COMPUTER & TELECOMMUNICATIONS LAW SECTION
OF THE DISTRICT OF COLUMBIA BAR
presents

A SAMPLER OF LEGAL ISSUES IN THE DIGITAL AGE:

RECENT LITIGATION DEVELOPMENTS



D.C. Bar 1997 Winter Convention
February 26, 1997

Christopher R. Costa
Attorney at Law
720 Thayer Avenue
Silver Spring, Maryland 20910
(301) 587-0178
(301) 588-0561 FAX
email: ccosta@ccosta.com


Copyright (c) 1997 Christopher R. Costa. All rights reserved.


A. COPYRIGHT

1. Interim Interdict (Temporary Injunction) Granted

Shetland Times Limited v. Dr. Jonathan Wills andZetnews Limited, (Court of Session, Scotland October 24,1996) (A.C. Hamilton, J.). [From The Shetland Times' Summons and"What the Judge Said in The Shetland Times Case" fromhttp://www.shetland-news.co.uk/opinion.html].

In Scotland's Court of Session, The Shetland Times Ltd.("pursuers") alleged infringement by Dr. Wills andZetnews Ltd. ("defenders") of pursuers' copyrights inheadlines, text and photographs, under the UK's Copyright Designsand Patents Act of 1988, from the Pursuer's newspaper "TheShetland Times" and/or internet web site"www.shetland-times.co.uk".

Pursuers allegations include that: (1) Zetnews Ltd. provides anews reporting service and trade under the name The ShetlandNews; (2) The Shetland News copied headlines from The ShetlandTimes and/or its internet web site; and (3) The Shetland Newsprovided links from headlines it copied from The Shetland Timesto the text of the news story on The Shetland Times.

The Court found that "A caller accessing the defenders' website may, by clicking on one of those headlines appearing on the defenders' [web site] front page, gain access to the relativetext as published and reproduced by the pursuers. Access is sogained and subsequent access to other such headlines also gained without the caller requiring at any stage to access the pursuers'[web site] front page."

At hearing of the injunctive relief and focusing on the headlinesincorporated in the defender's web site, the Court stated that:

On the information available and on the basis of the argumentspresented, the pursuers have, in my opinion, a prima facie casethat the incorporation by the defenders in their web site of theheadlines provided at the pursuers' web site constitutes an infringement of section 20 of the Act by the inclusion in a cableprogramme service of protected cable programmes.
...
While literary merit is not a necessary element of a literarywork, there may be a question whether headlines, which areessentially brief indicators of the subject matter of the itemsto which they relate, are protected by copyright. However, inlight of the [defenders counsel's] concession that a headlinecould be a literary work and since the headlines at issue (or atleast some of them) involve eight or so words designedly puttogether for the purpose of imparting information, it appears tome arguable that there was an infringement, at least in someinstances of section 17.

After finding that the balance of convenience and harm favoredthe grant of an interim interdict, the Court of Session enteredan interim interdict prohibiting "the Defenders, theiremployees, agents or anyone acting on their behalf or with theirauthority from: (1) storing on any medium by electronic mean orotherwise copying or (2) including in any service operated by theDefenders on the internet any headline, text or photograph fromany edition of 'The Shetland Times' newspaper or the Pursuers'internet web site WWW.Shetland-Times.Co.UK;" and assessingexpenses of the hearings against defenders.

Further proceeding may determine whether The Shetland New's useof HTML links to The Shetland Times' web site constitutescopyright infringement.

2. Summary Judgment Denied - Publication & UnitPublication Doctrine

Computrac, Inc. v. Law Firm Consulting Services,--- F. Supp. ---, 1997 WL 42525 (N.D. Tex. Jan. 29, 1997) (Denialof defendant & counterplaintiff LFCS's motion for partialsummary judgment of CT's copyright infringement claim of"Source Code for CompuTrac's Law Firm Management Software2.1/6/1" and "CompuTrac 3000 Systems Manual" andfinding genuine issues of material facts of whether: (1) CTpublished its Software and Manual prior to March 1, 1989(effective date of Berne Convention Implementation Act), withoutcopyright notice; and (2) whether CT's Software and Manual werepublished as a single commercial unit.

The Court's prior October 2, 1996 Memorandum Opinion denied CT'smotion for partial summary judgment and, construing all facts infavor of non-movant LFCS, held that CT generally published itsSoftware and Manual prior to March 1, 1989, without copyrightnotice. The issue of whether CT's Manual contained a copyrightnotice was not "squarely before the Court" because theparties focused primarily on whether publication occurred at all.

