Technology Law Source

Update on Patent Trolls

Rick Mescher — Wed, 15 May 2013 09:31:34 -0600

The America Invents Act (AIA), which became fully implemented March 16, 2013, revised U.S. patent law but included few reforms directed to curbing Non-Practicing Entity (NPE) or “patent troll” activity. Thus, not surprisingly, patent troll activity has continued at an alarming rate during the early months of 2013. Summarized below are the recent activities of the most infamous patent trolls.

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.

Benchbook for U.S. District Court Judges Adds New Section on E-Discovery and Jury Instructions for Jurors' Use of Social Media and Electronic Devices

Jay Yurkiw — Wed, 08 May 2013 09:09:04 -0600

The Federal Judicial Center recently published the Sixth Edition of the Benchbook for U.S. District Court Judges. For the first time, the Benchbook includes a section on civil case management, including how to address e-discovery issues. The Benchbook also adds new jury instructions regarding the use of social media and electronic devices by jurors during trials.

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:

The form in which ESI will be produced;
Whether the discovery of ESI can be limited to certain sources or custodians; and
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.

Kirtsaeng v. John Wiley & Sons, Inc. and the Ghost of Quality King

Martin Miller — Tue, 30 Apr 2013 06:17:04 -0600

Under a recent U.S. Supreme Court ruling, publishers of books and magazines who print and sell their publications in other countries through distributors will no longer be able to rely on U.S. copyright law to prevent others from importing and re-selling those publications in the U.S. In Kirtsaeng v. John Wiley & Sons, Inc.¹, the U.S. Supreme Court fully embraced international copyright exhaustion. Going against the views (admittedly dicta) expressed in its own unanimous decision from 1998, as well as the official position of the United States in international trade negotiations, the court held that the first sale doctrine applies to copyrighted works manufactured and sold abroad under the authority of the copyright owner. Such authorized manufacture and sale, even if done outside of the U.S., exhausts the copyright owner's right to control the importation and distribution (i.e., sale) of such works.

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.

Arbitrator Did Not Exceed His Powers By Awarding Perpetual License In All Intellectual Property Rights For Video Game

Jay Yurkiw — Fri, 19 Apr 2013 12:27:56 -0600

The Fifth Circuit Court of Appeals recently held that an arbitrator did not exceed his powers when he expanded an eight-year license to use a video game’s trademarks into a perpetual license to use all the intellectual property rights associated with the game. See Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., ___ F.3d ___, 2013 U.S. App. LEXIS 7184, No. 12-20256 (5th Cir. Apr. 9, 2013).

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.

Don't Forget About E-Discovery When Moving To The Cloud

Jay Yurkiw — Tue, 09 Apr 2013 09:18:17 -0600

As businesses move more applications and data to cloud services (e.g., Google Apps for Business, Salesforce.com, Amazon S3, etc.), they inevitably are going to find themselves in litigation with the need to retrieve electronically stored information (ESI) from the cloud to comply with their e-discovery obligations. While the risks of e-discovery likely will not keep any businesses away from public cloud services altogether, businesses at least should plan for how they are going to meet the demands of e-discovery in the cloud when litigation arises.

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.

New European Unitary Patent and Unified Patent Court are on the Horizon

Anne Pellot — Thu, 04 Apr 2013 06:09:55 -0600

Soon, a new unitary patent system will bring reduced cost and greater uniformity to European patents. The Unified Patent Court Agreement was signed Feb. 19, 2013 at the Council of the European Union meeting in Brussels, Belgium. At the meeting, ministers from 24 contracting EU member states signed on to the agreement establishing a Unified Patent Court (UPC). The Unified Patent Court Agreement represents one of the final major steps in forming a unitary patent system for Europe. The development of a European unitary patent system has been under discussion and development since the 1970s. The signing of the UPC agreement follows the adoption in December 2012 and entry into force of two regulations related to the unitary patent system. These two regulations pertain to unitary patent protection and the translation arrangements associated with the unitary patent, and came about through use of the enhanced cooperation procedure.

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.

