the point five years later in his opinion for the Eleventh Circuit in the Suntrust case. In discussing the opinion of the court, he refers to the defendant’s “affirmative defense of fair use.” But then in the accompanying footnote, he likewise says that it’s only his personal opinion that fair use is a right. Here’s what he writes:

I believe that fair use should be considered an affirmative right under the 1976 Act, rather than merely an affirmative defense, as it is defined in the Act as a use that is not a violation of copyright. See Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1542 n. 22 (11th Cir.1996). However, fair use is commonly referred to as an affirmative defense, see Campbell v. Acuff–Rose Music, Inc., 510 U.S. 569, 590, 114 S.Ct. 1164, 1177, 127 L.Ed.2d 500 (1994), and, as we are bound by Supreme Court precedent, we will apply it as such.

Judge Birch fully understands that fair use is an affirmative defense and that binding Supreme Court precedent compels him to “apply it as such.” And twice he has followed that precedent when writing for the Eleventh Circuit. Yet, the Ninth Circuit here makes it sound like it’s agreeing with the Eleventh Circuit in holding that fair use is a right and not an affirmative defense.

The Eleventh Circuit has even explicitly said that Judge Birch’s view is not the law in that circuit. In an opinion from 2010, the Eleventh Circuit rejects an argument made by the defendant that “fair use is merely a denial of copyright infringement rather than an affirmative defense[.]” The defendant had cited Judge Birch for the proposition, but the Eleventh Circuit notes that “a close reading of Judge Birch’s comments reveal that he was expressing his personal views, not the views of this Court,” and it again holds that “the fair use of copyrighted work is an affirmative defense and should be pleaded as such.”

It’s simply disingenuous for the Ninth Circuit to claim that fair use is not an affirmative defense in the Eleventh Circuit. It is an affirmative defense there and in every other circuit because the Supreme Court has said it’s so. Judge Birch doesn’t get to overrule the Supreme Court, and neither does the Ninth Circuit. Yet, that’s what it purports to do here in Lenz v. Universal.

Categories
Commercialization Innovation Inventors Patent Licensing Uncategorized

Google’s Patent Starter Program: What it Really Means for Startups

The following guest post comes from Brad Sheafe, Chief Intellectual Property Officer at Dominion Harbor Group, LLC.

By Brad Sheafe

Recalling its rags-to-riches story of two guys with nothing but a great idea, a garage, and a hope of making the world a better place, Google recently announced its new Patent Starter Program. As part of its commitment to the culture from which it came, Google claims that it simply wants to help startups navigate the patent landscape by assigning them certain patents while it receives a license back. It describes the situation as follows:

The world of patents can be very confusing, cumbersome and often distracting for startups. All too often these days, the first time a startup has to deal with a patent issue is when a patent troll attacks them. Or when a prospective investor may ask them how they are protecting their ideas (“You don’t have any patents???”). These problems are the impetus behind the Patent Starter Program[.]

There are of course many tendentious assertions here – from the well-established definitional problems with the use of the pejorative term “patent troll,” which is often used to attack startups, to the untrue statement that patents are “distracting” for startups (which is false, as any person who watches Shark Tank knows). But we will not go over this well-tread territory here. For our purposes, this statement is notable because it is couched entirely in terms of a desire to help other tech startups. But when one looks at the specific details of the Patent Starter Program (PSP), it’s quite clear that it is designed to benefit Google as well – perhaps even most of all.

On its face, the PSP is advertised as an opportunity for the first 50 eligible participants (“startups or developers having 2014 Revenues between US $500,000 and US $20,000,000”) to select 2 families from Google’s patent portfolio out of an offering of between 3-5 families of Google’s choosing. These families are intended to be broadly relevant to the participant’s business, but Google makes no guarantee that they will be, and there is no “re-do” if the participant doesn’t like what Google offers the first time.

In exchange for access to these patents, many are not paying attention to the fine print that creates some significant contractual restrictions on anyone who uses the PSP. First and foremost, the patents cannot be used to initiate a lawsuit for infringement. They can be used only “defensively,” that is, if the participant is sued for infringement first. In fact, if a participant does choose to assert the supposedly-owned patent rights outside of Google’s terms, the Patent Purchase Agreement punishes the startup by requiring “additional payments” to be made to Google.

