Copyrights: Copyrights: Lessons and Lessons and

Practice Tips From Practice Tips From Recent CasesRecent Cases

Kristie PrinzKristie PrinzPrinz Law OfficesPrinz Law Offices

kristieprinz@earthlink.netkristieprinz@earthlink.netAugust 5, 2004August 5, 2004

© 2004 Kristie Prinz© 2004 Kristie Prinz

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Issues in Recent Issues in Recent Copyright LitigationCopyright Litigation

Ownership of Intellectual Ownership of Intellectual PropertyProperty

Reverse EngineeringReverse Engineering Technology LicensingTechnology Licensing Circumvention of TechnologyCircumvention of Technology Contributory InfringementContributory Infringement

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Ownership of Intellectual Ownership of Intellectual Property: Individual v. Property: Individual v.

Joint OwnershipJoint OwnershipRecent cases have looked at what constitutes a Recent cases have looked at what constitutes a

work work for hire, and how to distinguish between for hire, and how to distinguish between

individual individual and joint ownership.and joint ownership.

17 U.S.C. §101 states that a work for hire is either:17 U.S.C. §101 states that a work for hire is either:

A work created by an employee in the scope of employment; A work created by an employee in the scope of employment; OROR

A work specially ordered or commissioned or a work A work specially ordered or commissioned or a work expressly agreed by the parties in signed written agreement expressly agreed by the parties in signed written agreement to be a work made for hire. to be a work made for hire.

17 U.S.C. § 101 states that a “joint work” is one “prepared by 17 U.S.C. § 101 states that a “joint work” is one “prepared by two or more authors with the intention that their contributions two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary be merged into inseparable or interdependent parts of a unitary whole.”whole.”

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Ownership of Intellectual Ownership of Intellectual Property: Individual v. Property: Individual v.

Joint OwnershipJoint Ownership Establishing full and independent Establishing full and independent

ownership of copyrighted material is ownership of copyrighted material is critical to capitalizing on the value of the critical to capitalizing on the value of the intellectual property.intellectual property.

Problems may arise where a question has Problems may arise where a question has arisen as to whether intellectual property arisen as to whether intellectual property was created out of a work for hire was created out of a work for hire relationship, and where no clear relationship, and where no clear understanding exists between the parties.understanding exists between the parties.

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Ownership of Intellectual Ownership of Intellectual Property: What Property: What

Constitutes a Work for Constitutes a Work for Hire?Hire?

Ownership Issue Addressed in Ownership Issue Addressed in Warren v. Fox Family Warren v. Fox Family WorldwideWorldwide, 66 USPQ2d 1682, 328 F.3d 1136 (9, 66 USPQ2d 1682, 328 F.3d 1136 (9thth Cir. Cir.

2003).2003).

Warren filed complaint alleging infringement of his Warren filed complaint alleging infringement of his copyrights in musical compositions created for use in the copyrights in musical compositions created for use in the series “Remington Steele.” series “Remington Steele.”

Defendants argued that agreements entered into with Defendants argued that agreements entered into with Warren created a work for hire relationship and that he did Warren created a work for hire relationship and that he did not own the copyrights.not own the copyrights.

Ninth Circuit held that the musical compositions were works Ninth Circuit held that the musical compositions were works for hire, and that, because Warren was not the legal owner of for hire, and that, because Warren was not the legal owner of the copyrights, he had no standing to sue for infringement. the copyrights, he had no standing to sue for infringement.

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Work for Hire: Key Issue in Work for Hire: Key Issue in Warren CaseWarren Case

Why did the Court conclude a work for hire Why did the Court conclude a work for hire relationship existed?relationship existed?

The employment agreements expressly stated that MTM The employment agreements expressly stated that MTM Productions would own all right, title, and interest in Productions would own all right, title, and interest in Warren’s services. The fact that the agreements did not Warren’s services. The fact that the agreements did not expressly state that the matters were “specially ordered or expressly state that the matters were “specially ordered or commissioned” was not significant. No requirement exists commissioned” was not significant. No requirement exists that work for hire agreements include any specific wording.that work for hire agreements include any specific wording.

The payment of royalties to Warren in addition to a fixed The payment of royalties to Warren in addition to a fixed sum does not demonstrate that the agreements were not sum does not demonstrate that the agreements were not works for hire, despite the fact that the payment of royalties works for hire, despite the fact that the payment of royalties may weigh against finding a work for hire relationship.may weigh against finding a work for hire relationship.

The Court concluded that the plain language of the The Court concluded that the plain language of the agreements indicated that any works were created on behalf agreements indicated that any works were created on behalf of MTM Productions, that MTM Productions would have of MTM Productions, that MTM Productions would have final judgment on all matters, including artistic and final judgment on all matters, including artistic and creative matters, and that Warren’s services would be creative matters, and that Warren’s services would be rendered at the direction of MTM Productions.rendered at the direction of MTM Productions.

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Work for Hire: Also Key Issue in Work for Hire: Also Key Issue in Ulloa CaseUlloa Case

Different Outcome inDifferent Outcome in Ulloa v. Universal Music and Video Ulloa v. Universal Music and Video DistributionDistribution, 70 USPQ2d 1835, 303 F. Supp.2d 409 (S.D. , 70 USPQ2d 1835, 303 F. Supp.2d 409 (S.D.

N.Y. N.Y. 2004).2004).

Ulloa was invited to the Base-Line Recording Studios by a friend Ulloa was invited to the Base-Line Recording Studios by a friend of Carter, known professionally as “JayZ,” where she created and of Carter, known professionally as “JayZ,” where she created and sang a countermelody to a song that JayZ was recording. JayZ sang a countermelody to a song that JayZ was recording. JayZ liked the countermelody, and Ulloa recorded it for possible liked the countermelody, and Ulloa recorded it for possible inclusion in the song.inclusion in the song.

When Defendants refused to negotiate with Ulloa for payment for When Defendants refused to negotiate with Ulloa for payment for her work on the countermelody, she filed a lawsuit, alleging her work on the countermelody, she filed a lawsuit, alleging copyright infringement and joint authorship.copyright infringement and joint authorship.

