Source: https://www.theiplawblog.com/
Timestamp: 2019-04-20 21:16:22+00:00

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Many businesses rely on their websites to promote their company and drum up business. Having a “professional” looking web page is considered a must and companies spend a lot of money in creating and maintaining their web presence. However, a recent case out of the Ninth Circuit Court of Appeals demonstrates that care must be taken in connection with the creation of a company’s website, especially when obtaining “stock” or other photos from a third party to help promote your business.
Kast worked with the developer to give his ideas as to what he wanted his new website to look like and apparently made numerous favorable comments towards an existing website for Wells Fargo Private Bankers. The revamped website for Atherton Trust that was eventually created included three photos that had apparently been copied from the Wells Fargo website. These three photos were taken by Jim Erickson and licensed to Wells Fargo for use on its web page. Neither Kast, his company or his web developer obtained licenses for the photos to use on the Atherton Trust website. Erickson soon learned of the use of his photos on the Atherton Trust website and in July 2011, sent a cease and desist letter to Atherton Trust demanding that his photos be removed and payment for the infringement of his photos copyrights. Although Kast immediately removed the three offending photos from the Atherton website, he declined to pay any money to Erickson. Erickson sued and, after a jury trial, was awarded damages of $450,000 ($150,000 for each offending photograph). Kast appealed this decision to the Ninth Circuit.
The first issue of Kast’s appeal dealt with the jury’s finding that Kast was vicariously liable for copyright infringement because he had employed a developer who had directly infringed on Erickson’s copyrights in his photos that were used on the Atherton Trust website. The Ninth Circuit began by noting that the elements that a Plaintiff must prove to establish vicarious liability are that the defendant has “(1) the right and ability to supervise the infringing conduct; and (2) a direct financial interest in the infringing activity.” Kast focused his argument to the Ninth Circuit on the second prong and claimed that there was no evidence that he had received a direct financial benefit as a result of the use of the photos on the Atherton Trust website. The Ninth Circuit agreed with him and held that it was improper to award damages against him on a theory of vicarious liability.
The Ninth Circuit reasoned that, “[t]he essential aspect of the `direct financial benefit’ inquiry is whether there is a causal relationship between the infringing activity and any financial benefit a defendant reaps…” Erickson claimed that Kast had received at least three direct financial benefits as a result of the infringement: (1) the photographs drew customers to the Atherton Trust website; (2) Kast avoided paying licensing fees for the use of the photos; and (3) Kast was able to “rush” his new website’s launch. The Ninth Circuit rejected each of these arguments.
First, the Ninth Circuit held that there was no evidence that any consumer went to the Atherton Trust website to view Erickson’s photographs or purchased any services from Atherton Trust as a result of the photographs. Next, the Ninth Circuit rejected the argument that the avoidance of licensing fees could be a direct financial benefit in this case. The Court reasoned that avoiding licensing fees could only be a direct financial benefit if the web page developer had somehow lowered his fees as a result of avoiding having to pay licensing fees. However, there was no evidence that the developer had done so. Finally, the Ninth Circuit rejected the argument that the “rush” of the website was a direct financial benefit because, once again, there was no evidence that launching the website earlier had resulted in any business to Atherton Trust.
While the Ninth Circuit held that it was error to impose liability against Kast under a vicarious liability theory, it did affirm liability against him under a contributory liability theory.
The Ninth Circuit found that Kast was liable for contributory infringement, which is when a defendant “(1) has knowledge of another’s infringement; and (2) either (a) materially contributes to; or (b) induces that infringement.” Kast’s attack on this theory was really one directed at the jury instructions given by the trial judge, which included a definition of “knowledge” as including Kast having only a “reason to know” of the infringement. Kast argued to the Ninth Circuit that only “actual knowledge” or “willful blindness” would be sufficient to impose contributory infringement liability.
However, Kast had failed to raise this objection at his trial. The Ninth Circuit concluded that because of this failure, its review was limited to considering only whether the jury instruction constituted “plain error.” The Court found that the trial court did not commit “plain error” in this regard because there had been inconsistency in prior Ninth Circuit cases regarding the knowledge element for contributory infringement liability.
