The seminar series comprises:

Social Media in the Law: Learn It and Use It, or Get Out of the Way
June 19
Social media has forever altered how we share and collect information about friends and colleagues as well as people outside our professional or personal circles. And this sea change hasn’t applied solely to our personal lives — businesses have been in the mix almost since day one. But have business leaders considered the ramifications of their companies’ social media activity? Porter Wright attorneys Sara Jodka, Colleen Marshall, and Erin Siegfried discuss workplace social media policies that conform with recent NLRB decisions, conducting legally sound social media background checks, termination based on social media activity, ownership of social media content, duty to preserve, and the potential dangers of conducting fair disclosure through social media.

Cloud Computing and Outsourcing in the U.S. and Across Borders
July 17
Everyone seems to be moving to the cloud. But before you jump on the bandwagon, do your homework. Your company’s information is one of your most valuable assets — keep it safe. Speakers will discuss analyzing the business case for cloud computing, conducing a thorough risk assessment, developing and implementing a cloud strategy, negotiating key contract provisions, fulfilling e-discovery requirements, and ensuring your business is able to gain direct access your data when you need it.

Thinking Through BYOD
Aug. 21
Business are addressing the risks posed by mobile devices in the workplace. Is BYOD the answer? Numerous businesses subscribe to a “bring your own device” methodology, but there are many issues to work through. Speakers will address employer vs. employee concerns associated with personal mobile devices in the workplace, costs and benefits of BYOD vs. COPE workplace environments, data management and security challenges, and technical and administrative strategies for addressing the challenges.

Corporate Data Security: Vulnerabilities and Proactive Practices
Sept. 18
Cyber attacks and data breaches, now reported daily, cause loss of reputation and costly penalties to businesses. Presenters will identify current attacks, defense strategies, and best (and worst) practices for corporate data. Presenters also will explain penalties for failing to report data breach and how to create protectable forensic reports.

If you’d like to learn more about our upcoming seminar series, contact Porter Wright.

Fortunately, the president and the legislature appear to desire additional patent reform to address patent trolls. On Feb. 14, 2013, President Barack Obama addressed patent trolls and the need for more comprehensive patent reform in a “Fireside Hangout” which is a live question and answer session hosted in a Google+ hangout. President Obama acknowledged that the reforms of the AIA “only went about halfway to where we need to go.”

On Feb. 25, 2013, the Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act of 2013 (H.R. 845) was reintroduced into the House by Rep. Peter DeFazio, D-Ore. and Rep. Jason Chaffetz, R-Utah. The SHIELD Act mandates a fee award to any party victorious on the issue of non-infringement or invalidity. This means that a company can sue for declaratory relief and recover its costs, even though the patentee never filed suit. The SHIELD Act excludes the inventors or “original assignees”, universities and their technology transfer organizations, and patentees that have a “substantial investment” in the exploitation of a patent via production or sale. The SHIELD Act requires NPEs to post a bond for the fees upon filing an infringement lawsuit. While this legislation raises many questions, at least it keeps the issue on the minds of the legislature and public.

The Summary:

ArrivalStar S.A. (and Melvino Technologies Limited)

Patents — U.S. Patent 6,486,801 (‘base station apparatus and method for monitoring travel of a mobile vehicle”), U.S. Patent 6,714,859 (‘system and method for an advance notification system for monitoring and reporting proximity of a vehicle”), U.S. Patent 6,904,359 (“notification systems and methods with user-definable notifications based upon occurrence of events”), U.S. Patent 6,952,645 (“system and method for activation of an advance notification system for monitoring and reporting status”), U.S. Patent 7,030,781 (“notification system and method that informs a party of vehicle delay”), and U.S. Patent 7,400,970 (“system and method for an advance notification system for monitoring and reporting proximity of a vehicle”).

History — ArrivalStar S.A. claims that its patents cover tracking and notifying the arrival time of a vehicle. ArrivalStar S.A. also claims that its patents cover tracking shipped packages from warehouse to front porch. In 2011 and 2012, ArrivalStar S.A. filed hundreds of infringement lawsuits against a variety of retailers, technology companies transportation companies, and municipalities. Electronic Frontier Foundation (EFF) provoked a reexamination of the ‘781 patent in September 2012 that remains pending.

Recent Activity — ArrivalStar S.A. has filed infringement lawsuits this year against companies including Ace Hardware, ASL Transportation Group, Aurionpro Solutions, Inc., Birds Eye Global Tracking, The Burton Corporation, Channel Logistics, LLC, Codemass, Inc., Cogent Solutions, CSA Software, Inc., Exact Point Global Tracking, LLC, Flight View, Inc., Garmin International, Inc., Global Satellite Engineering, Greenbrier Management Services, LLC, Gulf Express International LLC, Hewlett-Packard, Joseph Smith Customhouse Broker, Inc., Keds.com, K & N Engineering, Inc., Lacoste USA, Inc., Megatrux Transportation, Inc., Nautica, LLC, New Balance Athletic Shoe, Inc., Nexus Distribution Corporation, Open Mike Inc., Quicksilver, Inc., Recon Dynamics, RFID Global Solution, Inc., Rite Aid Corporation, Sharp Electronics Corporation, Sportsman’s Warehouse, S & A Distribution, Inc., ThinAir Wireless, Inc., Tracker Systems, Inc., Transportation Insight, LLC, Tts, LLC, Tubular USA, Inc., Tumi, Inc., Union Pacific Railroad Company, VSSOD Corporation, WCAF Shipment Management, Willis Shaw Express, and Xact Technology.

Cascades Branding Innovation, LLC

Patents — U.S. Patent 7,768,365 (“mobile mapping”) and U.S. Patent 8,106,766 (“mobile mapping”).

History — Cascades Branding Innovation, LLC claims that its patents cover any mobile application that shows a map of service locations relative to the location of the mobile device. In 2011 and 2012, Cascades Branding Innovation, LLC filed infringement lawsuits against a variety of online retailers and others.

Recent Activity — Cascades Branding Innovation, LLC has filed infringement lawsuits this year against companies including The Allstate Corporation.

Clear With Computers, LLC

Patents — U.S. Patent 5,625,766 (“electronic proposal preparation system for selling computer equipment and copy machines”), U.S. Patent 7,606,739 (““electronic proposal preparation system” ), and U.S. Patent 8,121,904 (“electronic system for creating customized product proposals stores a plurality of pictures and text segments to be used as building blocks in creating the proposal”).

History — Clear With Computers, LLC claims that its patent covers websites, making and using supply chain methods, sales methods, sales systems, marketing methods, marketing systems and inventory systems. Clear With Computers, LLC has successfully brought infringement lawsuits against hundreds of companies.

Recent Activity — Clear With Computers, LLC has filed infringement lawsuits this year against companies including Alcoa, Ag Growth International dba Batco Manufacturing, Alamo Group Inc., CLAAS of America Inc., Coleman Company, Empire Southwest, Fishing Holding LLC dba Ranger Boats, Forty Niners Football Company LLC, Gehl Company, Mahindra USA Inc., Kennametal, Linde Material Handling North America, Lufkin Industries, Manitowic Cranes LLC, Palfinger USA Inc., The Raymond Corporation, Salford Inc., Textron Inc., Universal Forest Products Inc., Valmont Industries Inc., Vermeer, and Yanmar American Corporation.

In March 2013, Hyundai Motor America, Inc. filed a request inter partes review of the ‘904 patent.

Cronos IP Solutions

Patents — U.S. Patent 5,664,110 (“remote ordering system”).

History — Cronos IP Solutions claims that its patent covers remote ordering systems that provides the user the ability to build and edit one or more order lists. Cronos IP Solutions filed only a few infringement lawsuits against retailers in 2012.

Recent Activity — None

Eclipse IP

Patents — U.S. Patent 7,119,716 (“response systems and methods for notification systems for modifying future notifications”), U.S. Patent 7,319,414 (“secure notification messaging systems and methods using authentication indicia“),U.S. Patent 7,479,899 (“notification systems and methods enabling a response to cause connection between a notified PCD and a delivery or pickup”), U.S. Patent 7,479,900 (“notification systems and methods that consider traffic flow predicament data”), U.S. Patent 7,482,952 (“response systems and methods for notification systems for modifying future notifications“),and U.S. Patent 7,876,239 (“secure notification messaging systems and methods using authentication indicia”).

History — Eclipse IP claims that its patents cover keeping individuals apprised of the whereabouts of a ‘mobile thing’ – a package, vehicle, or even a person. Eclipse IP filed at least 17 infringement lawsuits since 2011. After targeting the automotive industry in late 2012, Eclipse IP appears to have turned to the retail industry.

Recent Activity — Eclipse IP has filed infringement lawsuits this year against companies including Abercrombie & Fitch Co., eImprovements.com, Harley-Davidson, Inc., J.C. Penney Company, Neiman Marcus Group, Inc., Nordstrom Inc., Overstock.com, Pier 1 Imports, Inc., Ralph Lauren Corporation, Staples, Inc., Target Corporation, Wayfair Inc., Williams-Sonoma, Inc., and Zale Corporation.

