Source: http://jaydevoy.com/author/admin/page/4/
Timestamp: 2017-10-22 21:04:05
Document Index: 514685557

Matched Legal Cases: ['§ 102', '§ 101', '§ 505', '§ 101', '§ 1693', 'art 2', 'art 1']

Jay, Author at law &c. - Page 4 of 4
Hookah Company’s Appeal Not Very “Useful” In Copyright Dispute
July 28, 2015 by Jay 1 Comment
The Copyright Act of 1976 broadly allows for original works “fixed in any tangible medium of expression” to by copyrighted. 17 U.S.C. § 102. Registering the copyright for a creation allows the copyright owner to bring suit – for up to $150,000 in some cases – and use a wide range of other remedies provided in the Copyright Act.
However, the Copyright Act throws the brakes on copyright protection for sculptures and other graphic works. In its definition of “pictorial, graphic, and sculptural works,” the Copyright Act excludes objects it considers to be “useful articles”:
What’s a “useful article”? Section 101 defines this term as well:
Is a hookah a useful article? In Inhale Incorporated v. Starbuzz Tobacco, Incorporated, the United States Court of Appeals for the Ninth Circuit said no—but with some caveats. 755 F.3d 1038, (9th Cir. 2014). In that case, both parties agreed that the plaintiff-appellant’s hookah was a useful article. The only question was whether the shape of the container was conceptually separable from its function as a hookah.
The Ninth Circuit held that the hookah’s shape was not independent of its function – to hold water within the shape of the container. As a result, the appeals court affirmed the district court’s decision, finding that the hookah was not copyrightable. The Ninth Circuit broadly stated its holding thusly: “any part of a container that merely accomplishes the containing is not copyrightable.” If some element of the design extended beyond merely holding water—fulfilling the hookah’s functional purpose—the outcome may well have been different.
The Ninth Circuit took great pains to point out that the images applied to the outside of the hookah were copyrightable. The panel even disclaimed that its opinion “should not be understood to affect the copyrightability of” pictorial, graphic, or sculptural works under 17 U.S.C. § 101. It was the design of the hookah itself, rather than the images adorning it, that gave rise to the dispute.
Two other notable things about this opinion: First, the Ninth Circuit affirmed the district court’s award of $111,993 in attorney’s fees to Starbuzz Tobacco under 17 U.S.C. § 505. Then, the Ninth Circuit went on to award Starbuzz with fees incurred in the defense of Inhale’s appeal under the same statute. The amount of fees awarded is not specified in the order. However, in May 2013, United States District Court Judge Otis Wright estimated that the cost of an effective appeal to the Ninth Circuit was a little more than $80,000 (see fn. 5). Ouch.
Second, there’s a point of resistance in Justice Bea’s separate concurrence about the deference the Ninth Circuit owes to the Copyright Office’s interpretation of the Copyright Act. The panel relied on the Compendium of Copyright Office Practices II and an opinion letter from the Copyright Office in guiding their interpretation of 17 U.S.C. § 101. Justice Bea, however, contended that the statute is not ambiguous, and reliance on the Copyright Office’s interpretation of the statute is misplaced.
While the opinion does not require other courts to look to the Copyright Office when interpreting the Copyright Act in the future, Justice Bea’s desire to protect the sovereignty of the federal courts is understandable. While administrative records can be helpful to the courts, especially in resolving ambiguity, one can understand why a judge with lifetime tenure would want to resist being bound by them.
Filed Under: Federal, Ninth Circuit
The FTC’s Power Over Online Marketing
The Federal Trade Commission (“FTC”) is the federal government’s arm to oversee and regulate marketing practices. The good news, depending on how you look at it, is that the FTC has no criminal authority. The FTC does, however, come after the money of businesses large and small, both highly visible and operating in the shadows.
And, oh, how does the FTC come for money. The FTC came after Jesse Willms, the creator of the “One Weird Trick” genre of online ads, for hundreds of thousands of dollars. The FTC also got Apple to fork over $32.5 million based on in-app purchases in early 2014. As has been discussed before, federal agencies can be highly effective at pursuing their interests.
The Court of Appeals for the Ninth Circuit’s decision in FTC v. Grant Connect, LLC, 763 F.3d 1094 (9th Cir. 2014), an appeal from the United States District Court for the District of Nevada, provides an overview of how the FTC operates against individuals and their many companies. Based on the opinion, the FTC has a lengthy history with Kyle Kimoto and various companies he operated, including a prior legal skirmish before the Seventh Circuit.
The FTC did not target Kimoto and his company in the Ninth Circuit case, Grant Connect LLC, out of the blue. Instead, the FTC had had Kimoto and his companies under its scrutiny “for over a decade,” resulting in three distinct enforcement actions. The Ninth Circuit’s decision represented just the culmination of the latest action.
Prelude to the Ninth Circuit’s Decision
In 2003, the FTC sued Kimoto and one of his companies, Assail, Incorporated, alleging that the company offered customers pre-approved MasterCard credit cards, but would give them applications for cash-secured debit cards or unusable plastic cards. This scheme apparently was quite successful: the district court in that case ordered Kimoto to pay $106 million in restitution. Based on his actions with Assail, the FTC even initiated criminal charges against Kimoto – the FTC’s second front against his conduct.