Facebook Account Deactivation Leads To "Spoliation Instruction"

Jay Yurkiw — Fri, 29 Mar 2013 09:57:25 -0600

A federal court has ordered that “an instruction be given at trial to the jury that it may draw an adverse inference against Plaintiff for failing to preserve his Facebook account,” and for destroying evidence. See Gatto v. United Air Lines, Inc., No. 10-cv-1090, 2013 U.S. Dist. LEXIS 41909, slip op. at 11 (D.N.J. Mar. 25, 2013). The plaintiff did not just try to “clean up” his Facebook page; he permanently deleted it. According to the court, the permanent deletion of the plaintiff’s account prejudiced the defendants “because they have lost access to evidence that is potentially relevant to Plaintiff’s damages and credibility.” Id. at 10.

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:

whether the evidence was within the party’s control;
whether there was an actual suppression or withholding of evidence;
whether the evidence destroyed or withheld was relevant to the claims or defenses; and
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.

Top Three Trends From the 2013 IAPP Global Privacy Summit

Christina Hultsch — Tue, 26 Mar 2013 07:02:30 -0600

I find a certain irony in the current ubiquity of privacy-related topics when the concept was once defined (and not by current European thinking, but more than 120 years ago), as the "right to be let alone," in “The Right to Privacy,” by Warren and Brandeis, 4 Harvard L.R. 193 (Dec. 15, 1890). Nonetheless, I could not wait to attend the IAPP Global Privacy Summit in Washington, D.C., for the first time this year.

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.

Hong Kong Website Can Continue Selling Alleged Counterfeit Fashion Apparel After Court Declines To Exercise Extraterritorial Jurisdiction Under Lanham Act

Jay Yurkiw — Wed, 20 Mar 2013 06:56:51 -0600

A court in the Southern District of New York enjoined the defendants from selling fashion apparel in the United States that allegedly infringed the plaintiff’s trademarks, but it declined to exercise extraterritorial jurisdiction to stop the defendants from using their Hong Kong website to continue selling the same apparel to the rest of the world. See Juicy Couture, Inc. v. Bella Int’l Ltd. , No. 12 Civ. 5801, 2013 U.S. Dist. LEXIS 34846 (S.D.N.Y. Mar. 12, 2013). The court reasoned that it had to “proceed with caution in determining” whether to apply the Lanham Act extraterritorially because the parties were currently litigating in Hong Kong over whether the defendants had valid trademark rights there.

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:

The citizenship of the defendant;
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
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.

________________________
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)).

Court Orders Production of Defendant's Entire Business Database in Contentious Trademark Infringement Case

Jay Yurkiw — Tue, 12 Mar 2013 05:47:06 -0600

Though the Federal Rules of Civil Procedure are “not meant to create a routine right of direct access to a party’s electronic information system,” a federal district court recently held that the benefits of allowing the plaintiff direct access to the defendant’s entire business database outweighed the burden of producing it. [See Advanced Tactical Ordnance Systems LLC v. Real Action Paintball Inc., No. 1:12-CV-296, Doc. 222, 2013 U.S. Dist. LEXIS 25022 (N.D. Ind. Feb. 25, 2013).] The court reasoned that the information in the database was highly relevant to the plaintiff’s claims — including the plaintiff’s contention that the defendant was using hidden “metatags” referencing the plaintiff’s trademark to drive higher search engine results for the defendant’s website and thus draw the plaintiff’s potential customers to the defendant — and that the defendant failed to demonstrate how the information in its database constituted a trade secret or how its disclosure would harm the defendant’s competitive advantage.

Plaintiff's Claims
The plaintiff, Advanced Tactical Ordnance Systems LLC (“ATO”), markets and sells irritant powder filled projectiles under the mark PepperBall^®. ATO acquired the mark when it acquired all of the assets of PepperBall Technologies Inc. ATO alleges that the former Chief Operating Officer of PepperBall Technologies misappropriated the trade secrets that ATO had acquired (including powder formulas, projectile shell designs and customer lists), then conspired with another defendant, Real Action Paintball Inc. (“RAP4”), to start selling counterfeit PepperBall^® projectiles around the world. ATO also alleges that the defendants misrepresented to ATO’s customers and the market generally that PepperBall Technologies was out of business and that RAP4 was the only source for PepperBall^® projectiles.

Based on its allegations, ATO has brought claims for trademark infringement, deceptive comparative advertising, counterfeiting, trade dress infringement, breach of the chief operating officer’s non-disclosure agreement, trade secret misappropriation, breach of fiduciary duty and fraud against the defendants.