FedEx Corporate Services, Inc. filed a declaratory judgment action on Jan. 25, 2013 requesting a declaration of invalidity for all five of the Eclipse IP patents. UPS previously filed a similar declaratory judgment action which is still pending.

EMG Technologies, LLC

Patents — U.S. Patent 7,441,196 (“Apparatus and method of manipulating a region on a wireless device screen for viewing, zooming”).

History — EMG Technologies, LLC claims that its patent covers displaying webpages on mobile devices with simplified navigation by manipulating touch screen to zoom and scroll. EMG Technologies, LLC filed infringement lawsuits against Apple, Inc., Microsoft Corporation, Motorola Mobility Inc., and Google Inc. and now appears to have turned toward the retail industry.

Recent Activity — EMG Technologies, LLC has filed infringement lawsuits this year against companies including Ally Financial Inc., AutoZone, Inc., Coach, Inc., General Mills, Inc., Green Mountain Coffee Roasters, Inc., Keurig, Inc., Puma North America, Inc., and Williams-Sonoma, Inc.

Helferich Patent Licensing

Patents — U.S. Patent 7,115,241 (“systems and methods for enabling a user of a communication device to manage remote information”), U.S. Patent 7,280,838 (“paging transceivers and methods for selectively retrieving messages”), U.S. Patent 7,499,716 (“system and method for delivering information to a transmitting and receiving device”), U.S. Patent 7,835,757 (“system and method for delivering information to a transmitting and receiving device”), U.S. Patent 8,107,607 (“wireless messaging system”), U.S. Patent 8,116,741 (“system and method for delivering information to a transmitting and receiving device”), and U.S. Patent 8,134,450 (“content provision to subscribers via wireless transmission”).

History — Helferich Patent Licensing claims that its patents cover sending web links within SMS text messages. Helferich Patent Licensing reportedly has collected hundreds of millions of dollars in royalties.

Recent Activity — JetBlue Airways, Inc. filed a declaratory judgment action on Feb. 28, 2013 requesting a declaration of invalidity for all eight of the Helferich patents.

On April 2, 2013, the USPTO ordered a stay in an inter partes reexamination proceeding filed by CBS Interactive Inc. and others on Aug. 17, 2012, pending termination or completion of an inter partes review of the ‘241 filed by CBS Interactive Inc. and others on Oct. 25, 2012.

Infinite Data, LLC

Patents — U.S. Patent 5,790,530 (“message-passing multiprocessor system”).

History — Infinite Data, LLC has successfully brought infringement lawsuits against many companies.

Recent Activity — Infinite Data, LLC has filed infringement lawsuits this year against companies including Barnes & Noble Inc., Boeing Company, BP America Inc., Chevron Corporation, Clorox Company, Federal Express Corporation, Ford Motor Company, General Motors Company, Home Depot Inc., JP Morgan Chase & Company, MasterCard Inc., Paramount Pictures, Pratt & Whitney, and Shell Oil Company.

Innovatio IP Ventures

Patents — There are 31 patents in the Innovatio portfolio.

History — Innovatio IP Ventures claims that its patents cover any use of Wi-Fi. Innovatio IP Ventures began filing infringement lawsuits against hotels and coffee shops in 2011. Reportedly Innovatio IP Ventures has sued hundreds of businesses and sent out more than 8,000 letters demanding license fees, generally ranging from $2,300 to $5,000. The targets of Innovatio IP Ventures are typically small businesses that use Wi-Fi.

Recent Activity — Racketeer Influenced and Corrupt Organizations (RICO) Act claims were dismissed on Feb. 4, 2013 in a lawsuit filed by Cisco Systems, Inc., Motorola Solutions, Inc., and Netgear, Inc. against Innovatio IP Ventures. Cisco Systems, Inc.’s novel argument was that the patent assertion behavior of Innovatio IP Ventures violated the RICO Act. Several other claims remain.

Landmark Technology

Patents — U.S. Patent 5,576,951 (“automated sales and services system”), U.S. Patent 6,289,319 (“automated business and financial transaction processing system”), and U.S. Patent 7,010,508 (“automated multimedia data processing network”).

History — Landmark Technology claims that its patents cover any use of shopping carts in connection with electronic commerce. Landmark Technology is a longtime patent troll whose focus is small businesses with internet sales.

Recent Activity — No new infringement lawsuits appear to have been filed Landmark Technology since December 2012.

Lodsys Group, LLC

Patents — U.S. Patent 7,222,078 (“methods and systems for gathering information from units of a commodity across a network”), and U.S. Patent 7,620,565 (“customer-based product design module”).

History — Lodsys Group, LLC claims that its patents cover in-application purchasing functionality and free-to-paid application upgrades. Lodsys Group, LLC also claims that its patents cover online help, interactive chats, and surveys or user feedback, and distributing electronic forms. Lodsys Group, LLC began bringing infringement lawsuits against small mobile application developers in 2011. Apple intervened claiming that its licenses with Lodsys prevent infringement by the defendants. Apple’s assertions remain pending. Google has since intervened in other lawsuits with claims similar to Apple but those assertions also remain pending. Lodsys Group, LLC then turned to online retailers with interactive chats, user feedback forms, or survey features but as of April 2013 appears to have refocused its attention to mobile game developers having in-app purchasing.

Recent Activity — Lodsys Group, LLC has filed infringement lawsuits this year against companies including BackFlip Studios, BullionVault, Crocs, Dr. Pepper Snapple Group, Edmac Industries, Gameloft, Gamevil, General Motors, Implix USA, Jirbo, Jones Group, Loews Hotels, MobileAge, OpticsPlanet, Orchid Cellmark, Oriental Trading Company, Pocket Gems, PromoManagers, Retail Concepts, Saks, Somerset Investments, Steris Corp., Sunstorm Interactive, SuperValu, TMSoft, TLA Systems, Volkswagen of America, The Walt Disney Company, and 4imprint.

MacroSolve, Inc.

Patents — U.S. Patent 7,822,816 (“system and method for data management”).

History — MacroSolve, Inc. claims that its patent covers distributing electronic forms via the intranet to mobile devices. MacroSolve, Inc. began bringing infringement lawsuits against small mobile application developers in 2011. In 2012, MacroSolve, Inc. moved on to other online companies having mobile applications such as Bank of America, Facebook, Marriott, and Wal-Mart.

Recent Activity — MacroSolve, Inc. has filed infringement lawsuits this year against companies including Bed, Bath and Beyond, Inc., Cosco Wholesale Corporation, and Sears Holding Management Company.

Personal Audio, LLC

Patents — U.S. Patent 6,119,076 (“audio program player including a dynamic program selection controller” ), and U.S. Patent 8,112,504 (“system for disseminating media content representing episodes in a serialized sequence”).

History — Personal Audio, LLC claims that its patents cover distributing podcasts or other media files. Personal Audio, LLC has successfully brought infringement lawsuits against companies such as Amazon.com, Apple, Motorola, RIM, Samsung, and Sirius XM Radio. Personal Audio, LLC appears to now have turned its sights to content developers.

Recent Activity — Personal Audio, LLC has filed infringement lawsuits this year against companies including ACE Broadcasting Network LLC, Adam Carolla’s Ace Broadcasting, CBS Corporation, Howstuffworks.com, NBC Universal Media, LLC, and Togi Entertainment.

Princeton Digital Image Corporation

Patents — U.S. Patent 4,813,056 (“modified statistical coding of digital signals”).

History — Princeton Digital Image Corporation claims that its patent covers encoding image data into JPEG files for providing JPEG images of products on a website. Beginning in 2011, Princeton Digital Image Corporation began suing large numbers of companies including websites, retailers, and camera and device manufacturers and resellers for patent infringement. The ‘056 patent expired in December 2007, but suits are being filed for “past infringement” of this patent. Under U.S. patent law, a patent owner can sue for “past infringement” up to six years before the filing of a lawsuit, so Princeton Digital Image Corporation can theoretically continue suing companies until December 2013.

Recent Activity — In what appears to be a last big push against the retail industry, Princeton Digital Image Corporation has filed infringement suits this year against companies including Abercrombie & Fitch Inc., Alticor Global Holdings, Amazon.com Inc., American Eagle Outfitters, Inc., Avon Products, Buy.com, Cabala’s, CAE Healthcare USA Inc., CBS Interactive, CDW Corporation, Coldwater Creek, Inc., Costco, Wholesale, Dell, Disney Shopping Inc., Drugstore.com, Euromarket Designs, Inc., Footlocker.com, HSN Interactive, ITD Group, Guitar Center Inc., J.C. Penney Company, NetFlix, Macy’s, Nieman Marcus Group Inc., Nordstrom.com, Office Depot Inc., PPR Americas, Inc., QVC, Recreational Equipment, Saks Direct LLC, Scholastic, Sears Holdings, Staples Inc., Systemax Inc., Target, Toys ‘R’ Us Inc., Ubisoft Entertainment SA, Wal-Mart.com Inc., and 1-800 Flowers.com.