For instance, in 2013, the Ninth Circuit in Luvdarts, LLC v. AT&T Mobility, LLC, held that “actual knowledge of specific acts of infringement” and “willful blindness of specific facts” would be the only two mental states that allowed for a finding of contributory infringement. However, in 2011, the Court had affirmed a lower court’s decision to instruct the jury that contributory liability could be imposed where the defendant “knew or had reason to know” of the infringement. Thus, because the Court declined to find that this instruction as “plain error,” it affirmed the jury’s finding of contributory infringement against Kast.
Kast urged the Ninth Circuit to reverse the finding of willfulness saying that the trial court had improperly instructed the jury that willfulness could include whether he “should have known” of the claimed infringement. The Ninth Circuit began by nothing that willfulness “requires an assessment of a defendant’s state of mind.” A plaintiff seeking to establish willfulness under the Copyright Act must prove “(1) that the defendant was actually aware of the infringing activity; or (2) that the defendant’s actions were the result of reckless disregard for or willful blindness to the copyright holder’s rights.” (Citing, Unicorlors, Inc. v. Urban Outfitters, Inc., 853 F.3d 980, 991 (9th Cir. 2017).
The Ninth Circuit concluded that a “should have known” standard does not fit within the statutory framework because it is essentially a negligent standard. To say that a defendant such as Kast “should have known” of the infringing activity meant that, while he may have been negligent, he was not necessarily guilty of willfulness under the Copyright Act. The Ninth Circuit further concluded that had the jury been properly instructed, it may not have found that Kast acted “willfully” and could not have awarded more than $90,000 in damages. Therefore, the Ninth Circuit reversed the verdict and remanded it back to the trial court to make a new determination as to the amount of statutory damages that should be awarded to Erickson.
The facts of the Erickson case serve as a reminder that when developing or updating your company website, you should pay careful attention to where content for the site is coming from and whether any licensing fees should be (and have been) paid. Otherwise, the owners of the website face the prospect of being held vicariously and/or contributorily liable for any content on the web page that infringes on another person’s copyrights.
The Supreme Court has granted review in the matter known as Mission Product Holdings Inc. v. Tempnology LLC, No. 17-1657, where it will decide whether a licensee loses its right to use a licensed trademark if the licensor files bankruptcy and the bankruptcy trustee chooses to reject the licensor’s license agreement. This decision could significantly impact numerous licensees throughout the world if the Court affirms the First Circuit Court of Appeal’s decision below, holding that a licensee loses its right to use a licensor’s trademarks once the licensor has filed a petition for bankruptcy and the trustee has elected to reject the agreement pursuant to Section 365(a) of the Bankruptcy Code.
Under Section 365(a) of the Bankruptcy Code, a bankruptcy trustee can assume or reject a debtor’s pre-bankruptcy executory contracts, depending on whether the benefits of continued performance outweigh the burdens to the bankruptcy estate. Under that provision, a rejection is treated as a breach by the debtor if certain conditions are met. If those conditions are met, the other party to the agreement is entitled to file a claim for damages in the bankruptcy action, however valueless that may be.
The Bankruptcy Code, however, does not address the matter at issue before the Supreme Court, which is whether rejection of a trademark license agreement strips the licensee of the right to use the mark. Although Section 365(n) protects the rights of “intellectual property” licensees, the Bankruptcy Code’s definition of “intellectual property” does not expressly include trademarks. While most trademark practitioners would be dumbfounded if a court were to interpret “intellectual property” in a manner that doesn’t include trademarks, the First Circuit did exactly that.
Accordingly, the Supreme Court has granted review to resolve a circuit split between the First Circuit, whose holding is discussed above, and the Seventh Circuit, which held that a licensee’s trademark rights survive rejection of the agreement in bankruptcy. See Sunbeam Prods. v. Chi. Am. Mfg., 686 F.3d 372 (7th Cir. 2012). This case has caused numerous IP groups, as well as the United States Government, to file amicus briefs. Interestingly, the U.S. Government has stated that a trademark owner cannot revoke a licensee’s right to use the trademark by rejecting its license agreement under the Bankruptcy Code’s contract rejection mechanism.