Plaintiff's Request for Complete Copy of Defendant’s Business Database
After obtaining a temporary restraining order against the defendants, ATO began to take expedited discovery. In its fourth set of document requests, ATO served a request seeking the production of RAP4’s OS Commerce database. RAP4 objected to ATO’s request because it sought extremely sensitive and confidential information and was “an obvious fishing expedition.” According to RAP4, the OS Commerce database is “the heart of RAP4’s business” and “its most important asset.” “It operates all aspects of RAP4’s business” and has been customized by RAP4 to implement “many day-to-day business processes that give [RAP4] a competitive advantage.” (Doc. 207-1, ¶ 10.) After RAP4 refused to produce the database, ATO filed its third motion to compel discovery in the case.

In analyzing whether ATO was entitled to a copy of RAP4’s entire database, the district court stated that Federal Rule of Civil Procedure 34 permits a party to serve a request to “inspect, copy, test or sample” any electronically stored information (ESI) “stored in any medium from which information can be obtained either directly or, if necessary, after translation by the responding party into a reasonably usable form.” However, the advisory committee notes to Rule 34 explain that the allowance of testing and sampling of ESI “is not meant to create a routine right of direct access to a party’s electronic information system, although such access might be justified in some circumstances,” and the notes “caution courts to guard against undue intrusiveness resulting from such inspection or testing.”

The district court further evaluated the requested discovery under the concept of proportionality: “Federal Rule of Civil Procedure 26(b)(2)(C)(iii) further provides that the Court must limit discovery if it determines that ‘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.’”

Taking all of this into account, the district ordered RAP4 to produce a complete copy of the OS Commerce database, including all of the supporting files:

Here, although ATO’s request for RAP4’s entire OS Commerce database appears facially intrusive, the benefits of allowing ATO such direct access, under the circumstances of this case, outweigh the burden of producing it, particularly since a protective order is in place.

* * *

Although [RAP4’s president] argues that RAP4’s business processes are proprietary in nature and that, if information about its business practices got into the hands of a competitor like ATO, it could significantly harm RAP4’s competitive advantage [Doc. 207-1, ¶ 10], neither RAP4 nor [its president] provide any information about what those business processes generally are or any explanation about how the information contained in the database—much of which appears to have already been ordered produced or to be available on RAP4’s website—constitutes a trade secret or how its disclosure would harm RAP4’s competitive advantage * * *

And RAP4’s fear that ATO or its owners could use the database to their advantage is alleviated by limiting the database to “Attorneys’ Eyes Only.” RAP4’s insistence that the database is ‘its most important asset’ and that the vast majority of the product information in the database is irrelevant to the claims here does not change this analysis.

Key Practice Points
The district court’s ruling in Advanced Tactical Ordnance Systems illustrates two key practice points. First, relevant information contained in a database is discoverable just like other forms of ESI. However, the requesting party typically is entitled to receive only the database fields that contain relevant information, not the entire database in which the information resides. To obtain a copy of an entire database like ATO did, the requesting party must make a specific showing of need or relevance. [See, e.g., The Sedona Conference^®, The Sedona Conference^® Database Principles: Addressing the Preservation & Production of Databases & Database Information in Civil Litigation, March 2011 Public Comment Version, at 21; High Point SARL v. Sprint Nextel Corp., No. 09-2269, 2011 U.S. Dist. LEXIS 111158, at *39-40 (D. Kan. Sep. 28, 2011) (ordering production of entire database because of questions regarding whether all responsive information from the database was produced).]

Second, many federal courts have shown a willingness to limit the scope of e-discovery under the concept of proportionality found in Rule 26(b)(2)(C)(iii). In other words, if the burdens and costs of producing the requested ESI outweigh the likely benefits of that ESI, courts are willing to prohibit or at least limit the extent of the requested discovery, or in some cases even apportion some or all of the costs of the requested discovery, especially if the responding party has offered reasonable alternatives and has already produced related information. However, courts will not consider limiting discovery unless the party objecting to the discovery can introduce evidence specifying what the burden and expense of producing the requested ESI is and further can establish that such burden and expense outweighs the potential importance of the information to the parties’ claims and defenses. [See, e.g., Chen-Oster v. Goldman, Sachs & Co., 285 F.R.D. 294, 305-308 (S.D.N.Y. 2012) (ordering production of information from certain databases in putative employment discrimination class action because information was central to the plaintiffs’ claims, the amount in controversy was substantial, and the defendant exaggerated the burdens of extracting the information, but also holding that the burden of extracting information from an older database outweighed the benefit).]