Project Paperless, LLC (and “alphabet soup” companies)

Patents — U.S. Patent 7,477,410 (“distributed computer architecture and process for virtual copying”), and U.S. Patent 7,986,426 (“distributed computer architecture and process for document management”).

History — Project Paperless, LLC claims that its patents covers anyone who sends a PDF via email from a scanner or copier connected to computer network. Starting in 2012, Project Paperless, LLC began sending thousands of cease and desist letters to small companies having a scanner or copier and typically demanding $900 to $1,200 per employee. It has filed very few lawsuits. In August 2012, Project Paperless, LLC voluntarily dismissed its lawsuit against BlueWave Computing when the defendant refused to settle and brought counterclaims attacking the validity of the patents. The cease and desist letters then began coming from a large number of companies with six letter names such as AzPro, DucPla, GosNel, JitNom etc. which appear to divide the country into regions.

Recent Activity — It appears the “alphabet soup” companies continue to send thousands upon thousands of cease and desist letters to small businesses. No new infringement lawsuits appear to have been filed in 2013.

Select Retrieval, LLC

Patents — U.S. Patent 6,128,617 (“data display software with actions and links integrated with information”).

History — Select Retrieval, LLC claims that its patent covers all parametric search on a website. In 2011 and 2012, Select Retrieval, LLC filed hundreds of infringement lawsuits against a variety of retailers and others.

Recent Activity — Select Retrieval, LLC has filed infringement lawsuits this year against companies including Pool Group Enterprises, LLC.

On March 15, 2013, an infringement lawsuit previously filed by Select Retrieval against LL Bean was stayed pending the outcome of a separate declaratory judgment lawsuit filed by Adobe Systems, Inc. in which Adobe is attempting to invalidate the ‘617 patent.

The updated Benchbook reflects the impact that technology and e-discovery are having on pretrial litigation and trials. Although the current draft amendments to the Federal Rules of Civil Procedure are still a ways off from being approved, the Benchbook has included recommendations for addressing e-discovery issues which incorporate key concepts found in those draft amendments as well as in existing local federal court initiatives.

Addressing E-Discovery Issues

The Benchbook added the new Section 6.01 on civil case management as the result of a joint request by the Committee on Rules of Practice and Procedure and the Advisory Committee on Civil Rules. This new section emphasizes the judge’s role as an “active case manager” and discusses key e-discovery concepts such as proportionality:

Active judicial case management is an essential part of the civil pretrial process. No party has the right to impose disproportionate or unnecessary costs on the court or the other side. Many parties and lawyers want and welcome active judicial case management, viewing it as key to controlling unnecessary cost and delay.

The Benchbook acknowledges that “[e]xcessive discovery is one of the chief causes of undue cost and delay in the pretrial process,” and that e-discovery alone “is often a source of dispute, excessive costs, and delays.” Accordingly, the Benchbook encourages judges to use the case-management conference to help ensure that discovery “proceeds fairly and efficiently in light of the needs of the case” and not to rely solely on what the parties say in their Rule 26(f) discovery plan. “Even if the parties agree, that does not guarantee that discovery will be proportional or proceed on a timely basis.”

Along these lines, the Benchbook recommends that judges remind the parties that Rule 26(f) requires them to discuss issues relating to the discovery of electronically stored information (ESI) and that judges advise the parties that they will be asked about ESI issues at the Rule 16(b) case-management conference. “While the parties have a duty to discuss the discovery of ESI at their Rule 26(f) conference and include it in the Rule 26(f) report, experience shows that many lawyers do not.” The Benchbook identifies three specific issues relating to ESI that should be addressed during the case-management conference to see if the parties can reach an agreement:

1. The form in which ESI will be produced;
2. Whether the discovery of ESI can be limited to certain sources or custodians; and
3. What search terms or methods will be used to find responsive ESI.

Proportionality

The Benchbook also recommends that federal judges remind the parties that current Civil Rules 26(b) and 26(g) require discovery to be proportional to the needs of the case and that judges advise the parties that they will be asked about proportionality at the case-management conference. According to the Benchbook, “parties are not entitled to all discovery that is relevant to the claims and defenses. The judge has a duty to ensure that discovery is proportional to the needs of the case.”

Pursuant to Rule 26(b)(2)(C), a judge “must limit discovery that would be ‘unreasonably cumulative or duplicative’ or when ‘the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.’”

The Benchbook suggests that judges consider these techniques for imposing proportionality limits on discovery:

• Limiting the number of depositions (or their length), interrogatories, documents request and/or requests for admission;
• Identifying whether discovery should initially focus on particular issues that are most important to resolving the case;
• Phasing discovery so that the parties initially focus on the sources of information that are most readily available and/or most likely to yield key information (i.e., guide the parties to go after “low hanging fruit” first);
• Limiting the number of custodians and sources of information to be searched;
• Delaying contention interrogatories until the end of the case, after discovery is substantially completed; and
• Otherwise modifying the type, amount, or timing of discovery to achieve proportionality.

Preservation

The Benchbook also recommends that judges explore whether the parties have discussed the preservation of discoverable information, especially ESI. If there are disputes, judges should resolve them quickly to keep the case on track and avoid spoliation issues later. “The principles of reasonableness and proportionality that guide discovery generally apply.”

Cooperation

The Benchbook also embraces the concept of cooperation during the discovery process: “The discovery process is adversarial in the sense that the adversaries make choices about what information to seek and how to seek it. But that does not mean that lawyers cannot cooperate or that they must act in a hostile and contentious manner while conducting discovery.” According to the Benchbook, judges should advise the parties that they “expect them to be civil, to find ways to streamline the discovery process where possible, and to avoid needless cost and delay.”

Evidence Rule 502 Non-Waiver Orders

The Benchbook also notes that many parties still are not aware of the availability of a “non-waiver order” under Federal Rule of Evidence 502(d). “This order, which does not require party agreement, precludes the assertion of a waiver claim based on production in the litigation. It avoids the need to litigate whether an inadvertent production was reasonable.” Accordingly, the Benchbook recommends that judges consider entering a non-waiver order as a means “for reducing the cost of discovery by reducing privilege review.”

Last year, the Advisory Committee on Evidence Rules sponsored a symposium regarding Federal Rule of Evidence 502(d), which is discussed in the March 2013 issue of the Fordham Law Review. The purpose of the symposium was to address the lack of use of Rule 502 by courts and litigants. As part of the symposium, the participants collaborated in drafting a Model Draft of a Rule 502(d) Order.

Jury Instructions Regarding Jurors’ Use of Social Media and Electronic Devices

In addition to adding a new section on e-discovery, the Benchbook also added suggested jury instructions regarding the use of social media and electronic devices by jurors. During the preliminary instructions to the jury, the Benchbook recommends that federal judges provide this instruction:

Now, a few words about your conduct as jurors.
* * *
I know that many of you use cell phones, Blackberries, the Internet, and other tools of technology. You also must not talk to anyone at any time about this case or use these tools to communicate electronically with anyone about the case. This includes your family and friends. You may not communicate with anyone about the case on your cell phone, through email, Blackberry, iPhone, text messaging, or on Twitter, through any blog or website, including Facebook, Google+, My Space, LinkedIn, or YouTube.

You may not use any similar technology of social media, even if I have not specifically mentioned it here. I expect you will inform me as soon as you become aware of another juror’s violation of these instructions. A juror who violates these restrictions jeopardizes the fairness of these proceedings, and a mistrial could result, which would require the entire trial process to start over.

The Benchbook also suggests that judges give a similar instruction at the end of a trial:

During your deliberations, you must not communicate with or provide any information to anyone by any means about this case. You may not use any electronic device or media, such as a telephone, cell phone, smart phone, iPhone, Blackberry, or computer; the Internet, any Internet service, or any text or instant messaging service; or any Internet chat room, blog, or website, such as Facebook, MySpace, LinkedIn, YouTube, or Twitter, to communicate to anyone any information about this case or to conduct any research about this case until I accept your verdict. In other words, you cannot talk to anyone on the phone, correspond with anyone, or electronically communicate with anyone about this case. You can only discuss the case in the jury room with your fellow jurors during deliberations. I expect you will inform me as soon as you become aware of another juror’s violation of these instructions.

These recommended instructions reflect the results of a survey regarding juror use of social media and are taken from “Proposed Model Jury Instructions: The Use of Electronic Technology to Conduct Research on or Communicate about a Case,” prepared by the Judicial Conference Committee on Court Administration and Case Management in 2012.
 

As a result of Kirtsaeng, copyright owners will find it difficult to prevent the unauthorized importation of their works purchased in other countries (assuming, of course, that those works were made and sold abroad with the approval of the copyright owner). Though Kirtsaeng was limited to copyright, the majority opinion suggests that the Court may be willing to embrace international patent exhaustion as well.

Background

John Wiley & Sons publishes, among other things, textbooks. In many instances, Wiley prints and sells foreign editions of its textbooks through various overseas subsidiaries — in this case Wiley Asia. Wiley Asia’s books typically include the following admonition:

This book is authorized for sale in Europe, Asia, Africa and the Middle East only and may be not exported out of these territories. Exportation from or importation of this book to another region without the Publisher’s authorization is illegal and is a violation of the Publisher’s rights.