The boilerplate text of the Agreement states that this additional payment will be $1 million or more! Although specific payments may end up varying from this based on the negotiating tactics of the startups who make use of the PSP, the punitive nature of this payment is clear. For an undercapitalized startup that is just starting out in the marketplace and perhaps still living on the life support provided by venture capitalists, a $1+ million payment is a monumental charge to write down. This is especially the case if the startup is simply exercising a valid legal right that is integral to all property ownership – the right to keep others from trespassing on one’s property.

Additionally, participants in the PSP must also join the LOT Network (LOT stands for “License on Transfer”), which presents itself as a cross-licensing network committed to reducing the alleged “PAE problem.” Members of the LOT Network must “grant a portfolio-wide license to the other participants” in the LOT Network, but “the license becomes effective ONLY when the participant transfers one or more patents to an entity other than another LOT Network participant, and ONLY for the patent(s) actually transferred.”

On its face, this might still seem a reasonable concession for the “free” acquisition of some of Google’s patents. But the fine print makes it clear that there are additional burdens agreed to by the startup. First, the LOT Network agreement includes all of the participant’s patents, and not just those it acquires from Google. Second, even if one decides later to withdraw from the LOT Network, the agreement explicitly states that all of the patents owned by the participant at the time of withdrawal will continue to remain subject to the terms of the LOT agreement. The LOT Network thus operates in much the same way Don Corleone viewed membership in the “family” – people are welcome in on certain non-negotiable terms, and good luck ever getting out.

These all add up to be incredibly onerous and surprising restrictions on startups, which often need flexibility in the marketplace to adopt their business models. But as the old, late-night television commercials used to say, “But wait, there’s more!” If the terms and conditions of the LOT Network seem highly limiting on the rights associated with patent ownership and overly broad in terms of who gets a license to the applicant’s patents, there’s an even greater surprise in the license-back provisions of Google’s Patent Purchase Agreement. Once one wades through the legalese, it becomes clear that while a participant in the PSP and LOT Network nominally owns the patents granted by Google, these patents are effectively licensed to everyone doing anything.

There is substantial legalese here that is clearly “very confusing, cumbersome and . . . distracting for startups,” the very charge leveled by Google against the patent system as the justification for the PSP and LOT Network. We’ll break it all down in a moment, but here’s the contractual language that creates this veritable universal license. The agreement gives Google, its “Affiliates” (defined to include any “future Affiliates, successors and assigns”), and its “Partners” (defined as “all agents, advisors, attorneys, representatives, suppliers, distributors, customers, advertisers, and users of [Google] and/or [Google] Affiliates”) a license to the patents Google grants to the participant if the participant were ever to allege infringement by any of these partners through their use of any of Google’s “Products” (defined as “…all former, current and future products, including but not limited to services, components, hardware, software, websites, processes, machines, manufactures, and any combinations and components thereof, of [Google] or any [Google] Affiliates that are designed, developed, sold, licensed, or made, in whole or substantial part, by or on behalf of that entity”).

So let’s review: A startup can acquire some patents from Google, but only from the handful of patents that Google itself picks out (which may or may not relate to the participant’s business). The startup must agree to an incredibly broad license-back provisions and promise not to assert any ownership rights (unless the participant gets sued first) on penalty of $1+ million payment to Google. And the startup is bound to join the LOT Network, where Google execs are on the Board of Directors, which further reduces the rights not only in the patents granted by Google, but in the startup’s entire portfolio of patents, including most importantly patents not acquired from Google.

To be fair, Google is far from the only large corporation to take advantage of its size and financial strength to mold public perception, markets, and even government policy to its liking. Some might even turn a blind eye, calling it “good business” and accepting such behavior as the price we all must pay for the products and services that established corporations like Google offer. To some extent, there is some truth in this – most of us use Google’s services every day and many of us working in the innovation industries continue to be impressed with its innovative approach to those services and its products.

When it comes to the underpinnings of the innovation economy – the startups that drive economic growth and the patent system that provides startups with legal and financial security against established market incumbents (again, as any episode of Shark Tanks makes clear) – the restrictive contractual conditions in the PSP and LOT Network give one pause. After all, Google began as a startup relying on fully-licensable IP, despite the fact that Google apparently wants us all to forget about its founding page-rank patent (Patent No. 6,285,999, filed on January 9, 1998). One will search in vain in Google’s corporate history website, for instance, for evidence of Larry Page’s patent. Yet it’s well-established that Google touted this “patent-pending” search technology in its announcement in 1999 that it had received critical venture-capital funding.