Undisputed facts: (1) CT published its Software and Manual priorto March 1, 1989, and copyright notice was not on Software; and(2) CT did not register its copyrights until November 1994, morethan five years after the date of first publication. As the Courtnoted, "[u]nder the Copyright Act of 1976, 17 U.S.C. '' 101-1101, a work that isgenerally published prior to March 1, 1989 without the propercopyright notice loses its copyright protection and enters thepublic domain unless the work is registered within five years ofits first publication.

Creative lawyering to assert the copyright notice was included onManuals (CT's affiant alleges that prior versions of the Manualcontaining the copyright notice were destroyed) and seeking toapply unit publication doctrine of Koontz v. Jaffarian,617 F. Supp. 1108 (E.D. Va. 1985), aff'd 787 F.2d 906 (4thCir. 1996).

LFCS also argued that CT's copyright registrations must beinvalidated as CT claimed that the Software and Manual were"unpublished" in its copyright registrations, and theCourt has concluded that they were published. The Court declinedto follow Granse v. Brown Photo Co., 228 U.S.P.Q. 635,645, 1985 WL 26033 (D. Minn. 1985) as being "inconsistentwith the weight of authority, which holds that a misstatement orclerical error in the registration application, if unaccompaniedby fraud, will neither invalidate the copyright nor render theregistration certificate incapable of supporting an infringementaction."

3. Fonar v. MRI Again! - Second Circuit Vacates SummaryJudgment

Fonar Corporation v. Domenick and Magnetic ResonancePlus, Inc., No. 96-7919 (2d Cir. January 21, 1997)(Calabresi, Jacobs & Van Graafeiland, J) (Fonar IV).Fonar appealed the grant of summary judgment in favor of MRI onFonar's claims of copyright infringement and unfair competition.The district court determined that: (1) Fonar failed to complywith the applicable regulations in registering the copyright; (2)the certificate of copyright registration therefore does notcarry the ordinary presumption of copyright validity; and (3)Fonar's definition of its software was inconsistent, incompleteand uninformative and therefore insufficient to establish that awork is copyrightable or to serve as the basis of a copyrightaction. The Second Circuit vacated and remanded the districtcourt's summary judgment and held that: (1) the district courtimproperly refused to grant the ordinary presumption of primafacie validity that attaches to a certificate of copyrightregistration; (2) the district court erred in deciding that MRIhad rebutted the presumption of validity that inheres in acopyright registration certificate; and (2) in light of thepresumption and the wholesale copying of the software, thedistrict court's grant of summary judgment was unsustainable, asFonar had raise issues of material fact with respect to ownershipof a valid copyright.

Fonar Corporation v. Magnetic Resonance Plus, Inc.,920 F. Supp. 508 (S.D.N.Y. 1996) (Fonar III) (Summaryjudgment granted against plaintiff copyright holder, whereplaintiff failed to identify specific portions of work that wereprotectable, and show extent of copying by defendant. Plaintiffregistered its Magnetic Resonance Imaging software, as acollection under 17 U.S.C. '408(c) and 37 C.F.R. '202.20(c)(2)(vii)(A),by submitting the first and last 25 pages of a 2,000 page, 3module computer program, to Copyright Office, but failed toidentify protectable elements, originality or uniqueness of itsfunctioning, or show that the elements of the collection"are assembled in an orderly form" under 37 C.F.R. '202.3(b)(3)(i)(B). [NB:Plaintiff sanctioned for engaging in evasive discovery practices,Fonar Corp. v. Magnetic Resonance Plus, Inc., 162F.R.D. 276 (S.D.N.Y. 1995) (Fonar I); and motion forsanctions subsequently granted, Fonar Corp. v. MagneticResonance Plus, Inc., --- F. Supp. ---, 1996 WL 437914(S.D.N.Y. August 2, 1996) (Fonar II)].

Fonar Corporation v. Magnetic Resonance Plus, Inc.,--- F. Supp. ---, 1996 WL 437914 (S.D.N.Y. August 2, 1996) (FonarII) (Defendants motion for costs, attorney's fees and sanctionsrelating to defending plaintiff's claims is stayed; Defendantsmotion for sanctions concerning plaintiff's improper and untimelyrequest for reargument of the March 27, 1996 order is granted).

4. Award for Copyright Infringement Against System Operator ofFinal Frontier Bulletin Board System

On February 24, 1997, Novell, Inc. and Microsoft Corp.reported that the U.S. Bankruptcy Court for the District ofArizona ordered the system operator of the Final FrontierBulletin Board System to pay $73,000 in damages to the softwarecompanies for the bulletin board's infringing distribution of thecompanies' copyright software. The award was based on the numberof illegal downloads of each company's software.