Defendants claimed that the sound recording of Ulloa’s Defendants claimed that the sound recording of Ulloa’s countermelody was a work for hire and that she was an employee countermelody was a work for hire and that she was an employee at the time it was recorded.at the time it was recorded.

Southern District of New York held in favor of Ulloa on the work Southern District of New York held in favor of Ulloa on the work for hire issue but in favor of Defendants on the joint authorship for hire issue but in favor of Defendants on the joint authorship issue.issue.

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Work for Hire: Also Key Issue in Work for Hire: Also Key Issue in Ulloa CaseUlloa Case

Why did the Court rule against the existence of a Why did the Court rule against the existence of a work for hire relationship?work for hire relationship? Southern District of New York applied the five-part Second Circuit Southern District of New York applied the five-part Second Circuit

test for the existence of a work for hire arrangement:test for the existence of a work for hire arrangement: Hiring party’s right to control the manner and means of Hiring party’s right to control the manner and means of

creationcreation Skill requiredSkill required Provision of employee benefitsProvision of employee benefits Tax treatment of hired partyTax treatment of hired party Whether hiring party has the right to assign additional projects Whether hiring party has the right to assign additional projects

to the hired party.to the hired party.

Court found in favor of Ulloa on the control, skill, employee Court found in favor of Ulloa on the control, skill, employee benefits, and assignment issue. benefits, and assignment issue.

Court conceded that Ulloa completed a W-4 form and Defendants Court conceded that Ulloa completed a W-4 form and Defendants withheld taxes from paychecks to Ulloa through the American withheld taxes from paychecks to Ulloa through the American Federation of Television and Radio Artists (“AFTRA”), but found Federation of Television and Radio Artists (“AFTRA”), but found that Ulloa never believed she was an employee of Defendants. that Ulloa never believed she was an employee of Defendants. Instead, AFTRA required her to complete a W-4 tax form before Instead, AFTRA required her to complete a W-4 tax form before they would assist her in negotiating with Defendants for payment. they would assist her in negotiating with Defendants for payment. The payments were only made after Ulloa began to threaten The payments were only made after Ulloa began to threaten litigation.litigation.

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Joint Ownership: Another Key Issue in Joint Ownership: Another Key Issue in Ulloa CaseUlloa Case

Why did the Court rule against the Why did the Court rule against the existence of joint ownership?existence of joint ownership?

The Court stated that to find joint The Court stated that to find joint authorship, an intent must have been authorship, an intent must have been shared by Ulloa and JayZ to be co-shared by Ulloa and JayZ to be co-authors.authors.

The Court found that Ulloa could not The Court found that Ulloa could not demonstrate that JayZ or any Defendants demonstrate that JayZ or any Defendants ever intended to share authorship with ever intended to share authorship with Ulloa, and therefore granted Defendant’s Ulloa, and therefore granted Defendant’s motion for summary judgment on this motion for summary judgment on this issue.issue.

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What Are the Lessons To be What Are the Lessons To be Learned From These Two Learned From These Two

Cases?Cases? Employers hiring non-employees to perform tasks that may Employers hiring non-employees to perform tasks that may

lead to copyrightable material should enter into an written lead to copyrightable material should enter into an written agreement before any intellectual property is created, which agreement before any intellectual property is created, which defines the terms of the relationship, including the tax defines the terms of the relationship, including the tax treatment of the hired party, and clearly states the parties’ treatment of the hired party, and clearly states the parties’ intentions for ownership of intellectual property.intentions for ownership of intellectual property.

The work for hire agreement need not contain specific The work for hire agreement need not contain specific language, but it may be helpful for the agreement to specify language, but it may be helpful for the agreement to specify that the employer will own “all right, title, and interest” in any that the employer will own “all right, title, and interest” in any copyrightable material, and that the Employer will direct and copyrightable material, and that the Employer will direct and control what work is performed.control what work is performed.

Non-employees should be paid in a fixed amount (without Non-employees should be paid in a fixed amount (without royalties or other benefits).royalties or other benefits).

If parties intend to share ownership in copyrightable material, If parties intend to share ownership in copyrightable material, they should enter into an agreement that expressly states their they should enter into an agreement that expressly states their intentions to jointly own the intellectual property and defines intentions to jointly own the intellectual property and defines the terms of the joint ownership.the terms of the joint ownership.

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Ownership of Intellectual Ownership of Intellectual PropertyProperty

Is the right to sue for copyright infringement Is the right to sue for copyright infringement transferable?transferable?Silvers v. Sony Pictures EntertainmentSilvers v. Sony Pictures Entertainment, 66 USPQ2d 1951, , 66 USPQ2d 1951,

330 F.3d 1304 (9330 F.3d 1304 (9thth Cir. 2003). Cir. 2003).

Silvers wrote a script called “The Other Woman” pursuant to a work for hire Silvers wrote a script called “The Other Woman” pursuant to a work for hire arrangement for Frank and Bob Films II, aka Von Zerneck/Sertner Films, arrangement for Frank and Bob Films II, aka Von Zerneck/Sertner Films, which was made into a CBS movie.which was made into a CBS movie.

Sony released the motion picture “Stepmom.”Sony released the motion picture “Stepmom.”

After the release of Stepmom, Von Zerneck/Sertner Films assigned to Silvers After the release of Stepmom, Von Zerneck/Sertner Films assigned to Silvers the right to sue for copyright infringement on her script but retained the right to sue for copyright infringement on her script but retained ownership of all other rights.ownership of all other rights.

Silvers filed a complaint against Sony for copyright infringement and unfair Silvers filed a complaint against Sony for copyright infringement and unfair competition.competition.

District court ruled that an accrued cause of action for copyright infringement District court ruled that an accrued cause of action for copyright infringement may be assigned to a third party.may be assigned to a third party.

Ninth Circuit upheld the District Court’s ruling.Ninth Circuit upheld the District Court’s ruling.