As a result, there are essentially two English-language versions of the same textbook: the U.S. version printed and sold only in the U.S, and the foreign version printed and sold abroad. At least for the books at issue in Kirtsaeng, the foreign editions are priced considerably less than their U.S. counterparts.

Supap Kirtsaeng came to the U.S. from Thailand in 1997 to attend Cornell. It probably did not take him long to figure out that college textbooks in the U.S. are very expensive. So he asked friends and family members to buy copies of foreign-edition textbooks in Thailand, where they were a lot cheaper. After importing the books into the U.S., he resold them at a profit. While some reports have suggested that Kirtsaeng sold $1.2 million worth of books for a profit of around $900,000, Kirtsaeng claimed that his revenues for the eight titles in dispute were only $37,000 (and less than that in profit).²

Kirtsaeng was sued for copyright infringement, and the District Court (S.D.N.Y.) held that Kirtsaeng could not rely on the defense of the first sale doctrine due to the fact that the books in question had been printed outside of the U.S. A jury concluded that Kirtsaeng had willfully infringed by importing and selling the books without Wiley’s permission, and awarded statutory damages (which are awarded without regard to profit) in the amount of $600,000 ($75,000 per title).³ The Second Circuit affirmed in a 2-1 decision.

The First Sale Doctrine

The first sale doctrine arose out of the common law’s prohibition of restraints on the alienation of chattels. Purchasers of goods (chattels) were permitted to resell those goods, and post-sale restraints imposed by a seller were generally not permitted. For copyrights, the first sale doctrine simply means that "once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution." Quality King Distribs. v. L’anza Research Int’l, 523 U.S. 135, 152 (1998). Though the first sale doctrine was acknowledged by the Supreme Court more than 100 years ago in Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908), it is now codified in 17 U.S.C. § 109(a). Before examining the statutory first sale doctrine, however, it may be helpful to review the basics of copyright protection.

Copyright Prevents Copying (and some other things)

Copyright protection extends to "original works of authorship fixed in any tangible medium of expression," including, for example, literary works (e.g., books, software), musical works, pictorial, graphic and sculptural works, motion pictures and sound recordings. 17 U.S.C. § 103.

Section 106 of the Copyright Act (17 U.S.C. § 106) establishes the exclusive rights of a copyright owner:

§ 106 Exclusive rights in copyrighted works

Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:

1) to reproduce the copyrighted work in copies or phonorecords;
…
3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
…
5) in the case of literary, musical, dramatic and choreographic works, pantomimes, and pictorial, graphic or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly;…

In Kirtsaeng, the issue was the exclusive distribution right of 17 U.S.C. § 106(3), as Kirtsaeng was not alleged to have made unauthorized copies or violated any other exclusive rights of the copyright owner in 17 U.S.C. § 106.

Codification of the First Sale Doctrine

As noted above, the copyright owner’s exclusive rights listed in 17 U.S.C. § 106 are limited by 17 U.S.C. §§ 107 through 122. One of these limitations is the first sale doctrine provided in 17 U.S.C. §109:

§ 109. Limitations on exclusive rights: Effect of transfer of particular copy or phonorecord

a) Notwithstanding the provisions of section 106(3), the owner of a particular copy…lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy….
…
c) Notwithstanding the provisions of section 106(5), the owner of a particular copy lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to display that copy publicly, either directly or by the projection of no more than one image at a time, to viewers present at the place where the copy is located.
…

If I purchase a copy of a book which was lawfully made under this title, I am free to sell that copy to someone else. I can’t make another copy of the book, but I am free to sell the copy I bought to someone else.

But what if my book was made (i.e., printed) in another country at the direction of the copyright owner? Was my book "lawfully made under this title," i.e., Title 17 of the United States Code (the Copyright Act) for purposes of the first sale doctrine? Does it matter if I bought the book while vacationing in Singapore rather than at a U.S. book store?

Before examining those questions and the Kirtsaeng decision, let’s introduce another section of the Copyright Act:

17 USC § 602 — Infringing importation or exportation of copies or phonorecords

a) Infringing importation or exportation.

1) Importation. Importation into the United States, without the authority of the owner of copyright under this title, of copies … of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies … under section 106, actionable under section 501.

2) Importation or exportation of infringing items. Importation into the United States or exportation from the United States, without the authority of the owner of copyright under this title, of copies…, the making of which either constituted an infringement of copyright, or which would have constituted an infringement of copyright if this title had been applicable, is an infringement of the exclusive right to distribute copies … under section 106, actionable under sections 501 and 506.

3) Exceptions. This subsection does not apply to — …

B) importation or exportation, for the private use of the importer or exporter and not for distribution, …

A plain reading of § 602(a)(1) would seem to indicate that, despite the first sale doctrine in § 109, the copyright owner is permitted to control the importation of its works such as by having U.S. and foreign editions of the same work and prohibiting the importation of the foreign editions. Sections 602(a)(1) and 602(a)(2) also distinguish between pirated copies (i.e., works made without the copyright owner’s permission) and non-pirated versions, seemingly permitting the copyright owner to control the importation of both varieties. In addition, § 602(a) includes exceptions which allow individuals to import works for their own personal use, but not for distribution.⁴

Unfortunately for Wiley, however, things are not as clear as they might seem — nor are they quite the same as a unanimous Supreme Court informed us 15 years ago. 

Supreme Court Reverses in a 5-3 Decision

The Supreme Court’s decision in Kirtsaeng largely rests on the meaning of five words found in 17 USC 109(a): "lawfully made under this title." The trial court determined that this phrase limits the first sale doctrine to U.S.-manufactured copies (even if made abroad with the permission of the copyright owner).

The majority in Kirtsaeng disagreed, holding that "lawfully made under this title" means made "in accordance with" or "in compliance with" the U.S. Copyright Act, and therefore encompasses works manufactured abroad with the copyright owner’s permission. The majority determined that not only did the literal language linguistically support this interpretation, but also that this interpretation was supported by the common-law roots of the first sale doctrine and congressional intent. "[T]he nongeographical reading is simple, it promotes a traditional copyright objective (combating piracy), and it makes word-by-word linguistic sense." Kirtsaeng, Slip Opinion at p. 9

As part of its linguistic analysis, the majority interpreted the word "under" to mean "in accordance with" or "according to," with no requirement that the work have been made where the Copyright Act is applicable. The majority stated that "under" does not mean "where," and that such an interpretation would necessitate the supposedly difficult second step of determining where the Copyright Act is applicable. On this latter issue, the majority stated that the Copyright Act is "applicable" to copies made anywhere in the world. Of course what the majority did not mention is that foreign-made works are only subject to the provisions of the U.S. Copyright Act if and when they are imported into, copied, distributed, etc. in the U.S. — the Copyright Act has no extraterritorial effect.

In addition to its linguistic analysis of "lawfully made under this title," the majority found that the common-law first sale doctrine supported their conclusion, as did the legislative history. The majority also discussed at great length how interpreting "lawfully made under this title" to only encompass works made in the U.S. would lead to a myriad of other problems. For example, 17 U.S.C. § 109(c) allows the owner of a particular copy lawfully made under this title to publicly display that copy. If "lawfully made under this title" does not encompass works made in other countries, the majority pointed out that a museum may be unable to display a foreign-made painting without the permission of the copyright owner.

The dissent, as they are want to do, reached a different conclusion regarding the meaning of "lawfully made under this title," arguing that the phrase referred only to "instances in which a copy’s creation is governed by, and conducted in compliance with, Title 17 of the U.S. Code." The dissent, citing its own dictionary as well as those relied upon by the majority, posited that "under" means "[s]ubject to the authority, rule, or control of," therefore limiting the first sale doctrine to U.S.-made works.

The dissent also dismissed the many "horribles" envisioned by the majority if "lawfully made under this title" only encompasses works made in the U.S., suggesting that such concerns could be adequately addressed under concepts of fair use or implied license (e.g., the sale of a painting would carry with it an implied license to publicly display the painting). In addition, the dissent pointed out that the majority’s holding was inconsistent with the position the United States has taken against international copyright exhaustion in international trade negotiations.

The biggest problem with the dissent’s view, in my opinion, is that it makes little sense to limit the first sale doctrine to works manufactured in the U.S. Though a strong argument can be made that the phrase "lawfully made under this title" literally means made in the U.S., it seems illogical that Congress intended to limit the first sale doctrine in this manner. Yet the dissent makes that very argument.⁵ If I buy a copy of book at my local bookstore (there are a few of them left), I should be free to sell that copy to someone else no matter where the book was printed. Why would Congress intend to promote overseas manufacturing of copyrightable works (which includes not only books and music, but also a multitude of other products such as clothing) by ensuring that only works made in the U.S. were subject to the first sale doctrine?

But what about 17 U.S.C. § 602(a)(1)?

As discussed above, § 602(a)(1) appears to give the copyright owner the right to control the importation of works purchased outside of the U.S. Isn’t the unauthorized importation of works still an infringement of the copyright owner’s exclusive right to distribute, per § 602(a)(1)? On this issue, the court was boxed in by its own prior decision and its often inflexible adherence to stare decisis.⁶ Ironically, however, the majority was more than willing to cast aside fairly clear dicta⁷ from that same prior decision of the court.