The next Google is out there, counting on the same patent rights to be in place for it to rely upon just as Google did in the late 1990s. Instead of making every effort to collapse the very structure on which its success was built, shouldn’t Google be the first to defend it? Competition will always be the greatest motivator for those who have what it takes to compete – and with its balance sheet and world-renowned collection of bright, inventive minds, Google should not be afraid of competition. Or worse, give the appearance of promoting competition and then use that appearance to dupe potentially competitive startups into emasculating the intellectual property those startups need to actually compete.

So, if Google and its far-flung business partners in the high-tech sector want to support startups on terms that are reasonable for both the startup and Google given their relative positions, there is certainly nothing wrong with this. But, Google shouldn’t hide behind the bugaboos of “patent trolls” and the supposed “complexity” of a patent system designed to benefit small innovators in order to drive a largely one-sided partnership while hiding behind confounding legalese that certainly does not match its feel-good rhetoric to startups, to Congress, or to the public.

If an established company wants to support innovation by providing worthy startups with the stepping stones they need for success, then go for it! Everyone should be 100% behind that concept – but that is not what Google’s PSP or the LOT Network represent. These aren’t stepping stones to successful innovation, but rather they are deliberately fashioned and enticingly placed paving stones that lead to the shackling of startups with terms and covenants that give the appearance of ownership but strip away the very rights that make that ownership meaningful – and all the while Google benefits both from the relationship and the public perception of munificence. When one is using someone else’s idea, one should compensate them for it, and the nature of the license and the compensation should certainly match what one is saying publicly about this agreement.

All we can ask, Google, is that you treat others as you were treated in the past as a startup, and now approximately fifteen years later as a market incumbent just, well, Don’t Be Evil.

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Uncategorized

The MovieTube Litigation: Who Needs SOPA?

Cross-posted from the Law Theories blog.

On July 24th, six major studios sued MovieTube for direct and indirect copyright infringement, trademark infringement, and unfair competition in the Southern District of New York. MovieTube is alleged to have operated twenty-nine foreign-based websites that streamed, displayed, and uploaded infringing copies of the studios’ copyrighted works. Not knowing the defendants’ true identities, the studios brought suit against the “John Does, Jane Does and/or XYZ Corporations” that allegedly operated the MovieTube sites. The district court allowed the studios to serve process on the defendants via email.

The remedies being sought by the studios have raised a few feathers. MovieTube operates out of Singapore, and the studios argue that it is “essential . . . that injunctive relief include orders directed at third parties whose services enable Defendants’ activities.” Since MovieTube relies on “domain name registries and other third-party service providers and their network of affiliates to carry out their activities,” the studios are seeking an order “requiring that: (i) registries and registrars disable the domain names used to operate the MovieTube Websites and (ii) third-party service providers cease providing services to the MovieTube Websites and Defendants in relation to the Infringing Copies.”

While some have suggested that the studios “didn’t get the memo that SOPA failed,” I think the real question is, “Who needs SOPA?” Everyone knows that SOPA never became law, and the studios haven’t brought any claims under SOPA. Moreover, even if SOPA were the law, it would make no difference here. SOPA would have only provided private rightholders with statutory remedies against a “payment network provider” or an “Internet advertising service.” Only actions brought by the Attorney General would qualify for statutory remedies against service providers such as registrars, registries, and search engines.

The studios instead argue that the court’s power to issue such orders comes from:

(i) 17 U.S.C. § 502, which allows a court to “grant temporary and final injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a copyright;”

(ii) 15 U.S.C § 1116(a), which provides for an injunction “according to the principles of equity and upon such terms as the court may deem reasonable, to prevent the violation of any right of the registrant of a mark registered in the Patent and Trademark Office or to prevent a violation under subsection (a), (c), or (d) of section 43 [15 U.S.C. § 1125];”

(iii) Federal Rule of Civil Procedure 65(d)(2), which imbues courts with the power to issue injunctions that bind parties, parties’ officers, agents, servants, employees, and attorneys and any “other persons who are in active concert or participation with” any such individuals or entities;

(iv) the Court’s “inherent equitable power to issue provisional remedies ancillary to its authority to provide final equitable relief,” which encompasses injunctions as broad as restraining defendants’ assets to preserve them for disgorgement of profits and equitable accounting . . . and/or

(v) the Court’s power pursuant to 28 U.S.C. § 1651 (the All Writs Act) to issue all writs necessary or appropriate in aid of its jurisdiction and agreeable to the usages and principles of law.