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Assignment of a Right to Sue: Assignment of a Right to Sue: Key Issue in Silvers CaseKey Issue in Silvers Case

Ninth Circuit cited Ninth Circuit cited Nimmer on CopyrightNimmer on Copyright for the for the proposition that an assignee of a cause of action for proposition that an assignee of a cause of action for accrued infringement has standing to sue even if the accrued infringement has standing to sue even if the assignor retains ownership of all other copyright rights.assignor retains ownership of all other copyright rights.

Court found that the legal or beneficial owner of a Court found that the legal or beneficial owner of a copyright is not the only party entitled to bring an copyright is not the only party entitled to bring an action for copyright infringement.action for copyright infringement.

Court found that Congress did not intend to preclude Court found that Congress did not intend to preclude the subdivision, separate ownership, and/or separate the subdivision, separate ownership, and/or separate enforcement of any copyright owner’s exclusive rights. enforcement of any copyright owner’s exclusive rights.

The Court relied in part on the law of the Fifth Circuit The Court relied in part on the law of the Fifth Circuit to state that an express assignment after the to state that an express assignment after the occurrence of infringement for actions that may have occurrence of infringement for actions that may have accrued from copyright infringement was not against accrued from copyright infringement was not against public policy.public policy.

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What are the Lessons to be What are the Lessons to be Learned from Silvers?Learned from Silvers?

The parties of a work for hire agreement should The parties of a work for hire agreement should consider whether the hiring party may seek to assign consider whether the hiring party may seek to assign back to the hired party the right to sue for back to the hired party the right to sue for infringement of her/his copyrighted materials, and if infringement of her/his copyrighted materials, and if so, should draft any such agreement accordingly.so, should draft any such agreement accordingly.

If an employer having a work for hire relationship If an employer having a work for hire relationship with the creator of copyrighted materials elects not to with the creator of copyrighted materials elects not to sue for copyright infringement, then the employer sue for copyright infringement, then the employer should consider whether or not the hired party may should consider whether or not the hired party may be interested in pursuing the legal action against the be interested in pursuing the legal action against the copyright infringer, and may want to consider copyright infringer, and may want to consider assigning.assigning.

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Practice Tips on Practice Tips on Addressing Ownership Addressing Ownership

IssuesIssues Address intellectual property issues at the beginning of any Address intellectual property issues at the beginning of any

working relationship, prior to the creation of intellectual working relationship, prior to the creation of intellectual property, and get the understanding in writing. property, and get the understanding in writing.

Structure any work for hire agreements very carefully—not Structure any work for hire agreements very carefully—not only does the amount of compensation to be paid matter—only does the amount of compensation to be paid matter—but it also is important to include in the agreements but it also is important to include in the agreements carefully drafted provisions on (a) the ownership, carefully drafted provisions on (a) the ownership, protection, and infringement of intellectual property; (b) protection, and infringement of intellectual property; (b) the performance of services; (c) the treatment of tax and the performance of services; (c) the treatment of tax and benefit issues; and (d) the assignment of rights.benefit issues; and (d) the assignment of rights.

If the parties seek joint ownership of any intellectual If the parties seek joint ownership of any intellectual property arising from a relationship, address up front the property arising from a relationship, address up front the parties’ understandings as to how joint ownership is going parties’ understandings as to how joint ownership is going to work, particularly with respect to intellectual property to work, particularly with respect to intellectual property ownership, protection, and infringement issues, and enter ownership, protection, and infringement issues, and enter into a written agreement that reflects those understandings. into a written agreement that reflects those understandings.

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Key Decision Impacting Reverse Key Decision Impacting Reverse Engineering in the Software IndustryEngineering in the Software Industry

Bowers v. Baystate TechnologiesBowers v. Baystate Technologies, 320 F.3d 1317 (Fed. , 320 F.3d 1317 (Fed. Cir. Cir.

2003).2003).

Reverse engineering—the process of decompiling object Reverse engineering—the process of decompiling object code and using the source code to develop a compatible code and using the source code to develop a compatible product—has historically been permitted as a Fair Use product—has historically been permitted as a Fair Use under U.S. Copyright Law and is a common practice in the under U.S. Copyright Law and is a common practice in the industry.industry.

Tension has always existed between large software Tension has always existed between large software companies seeking to secure their investment and smaller companies seeking to secure their investment and smaller software companies or developers seeking interoperability software companies or developers seeking interoperability of software.of software.

Federal Circuit’s decision in Bowers establishes for the Federal Circuit’s decision in Bowers establishes for the first time that a company can prohibit reverse engineering first time that a company can prohibit reverse engineering of their products through a shrink-wrap license.of their products through a shrink-wrap license.

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Bowers v. Baystate Bowers v. Baystate TechnologiesTechnologies

Bowers sold a bundled software product with a Bowers sold a bundled software product with a shrink-wrap license prohibiting reverse shrink-wrap license prohibiting reverse engineering.engineering.

Baystate obtained copies of the Bowers’ product Baystate obtained copies of the Bowers’ product and introduced its own product incorporating and introduced its own product incorporating many of the features of Bowers’ product.many of the features of Bowers’ product.

Bowers sued Baystate for copyright and patent Bowers sued Baystate for copyright and patent infringement and for breach of contract.infringement and for breach of contract.

A jury found for Bowers and awarded damages on A jury found for Bowers and awarded damages on all three claims, but the district court set aside the all three claims, but the district court set aside the copyright damages as duplicative of the copyright copyright damages as duplicative of the copyright damages. Both parties appealed.damages. Both parties appealed.

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Bowers v. Baystate Bowers v. Baystate TechnologiesTechnologies

Federal Circuit held that the Copyright Act does not Federal Circuit held that the Copyright Act does not preempt the state contract law action for breach of a preempt the state contract law action for breach of a prohibition against reverse engineering in a shrink-wrap prohibition against reverse engineering in a shrink-wrap license. license.

Court applied First Circuit case law indicating that private Court applied First Circuit case law indicating that private parties are free to forego contractually the ability to parties are free to forego contractually the ability to reverse engineer a software product and are likewise free reverse engineer a software product and are likewise free to breach the agreement and pay damages accruing from to breach the agreement and pay damages accruing from the breach.the breach.