In Quality King Distribs. v. L’anza Research Int’l, 523 U.S. 135 (1998), the court unanimously held that § 602(a)(1) was limited by the first sale doctrine, at least with respect to works made in the U.S. Specifically, the court in Quality King held that § 602(a)(1)’s reference to § 106(3)’s exclusive distribution right incorporated the first sale doctrine of § 109(a) into § 602(a)(1). Accordingly, the court in Quality King held that the first sale doctrine applied to a copy purchased abroad, at least when that copy was manufactured in the U.S., and, therefore, § 602(a)(1) could not be used to control the re-importation of such works. (The copies in dispute in Quality King had been printed in the U.S., exported for sale abroad, purchased abroad by the accused infringer, and then re-imported by the accused infringer for sale in the U.S.)

Though the holding in Quality King was limited to works that were made in the U.S. and then exported, the opinion included some fairly definitive dicta asserting that "lawfully made under this title" means made in the U.S. For example:

"[§ 602(a)] is, in fact, broader because it encompasses copies that are not subject to the first sale doctrine — e.g., copies that are lawfully made under the law of another country."

Quality King, 523 U.S. 135, 147.

And this:

"Even in the absence of a market allocation agreement between, for example, a publisher of the U.S. edition and a publisher of the British edition of the same work, each such publisher could make lawful copies. If the author of the work gave the exclusive U.S. distribution rights — enforceable under the Act — to the publisher of the U.S. edition and the exclusive British distribution rights to the publisher of the British edition, however, presumably only those made by the publisher of the U.S. edition would be "lawfully made under this title" within the meaning of § 109(a). The first sale doctrine would not provide the publisher of the British edition who decided to sell in the American market with a defense to an action under § 602(a) (or, for that matter, to an action under § 106(3), if there was a distribution of the copies)."

Quality King, 523 U.S. 135, 148.

The court’s decision in Kirtsaeng may be distilled down to the fact that, while none were willing to overturn Quality King, the majority was more than willing to cast aside the dicta in Quality King which strongly implied that "lawfully made under this title" meant made in the U.S. As a result of Kirstaeng, §602(a)(1) has been whittled down to a "fairly esoteric set of applications." It seems implausible, in my opinion, that this is what Congress intended when §602(a) was enacted. Of course as discussed above, it seems equally implausible that Congress intended to limit the first sale doctrine to works made in the U.S.

In the end, the real problem with the decision in Kirstaeng is, as Justice Kagan pointed out in her concurrence (to which Justice Alito joined), the decision in Quality King: "I write to suggest that any problems associated with that limitation come not from our reading of §109(a) here, but from Quality King’s holding that §109(a) limits §602(a)(1)."⁸

Justice Kagan agreed that it makes no sense to limit the first sale doctrine to works made in the U.S. Reading between the lines, it would appear that she also believes Quality King was wrongly decided since it guts §602(a)(1)’s ban on unauthorized importation. But because stare decisis inhibits the court from simply overturning Quality King, Justice Kagan wisely invited Congress to fix the problem:

"If Congress thinks copyright owners need greater power to restrict importation and thus divide markets, a ready solution is at hand — not the one John Wiley offers in this case, but the one the court rejected in Quality King."

Given the that our current Congress is, shall we say, preoccupied with other issues,⁹ don’t hold your breath.

The Effects of Kirtsaeng

As is often the case, Kirtsaeng leaves many questions unanswered. For example, what if there are different, unrelated copyright owners in the U.S. and abroad? This scenario is not unheard of, and can occur, for example, when the original author of a work separately assigns the copyright on a geographical basis. It seems likely that the first sale doctrine would not apply to works lawfully made abroad under the authority of the foreign copyright owner rather than the U.S. copyright owner.

Similarly, what if the work is no longer protected by copyright in the country where the work is made? Though there is considerable uniformity in copyright protection around the world, it is quite common, particularly for older works, for copyright protection to expire in some countries and not others. After Kirtsaeng, how will the first sale doctrine apply to a work made in a country where the copyright has expired? Will it make any difference if the U.S. copyright owner made the work in that country?

As for the first sale doctrine and patents (typically referred to as patent exhaustion), that issue will be the subject of a future blog post.

Finally, keep in mind that the first sale doctrine, at least under current case law, generally does not apply to e-books (books in electronic rather than paper form), digital music and most computer software, in part because these works are almost always licensed rather than sold. The first sale doctrine only allows the owner, not a mere licensee, of a particular copy to sell or dispose of that copy. The issue of the applicability of the first sale doctrine to digital content, specifically, digital music, is the subject of current litigation: Capitol Records, LLC v. ReDigi Inc., Case No. 12-0095, S.D.N.Y. Stay tuned.

______________________

¹ Supreme Court of the United States, No. 11-697, decided March 19, 2013.

² Brief of Petitioner, Supap Kirtsaeng, at p. 9.

³ In what some may view as the greatest injustice of all, Kirtsaeng was ordered to turn over his golf clubs in an effort to satisfy the judgment.

⁴ Kirtsaeng was found to have violated both the exclusive distribution right in § 106(3) and the import prohibition of § 602(a)(1).

⁵ In fairness to the court, Congress is likely the problem here. There may simply be no way to effectively reconcile the various statutory provisions. As we shall see, however, the court did have a way out, but its unwavering adherence to stare decisis prevented the court from taking a more logical path (i.e., overturning Quality King).

⁶ Stare decisis literally means "let the decision stand." Under this principle, even the Supreme Court will normally resist the temptation to reverse prior precedent. The principle carries the greatest strength on matters of statutory interpretation, since Congress is free to alter the court’s interpretation by subsequent legislation.

⁷ Dicta, or obiter dictum, means "other things said." Dicta includes views provided in a prior decision which go beyond the facts of that case and/or are not essential to the prior judgment. The Supreme Court is not bound by its own dicta, but certainly Supreme Court dicta is influential and often relied upon by lower courts and others.

⁸ Though it might be tempting to suggest that Justice Kagan was really saying "don’t blame me as I was not on the court in 1998," that would be inappropriate (if not inaccurate).

⁹ Some commentators have gone so far as to characterize the current Congress as "dysfunctional." I choose to take the high road.

Under the Federal Arbitration Act, an arbitrator does not exceed his powers unless “he has utterly contorted the evident purpose and intent of the parties—the ‘essence’ of the contract.” Timegate Studios, slip op. at 9. The Fifth Circuit found that the arbitrator’s remedy of a perpetual license was “rationally rooted” in the agreement between the parties and therefore reinstated the arbitrator’s award after the district court had vacated it.

The Agreement

In 2007, Timegate Studios, Inc. (“Timegate”) entered into a 46-page video game publishing agreement with Gone Off Deep, L.L.C. d/b/a Gamecock Media Group (“Gamecock”). The agreement obligated Timegate to develop a futuristic military-style video game entitled “Section 8,” and it obligated Gamecock to publish the game. As the publisher, Gamecock agreed to provide most of the investment funding for the game’s development and to manufacture, market, distribute, and sell the game after its development.

The agreement provided that Timegate remained the “exclusive owner” of all the intellectual property rights in the Section 8 game. The agreement also prohibited Gamecock from preparing any derivative works or otherwise exploiting the game except in accordance with the rights provided to it in the agreement.

The agreement did grant Gamecock a non-exclusive right and license to use the trademarks, trade names, themes, characters, designs, and likenesses “solely in connection with the packaging, sale, marketing, advertising and distribution” of the Section 8 game and of any add-ons or sequels to the game. The term of the license was for eight years following the game’s first release or five years following the release of an add-on or sequel, whichever was later.

The agreement also contained a binding arbitration provision:

Except for a suit seeking injunctive relief with respect to Confidential Information or infringement of intellectual property rights of a party hereto, any dispute hereunder shall be submitted to binding arbitration pursuant to the rules of the American Arbitration Association (the “AAA”), applying Texas law, without regard to choice of law provisions, with a single arbitrator appointed by AAA.  A final arbitral award against either party in any proceeding arising out of or relating to this Agreement shall be conclusive.

Timegate Studios, 860 F.Supp.2d 350, 353 (S.D. Tex. 2012).

The Arbitration

Approximately two years after the parties entered into the Agreement, the Section 8 game was released. The parties’ relationship deteriorated soon after sales of Section 8 failed to meet expectations and Southpeak Interactive, L.L.C. (“Southpeak”) acquired Gamecock. In December 2009, Timegate filed a lawsuit against Gamecock in the Southern District of Texas alleging breach of contract. Gamecock counterclaimed and sought to enforce the arbitration clause. The district court stayed the suit and submitted the case to arbitration.