B. MISAPPROPRIATION

Second Circuit Reverses on Misappropriation of "HotNews", Vacates Injunction, & Affirms Dismissal of LanhamAct Claims

National Basketball Association v. Motorola, Inc.,Nos. 96-7975, 96-7983 (CON), 96-9123 (XAP) (2d Cir. January 30,1997) (Altimari, Van Graafeiland & Winter, J.).

Motorola, Inc. and Sports Team Analysis and Tracking Systems,Inc. ("STATS") appealed from a permanent injunctionentered by the U.S. District Court for the Southern District ofNew York barring the sale of a handheld pager, marketed under thename "SportsTrax", that displays updated scores andstatistics of NBA games as they are played and/or transmittingscores or other data about NBA games in progress via theSportsTrax pagers, STATS' site on the America On-Line service, orby any equivalent means. The NBA and NBA Properties, Inc.cross-appealed from the District Court's dismissal of theirLanham Act claims.

The Second Circuit held that Motorola and STATS have notunlawfully misappropriated NBA's property by transmittingreal-time NBA game scores and statistics taken from TV and radiobroadcasts of games in progress, and reversed the DistrictCourt's ruling on the misappropriation claim, vacated theinjunction and affirmed the cross-appeal dismissing the LanhamAct claims.

Facts
Motorola markets a SportsTrax paging device and STATSsupplies game information transmitted to the pagers. The"current" mode of the pager provides the followinginformation on NBA games in progress: (1) the teams playing; (2)score changes; (3) team in possession of the ball; (4) team infree-throw bonus; (5) game quarter; and (6) time remaining in thequarter. The information is updated every 2-3 minutes by STATSreporters from NBA game on TV or radio and is displayed on thepager approximately 2-3 minutes from the actual game events. Onthe AOL site the information is updated every 15 to 60 secondsand player and team statistics are updated each minute.

The NBA asserted six claims for relief: (1) state law unfaircompetition by misappropriation; (2) false advertising and falserepresentation of origin under Lanham Act ' 43(a), 15 U.S.C. ' 1125(a); (3) state andcommon law unfair competition by false advertising and falsedesignation of origin; (4) copyright infringement of theunderlying games and their broadcasts; and (5) unlawfulinterception of communications under the Communications Act of1934, 47 U.S.C. ' 605.Motorola counterclaimed alleging the NBA unlawfully interferedwith its contractual relations with four NBA teams that agreed tosponsor and advertise SportsTrax. The District Court dismissedall NBA claims except the first and dismissed Motorola'scounterclaim.

New York State Law Misappropriation
In International News Service v. Associated Press,248 U.S. 215 (1918) ("INS"), INS lifted factualnews stories transmitted by AP by wire to AP member newspapersand then sent them by wire to INS newspapers. INS also copiednews stories from east coast AP papers and wired them to westcoast INS newspapers. The Supreme Court held that INS' conductwas a common-law misappropriation of AP's property.

Seeking to apply ethical standards to the use by one party ofanother's transmission of events, New York courts createdmisappropriation laws loosely based on INS. In 1976,Copyright Act amendments extended copyright protection tosimultaneously-recorded broadcasts of live performances, 17U.S.C. ' 101, andpreempted state law claims that enforced rights"equivalent" to exclusive copyright protections, 17U.S.C. ' 301. Based onthe legislative history of the 1976 amendments,"hot-news" INS-like misappropriation claimssurvive preemption by the Copyright Act; but much of New Yorkmisappropriation law is preempted.

Under 17 U.S.C. ' 301,a state law claim is preempted when: (i) the state law claimseeks to vindicate "legal or equitable rights that areequivalent" to one of the bundle of exclusive rights alreadyprotected by copyright law under 17 U.S.C. ' 106 (the "generalscope requirement"); and (ii) the particular work to whichthe state law claim is being applied falls within the type ofworks protected by the Copyright under 17 U.S.C. ' 102 and 103 (the"subject matter requirement").

The Second Circuit held that "the surviving 'hot-news' INS-likeclaim is limited to cases where: (i) a plaintiff generates orgathers information at a cost; (ii) the information istime-sensitive; (iii) a defendant's use of the informationconstitutes free-riding on the plaintiff's efforts; (iv) thedefendant is in direct competition with a product or serviceoffered by the plaintiffs; and (v) the ability of other partiesto free-ride on the efforts of the plaintiff or others would soreduce the incentive to produce the product or service that itsexistence or quality would be substantially threatened. Weconclude that SportsTrax does not meet that test."