Federal Circuit found that the Bowers shrink-wrap Federal Circuit found that the Bowers shrink-wrap agreement unambiguously prohibits reverse engineering agreement unambiguously prohibits reverse engineering and that the evidence clearly supports that Baystate and that the evidence clearly supports that Baystate breached its contract with Bowers.breached its contract with Bowers.

Baystate filed a petition for a writ of certiorari on April 29, Baystate filed a petition for a writ of certiorari on April 29, 2003, but the Supreme Court declined to hear the case.2003, but the Supreme Court declined to hear the case.

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Consequences of Bowers Consequences of Bowers DecisionDecision

Federal Circuit’s decision that private Federal Circuit’s decision that private parties can contract to protect their parties can contract to protect their trade secrets through reverse trade secrets through reverse engineering remains intact.engineering remains intact.

The decision may limit the ability of The decision may limit the ability of the software industry to achieve the software industry to achieve interoperability between programs.interoperability between programs.

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Lessons from Bowers Lessons from Bowers DecisionDecision

Companies worried about losing their market share Companies worried about losing their market share and/or trade secrets as a result of reverse and/or trade secrets as a result of reverse engineering should include with their products engineering should include with their products shrink-wrap agreements prohibiting reverse shrink-wrap agreements prohibiting reverse engineering. engineering.

Companies buying products that contain shrink-Companies buying products that contain shrink-wrap licenses prohibiting reverse engineering wrap licenses prohibiting reverse engineering should carefully review and adhere to the terms of should carefully review and adhere to the terms of those licenses, which may be enforceable against those licenses, which may be enforceable against them. them.

Engineers reverse engineering any software Engineers reverse engineering any software program should verify to make certain that they do program should verify to make certain that they do not reverse engineer a product that was purchased not reverse engineer a product that was purchased with a shrink-wrap license that prohibits reverse with a shrink-wrap license that prohibits reverse engineering.engineering.

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Open Source Licensing Open Source Licensing LitigationLitigation

SCO Group v. International Business SCO Group v. International Business

MachinesMachines SCO acquired the rights to Unix intellectual SCO acquired the rights to Unix intellectual

property.property.

SCO filed suit against IBM alleging that IBM SCO filed suit against IBM alleging that IBM breached a contract with SCO by incorporating Unix breached a contract with SCO by incorporating Unix Code into Linux, which is covered in the General Code into Linux, which is covered in the General Public License (“GPL”) open source license. Public License (“GPL”) open source license.

SCO has also sent letters to 1,500 Linux customers SCO has also sent letters to 1,500 Linux customers accusing them of illegally using SCO’s intellectual accusing them of illegally using SCO’s intellectual property.property.

IBM and Red Hat, the largest seller of Linux IBM and Red Hat, the largest seller of Linux software, have filed countersuits against SCO.software, have filed countersuits against SCO.

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Potential Consequences of SCO Potential Consequences of SCO LitigationLitigation

Litigation is likely to slow the growth of the Litigation is likely to slow the growth of the GNU/Linux operating system, which would GNU/Linux operating system, which would negatively impact the software industry, since negatively impact the software industry, since Linux is the most effective alternative available Linux is the most effective alternative available to Microsoft’s Windows.to Microsoft’s Windows.

Litigation may have the effect of discouraging Litigation may have the effect of discouraging the use of open source licenses in the future.the use of open source licenses in the future.

Microsoft could end up being the real winner of Microsoft could end up being the real winner of the litigation, given the fact that it has the most the litigation, given the fact that it has the most to gain from halting the growth and use of Linux.to gain from halting the growth and use of Linux.

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Lessons From SCO Lessons From SCO LitigationLitigation

The utilization of open source software can have real legal The utilization of open source software can have real legal consequences, and users assume the full legal risk of using consequences, and users assume the full legal risk of using software with an unknown development history. The SCO software with an unknown development history. The SCO case puts users on notice of the extent of those potential case puts users on notice of the extent of those potential risks.risks.

Companies contemplating use of open source software Companies contemplating use of open source software should carefully review the terms of any applicable open should carefully review the terms of any applicable open source license prior to use of the software in order to source license prior to use of the software in order to understand the specific risks of the relevant agreement as understand the specific risks of the relevant agreement as well as the terms with which such companies will need to well as the terms with which such companies will need to comply.comply.

Companies using open source software should take extra Companies using open source software should take extra care not to incorporate elements of proprietary code into care not to incorporate elements of proprietary code into open source code.open source code.

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Practice Tips on Practice Tips on Licensing Based on Licensing Based on

Bowers and SCO Bowers and SCO LitigationLitigation Incorporate terms prohibiting reverse engineering Incorporate terms prohibiting reverse engineering

in all new license agreements, unless you are the in all new license agreements, unless you are the licensee, in which case any such terms should be licensee, in which case any such terms should be rejected.rejected.

Reevaluate the risks/benefits of utilizing open Reevaluate the risks/benefits of utilizing open source software and review the terms of any source software and review the terms of any existing open source agreements under which you existing open source agreements under which you are bound in order to verify compliance with all are bound in order to verify compliance with all such terms. Consider alternatives.such terms. Consider alternatives.

Monitor the use of open source software at your Monitor the use of open source software at your company and how it is being used. Educate company and how it is being used. Educate employees on the risks inherent to the use of open employees on the risks inherent to the use of open source software. source software.

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Licensing: Ambiguous Licensing: Ambiguous TermsTerms

McRoberts Software v. Media 100McRoberts Software v. Media 100, 66 USPQ2d 1648, , 66 USPQ2d 1648, 329 F.3d 329 F.3d

557 (7557 (7thth Cir. 2003). Cir. 2003).

In 1992, McRoberts Software (“MSI”) developed a software In 1992, McRoberts Software (“MSI”) developed a software program for users of Apple’s Macintosh personal computers.program for users of Apple’s Macintosh personal computers.