After an eight-day evidentiary hearing, the arbitrator found that out of the $7.5 million Gamecock provided to Timegate for the development of Section 8, Timegate spent only $6.76 million of it and pocketed the rest. Timegate also failed to spend any of the $2.5 million of its own money that it agreed to spend on Section 8’s development. The arbitrator also found that Timegate never intended to invest its own money and failed to use its best efforts to develop a high quality video game in accordance with the agreement. The arbitrator also found that Timegate failed to provide Gamecock with an opportunity to publish a port of the game for Play Station 3 and to publish a sequel entitled “Section 8: Prejudice.” The arbitrator also found that Timegate induced Gamecock to enter into the agreement by fraud and induced Gamecock to continue to perform under the agreement by fraud.

As a result of Timegate’s material breaches of the agreement and fraud, the arbitrator awarded Gamecock $7,349,733.57 in reliance damages and $831,479.55 in attorneys’ fees. The arbitrator also found that the money damages failed to compensate Gamecock fully for Timegate’s misconduct and therefore decided to amend the agreement to provide Gamecock with a perpetual license for all of Timegate’s intellectual property rights in the game. The arbitrator further ruled that Gamecock had no obligation to account for any future profits earned from the use of any of Timegate’s intellectual property rights in the game, or to pay any royalties to Timegate for the use of those rights.

The district court vacated the arbitrator’s award. According to the district court, the arbitrator exceeded his authority because his creation of the perpetual license was not a remedy rationally rooted in the agreement. The district court found that the perpetual license was “inconsistent with the fundamental purpose of the contract” because the license “takes what was a temporary licensing agreement, which required collaboration and coordination between the parties, and expands it into a permanent contract under which the parties are able to develop competing products.” Timegate Studios, 860 F.Supp.2d at 362. The district court also noted that the perpetual license conflicted with at least two provisions in the agreement and that Gamecock did not even request this relief. Id. at 355-56, 362.

The Appeal

On appeal, the Fifth Circuit emphasized that it was bound by the arbitrator’s factual findings and that its review of an arbitrator’s award is “very deferential.” Slip op. at 8. “We must sustain an arbitration award even if we disagree with the arbitrator’s interpretation of the underlying contract as long as the arbitrator’s decision ‘draws its essence’ from the contract.” Id. Moreover, “the arbitrator’s selection of a particular remedy is given even more deference than his reading of the underlying contract.” Id. at 9. “The remedy lies beyond the arbitrator’s jurisdiction only if ‘there is no rational way to explain the remedy handed down by the arbitrator as a logical means of furthering the aims of the contract.’” Id. at 9-10.¹

Applying this standard of review, the Fifth Circuit concluded that the perpetual license furthered the general aims of the agreement. The Fifth Circuit reasoned that the only way to give Gamecock the opportunity to benefit from the future development of variations of Section 8 was to completely sever the parties’ relationship and allow Gamecock to independently pursue game marketing efforts. Slip op. at 11. According to the Fifth Circuit, “Timegate committed an extraordinary breach of the Agreement, and an equally extraordinary realignment of the parties’ original rights [was] necessary to preserve the essence of the Agreement.” Id. at 16 (emphasis in original). Thus, the Fifth Circuit reversed the district court and remanded with instructions to confirm the arbitration award.

The Takeaway

This case shows why it is important for contracting parties to carefully consider whether the subject matter of their contract is appropriate for arbitration in the event of a dispute. While there are certainly good reasons for including a mandatory arbitration clause in a contract even if intellectual property rights are involved, many contracting parties simply agree to boilerplate arbitration clauses without thinking through what the parties’ goals are in choosing binding arbitration over the courts and how the arbitration clause should be drafted to meet those goals. As demonstrated by the outcome of Timegate Studios, a losing party has limited bases for seeking to vacate an arbitrator’s award. Moreover, expected benefits such as confidentiality, cost savings, and a quicker disposition may not be realized, especially if court action is needed to compel arbitration and then to enforce the arbitrator’s award.

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¹The Federal Arbitration Act actually provides four bases upon which a court may vacate an arbitrator’s award: (1) “where the award was procured by corruption, fraud, or undue means;” (2) “where there was evidence partiality or corruption in the arbitrators;” (3) “where the arbitrators were guilty of misconduct  or of any other misbehavior by which the rights of any party have been prejudiced;” and (4) “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” Slip op. at 8 n. 7 (quoting 9 U.S.C. § 10(a)). Timegate asserted only that the arbitrator had exceeded his powers.

Following are some tips on how businesses can manage their e-discovery risks if they are considering a move to a cloud or if they have already made the move.

Pre-Contract Considerations
E-discovery obligations cannot be avoided simply by contracting with a third-party provider to store business data or host a business application. See, e.g., Arteria Property Pty Ltd. v. Universal Funding V.T.O., Inc., No. 05-cv-4896, 2008 U.S. Dist. LEXIS 77199 (D.N.J. Oct. 1, 2008) (stating that party had control over content posted on website even if website was maintained on a third-party server); Flagg v. City of Detroit, 252 F.R.D. 346 (E.D. Mich. 2008) (holding that party had control over text messages held by third-party service provider); Tomlinson v. El Paso Corp., 245 F.R.D. 474 (D. Colo. 2007) (holding that party had control over electronic data maintained by third party human resources firm and that party could not delegate its recordkeeping duties under ERISA). Indeed, a business can face a bigger challenge meeting its obligations within a cloud environment because it does not have complete control over what happens to data stored with a cloud provider.

Standard cloud computing service level agreements (SLAs) often do not directly address e-discovery or have terms and conditions that favor the provider. Ideally, a business will proactively evaluate what e-discovery risks could arise from its data being entrusted to the cloud provider and then seek to address these risks with the provider before entering into the SLA. Many of the risks will overlap with or relate to other key business and legal considerations (such as performance, data security, privacy, compliance and cost), so e-discovery does not need to be addressed with the provider as a stand-alone topic.

Key e-discovery considerations include:

• Information Governance — Will the provider delete data pursuant to the business’s records retention policies? Does the provider have its own policies for deleting data?
• Preservation — How will a litigation hold be implemented? Can auto-deletion settings and records retention policies be suspended in a timely and targeted manner when litigation is reasonably anticipated?
• Accessibility — How quickly can data be accessed and retrieved for the purpose of e-discovery? Can outside counsel and third-party e-discovery vendors access the data?
• Format — In what format will data be stored and in what format will it be retrieved? What corresponding metadata will be stored and can it be retrieved?
• Collection — Can targeted collections and searches of data be done based on specific custodians, date ranges, keywords, metadata, etc.? Will retrieving data change the corresponding metadata? Does the provider have a built-in e-discovery tool? How robust is the tool?
• Review — How will data be accessed, searched and retrieved so that it can be reviewed for relevance and privilege? Will there be any potentially relevant data or metadata that cannot be accessed, searched, and retrieved for review and production? Where will data be stored for review?
• Production — What file options are there for exporting data out of the cloud?
• Location — Where will the hardware storing the data be physically located in the world? Will the data be stored in multiple locations? Will any foreign privacy laws or blocking statutes be a concern when data must be accessed, searched, and retrieved for review and production?
• Security — What security measures will be in place to protect against the unauthorized disclosure of data to third-parties? Will subcontractors be used by the provider?
• Risk of Loss — What happens if potentially relevant data or metadata is deleted or altered? Does the SLA limit the provider’s liability even if a court issues sanctions for spoliation?
• Admissibility — Will data be stored and retrieved in a way so that it can be admitted into evidence during litigation?
• Cost — Will the provider charge any additional costs for any measures that need to be taken to comply with e-discovery?

If the proposed SLA does not answer these questions satisfactorily, a business should try to discuss these e-discovery issues with the provider and include contractual provisions that address them.

If possible, here are the types of clauses a business should try to include in an SLA to mitigate its e-discovery risks:

• Ownership of data
• Right to export data and method of doing so
• Storage and export of data (including corresponding metadata) in specified form
• Accessibility of data “on-demand” and by counsel and e-discovery vendors as designated by the business
• Establishment of time periods the provider will keep data before deleting it pursuant to the business’s and/or provider’s retention schedules
• Suspension of auto-delete settings and retention schedules when litigation is reasonably anticipated
• Limitation (or at least identification) of physical locations where data may be stored
• Implementation of specified security measures to protect against unauthorized third-party access
• Notification of any data breaches
• Notification of any requests for data by third-parties in advance of any production so that the business can oppose or take action to limit the disclosure of data
• Itemization of costs that the provider will charge for services connected to e-discovery
• Indemnification for losses incurred as the result of the unauthorized deletion or alteration of data (and corresponding metadata)

Pre-Litigation Planning
As a practical matter, many businesses may not be able to negotiate some or all of these clauses. A business may not have sufficient bargaining power because of the provider’s size or unique position in the market or because the terms of usage are non-negotiable and governed by a click-through agreement.