In contrast, Tempnology, the opposing party, contends the First Circuit made the correct decision. Specifically, Tempnology argues, “The Bankruptcy Code’s strong policy of permitting a debtor to free itself of ongoing obligations under a contract … and the right to reject such obligations applies to the burden of policing trademarks.” As such, Tempnology argues, the First Circuit was correct that a licensee’s right terminate upon rejection.
But this issue was addressed by the American Intellectual Property Law Association’s (“AIPLA”) amicus brief, wherein the AIPLA urged the Court to hold that a licensee’s rights outside of the bankruptcy context govern whether the licensee’s rights survive the licensor’s rejection under the Bankruptcy Code. The AIPLA argues that in the “absence of the Bankruptcy Code specifically addressing trademark licenses, the effect of the breach must be decided under applicable non-bankruptcy law and the language of the contract.” The AIPLA rejected the First Circuit’s rationale that a licensee’s right must terminate in order to avoid restricting a licensor-debtor’s right “to free itself from performing executory obligation” by forcing it to police its marks. The AIPLA contends the First Circuit’s approach was flawed because the duty to monitor a trademark’s use does not arise under the terms of a license agreement, but is instead an independent obligation imposed by federal trademark law.
The United States Government may have said it best: “If a landlord has rented a family an apartment and has agreed to pay the utilities, the landlord cannot later terminate the family’s lease simply by refusing to pay the cable bill[.]” The same principles apply, or at least they should, to trademark licensing agreements. For that reason, among others, I suspect the Supreme Court will overturn the First Circuit’s decision and protect the rights of the licensees.
When a patent applicant files for a patent, the USPTO assigns an examiner to review the application and determine whether the claims are patentable and a patent should issue. If the patent examiner rejects claims in a patent application, the applicant can appeal that decision to the USPTO’s Patent Trial and Appeal Board (“PTAB”). If that appeal is not successful, the applicant has two options for challenging the rejection. The applicant can either 1) appeal the rejection directly to the Court of Appeals for the Federal Circuit or 2) file a civil action in the District Court for the Eastern District of Virginia. 35 U.S.C. §145. Unlike in an appeal to the Federal Circuit, if the applicant brings an action in the district court, “[a]ll the expenses of the proceedings shall be paid by the applicant” regardless of the outcome of the litigation. Id.
There are pros and cons to these two options for challenging an examiner’s decision. The Federal Circuit typically offers faster resolution, but it relies only on the record that was before the USPTO and does not review the matter de novo. In contrast, filing a civil action in district court is slower, litigation expenses may be higher, and the patent applicant is required to pay the USPTO’s expenses regardless of whether the applicant wins or loses. The district court, however, offers the applicant the option to present new evidence that was not presented to the USPTO, and the court must review that new evidence de novo.
Therefore, for the first time in Shammus, the USPTO sought attorneys’ fees as part of its expenses under Section 145’s trademark provision. Allowing recoupment of attorneys’ fees, the Court of Appeals for the Fourth Circuit explained that “the imposition of all expenses on a plaintiff in an ex parte proceedings, regardless of whether he wins or loses, does not constitute fee-shifting that implicates the American Rule.” Shammus v. Focarino, 784 F.3d 219 (4th Cir. 2015). The “American Rule” assumes each party pays its own attorneys’ fees absent explicit statutory authority to the contrary.
The USPTO also makes policy-based arguments for the reimbursement of attorneys’ salaries. It argues that applicants have an alternative appellate process where they do not have to pay the USPTO’s expenses, a substantial amount of attorneys’ time is devoted to Section 145 district court proceedings given the additional discovery and new evidence presented, and it is unfair to make other patent applicants effectively underwrite the cost of Section 145 proceedings.