The question is whether the court has the power under these authorities to issue an injunction against MovieTube that binds third-party service providers. SOPA has nothing to do with it.[1]

After the studios filed suit, the MovieTube defendants shut down their operations. Nonetheless, a group of tech giants, comprised of Google, Facebook, Tumblr, Twitter, and Yahoo, filed an amicus brief arguing that “the proposed injunction violates Federal Rule of Civil Procedure 65 and the safe-harbor provisions of the DMCA.” Specifically, the amici claim that an injunction against MovieTube couldn’t bind third parties such as themselves because Rule 65(d)(2) and Section 512(j) of the DMCA wouldn’t allow it.[2] I don’t think either of these two arguments holds much water, especially for service providers like these amici that link to or host infringing material.

Blockowicz and Rule 65(d)(2)

Rule 65(d)(2) provides that only three groups may be bound by an injunction:

(2) Persons Bound. The order binds only the following who receive actual notice of it by personal service or otherwise:

(A) the parties;

(B) the parties’ officers, agents, servants, employees, and attorneys; and

(C) other persons who are in active concert or participation with anyone described in Rule 65(d)(2)(A) or (B).

The amici argue that Rule 65(d)(2) can’t bind third parties like them since it cannot be shown that they are in “active concert or participation” with the MovieTube defendants. In support, they cite the Seventh Circuit’s decision in Blockowicz v. Williams. The issue there was whether nonparty Ripoff Report was bound by an injunction against some of its users that had posted defamatory material to its site. Ripoff Report conceded “actual notice” of the injunction, but it argued that it was not in “active concert” with its defaming users.

The Seventh Circuit agreed:

Actions that aid and abet in violating the injunction must occur after the injunction is imposed for the purposes of Rule 65(d)(2)(C), and certainly after the wrongdoing that led to the injunction occurred. This requirement is apparent from Rule 65(d)(2)’s text, which requires that nonparties have “actual notice” of the injunction. A non-party who engages in conduct before an injunction is imposed cannot have “actual notice” of the injunction at the time of their relevant conduct. . . .

Further, the [plaintiffs] presented no evidence that [Ripoff Report] took any action to aid or abet the defendants in violating the injunction after it was issued, either by enforcing the Terms of Service or in any other way. . . . [Ripoff Report’s] mere inactivity is simply inadequate to render them aiders and abettors in violating the injunction.

Thus, Ripoff Report was not in “active concert” with its users by simply continuing to host the defamatory material that had been posted to its site before the injunction was issued. The amici here claim that this same logic applies to them: “[E]ven if Plaintiffs had shown that the Neutral Service Providers rendered services to the Defendants, merely continuing to provide those services cannot amount to acting in concert.’”

Blockowicz is not binding precedent here, of course, but the district court could find it persuasive. I think it’s clear that the Seventh Circuit reached the wrong conclusion. The test is whether the third party has actual notice of the injunction and then aids and abets the enjoined defendant. It’s black letter law that anyone who publishes or republishes defaming material is strictly liable for the defamation. On the other hand, a distributor is not liable as a publisher unless it knows or has reason to know that the material is defamatory.

For example, a book publisher is strictly liable for publishing a defamatory book. A bookseller that sells that defamatory book is not liable for the defamation unless it knows the material is defamatory. If it learns of the defamatory nature of the book and then continues to sell it, the bookseller is considered a publisher and is liable for the defamation along with the book publisher. In other words, the passive book distributor becomes an active aider and abettor of the book publisher once it gains knowledge of the defamation and fails to stop selling the book.

Of course, this rule from the physical world does not apply when it’s done on the internet. Section 230(c)(1) of the Communications Decency Act provides: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” While the statute on its face only grants immunity to a “publisher,” courts have interpreted it broadly to apply to a “distributor” as well. As the Fourth Circuit put it in the leading case, “distributor liability. . . is merely a subset, or a species, of publisher liability, and is therefore also foreclosed by § 230.”

Section 230’s immunity for a publisher extends to a distributor with knowledge because that knowledge transforms the distributor into a publisher. The plaintiffs in Blockowicz could not go after Ripoff Report directly because Section 230 granted it immunity from civil liability. The reason it had such immunity was precisely because the knowledge of the defamation transformed it from a passive distributor to an active publisher. The plaintiffs instead went after the defamers directly, asking the court to bind Ripoff Report under Rule 65(d)(2). The Seventh Circuit’s refusal to stop Ripoff Report from aiding and abetting the enjoined defendants left the plaintiffs without a remedy—an absurd result.