In these cases, a business can still mitigate its e-discovery risks through pre-litigation planning such as:

• Data Maps — Assess and document what cloud computing providers and services the business is using and what types of data are being stored in the cloud and by whom
• Litigation Hold Procedure — Prepare a legal hold process that accounts for the use of public clouds by the business and its employees
• Cross-Functional Team — Form an integrated team of personnel from legal, IT, compliance, information security, HR and records that is familiar with what cloud computing services the business is using and can address the business’s e-discovery obligations
• Outside E-Discovery Counsel — Consider having designated outside e-discovery counsel who has experience collecting data from the cloud and can familiarize themselves with the nature and extent of the business’s public cloud computing
• Preferred Vendors — Consider maintaining a list of proven e-discovery vendors who have experience successfully collecting data from the cloud
• Cloud Computing Usage Policy — Implement a usage policy stating what types of public cloud applications employees can use for business purposes and what types of business data employees can store in the cloud
• Data Repository — Provide a site controlled by the business that employees can access remotely to help protect against employees using third-party sites to store data on their own
• Employee Training — Educate employees about the business’s usage policy and litigation hold procedure, and explain why they are important

Litigation Steps
If these e-discovery issues have not been addressed beforehand, they will need to be confronted under the pressure and time constraints of litigation.

An important part of addressing these issues during litigation will be to conduct thorough custodian interviews of the key players in the case and to involve IT early in the process so that litigation counsel can identify the public clouds which may have ESI that is relevant to the claims and defenses in the case. Once this information has been gathered, counsel can determine how the functionality of those clouds and the terms of the SLAs with the cloud providers may impact the business’s ability to satisfy its e-discovery obligations. Counsel can then analyze how to preserve, collect, process, review and produce relevant ESI from those clouds in a way that will comply with the discovery and evidentiary requirements of the court in which the case is pending.

In conclusion, while businesses are taking advantage of the benefits of cloud computing, they also should consider and plan for the e-discovery risks involved in entrusting their data to third-party cloud providers. Although the tips discussed above are not exhaustive of what may need to be done, they can help in addressing these risks.

The European patent with unitary effect ("unitary patent") will be a European patent granted by the European Patent Office (EPO) under the provisions of the European Patent Convention. The unitary patent will not replace national patents and classical European patents, but will instead offer another option for parties seeking patent protection. The EPO will continue with its existing search, examination and granting procedures. Following patent grant the patentee may request unitary effect for the member states participating in the unitary patent, and will be able to maintain a classical European patent for the European patent convention contracting states that are not participants in the unitary patent.

The UPC will be a specialized patent court having exclusive jurisdiction in infringement and revocation proceedings concerning European patents and unitary patents. The UPC will comprise a Court of First Instance, a Court of Appeal and a Registry. The Court of First Instance will be composed of a central division (with a seat in Paris and sections in London and Munich) and by several local and regional divisions in the contracting member states to the agreement. The Court of Appeal will be located in Luxembourg. The UPC will be a common court for the contracting member states and avoid the occurrence of multiple litigation actions with regard to the same patent in different member states. This will prevent contradictory court rulings on the same issues and reduce the cost of patent litigation.

The initial signatory states for the UPC agreement are:

• Austria
• Belgium
• Czech Republic
• Cyprus
• Germany
• Denmark
• Estonia
• Greece
• Finland
• France
• Hungary
• Ireland
• Italy
• Latvia
• Lithuania
• Luxembourg
• Malta
• The Netherlands
• Portugal
• Romania
• Slovakia
• Slovenia
• Sweden
• United Kingdom

Though not an initial signatory state, Bulgaria did accede to the agreement on March 5, 2013.

With the signing by 25 member states completed, the agreement must next be ratified by at least 13 participant member states. The agreement will enter into force Jan. 1, 2014, or following the ratification by 13 participant member — provided France, Germany and the UK are among them — whichever is later.

The unitary patent and the UPC will require a technical preparation phase, addressing matters such as the budget, IT provisions and procedural arrangements. The EPO, which is to take charge of administering the unitary patent, has already begun its preparations and is ready to take various initiatives to speed up the implementation of the system. The goals of a unitary patent system include simplifying and reducing the cost of patent registration, facilitating innovation and improving competitiveness for small- and medium-size enterprises. The unitary patent scheme will reduce the complexity and expense of obtaining patent protection in the European Union, while ensuring legal certainty throughout the member states.

Plaintiff Argued Permanent Deletion of His Facebook Account was “Accidental”
In Gatto, the plaintiff alleged that he sustained permanently disabling injuries while working as a ground operations supervisor at JFK airport after an aircraft caused a set of fueler stairs to crash into him. The defendants sought discovery relating to the plaintiff’s damages and social activities, and the plaintiff provided the defendants with signed authorizations for the release of information from certain social networking sites and other online services like eBay and PayPal. The plaintiff did not include, however, an authorization for his Facebook account.

After the court ordered the plaintiff to execute an authorization for his Facebook account, counsel for one of the defendants briefly accessed the account and printed some portions of the plaintiff’s Facebook page. The plaintiff then received an alert from Facebook that his account was accessed from an unfamiliar IP address. Even though defense counsel confirmed with the plaintiff’s counsel that the account had been accessed by counsel, the plaintiff “deactivated” his account. The deactivation of the plaintiff’s account resulted in its permanent deletion. Accordingly, the defendants maintained that they could no longer retrieve any information from the plaintiff’s Facebook account.

The plaintiff claimed he had merely deactivated his account and then neglected to reactivate it within fourteen days, thus accidentally causing the account to be “automatically” and permanently deleted in accordance with Facebook’s policy at that time. According to the plaintiff, he had recently been involved in contentious divorce proceedings and his Facebook account had been “hacked into” on numerous occasions before the lawsuit. The plaintiff argued that he acted reasonably after receiving notice from Facebook that his account had been accessed from an unauthorized IP address which he was unfamiliar with. The court found that it was “irrelevant” whether the plaintiff had requested his account to be permanently deleted or merely deactivated, as either scenario ultimately resulted in the loss of evidence.

We note that had the plaintiff merely attempted to “delete” material while leaving his account active, or the account had not been permanently deleted with no option for recovery, chances are the defendants could still have discovered the information in the account through Facebook’s built-in tools, as explained in our prior post.

Plaintiff Failed to Preserve Relevant Evidence and Prejudiced Defendants
In granting the defendants’ motion for spoliation sanctions, the court applied a four-factor test to determine whether an adverse inference instruction was appropriate. The court examined the following four factors:

1. whether the evidence was within the party’s control;
2. whether there was an actual suppression or withholding of evidence;
3. whether the evidence destroyed or withheld was relevant to the claims or defenses; and
4. whether it was reasonably foreseeable that the evidence would be discoverable.

First, the court found that the plaintiff’s Facebook account was “clearly within his control,” as he had “authority to add, delete, or modify his account’s content.” Gatto, slip op. 8. Interestingly, the court cited to Arteria Property Pty Ltd. v. Universal Funding V.T.O., Inc., No. 05-cv-4896, 2008 U.S. Dist. LEXIS 77199 (D.N.J. Oct. 1, 2008), in support of its finding. In Arteria Property, the court held that a party had control over a website for purposes of spoliation because the party “had control over the content posted on [it].” Arteria Property, slip op. at 10. The court in that case further reasoned:

Although Defendants do not so posit, it may be argued that the website was maintained by a third party, perhaps a web design company who posted content on behalf of Defendants. But this is irrelevant, just as it’d be irrelevant if the website was maintained on a third party server rather than Defendant’s own server (as is likely the case here). Despite the inevitable presence of an intermediary when posting content on the Web, the Court finds that Defendants still had the ultimate authority, and thus control, to add, delete or modify the website’s content.

Id. at 10.

Second, the court in Gatto found that the posts, comments, status updates and other information posted on the plaintiff’s Facebook page after the date of the alleged accident were relevant to the issue of damages. Comments and photographs printed from the plaintiff’s Facebook page showed the plaintiff’s physical and social activities, trips and online business activities.

Third, the court found that the plaintiff failed to preserve relevant evidence and that the defendants were prejudiced. The court was not persuaded by the plaintiff’s arguments regarding whether the evidence had been intentionally deleted, stating that “so long as the evidence is relevant, the ‘offending party’s culpability is largely irrelevant.’” Gatto, slip op. 10.

Fourth, the court found that it was reasonably foreseeable that the plaintiff’s Facebook account would be sought in discovery.

Based on its findings, the court concluded that an adverse inference instruction, or “spoliation instruction,” was appropriate. According to the court, this instruction “permits a jury to infer that the fact that a document was not produced or destroyed is ‘evidence that the party that has prevented production did so out of the well-founded fear that the contents would harm him.’” Gatto, slip op. 7.

Takeaways
Federal courts have moved past deciding the question of whether information posted on social networking websites is discoverable. Courts expect parties to preserve social media information if it is relevant to the claims and defenses in the case. If relevant social media information is not preserved, courts will consider whether they should impose sanctions for spoliation, just like they do with other forms of electronically stored information (ESI). Potential sanctions for spoliation include dismissal of claims or granting judgment in favor of a prejudiced party, exclusion of evidence, an adverse inference jury instruction, fines, and attorneys’ fees and costs.

Additionally, the court’s quick determination that the plaintiff’s Facebook account was “clearly within his control” because he “had authority to add, delete, or modify his account’s content” could be significant in future cases. As more data gets created and stored “in the cloud,” a key e-discovery issue will be the extent to which parties are found to have “possession, custody, or control” over data stored with cloud service providers as well as the extent to which they have responsibility for any deletion or alteration of that data (including metadata). The court’s test for “control” in Gatto (and the earlier Arteria Property case) indicates that parties will not be able to avoid the obligations and risks of e-discovery when they move their applications and data storage to the cloud.