The Court determined that the NBA had three differentinformational products, (1) generating the information by playinggames; (2) transmitting live, full descriptions of the games; and(3) collecting and retransmitting strictly factual informationabout the games, and held that the NBA failed to show anycompetitive effect whatsoever from SportsTrax on the first andsecond products and a lack of any free-riding by SportsTrax onthe third product.


C. CONTRACTS

Shrinkwrap Licenses Upheld & Not Preempted by Copyright -Support for Electronic Commerce Contracting

ProCD, Incorporated v. Zeidenberg, 86 F.3d1447, 1996 WL 339807, 1996 U.S. App. LEXIS 14951 (7th Cir. June20, 1996). The US Court of Appeals for the Seventh Circuit heldthat shrinkwrap license agreements are enforceable and notpreempted by the Copyright Act. This landmark decision upholdsthe computer industry's practice of including license terms on orinside packaging or on envelopes containing computer software andfacilitating distribution by electronic contracting.

The Seventh Circuit ruled that shrinkwrap license agreements willbe judged as any other contract and enforced, unless their termsare "objectionable on grounds applicable to contracts ingeneral (for example, if they violate a rule of positive law orif they are unconscionable)." 86 F.3d at 1449. The CircuitCourt reversed and remanded the action to the U.S. District Courtfor the Western District of Wisconsin.

Facts & District Court's Ruling
ProCD compiled information from more than 3,000 telephonedirectories into its database. ProCD marketed and licensed aversion of the database, in CD­ROM form, known as SelectPhoneJ. The SelectPhone productcontained a new method of compressing data in addition to aproprietary software application. Zeidenberg, a student, bought aconsumer package of SelectPhone which contained a shrinkwraplicense (rather than an executed end user license) from a retailoutlet in Wisconsin. Zeidenberg also purchased two additionalSelectPhone packages containing updated versions of ProCD'sdatabase and shrinkwrap licenses.

Each box containing a consumer version of SelectPhone stated thatthe ProCD software comes with restrictions stated in an enclosedlicense [i.e. ProCD's "Single User License Agreement"].The shrinkwrap license (which is encoded on the CD-ROM disks,printed in the manual, and appears on a user's screen every timethe software runs), limits use of the SelectPhone applicationprogram and listings to non-commercial purposes. The ProCDsoftware "splashed the license on the screen and would notlet him [Zeidenberg] proceed without indicating acceptance."86 F.3d at 1452.

Zeidenberg decided to ignore the license and formed SilkenMountain Web Services, Inc. to resell the phone listings fromProCD's SelectPhone database by making them available on theInternet at a price considerably less than the price which ProCDcharged to its commercial customers. ProCD filed suit allegingviolations of the Copyright Act, breach of contract,misappropriation of trade secrets, and violation of Wisconsin'sComputer Crimes Act and sought an injunction.

The Western District of Wisconsin rejected all of ProCD's claims,holding that:
(1) copyright protection was not available to the two mainelements of SelectPhone - the phone book data or phone listingswere "a collection of facts arranged in a commonplace,non-original fashion" and not copyrightable under FeistPublications, Inc. v. Rural Telephone Service Co., 499U.S. 340 (1991), and Zeidenberg's copying of the SelectPhonesoftware was permitted under 17 U.S.C. ' 117 as an "essentialstep in the utilization of the computer program", ProCD,Inc. v. Zeidenberg, 908 F. Supp. 640, 647 (W.D. Wis.1996);
(2) the agreement between the parties was a contract for the saleof goods under the Uniform Commercial Code ("UCC") andwas not subject to any shrinkwrap license terms, as ProCD's merereference to proposed shrinkwrap license terms on the outside ofthe box did not present Zeidenberg with an adequate opportunityto review and consider such terms, 908 F. Supp. at 654; and
(3) ProCD's state law claims were preempted by the Copyright Act,since although the phone listings were uncopyrightable, theystill were within the "subject matter" of the CopyrightAct and ProCD's claims did not include any extra element beyondthe Copyright Act infringement claims, 908 F. Supp. at 656-7.

Shrinkwrap Licenses
The District Court held the shrinkwrap licenses were"ineffective because their terms do not appear on theoutside of the SelectPhone packages" and were not disclosedto the purchaser prior to purchasing. However, the SeventhCircuit deemed Zeidenberg's access to the license terms at thetime of purchase to be irrelevant, and stated that"[a]though the district judge was right to say that acontract can be, and often is, formed simply by paying the priceand walking out of the store, the UCC permits contracts to beformed in other ways." 86 F.3d at 1452.