Turning back to MovieTube, the amici claim that an injunction against the defendants could not bind them since they wouldn’t be aiding and abetting the defendants. This is simply not true. As with defamation, it’s black letter law that a service provider that knowingly provides material support to an infringer is contributorily liable for the infringement. In other words, the passive service provider becomes an active aider and abettor of the infringer once it gains knowledge of the underlying infringement and fails to act. This is why service providers such as the amici remove infringing material once they receive notice that they are linking to or hosting it.

When it comes to copyright infringement, the amici cannot hide behind the broad immunities of Section 230. They instead can only hope to qualify for the limitations on liability found in Section 512 of the DMCA. Of course, these safe harbors don’t protect the amici if they learn of infringing material on their systems and fail to remove it. Under Section 512(d)(1), a search engine such as Google or Yahoo does not get immunity unless it, “upon obtaining . . . knowledge or awareness” of infringing material, “acts expeditiously to remove, or disable access to, the material.”[3] The same holds true under Section 512(c)(1) for sites like Facebook, Tumblr, and Twitter that host content uploaded by their users.

When a service provider learns of infringing material on its system and fails to remove it, it becomes an aider and abettor that is jointly and severally liable with the direct infringer. But this is only true when that service provider’s contribution to the infringement is material. The DMCA codified exclusions to the safe harbors for contributions that were decidedly material, such as linking to or hosting infringing material. However, things get hazier at the margins. For example, a panel of the Ninth Circuit once split over whether a credit card processor materially contributes by servicing an infringing site. Over the vociferous dissent of Judge Alex Kozinski,[4] the two-judge majority held that it did not.

The problem for Google, Facebook, Tumblr, Twitter, and Yahoo is that there is no doubt that their failure to act once they receive notice of infringing material unquestionably constitutes aiding and abetting. Not only is it enough to find them in “active concert” with their users under Rule 65(d)(2), it’s enough to hold them contributorily liable for the infringement. They aren’t like a credit card processor, where the materiality of the contribution is in doubt. It’s well-settled that what the amici do—linking to and hosting copyrighted works—constitutes material contribution. That’s why the safe harbors under Section 512, which codified the case law, don’t apply to service providers such as them that fail to remove infringing material upon notice.

[1] I get that many people are just playing the SOPA card for rhetorical effect. But some are also arguing that SOPA would have provided rightholders with these remedies, and since SOPA is not the law, the studios therefore don’t have these remedies available. This argument is simply fallacious. With or without SOPA, the issue remains whether the court has the authority to grant the studios the requested relief.

[2] The amici do not address the existence of such authority under the Lanham Act or under the court’s inherent equitable power, and neither do I. They do argue that the All Writs Act provides no such authority, but I leave that argument aside.

[3] See also Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1172 (9th Cir. 2007) (“Accordingly, we hold that a computer system operator can be held contributorily liable if it has actual knowledge that specific infringing material is available using its system and can take simple measures to prevent further damage to copyrighted works yet continues to provide access to infringing works. . . . Applying our test, Google could be held contributorily liable if it had knowledge that infringing Perfect 10 images were available using its search engine, could take simple measures to prevent further damage to Perfect 10’s copyrighted works, and failed to take such steps.”) (quotations and citations omitted).

[4] See Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788, 816 (9th Cir. 2007) (Kozinski, J., dissenting) (“Defendants here are alleged to provide an essential service to infringers, a service that enables infringement on a massive scale. Defendants know about the infringements; they profit from them; they are intimately and causally involved in a vast number of infringing transactions that could not be consummated if they refused to process the payments; they have ready means to stop the infringements.”).

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Federal Circuit Should Reconsider Ariosa v. Sequenom: The Panel Decision Threatens Modern Innovation

Here’s a brief excerpt of a post by Devlin Hartline that was published on IPWatchdog.

In an amicus brief co-authored by Kevin Noonan of McDonnell Boehnen Hulbert & Berghoff LLP and Professor Adam Mossoff of George Mason University School of Law, twenty-three law professors urge the Federal Circuit to take a second look at the innovation-threatening panel decision in Ariosa v. Sequenom. They filed their amicus brief on Thursday, August 27, 2015, in support of Sequenom’s petition for rehearing en banc.

Before turning to the important points made by these amici, I’ll first explain what the Sequenom case is about and how the Federal Circuit panel reached the wrong conclusion in striking down Sequenom’s important innovation for diagnostic testing. . . .

To read the rest of this post, please visit IPWatchdog.