According to the Ninth Circuit’s opinion, Kimoto then moved to Las Vegas to pursue new Internet marketing activities. Kimoto organized a company, Vertek Group LLC, under his then-wife’s ownership in order to “avoid regulatory scrutiny.” (Ninth Circuit’s words, not mine.)
As is often the case in these cases, the new company uses the same old players. Kimoto was responsible for much of Vertek Group LLC’s operations. Among the people he hired to help him were two former employees of Assail Incorporated. Having reunited the band, Kimoto recommenced his activity offering unsecured lines of credit using a new entity, and a new legal front for the business – his former wife.
How the Business Worked
The Ninth Circuit describes Vertek’s conduct as being typical of questionable Internet sales operations. While Vertek did disclose details for the limited offer, they were placed in small type below the field where a visitor would submit his or her application for Vertek’s offer. This text contained a number of surprising terms, including that customers would be charged $39.95 per month if they did not cancel the service, that they would automatically be signed up for additional services, and they would be billed for these additional services in the future. Most surprising, though, is what the scheme’s victims actually received. Vertek’s customers believed they would be receiving a credit card. Instead, they received a line of credit that could be used only to purchase merchandise from Vertek’s website.
The FTC shut down Vertek’s operations in 2009. In its nearly two years of operations, 94% of subscribers cancelled their subscription to the site’s services – but not without considerable effort on their part.
However, Vertek’s line of credit offer was not the only scheme Kimoto operated during this time. The government’s name defendant, Grant Connect LLC, was Kimoto’s company – organized in a manner similar to Vertek Group LLC – used to sell access to putative government grants. From the Ninth Circuit:
“The Grant Connect landing pages featured pictures of President Obama and Vice President Biden, or of a scantily clad female holding cash.”
One of these things is not like the other. Nonetheless, people signed up for it—paying an initial $2.78 processing fee, and then being charged $39.95 per month for the grant service, in addition to being involuntarily added to other services with recurring fees. Like Vertek’s scheme, 91% of subscribers cancelled their memberships by the time the FTC shut down the operation in May 2009. In reality, the government grants that Grant Connect marketed “cannot be used for personal expenses,” and did not exist for the purposes Grant Connect promoted.
Kimoto and his companies were involved with still more contemporaneously operating schemes. In addition to a work-from-home scheme similar to those already discussed, Vertek was also involved with a scheme based on the sale of Acai berries for fat loss and anti-aging purposes. Ultimately, the FTC shut down all of these operations.
Whither Personal Liability for Ostensibly Corporate Acts?
While the companies’ violations of the FTC Act were largely undisputed, a question arose as to whether Kimoto was personally liable for those violations. The Ninth Circuit quickly dispatched with this argument, though, pointing out that 15 U.S.C. § 1693o(c) makes any violation of the Electronic Fund Transfer Act (EFTA) a violation of the FTC Act. The very nature of the EFTA required the FTC to enforce it. The Ninth Circuit’s reasoning then incorporated portions of the FTC Act in interpreting the enforcement of penalties under the EFTA. Just as the FTC Act allows for a company’s principals to be personally liable for violations of the act, the EFTA can reach the same result because violations of its provisions are deemed to also contravene the FTC Act. Additionally, the court found that Kimoto’s actions in operating the companies provided an ample basis for his personal liability.
Finally, the Ninth Circuit upheld the District of Nevada’s injunction as necessary to prevent Kimoto from engaging in further unlawful conduct. Because Kimoto was the common element in all of his companies’ unlawful activities, the district court’s injunction against him engaging in any electronic fund transfers in the future was proper. This decision was buttressed by evidence of Kimoto’s history of operating similar scams across a web of companies in the past. Despite the injunction’s wide breadth, the Ninth Circuit refused to find it was overbroad in its scope.
The takeaway from this decision is that the FTC’s powers are broad and manifold. The commission may raise its head in enforcing laws that are not part of the FTC Act, and that may not even be clearly connected to the FTC. (Recall that the Secret Service has some authority over monetary issues, and money laundering generally falls under the FBI’s purview.) When the FTC chooses to act, it is with crushing finality. While Kimoto’s actions are despicable, they warranted the imposition of a very broad permanent injunction – one that even the Ninth Circuit upheld.
Thus, the lack of criminal authority and the ability to put bad actors in jail has not done much to impede the FTC’s power. Although the FTC’s power was put to good use in this case, it should be a chilling reminder to those who do business online that the FTC’s rules regulations extend to affiliate links and even promotional SMS messaging, making it a power for anyone to fear.
Filed Under: District of Nevada, Federal, FTC, Ninth Circuit
The Protein Wars – Part 2
July 8, 2015 by Jay 1 Comment
In Part 1, we examined the rise of class action lawsuits over protein supplement manufacturers. Recently, the United States Court of Appeals for the Ninth Circuit held that inaccurate food labels could be subject to state law claims, as the Food, Drug, and Cosmetic Act (“FDCA”) did not preempt those claims. This issue is of importance in the pending consumer litigation against Quest Nutrition and the manufacturer of Body Fortress protein powder.
Filed Under: FDA, Federal, Ninth Circuit, United States Supreme Court