Media 100 negotiated licenses with MSI to supply MSI’s Media 100 negotiated licenses with MSI to supply MSI’s software for use with its line of personal video editing board software for use with its line of personal video editing board hardware.hardware.

Media 100 subsequently entered into an agreement with a Media 100 subsequently entered into an agreement with a third party to translate the source code of the software third party to translate the source code of the software program from Macintosh to Windows without MSI’s program from Macintosh to Windows without MSI’s knowledge, and then supplied the new code with its knowledge, and then supplied the new code with its Windows-compatible video editing system.Windows-compatible video editing system.

MSI sued Media 100 for copyright infringement, trade secret MSI sued Media 100 for copyright infringement, trade secret misappropriation, and breach of contract.misappropriation, and breach of contract.

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Key Issues in McRoberts Key Issues in McRoberts Software v. Media 100Software v. Media 100

A jury determined that Media 100 infringed MSI’s A jury determined that Media 100 infringed MSI’s copyright by acting outside the scope of the copyright by acting outside the scope of the licensing agreement.licensing agreement.

Seventh Circuit held in favor of MSI on each of the Seventh Circuit held in favor of MSI on each of the three claims, including copyright infringement.three claims, including copyright infringement.

At issue was the ambiguity in the license as to At issue was the ambiguity in the license as to whether or not the license gave Media 100 the whether or not the license gave Media 100 the right to translate the source code into Windows right to translate the source code into Windows and then to distribute the software in the new and then to distribute the software in the new Media 100 Windows-compatible video editing Media 100 Windows-compatible video editing system. The Court found that the jury was system. The Court found that the jury was entitled to resolve the ambiguity in favor of MSI.entitled to resolve the ambiguity in favor of MSI.

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Lessons from McRoberts Lessons from McRoberts Case and Practice TipsCase and Practice Tips

Ambiguous terms in a license agreement can Ambiguous terms in a license agreement can lead to litigation. Be as specific as possible lead to litigation. Be as specific as possible when drafting an agreement.when drafting an agreement.

Avoid making assumptions about what the other Avoid making assumptions about what the other party’s intentions were when the agreement was party’s intentions were when the agreement was signed. Consider getting a new agreement in signed. Consider getting a new agreement in writing that resolves any ambiguity.writing that resolves any ambiguity.

Anticipate new technology and address in any Anticipate new technology and address in any agreement how new technology will be treated. agreement how new technology will be treated.

Anticipate any potential issues that could arise Anticipate any potential issues that could arise down the road and address them when drafting down the road and address them when drafting the agreement.the agreement.

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Circumvention of Circumvention of Technology: Background Technology: Background

of DMCAof DMCA

Digital Millennium Copyright Act of Digital Millennium Copyright Act of 1998, Pub. L. No. 105-304, 112 Stat. 1998, Pub. L. No. 105-304, 112 Stat. 2860 (1998). 2860 (1998).

Enacted in 1998 to implement the World Intellectual Enacted in 1998 to implement the World Intellectual Property Organization Copyright Treaty.Property Organization Copyright Treaty.

Controversial since its enactment, particularly with Controversial since its enactment, particularly with respect to the anti-circumvention provisions.respect to the anti-circumvention provisions.

Concern that it is being applied beyond the scope of Concern that it is being applied beyond the scope of what Congress intended.what Congress intended.

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TEXT OF DMCA § 1201 TEXT OF DMCA § 1201 (a)(2)(a)(2)

17 U.S.C. § 1201 (a)(2) provides as follows:17 U.S.C. § 1201 (a)(2) provides as follows:

(2) No person shall manufacture, import, offer to the public, (2) No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that—service, device, component, or part thereof, that—

(A) is primarily designed or produced for the purpose of (A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively circumventing a technological measure that effectively controls access to a work protected under this title;controls access to a work protected under this title;

(B) has only limited commercially significant purpose or (B) has only limited commercially significant purpose or use other than to circumvent a technological measure that use other than to circumvent a technological measure that effectively controls access to a work protected under this title; effectively controls access to a work protected under this title; oror

(C) is marketed by that person or another acting in (C) is marketed by that person or another acting in concert with that person with that person’s knowledge for use concert with that person with that person’s knowledge for use in circumventing a technological measure that effectively in circumventing a technological measure that effectively controls access to a work protected under this title.controls access to a work protected under this title.

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TEXT OF DMCA § 1201 TEXT OF DMCA § 1201 (a)(3)(a)(3)

17 U.S.C17 U.S.C. . § 1201 (a)(§ 1201 (a)(3)(A), (B) provides 3)(A), (B) provides definitions to the definitions to the

following terms:following terms:

(A) to “circumvent a technological measure” means to (A) to “circumvent a technological measure” means to descramble a scrambled work, to decrypt an encrypted descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without deactivate, or impair a technological measure, without the authority of the copyright owner; and the authority of the copyright owner; and

(B) a technological measure “effectively controls (B) a technological measure “effectively controls access to a work” if the measure, in the ordinary access to a work” if the measure, in the ordinary course of its operation, requires the application of course of its operation, requires the application of information, or a process or a treatment, with the information, or a process or a treatment, with the authority of the copyright owner, to gain access to the authority of the copyright owner, to gain access to the workwork..

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TEXT OF DMCA § 1201 TEXT OF DMCA § 1201 (b)(1)(b)(1)

17 U.S.C. § 1201 (b) (1) states:17 U.S.C. § 1201 (b) (1) states:

No person shall manufacture, import, offer to the public, provide, No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, or otherwise traffic in any technology, product, service, device, component, or part thereof, that—component, or part thereof, that—

(A) is primarily designed or produced for the purpose of (A) is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this that effectively protects a right of a copyright owner under this title in a work or portion thereof;title in a work or portion thereof;

(B) has only limited commercially significant purpose or use (B) has only limited commercially significant purpose or use other than to circumvent protection afforded by a technological other than to circumvent protection afforded by a technological measure that effectively protects a right of a copyright owner measure that effectively protects a right of a copyright owner under this title in a work or a portion therefore; orunder this title in a work or a portion therefore; or

(C) is marketed by that person or another acting in concert (C) is marketed by that person or another acting in concert with that person with that person’s knowledge for use in with that person with that person’s knowledge for use in circumventing protection afforded by a technological measure circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this that effectively protects a right of a copyright owner under this title in a work or a portion thereof.title in a work or a portion thereof.