The Circuit Court, treating the licenses as ordinary contractsaccompanying the sale of goods, noted several common situationswhere "transactions in which the exchange of money precedesthe communication of detailed terms." 86 F.3d at 1451.

The Seventh Circuit quoted UCC '2-204(1) (agreement) and stated that:

A vendor, as master of the offer, may invite acceptance byconduct, and may propose limitations on the kind of conduct thatconstitutes acceptance. A buyer may accept by performing the actsthe vendor proposes to treat as acceptance. ... ProCD proposed acontract that a buyer would accept by using the software afterhaving an opportunity to read the license at leisure. ThisZeidenberg did. He had no choice, because the software splashedthe license on the screen and would not let him proceed withoutindicating acceptance.

86 F.3d at 1452. The Court noted that Zeidenberg could havesimply returned the software to ProCD for a refund, if he did notwant to accept ProCD's offer.

Noting that the "UCC consistently permits parties tostructure their relations so that the buyer has a chance to makea final decision after a detailed review," 86 F.3d at 1453,the Seventh Circuit noted the similarity between Zeidenberg'sfailure to reject ProCD's offer and Zeidenberg's failure toreject ProCD's goods. The Court reasoned that Zeidenberg acceptedthe goods under UCC '2­606(1)(b), as he failed to make an effective rejection underUCC ' 2­602(1) afteran opportunity to inspect the goods. ProCD extended anopportunity to reject, if a buyer should find the license termsunsatisfactory. According to the conclusion reached by theSeventh Circuit, "Zeidenberg inspected the package, triedout the software, learned of the license, and did not reject thegoods." 86 F.3d at 1453.

Under the Seventh Circuit's analysis, "clickwrap"license agreements (agreements presented via electronictransmission permitting review and acceptance by clicking on an"accept" icon or other electronic signature) wouldsimilarly pose no enforceability issues.

Copyright Preemption
The District Court held that, even if Wisconsin treatsshrinkwrap licenses as contracts, the shrinkwrap license waspreempted by ' 301(a)of the Copyright Act. Title 17 U.S.C. ' 301(a), in pertinent part,preempts any "legal or equitable rights [under state law]that are equivalent to any of the exclusive rights within thegeneral scope of copyright as specified by section 106 in worksof authorship that are fixed in a tangible medium of expressionand come within the subject matter of copyright as specified bysections 102 and 103."

Following Fourth, Fifth and Eighth Circuit precedent, the SeventhCircuit held that the rights granted under the shrinkwrap licensewere not "equivalent to that of the exclusive rights withinthe general scope of copyright," since the licenses onlyaffected the right of the parties to the license and could notcreate "exclusive rights."

The Court stated that:
But are rights created by contract "equivalent to any of theexclusive rights within the general scope of copyright"? ...Rights "equivalent to any of the exclusive rights within thegeneral scope of copyright" are rights established by law --rights that restrict the options of persons who are strangers tothe author. ... A copyright is a right against the world.Contracts, by contrast, generally affect only their parties;strangers may do as they please, so contracts do not create"exclusive rights."

86 F.3d at 1454.



D. PATENTS

Interactive Gift Express, Inc. v. Compuserve Inc.,95-CV-6871 (S.D.N.Y. Pending). Pending action to enforce patenton System for Reproducing Information in Material Objectsat a Point of Sale Location, U.S. Patent No. 4,528,643,July 9, 1985 (issued to Charles C. Freeny, Jr., and assigned toE-data Corporation) against about 14 defendants. It is reportedthat plaintiff alleges that sales/licensing by downloadingsoftware or data from the internet and/or decrypting software offa CD-ROM are within the 56 claims of the patent. By Order, datedJune 27, 1996, discovery was limited to claim constructionproceedings pursuant to and consistent with Markman v.Instruments, Inc., 116 S. Ct. 1384 (1996).

Abstract: The present invention contemplates a system forreproducing information in material objects at a point of salelocation wherein the information to be reproduced is provided atthe point of sale location from a location remote with respect tothe point of sale location, an owner authorization code isprovided to the point of sale location in response to receiving arequest code from the point of sale location requesting toreproducing predetermined information in a material object, andthe predetermined information is reproduced in a material objectat the point of sale location in response to receiving the ownerauthorization code.

DCBAR43S.CRC
REV02/26/97

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