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  Legal Considerations in Software IP Issues - Damages

  Posted: July 22nd, 2010, 5:10pm EDT

  Software copyright plaintiffs typically seek both permanent injunctive relief as well as damages. Recovery of statutory damages under 17 U.S.C. § 504 often hinges on whether the copyrights claimed to have been infringed before or after discovery of the alleged infringement. However, plaintiffs in competing works litigation typically seek an actual damages award, because a potential actual damages recovery often is greater. In addition, the marginal costs of developing the necessary factual record to support an actual damages award are not significant, because the underlying elements of the claim already require the devotion of significant time and effort to evidence collection and presentation. Under 17 U.S.C. § 504, a plaintiff may recover the actual damages it suffered as a result of the infringement or any profits of the infringer attributable to the infringement. Under 17 U.S.C. § 504(b), the plaintiff could recover any profits of the infringer that are attributable to the infringement. Under the statute, “in establishing the infringer’s profits, the copyright owner is required to present proof only of the infringer’s gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.” Those damages could be substantial, depending on the amount of business and profit the plaintiff is able to demonstrate is attributable to use of its works. Claims for attorneys’ fees also usually are the norm, though, again, recovery may depend on whether the copyrights at issue were registered before or after discovery of the alleged infringement. Costs also may be recoverable. Competing works cases often involve one or more primary, individual alleged infringers as well as the corporate entities with which they are associated. If the plaintiff is able to establish any actual damages as a result of infringement, all defendants could be held jointly and severally liable for those damages. In addition, the plaintiff in the action may seek to hold the individual defendants liable for the “profits” they made independently as a result of the alleged infringement. Specifically, the plaintiff could attempt to recover a portion of the individuals’ income earned while developing and/or selling the competing work at issue. If you have received a notification from a copyright owner who is seeking damages against you, you should contact experienced counsel to preserve your legal rights.
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  David v. Goliath: Songwriter Wins Coca Cola Case

  Posted: July 20th, 2010, 4:33pm EDT

  In Vergara Hermosilla v. Coca-Cola Co., 2010 WL 2232657 (S.D. Fla. 2010), a U.S. federal court in Florida required Coca-Cola to post a conspicuous notice indicating Rafael Vergara Hermosilla’s (“Vergara”) contribution to a song Coca-Cola intended to use in its advertising during the 2010 World Cup soccer games. Vergara had been asked to translate into Spanish a portion of the lyrics to the song “Wavin’ Flag” by the artist K’naan and to mix and produce a newly recorded Spanish vocal track for the final mix. Vergara penned the Spanish lyrics of the song, sent rough vocal tracks demonstrating how the vocals should be sung to Universal Music Group (“Universal”), who had the contractual relationship with Coca-Cola, added backing vocals to the rerecorded Spanish track, and mixed and produced the final song. However, before Universal paid the invoice, it asked Vergara to sign a document indicating the work he completed was a work-for-hire under the Copyright Act. Vergara responded that he would not have gone forward with the project had he known it would be considered a work-for-hire, and he insisted that he receive credit for the production work and that, for the Spanish version of the song, his name appear next to the composer(s) of the original English version. Universal did not agree to Vergara’s proposed terms. In May, 2010, Vergara filed an action for injunctive relief seeking an order requiring that Coca-Cola cease advertising with or distributing the Spanish version of the song and that Coca-Cola make a public acknowledgement of Vergara’s contribution to the song. Coca-Cola argued it secured an implied and non-exclusive license to use the song, that the work was a work-for-hire, and that Vergara failed to obtain a copyright registration prior to filing the action, barring him from filing suit. The court rejected all of these arguments and issued an injunction prohibiting Coca-Cola from distributing the work without proper credit given to Vergara. If you would like to license or obtain rights to music, you should consult counsel experienced in negotiating agreements to help prevent disputes like the one described above. If you have already become involved in such a dispute, you should contact counsel to discuss your options to resolve the issues between you and the other parties.
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  Legal Pitfalls in the Cloud: Windows Azure License Agreements