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TEXT OF DMCA § 1201 TEXT OF DMCA § 1201 (c)(3)(c)(3)

17 U.S.C. 17 U.S.C. § § 1201(c)(3) 1201(c)(3) states:states:Nothing in this section shall affect Nothing in this section shall affect

rights rights

remedies, limitations, or defenses toremedies, limitations, or defenses to

copyright infringement, including copyright infringement, including fair use, fair use,

under this title.under this title.

32

Circumvention of Technology: Circumvention of Technology: Recent Litigation Involving Recent Litigation Involving

DMCA § 1201DMCA § 1201Chamberlain Group v. Skylink TechnologiesChamberlain Group v. Skylink Technologies, 68 , 68

USPQ2d USPQ2d 1009, 292 F. Supp.2d 1023 (N.D. Ill. 2003).1009, 292 F. Supp.2d 1023 (N.D. Ill. 2003).

Chamberlain and Skylink were competitors in the electronic Chamberlain and Skylink were competitors in the electronic garage door industry.garage door industry.

Skylink develops and distributes for sale a universal remote Skylink develops and distributes for sale a universal remote transmitter capable of activating certain garage door openers transmitter capable of activating certain garage door openers manufactured and sold by Chamberlain, including a line of manufactured and sold by Chamberlain, including a line of openers utilizing a rolling code technology.openers utilizing a rolling code technology.

Chamberlain files a lawsuit against Skylink claiming that Skylink Chamberlain files a lawsuit against Skylink claiming that Skylink violated the DMCA.violated the DMCA.

Northern District of Illinois held in favor of Skylink on summary Northern District of Illinois held in favor of Skylink on summary judgment, finding disputed issues of fact over whether (a) judgment, finding disputed issues of fact over whether (a) Chamberlain’s rolling code program is protected by copyright and Chamberlain’s rolling code program is protected by copyright and (b) whether a consumer’s use of Skylink’s product to open his (b) whether a consumer’s use of Skylink’s product to open his own garage constitutes an unauthorized circumvention for own garage constitutes an unauthorized circumvention for purposes of the DMCA.purposes of the DMCA.

33

Circumvention of Technology: Circumvention of Technology: Recent Litigation Involving Recent Litigation Involving

DMCA § 1201DMCA § 1201Lexmark v. Static ControlLexmark v. Static Control, 66 USPQ2d 1405, 253 , 66 USPQ2d 1405, 253

F.Supp.2d 943 F.Supp.2d 943 (E.D. Ky. 2003).(E.D. Ky. 2003).

Lexmark is a worldwide developer, manufacturer, and Lexmark is a worldwide developer, manufacturer, and supplier of laser printers and toner cartridges.supplier of laser printers and toner cartridges.

Static Control manufactures and sells components for Static Control manufactures and sells components for remanufactured toner cartridges.remanufactured toner cartridges.

Lexmark filed suit against Static Control for copyright Lexmark filed suit against Static Control for copyright infringement and circumventing a technological measure in infringement and circumventing a technological measure in violation of the DMCA.violation of the DMCA.

On a motion for preliminary injunction, the Eastern District On a motion for preliminary injunction, the Eastern District of Kentucky held in favor of Lexmark, finding that Lexmark of Kentucky held in favor of Lexmark, finding that Lexmark demonstrated a likelihood of success on the merits.demonstrated a likelihood of success on the merits.

34

Circumvention of Circumvention of Technological Measures: Key Technological Measures: Key

Issue in Lexmark CaseIssue in Lexmark CaseHow did the Eastern District of Kentucky How did the Eastern District of Kentucky

reach its decision?reach its decision? Eastern District of Kentucky held that the toner loading Eastern District of Kentucky held that the toner loading programs did not function as lock-out codes, and that Static programs did not function as lock-out codes, and that Static Control’s identical and verbatim copying of Lexmark’s toner Control’s identical and verbatim copying of Lexmark’s toner loading programs went beyond what was necessary for loading programs went beyond what was necessary for compatibility.compatibility.

The Court held that the fair use doctrine did not provide an The Court held that the fair use doctrine did not provide an exception to copyright infringement, particularly since Static exception to copyright infringement, particularly since Static Control engaged in the wholesale copying of Lexmark toner Control engaged in the wholesale copying of Lexmark toner loading programs for a commercial purpose. loading programs for a commercial purpose.

Out of four factors ((a) the purpose and character of the use, (b) Out of four factors ((a) the purpose and character of the use, (b) the nature of the copyrighted work, (c) the amount and the nature of the copyrighted work, (c) the amount and substantiality of the portion used in relation to the copyrighted substantiality of the portion used in relation to the copyrighted work as a whole, and (d) the effect of the use upon the potential work as a whole, and (d) the effect of the use upon the potential market or the value of the copyrighted work), all but (b) weight market or the value of the copyrighted work), all but (b) weight heavily in Lexmark’s favor, and (b) only weighs slightly in Static heavily in Lexmark’s favor, and (b) only weighs slightly in Static Control’s favor because computer programs are still entitled to Control’s favor because computer programs are still entitled to some copyright protection, even if it does not rise to the level some copyright protection, even if it does not rise to the level afforded to more traditional literary works.afforded to more traditional literary works.

35

Circumvention of Technology: Circumvention of Technology: Recent Litigation Involving Recent Litigation Involving

DMCA § 1201DMCA § 1201321 Studios v. Metro-Goldwyn-Mayer Studios321 Studios v. Metro-Goldwyn-Mayer Studios, 2004 WL , 2004 WL

415250 415250 (N.D. Cal. Feb. 19, 2004).(N.D. Cal. Feb. 19, 2004).

321 Studios markets and sells software and instructions for copying 321 Studios markets and sells software and instructions for copying DVDs.DVDs.