In its opposition to the petition for certiorari, NantKwest pointed out that “expenses” in Section 145 is at best ambiguous. The fact that “expenses” could be construed to encompass attorneys’ fees or salaries is not sufficient to “specifically and explicitly” authorize attorneys’ fees and overcome the presumption of the “American Rule” that each party pays its own attorneys’ fees absent explicit statutory language to the contrary. The USPTO, however, argues that even if the American Rule applies, “[a]ll the expenses of the proceedings” “is sufficiently specific and explicit to overcome the presumption … and authorize reimbursement of the USPTO’s” attorneys’ salaries.
The Supreme Court will decide this issue in the upcoming months, so stay tuned.
This week, the Supreme Court resolved a split in the circuits regarding an issue in copyright law that affects copyright owners in California. Until now, the law in the Ninth Circuit was that a copyright owner could file suit for infringement as soon as they filed a copyright application in the Copyright Office. However, in Fourth Estate Public Benefit Corp. v. Wall-Street.com, LLC (U.S. Supreme Court, March 4, 2019), the Court rejected this approach, holding that a copyright owner cannot file suit for infringement until the work has been registered by the Copyright Office.
The plaintiff, Fourth Estate Public Benefit Corp., is a news group who writes online articles. The defendant, Wall-Street.com, is a website for news articles. Pursuant to a license, Fourth Estate licensed its articles to Wall-Street.com. Wall-Street.com cancelled the license, but continued to publish Fourth Estate’s articles, in violation of the license. Fourth Estate filed applications in the Copyright Office to register the copyrights in its articles, and then filed suit against Wall-Street.com for copyright infringement. Wall-Street.com moved to dismiss the complaint on the grounds that Fourth Estate had not registered its copyrights within the meaning of the Copyright Act of 1976, as amended, as of the filing of the complaint. The district court granted Wall-Street.com’s motion to dismiss. The Eleventh Circuit Court of Appeals affirmed.
Copyright protection exists as soon as a work of expression is created. However, under the Copyright Act, a copyright owner cannot file an action for infringement until “registration…has been made.” 17 U.S.C. §411(a).
The circuit courts are divided as to the meaning of the phrase “registration…has been made,” as set forth in §411(a). Some circuits, including the Ninth Circuit, take the “application approach,” holding that a copyright has been registered, and therefore an action for copyright infringement can be filed, once the copyright owner has filed its application for registration and the application has been received by the Copyright Office. Other circuits, including the Eleventh Circuit, take the “registration approach,” holding that a copyright has not been registered, and therefore an action cannot be filed, until the Copyright Office has actually registered the work.
The Supreme Court granted certiorari in the case to resolve the split in the circuits. The Court held that the “registration approach” is the correct interpretation of §411(a), and that “registration” means action taken by the Register of Copyrights.
The Court explained that the first §411(a) sets forth the rule that an action for infringement cannot be filed until registration of the copyright has been made, while the second sentence provides an exception to the rule. The second sentence states that if a copyright application has been submitted to the Copyright Office, but registration has been refused, the applicant can file an action for infringement if they provide notice of the action and a copy of the complaint to the Register of Copyrights. The Court reasoned that if “registration” meant application, then the second sentence would be superfluous; an applicant could just file suit as soon as they filed their copyright application.
The Court said that the third sentence of §411(a) further supports the “registration approach.” That sentence provides that the Register of Copyrights may optionally join an action with respect to the issue of registrability of the copyright. According to the Court, this sentence would be meaningless if a suit could be filed before the Register had acted on the copyright application.
The Court noted that other sections of the Copyright Act support this interpretation. For example, §411(a) refers to examination of the application by the Register of Copyrights, and includes the steps of determining whether the work is copyrightable and deciding whether to allow or refuse registration. The statutes also provide for preregistration, a specific process which allows an applicant seeking a copyright for a work for which predistribution infringement is a risk (such as a film or musical composition) to receive a limited review by the Copyright Office and the right to file an infringement action prior to registration.
Fourth Estate argued that an applicant may run out of time to file suit while waiting for the Copyright Office to register their copyright. The Court found this argument unpersuasive, pointing out that the average time to obtain a copyright registration is about seven months, leaving plenty of time left in the three-year statute of limitations, and that, in certain cases, an applicant can request expedited processing.