  Posted: July 20th, 2010, 4:28pm EDT

  Microsoft’s cloud offering, Windows Azure, is a cloud services platform designed for software development, hosting and web service management. The platform includes a cloud-based operating system with pre-configured developer tools and other options available. The license agreements are available online here and here. So, how does the Microsoft cloud licensing model stack up to our concerns regarding cloud computing? The basic Azure agreement consists of two parts: a service level agreement (“SLA”); and an online subscription agreement (“OSA”). The SLAs are written in clear, layperson-friendly language, but may not adequately protect the customer from certain types of service outages. Also, the responsibility to monitor service levels and report outages remains wholly on the customer (something many cloud customers may want to try to avoid). The OSA provides some protections against third-party intellectual property infringement claims, but it also severely limits recovery on claims arising from any legal action, including breach-of-contract and negligence claims. These service and liability limitations are typical in low-transaction-cost offerings, and they are likely unavoidable for a product sold online and across such a broad user base. Of greater concern, however, is the fact that neither agreement addresses compliance or liability arising from federal and state privacy and data security statutes, (such as HIPAA and the new Massachusetts Standards for the Protection of Personal Information). HIPAA, in particular, imposes significant responsibility on third party vendors (“business associates”, under the language of the statute), that may house or transmit protected health information (“PHI”). A company storing PHI on Microsoft Azure servers without an agreement contemplating that type of data storage could be in violation of the law and subject to liability. Further, there are no provisions concerning ownership, use, or transfer of customer-owned data upon termination of the agreement. As is evident by the low cost of cloud-based solutions, the platform is the commodity and the only real value is in the data. Without specific language identifying data ownership and transfer upon termination, a company may be risking too much relative to any perceived cost or operational benefits. Microsoft likely will have to address these concerns as the legal issues associated with cloud computing become better understood. In the meantime, careful analysis of intellectual property and data security compliance risks should be undertaken to avoid the unforeseen liabilities and hidden costs present in many cloud computing agreements.
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  Facebook and Mark Zuckerberg Face Lawsuit Headache

  Posted: July 20th, 2010, 4:26pm EDT

  On June 30, 2010, a New York businessman named Paul Ceglia filed a lawsuit against Facebook, Inc. and its founder, Mark Zuckerberg, that has the potential to become a significant distraction for the social networking giant. In the state-court complaint, Ceglia claims he signed into a contract in April 2003 with Zuckerberg, in which Zuckerberg agreed to grant Ceglia a 50% stake in the business to be derived from the expansion of “the project [Zuckerberg] has already initiated that is designed to offer the students of Harvard university [sic] access to a website similar to a live functioning yearbook with the working title of ‘The Face Book.’” Based on that and other language in the contract, and on the completion date for an earlier Zuckerberg-authored site at thefacebook.com, Ceglia claims that he now is entitled to an 84% interest in Facebook. It is unclear whether the social networking technology Zuckerberg was developing in April 2003 is the same or even related to the technology that was the predecessor to Facebook as we now know it. In addition, Ceglia’s long delay in asserting his claim raises potential statute-of-limitations issues that may result in the claim being tossed out of court. Regardless, though, Ceglia was successful in New York State court in obtaining an order temporarily keeping Facebook and Zuckerberg from transferring or selling of their assets, stocks or bonds, pending a hearing. Facebook then removed the matter to a U.S. District Court in the Western District of New York, where the case currently remains, in an effort to have the state court order dissolved. Regardless of the hurdles Ceglia may need to overcome in order to prevail on his claim, this case serves as a powerful reminder to developers of protectable, original content that they should carefully consider all of the effects of any agreements related to future ownership of business ventures. Sloppy drafting may cause unintended consequences and could result in expensive litigation to resolve questions of ownership related to the business venture. In light of the risks highlighted by the Ceglia lawsuit, developers considering that type of agreement should consult with knowledgeable counsel before proceeding.
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  The Sneaky Chef Loses Appeal