Defendants are members of the Motion Picture Association of America Defendants are members of the Motion Picture Association of America (“MPAA”), who own copyrights in motion pictures, and (“MPAA”), who own copyrights in motion pictures, and produce/distribute DVDs containing copyrighted materials.produce/distribute DVDs containing copyrighted materials.

321 Studios filed a complaint for a declaratory judgment that (1) its 321 Studios filed a complaint for a declaratory judgment that (1) its distribution activities do not violate the DMCA, or in the alternative, distribution activities do not violate the DMCA, or in the alternative, that the provisions of the DMCA are invalid in light of other copyright that the provisions of the DMCA are invalid in light of other copyright provisions, and (2) the distribution of the software does not violate the provisions, and (2) the distribution of the software does not violate the Copyright Act because (a) the software has substantial, non-infringing Copyright Act because (a) the software has substantial, non-infringing uses, (b) the use of the software constitutes fair use, and (c) the uses, (b) the use of the software constitutes fair use, and (c) the provisions of the DMCA violate the First Amendment of the Constitution. provisions of the DMCA violate the First Amendment of the Constitution.

Northern District of California, on a motion for summary judgment, held Northern District of California, on a motion for summary judgment, held in favor of Defendants, and enjoined 321 Studios from manufacturing, in favor of Defendants, and enjoined 321 Studios from manufacturing, distributing, or trafficking in any type of DVD circumvention software.distributing, or trafficking in any type of DVD circumvention software.

36

Circumvention of Technology: Circumvention of Technology: Recent Litigation Involving Recent Litigation Involving

DMCA § 1201DMCA § 1201Why did the Court rule against 321 Studios on Why did the Court rule against 321 Studios on

summary judgment?summary judgment? Northern District of California found that the purchase of a DVD does Northern District of California found that the purchase of a DVD does

not give the purchaser the authority of the copyright holder to decrypt not give the purchaser the authority of the copyright holder to decrypt an encrypted work in violation of §1201(a)(2), and distinguishes the an encrypted work in violation of §1201(a)(2), and distinguishes the 321 Studio software from the decryption technology in DVD players on 321 Studio software from the decryption technology in DVD players on the ground that DVD players are licensed to decrypt the encryption the ground that DVD players are licensed to decrypt the encryption technology.technology.

Court finds that the encryption technology in DVDs is a copy control Court finds that the encryption technology in DVDs is a copy control system and that § 1201(b)(1) therefore applies to the technology in the system and that § 1201(b)(1) therefore applies to the technology in the Studio 321 software, prohibiting its manufacture and sale.Studio 321 software, prohibiting its manufacture and sale.

Court finds that while the software may have other uses, part of the Court finds that while the software may have other uses, part of the software is solely for the purpose of circumventing the encryption software is solely for the purpose of circumventing the encryption technology.technology.

Court rejected all challenges raised to the constitutionality of the Court rejected all challenges raised to the constitutionality of the DMCA. DMCA.

37

Circumvention of Circumvention of Technology: Recent Technology: Recent

Litigation Involving DMCA § Litigation Involving DMCA § 12011201

Paramount Pictures v. 321 StudiosParamount Pictures v. 321 Studios, 2004 , 2004 WL 402756 WL 402756

(S.D. N.Y. March 3, 2004).(S.D. N.Y. March 3, 2004).

Southern District of New York granted a Southern District of New York granted a preliminary injunction against 321 preliminary injunction against 321 Studios, finding that the manufacturing of Studios, finding that the manufacturing of the decryption software for sale violates the decryption software for sale violates the anti-trafficking provisions of the the anti-trafficking provisions of the DMCA. The Court cited the Northern DMCA. The Court cited the Northern District of California’s ruling regarding District of California’s ruling regarding the same software in reaching its decision.the same software in reaching its decision.

38

Lessons from the Lessons from the Circumvention of Circumvention of Technology CasesTechnology Cases

Develop, sell, and distribute software Develop, sell, and distribute software that circumvents technology at own that circumvents technology at own risk.risk.

Utilize encryption technology whenever Utilize encryption technology whenever possible to gain a competitive possible to gain a competitive advantage.advantage.

Taking on the DMCA in the courtroom Taking on the DMCA in the courtroom may not be a winning endeavor.may not be a winning endeavor.

39

Practice Tips on the Practice Tips on the Circumvention of Circumvention of

TechnologyTechnologyWork closely with employees to educate them Work closely with employees to educate them

on on

circumvention of technology issues, in order circumvention of technology issues, in order to:to:

catch product ideas that will utilize circumvention catch product ideas that will utilize circumvention technology before they are actually developed, technology before they are actually developed, and and

increase awareness of the benefits of developing increase awareness of the benefits of developing and utilizing encryption technology with products, and utilizing encryption technology with products, particularly in light of its new legal protections.particularly in light of its new legal protections.

40

Contributory Infringement: Contributory Infringement: Recent Litigation Involving Recent Litigation Involving

File Sharing File Sharing Metro-Goldwyn-Mayer Studios v. GroksterMetro-Goldwyn-Mayer Studios v. Grokster, 66 , 66

USPQ2d 1579, USPQ2d 1579, 259 F.Supp.2d 1029 (C.D. Cal. 2003).259 F.Supp.2d 1029 (C.D. Cal. 2003).

Defendants distributed software that enabled users to Defendants distributed software that enabled users to exchange digital media via a peer-to-peer transfer network.exchange digital media via a peer-to-peer transfer network.

Plaintiffs are organizations in the motion picture and Plaintiffs are organizations in the motion picture and music recording industries.music recording industries.

Plaintiffs filed class action suit against Defendants for Plaintiffs filed class action suit against Defendants for copyright infringement, including claims for contributory copyright infringement, including claims for contributory infringement and vicarious infringement.infringement and vicarious infringement.

On a motion for summary judgment, Central District of On a motion for summary judgment, Central District of California found in favor of Defendants on the contributory California found in favor of Defendants on the contributory infringement claim.infringement claim.