The days were filled with snow chaos, certification training and CIPP testing (on Friday afternoon at 2pm-5pm!), an exciting reception and other great networking opportunities — including a group of about 15 brave individuals meeting up at 6:30am on Friday morning to go for a run. In between all these activities were plenty of good programs to attend, and there can be no doubt that privacy in M&A transactions, cloud computing, HIPAA and international data transfers, to name just a few, will all feature prominently in the privacy discussions of 2013. But my personal Top Three privacy trends are:

1. BYOD Is Here to Stay
It is no longer a question of whether companies will permit their employees to use their personal devices for work purposes, the remaining issue is how to implement a BYOD (bring your own device) policy to strike the right balance between convenience for the employees and data security for the company. Employee education, beta testing, accurate recording of work time for non-exempt employees, company access to employees’ personal information and remote wipes are only some of the buzzwords surrounding the implementation of BYOD.

2. Social Media
Facebook inevitably comes to mind when talking about social media. And not surprising, the rather difficult relationship Facebook enjoys with a number of the German data protection authorities was a recurring theme at the conference. It was therefore interesting to see Facebook’s Erin Eagan, Chief Privacy Officer, Policy; and Edward Palmieri, Associate General Counsel, Privacy discuss Facebook’s business model and its approach to protecting user privacy. Many of the technical details of how Facebook connects advertisement with targeted users were fascinating at the time, but quickly forgotten afterwards. Two key issues, however, remain to be shared:

• The hopes of some users, including yours truly, of Facebook permitting anonymized accounts were dashed comprehensively.
• Your privacy settings may protect you from oversharing with the Facebook community, but Facebook will always consider you a target for advertising, regardless of how “private” your settings are. The amount of advertising will obviously vary based on, among other things, your embrace of the new graph function — but it’s not to be avoided entirely. Alas, I will continue to scroll patiently past the handbag ads for which I seem to be a prime target.

3. EU Privacy Regulation
A very popular program for many of the European conference attendees was a conversation with Peter Schaar, the head of Germany’s federal data protection agency. He left no doubt about the broad political support the regulations enjoy among the majority of the European Union’s member states. Mr. Schaar also confirmed my concerns that the concept of a “one-stop shop” and the related determination of the lead data protection authority will be an issue of contention for Germany, which will likely result in the proliferation of the already impressive administrative apparatus created by the European Union. But at the moment, a superauthority tasked with the resolution of conflicts among the national data protection authorities seems to be the only workable compromise. Finally, addressing questions related to the expanded extra-territorial reach and enforcement actions against data controllers without a permanent establishment in the Union, Mr. Schaar expressed his belief that the significantly increased fines will be sufficient to encourage broad compliance.

What connects these seemingly unrelated trends is the realization that the scope of privacy obligations broadens by the minute. Whether this requires establishing a simple social media and BYOD policy or the daunting implementation of a global data privacy compliance program will vary greatly depending on a company’s business model. While the threat of an enforcement action is an undeniable incentive for compliance with privacy obligations, a company should mainly consider that its ability to provide adequate protection for its customer or employee data will provide a significant competitive advantage.
 

This case illustrates the difficulties U.S. companies can face when trying to stop infringing conduct that is happening abroad. Though trademark owners may use the Lanham Act to enjoin infringing activities outside the United States, U.S. courts will grant this relief only when the trademark owner can show it is necessary to prevent harm to commerce in the United States. Because this can be a tough standard to meet, it is important for U.S. businesses to consider the need for registering their trademarks domestically as well as internationally and for having a strategy to enforce their trademark rights in foreign countries.

Lanham Act Can Reach Infringing Activities Outside the United States
More than 60 years ago, the U.S. Supreme Court held that the Lanham Act “confers broad jurisdictional powers upon the courts of the United States,” and could reach infringing activities in foreign countries. Steele v. Bulova Watch Co., 344 U.S. 280, 283 (1952).¹ Because the Supreme Court did not set forth a precise test for when a district court may exercise jurisdiction over such activities, the circuit courts of appeal have established different tests for determining when extraterritorial application of the Lanham Act is appropriate. The most well-known test was articulated by the Second Circuit in Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633 (2d Cir. 1956). The so-called “Vanity Fair factors” look at:

1. The citizenship of the defendant;
2. Whether there exists a conflict between the defendant’s trademark rights under foreign law and the plaintiff’s trademark rights under U.S. law; and
3. Whether the defendant’s conduct has a substantial effect on U.S. commerce.

Juicy Couture’s Trademark Infringement Claims and Defendants’ Hong Kong Website
In Juicy Couture, Inc. v. Bella Int’l Ltd., Juicy Couture brought a lawsuit in the United States against the defendants, asserting federal law claims for trademark infringement, trademark counterfeiting, and cybersquatting. Juicy Couture filed the suit four years after initiating a lawsuit in Hong Kong against the defendants for trademark infringement. The Hong Kong action is expected to go to trial sometime in 2013.

Juicy Couture sells fashion apparel, including its iconic velour tracksuits, in boutiques throughout the world in more than 800 specialty stores and more than 280 department stores in the United States. It owns several federally registered trademarks, including JUICY, JUICY COUTURE, JUICY GIRL, CHOOSE JUICY, JUICY BABY, and BORN IN THE GLAMOROUS USA. It maintains an online retail store and uses social media sites such as Facebook, Twitter and YouTube to market its products.

Defendants use the marks JUICY GIRL, JUICYLICIOUS, and JG in the promotion and sale of their Juicy Girl apparel and products. According to Juicy Couture, among the products sold by the defendants are velour tracksuits that copy the design of Juicy Couture’s tracksuits. Defendants have sold these products in the United States through a website maintained and operated in Hong Kong. Defendants’ total sales in 2011 were close to $13 million, but their known sales to the United States were only $3,000.

In the Hong Kong action, Juicy Couture has submitted evidence showing that it registered a number of trademarks in Hong Kong in 2000, including JUICY, JUICY JEANS, and JUICY COUTURE. It claims that the defendants did not begin importing, advertising, or selling Juicy Girl brand clothing in Hong Kong before 2000.

Extraterritorial Application of Lanham Act to Activities on Hong Kong Website “Inappropriate”
Though the court granted a preliminary injunction prohibiting sales in the United States based on Juicy Couture’s infringement claims, the court concluded that it was inappropriate to prohibit the defendants from selling their Juicy Girl products through the Hong Kong website to consumers in other countries, primarily in Hong Kong, the People’s Republic of China and Macao.

First, the court found that the citizenship of the defendants weighed against exercising jurisdiction because five of the six defendants were not U.S. citizens and the lone defendant that was a U.S. citizen had no control over the defendants’ operations and no role in the infringing conduct.

Second, the court found that a potential conflict with foreign law weighed against exercising jurisdiction because “[p]resumably, the outcome of the Hong Kong action will determine whether Defendants have enforceable intellectual property rights to the Juicy Girl mark in that country.” Juicy Couture, No. 12 Civ. 5801, slip op. at 21. According to the court, “[t]he Lanham Act should not be applied extraterritorially against defendants ‘acting under presumably valid trade-marks in a foreign country.’” Id. (quoting Vanity Fair, 234 F.2d at 643).

Third, the court found that the defendants’ activities on the Hong Kong website did not have a substantial effect on U.S. commerce because the only evidence of sales to the United States totaled only $3,000 worth of products, a portion of which consisted of sales made to Juicy Couture’s investigators. Here, Juicy Couture presented evidence showing that a Google search for “Juicy Girl” brought up the Hong Kong website as the second unpaid hit and that the website was available in English. The mere fact that a foreign website is accessible in the United States, however, does not necessarily demonstrate that the allegedly infringing conduct has a harmful effect on U.S. commerce. Juicy Couture, No. 12 Civ. 5801, slip op. at 23; see also Int’l Academy of Business and Financial Management v. Mentz, No. 12-cv-463, 2013 U.S. Dist. LEXIS 7714 (D. Colo. Jan. 18, 2013) (dismissing counterclaim for service mark infringement against foreign parties even though defendants’ registered service marks appeared on their website because such conduct did not have a substantial or significant effect on U.S. commerce).

Based on these findings, the court concluded that “the Lanham Act should not be applied extraterritorially to enjoin the Defendants’ activity on the HK website, or any other websites hosted abroad,” at the preliminary injunction stage. Juicy Couture, No. 12 Civ. 5801, slip op. at 24. However, the court left open the possibility of granting a permanent injunction at the conclusion of the case if further discovery or other information warranted reconsideration of the issue.

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¹ In contrast to the Lanham Act, the Copyright Act does not apply extraterritorially. See Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697, slip op. at 6 (Mar. 19, 2013) (Ginsburg, J., dissenting) (citing United Dictionary Co. v. G. & C. Merriam Co., 208 U.S. 260, 264 (1908)).