  Posted: July 8th, 2010, 2:55pm EDT

  In Lapine v. Seinfeld, 2010 WL 1688713 (N.Y.C.A. 2010), plaintiff Missy Chase Lapine and The Sneaky Chef, Inc. (“Lapine”) appealed from a summary judgment awarded to defendants Jessica Seinfeld and others on plaintiffs' claims of copyright infringement, trademark infringement, and trademark dilution. The district court determined that Seinfeld’s book Deceptively Delicious: Simple Secrets To Get Your Kids Eating Good Food, was not substantially similar to plaintiffs' cookbook, The Sneaky Chef: Simple Strategies for Hiding Healthy Foods in Kids' Favorite Meals, released four months earlier. The court affirmed the district court’s findings. Lapine contended the district court erred when it decided Seinfeld’s book was not substantially similar to Lapine’s book. Both cookbooks provide information related to tricking children into eating healthy foods by including pureed vegetables in other foods. Lapine claimed the two works are substantially similar in their unique and innovative expression of the idea of sneaking vegetables into children's food by means of a cookbook containing comprehensive instructions for making and storing a variety of vegetable purees in advance, and then using the purees in specially created recipes for children's favorite foods. The court determined that the standard test for substantial similarity between two items is whether an ordinary observer, unless he set out to detect the disparities, would be disposed to overlook them, and regard the aesthetic appeal as the same. When, as in this case, a work incorporates unprotected elements from the public domain, the court should apply a “more discerning observer” test, which requires substantial similarity between those elements, and only those elements, that provide copyrightability to the allegedly infringed work. The court stated that stockpiling vegetable purees for covert use in children's food is an idea that cannot be copyrighted. The Copyright Act does not protect ideas. It protects expressions of ideas. To the extent the two works have general and abstract similarities-including their vaguely similar titles and inclusion of illustrations of prepared dishes, health advice, personal narrative, descriptions of how to make purees, instructions for preparing dishes, and language about children's healthy eating-the district court correctly concluded that these elements do not raise a fact issue for trial because they are “scènes à faire,” or unprotectable elements that follow naturally from the work's theme rather than from the author's creativity. The two books lacked the substantial similarity required to support an inference of copyright infringement. Lapine also contended the district court erred by failing to apply an eight-factor test in Polaroid Corp. v. Polaroid Electronics Corp., 287 F.2d 492, 495 (2d Cir.1961) when it rejected Lapine’s trademark infringement claims. The court ruled that a district court need not slavishly recite the litany of all eight Polaroid factors in each and every case. The Court of Appeals considered the overall impression on a consumer and the context in which the competing marks are displayed and reached the same conclusion as the district court: the marks are not confusingly similar. Defendant’s cover art was much more detailed than plaintiff’s, though the two drawings incorporated similar themes. Additionally, Defendant Jessica Seinfeld’s use of the famous “Seinfeld” name reduces any likelihood of confusion with Lapine’s marks. The court affirmed the district court’s dismissal of Lapine’s trademark dilution claims for the same reasons. If you have been accused of copyright or trademark infringement, you should seek counsel experienced in resolving such disputes.
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  Dave & Buster’s Busted

  Posted: July 8th, 2010, 2:54pm EDT

  The FTC recently approved a settlement with Dave & Buster’s, Inc., a restaurant and arcade chain, for the largest recorded data breach of private credit card information. The hackers responsible for stealing credit card data from Dave & Buster’s gained access through an unsecured wireless Internet router, or wireless access point (WAP). The hackers had sought out businesses with no Internet security password and, after gaining access to the networks, had obtained credit card numbers and customer data in real time as the cards were swiped. There is a growing trend for the FTC to seek civil damages for lax Internet security in order to encourage businesses to provide additional protective measures for online data, including wireless Internet routers. In addition to the monetary damages Dave & Buster’s will pay to settle the claim related to this data breach, the company will be required to maintain an information security program and to have its security systems professionally audited semi-annually. Basic information security guidelines can help to prevent this type of breach. It is important to secure passwords, to enable firewall protection, and to institute additional, appropriate security safeguards to protect consumer information. This is especially important when dealing with sensitive financial data.
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  Microsoft v. Salesforce.com – Taking the Fight to the Cloud