41

Contributory Infringement: Contributory Infringement: Recent Litigation Involving Recent Litigation Involving

File SharingFile SharingWhy did the Court find in favor of Defendants in Why did the Court find in favor of Defendants in

the Grokster Case on the contributory infringement the Grokster Case on the contributory infringement issue?issue?

Unlike Napster, Defendants only supplied the Unlike Napster, Defendants only supplied the software and did not provide infrastructure or software and did not provide infrastructure or servers through which the infringing could take servers through which the infringing could take place—thus, Defendants were not materially place—thus, Defendants were not materially involved.involved.

Defendants undertook efforts to avoid assisting Defendants undertook efforts to avoid assisting users who seek to use their software improperly, users who seek to use their software improperly, and gave only routine and non-specific technical and gave only routine and non-specific technical assistance.assistance.

Court analogized Defendants to companies that sell Court analogized Defendants to companies that sell home video recorders or copy machines, both of home video recorders or copy machines, both of which can be and are used to infringe copyrights.which can be and are used to infringe copyrights.

42

Contributory Contributory Infringement: Recent Infringement: Recent

Litigation Involving File Litigation Involving File SharingSharingAimster Copyright LitigationAimster Copyright Litigation, USPQ2d 1233, 334 F.3d , USPQ2d 1233, 334 F.3d

643 (7643 (7th th Cir. Cir. 2003).2003).

Plaintiff music publishers, record companies, and songwriters Plaintiff music publishers, record companies, and songwriters sued Aimster (AOL instant messenger service) for contributory sued Aimster (AOL instant messenger service) for contributory and vicarious infringement of copyrights. and vicarious infringement of copyrights.

Aimster system is made up of following: Aimster system is made up of following: proprietary software that can be downloaded free of charge proprietary software that can be downloaded free of charge

from Aimster’s Web site from Aimster’s Web site Aimster’s server Aimster’s server computerized tutorials providing instruction on how to swap computerized tutorials providing instruction on how to swap

computer files computer files ‘‘Club Aimster,’ a related Internet service for downloading Club Aimster,’ a related Internet service for downloading

popular musicpopular music

Northern District of Illinois issued preliminary injunction, ruling Northern District of Illinois issued preliminary injunction, ruling that the recording industry had demonstrated a likelihood of that the recording industry had demonstrated a likelihood of prevailing on the merits.prevailing on the merits.

Seventh Circuit affirmed district court’s ruling.Seventh Circuit affirmed district court’s ruling.

43

Contributory Contributory Infringement: Recent Infringement: Recent

Litigation Involving File Litigation Involving File SharingSharing

Why did the Court in Aimster affirm the lower Why did the Court in Aimster affirm the lower Court’s ruling?Court’s ruling?

Seventh Circuit found compelling the fact that Seventh Circuit found compelling the fact that the tutorial gave as its only examples of file the tutorial gave as its only examples of file sharing the sharing of copyrighted music, and sharing the sharing of copyrighted music, and that Club Aimster enables users to download the that Club Aimster enables users to download the music most often shared by Aimster users.music most often shared by Aimster users.

Aimster had infringing as well as uninfringing Aimster had infringing as well as uninfringing uses, but failed to show that it would have been uses, but failed to show that it would have been disproportionately costly to eliminate or disproportionately costly to eliminate or substantially reduce the infringing uses.substantially reduce the infringing uses.

Court found the recording industry’s damage Court found the recording industry’s damage without preliminary injunction would be without preliminary injunction would be irreparable.irreparable.

44

Lessons from File-Lessons from File-Sharing CasesSharing Cases

If you are in the business of developing and If you are in the business of developing and selling selling

file-sharing software:file-sharing software:

Market, sell, and provide technical assistance on Market, sell, and provide technical assistance on only the non-infringing features of the software. only the non-infringing features of the software.

Actively discourage software users from using the Actively discourage software users from using the software for infringing uses. software for infringing uses.

Avoid participating in the infringing activity in any Avoid participating in the infringing activity in any way.way.

45

Practice Tips on Contributory Practice Tips on Contributory InfringementInfringement

Consider including in product license Consider including in product license agreements indemnifications to protect company agreements indemnifications to protect company against the risks of a user utilizing a product for against the risks of a user utilizing a product for an infringing use.an infringing use.

Monitor usage of products on the market in Monitor usage of products on the market in order to know when a product is being used for order to know when a product is being used for an infringing purpose.an infringing purpose.

Educate employees on contributory infringement Educate employees on contributory infringement issues and advise them as to how they can issues and advise them as to how they can minimize the risk of incurring liability for minimize the risk of incurring liability for contributory infringement.contributory infringement.

46

SUMMARY OF PRACTICE SUMMARY OF PRACTICE TIPSTIPS

Address intellectual property Address intellectual property issues early.issues early.

Structure work for hire Structure work for hire agreements carefully.agreements carefully.

Address structure of joint Address structure of joint ownership arrangements early ownership arrangements early and get written agreement.and get written agreement.

Incorporate terms prohibiting Incorporate terms prohibiting reverse engineering into reverse engineering into agreements.agreements.

Reevaluate the risks/benefits to Reevaluate the risks/benefits to using open source software, using open source software, and review the terms of any and review the terms of any existing agreements. existing agreements.

Monitor the use of open source Monitor the use of open source software and educate employees software and educate employees on the risks.on the risks.

Be specific in drafting Be specific in drafting agreements. agreements.

Anticipate new technology and Anticipate new technology and address in agreements.address in agreements.

Educate employees on Educate employees on circumvention of technology and circumvention of technology and contributory infringement issues.contributory infringement issues.

Include indemnifications in Include indemnifications in agreements to protect against agreements to protect against the use of products for the use of products for unintended, infringing purposes.unintended, infringing purposes.

Copyrights: Copyrights: Lessons and Lessons and

Practice Tips From Practice Tips From Recent CasesRecent Cases

Kristie PrinzKristie PrinzPrinz Law OfficesPrinz Law Officeskristieprinz@earthlink.netkristieprinz@earthlink.net

August 5, 2004August 5, 2004