So, the message of this case is clear: the best practice for copyright owners in California, and throughout the U.S., is to file an application to register their copyright as soon as possible for any work for which they might, at some time in the future, need to file an infringement suit.
Companies have a number of tools available to them to help protect their intellectual property, including trade secret and other proprietary information that give them a competitive advantage. Many employers utilize detailed provisions in their employee handbooks and employment agreements to protect this information. One key provision has been the use of coworker non-solicitation provisions that prevent a departing employee from seeking to “raid” his or her former coworkers to join him or her at their new place employment, usually a business competitor.
Generally, these provisions state that an employee agrees during their employment, and for some period after their employment ends (usually one year), that he or she will not solicit any former coworkers to seek employment with their new employer. Now, some recent case law has brought the use of these non-solicitation provisions into question as possibly violating section 16600 of California’s Business and Professions Code, which prohibits the use of non-compete provisions except in certain limited circumstances.
The enforcement of non-solicitation of co-worker provisions remained relatively consistent until November 2018 when a court in AMN Healthcare, Inc. v. Aya HealthCare Services, Inc., 28 Cal.App.5th 923, granted judgment against an employer who was attempting to enforce a co-worker non-solicitation provision against former employees. In AMN, the departing employees were recruiters for temporary nurses who left AMN to join a competitor in the industry. AMN sued the competitor and former employees claiming they had violated a contractual provision not to solicit or recruit their former co-workers, i.e. the nurses being hired for temporary nursing assignments.
The Court affirmed summary judgment in favor of the competitor and former employees, holding that the co-worker non-solicitation provision violated section 16600 of the California Business and Professions Code, which provides that agreements that restrain a person’s trade or profession are unenforceable. The AMN Healthcare Court relied heavily on the California Supreme Court’s ruling in Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (2008), which broadly struck down non-compete agreements preventing employees from competing against their former employers.
We did not have to wait long to see what other courts would do. Two months after the AMN decision, another court followed the lead of the AMN Healthcare Court and is allowing a claim to go forward attacking a co-worker non-solicitation provision. In Barker v. Insight Global, LLC (Jan. 11, 2019 N.D. Cal.), Judge Beth Labson Freeman recently reversed herself and granted the plaintiff-employee’s motion for reconsideration to allow him to state a claim as a class representative against his former employer for the use of co-worker non-solicitation provisions in its employment agreements.
Judge Freeman held that the recent AMN Healthcare decision (her initial order dismissing the claim came three months prior to the AMN Healthcare decision) was likely consistent with the current state of California law regarding these non-solicitation provisions, especially in light of the Edwards v. Arthur Andersen decision. She denied the defendant-employer’s motion to dismiss the former employee’s claim and ruled that plaintiff should be allowed to present a claim that the use of an employee non-solicitation provision in his employment agreement violated section 16600 and was therefore an unfair business practice.
The Barker case is still in the early stages but employers should be concerned that a court has decided to follow the holding of the AMN Healthcare decision. In light of these recent developments, employers should carefully review any non-solicitation provisions in their employment agreements with their attorneys to determine whether they are at risk at facing claims or a result similar to those in the AMN Healthcare and Barker cases.
The dancer sways their hips as they step from side to side, while swinging their arms in an exaggerated manner. In the second dance step, the dancer takes two steps to each side while opening and closing their legs and their arms in unison. In the final step, the dancer’s feet are still and they lower one hand from above their head to the middle of their chest while fluttering their fingers.
Based upon this refusal, the defendants have filed motions to dismiss the complaint. Specifically, the defendants argue that the mark is not entitled to copyright protection, as Ms. Florence, whose conclusion on behalf of the Copyright Office is entitled to substantial deference, likewise concluded. Defendants also contend that Mr. Ribiero may not be the true owner of the work, as it was created for the Fresh Prince of Bel Air and again used on Dancing with the Stars, both of which raise questions regarding whether the network owns the copyright as a work made for hire. Accordingly, Defendants requested that the matter be dismissed with prejudice.
We’ll keep an eye on the docket and when Mr. Riberio files his opposition to the motion to dismiss, we’ll provide another update.

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