  Posted: July 8th, 2010, 2:52pm EDT

  On June 24, 2010, Salesforce.com filed suit against Microsoft in a Delaware Federal court claiming Microsoft willfully infringed five Salesforce.com cloud computing-related patents. This is an apparent counter to a May 18th suit filed by Microsoft accusing Salesforce.com of patent infringement. Though Salesforce.com and Microsoft promote slightly different cloud computing models, each company claimed the patents infringed were significant components to their platforms, signifying that the fight over cloud market controls is ramping up. While the choice between pursuing a pure (Salesforce.com) versus hybrid (Microsoft) cloud computing platform certainly requires a thoughtful business decision, a choice in either direction involves identical legal issues. For instance, data security regulations must be addressed in either case. Companies in the healthcare industry are by now quite familiar with these requirements and with related demands on their third-party vendors, but data security regulations such as the recently enacted Massachusetts privacy law are implicating companies and industries that have not had the pleasure of interpreting statutory data security requirements. As a result, many of these companies may be unaware of the extent to which cloud computing agreements must address and protect the company with respect to all data-related regulatory requirements. Cloud computing platform agreements also must meet the needs of companies to locate, preserve and cull data to meet electronic discovery requirements. As more companies adopt cloud computing platforms to house not only e-mail, but other business records, courts increasingly will require companies to implement litigation holds and production from cloud sources in a manner identical to that which companies currently perform on their internal networks. When evaluating a cloud computing platform, take time to carefully review the agreement in as much detail as your business and IT decision-makers do when looking at software functionality. A cloud platform that is technically sound and functional remains a serious liability if the service agreement does not address these and other critical legal issues associated with cloud computing. When in doubt, seek the advice of an attorney who is knowledgeable regarding legal issues surrounding IT service providers.
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  Supreme Court’s Opinion in Bilski Leaves Questions

  Posted: July 8th, 2010, 2:51pm EDT

  On June 28, 2010, the U.S. Supreme Court issued its long-anticipated opinion in the case of Bilski v. Kappos, which, it was hoped, would at long last provide much-needed guidance for the U.S. Patent & Trademark Office and for practitioners on the subject of the patentability of business methods and other processes. However, other than rejecting the process-patentability test that had been proposed by the U.S. Court of Appeals for the Federal Circuit, the overall effect of the opinion is to re-introduce uncertainty into the question of what constitutes a patentable process and what does not. In its en banc opinion in this case, the Federal Circuit previously had affirmed the exclusive applicability of the so-called “machine or transformation test” to determine whether a process qualifies for patent protection under U.S. law. Under that test, “[a] claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” In re Bilski, 545 F.3d 943, 954 (C.A. Fed. 2008). The Supreme Court expressly rejected the machine or transformation test as the sole means to assess process patentability. However, other than identifying the test as a useful tool to make that assessment, the Court did not express any test or set of factors to provide any additional guidance on the subject. The Court, in fact, very clearly and expressly affirmed the unsettled nature of the law in this area, holding: It is important to emphasize that the Court today is not commenting on the patentability of any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection. This Age puts the possibility of innovation in the hands of more people and raises new difficulties for the patent law. With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck. While it also rejected the argument that methods of conducting business are categorically un-patentable, the Court nevertheless affirmed the rejection of the business-method patent application that was the subject of the case on the grounds that it was an improper attempt to patent what is merely an abstract idea. The Supreme Court’s opinion in Bilski likely will do nothing to help clarify the place of innovation in fields such as software development with respect to U.S. patent law, and it leaves the door open for enterprising patent collectors to perpetuate the same kinds of claims abuses that many had hoped Bilski would help to eliminate. Therefore, for the foreseeable future, software firms will need to continue to be prepared to recognize patent exposure as a cost of doing business in their industry, and they must be ready to work closely with knowledgeable counsel to evaluate the integrity of any patents they hold as well as the validity of any patent claims with which they are presented.