Caution: Recent Case Highlights Importance of Broad, Early Preservation Efforts

Tracey Turnbull — Wed, 06 Mar 2013 14:17:28 -0600

This blog post was co-authored by Margaret M. (Peggy) Koesel and Tracey L. Turnbull.

A company may discard data, documents or records in the ordinary course of its business. But routine destruction of information that may be relevant to a government investigation or a lawsuit must be suspended and information must be saved as soon as possible after a party has notice that it must preserve evidence. A recent case from the district court for the Southern District of Ohio looks at the events that triggered a bank’s duty to save particular data considered relevant by its opponent and the consequences of its failure to stop the routine purging of that data on a timely basis.

In E.E.O.C. v. JP Morgan Chase, No. 2:09-cv-00864, the Equal Employment Opportunity Commission claimed that a bank treated a class of female mortgage consultants differently than their male counterparts by, among other things, directing more lucrative calls in the call queue to male employees based on the skills it assigned to each individual mortgage consultant. In an effort to establish this theory, the commission asked the bank to produce “skill login data” for a five-year time period, claiming that a statistical analysis of that data would show discrimination.

After a disagreement over the scope of the data to be produced, the court ordered the bank to produce data from July 2006 to December 2009. But the bank had failed to preserve some of that data, allowing it to be purged as part of its routine destruction of any data of that kind that was over three years old. The bank’s destruction of ten months of the data led the commission to request sanctions.

The court first focused on the pre-lawsuit events that triggered the bank’s duty to preserve the data because sanctioning the bank for destroying the data before it had notice it was required to save it would not be appropriate. The court pointed to a number of pre-lawsuit notices from the commission that the bank should have known triggered its duty to suspend the bank’s automatic purging process, long before the commission filed a class action lawsuit. These events included a notice from the commission that it was investigating class allegations, a request for information from the commission concerning allegedly unfair call distribution and a class-wide cause determination, all of which the bank received before it started its automatic purge of the relevant data. The district court also found it “curious” the bank recognized that it should save the email of the female mortgage consultants while the charge of discrimination was pending, yet it took no steps to safeguard the login data at the same time. That failure ultimately allowed data from July 2006 to September 2007 to be automatically destroyed.

As a result of the commission’s notices and the bank’s own recognition of the need to save select email, the court found the bank’s “failure to establish a litigation hold ... inexcusable.” The court found that the bank had “multiple notices” from the commission that should have triggered it to issue a litigation or legal hold suspending its automatic records destruction program. It, therefore, concluded that the bank was not protected by the “safe harbor” exception for failing to produce electronically stored information lost as a result of a good faith routine deletion program. The court also found fault with the bank’s “dubious failure if not outright refusal to recognize or accept” that the scope of its preservation obligation included safeguarding data that would be helpful and relevant to the commission’s theory of the case.

Instead, the court’s sanction combined denial of the bank’s summary judgment motion, which relied in part upon the spoliated data, with imposition of a permissive adverse inference. The court applied a three part test for imposing an adverse inference and concluded that: 1) the bank had control over the data and had an obligation to preserve it at the time it was destroyed; 2) the data was spoliated with a “culpable state of mind” and 3) the destroyed data was relevant to the parties’ claims and defenses.

The court acknowledged the potential impact of the bank’s spoliation on the commission’s pending motion for partial summary judgment. It concluded the sanction it imposed would allow the case to be decided on its merits, noting that giving a permissive adverse inference would address the effects of the spoliation and allow the jury to determine the outcome.

Before determining the appropriate sanction, the district court addressed the parties’ detailed arguments on the bases for a sanctions award under Rule 37 of the Federal Rules of Civil Procedure and/or the court’s inherent power. Ultimately, the court concluded that it would use its inherent power to sanction the bank’s conduct since it disrupted the judicial process, explaining the importance of “the need to preserve the integrity of the judicial process in order to retain confidence that the process works to uncover the truth.” As the court explained, the bank’s “destruction of evidence under the auspices of routine purging has hampered the case if not the ability to uncover exactly what if anything impermissible has transpired here.”

The court emphasized the importance of proportionality and truth seeking in determining the appropriate sanctions, explaining that devising a spoliation sanction that serves both fairness and punitive functions can be “a tricky balancing act.” Considering this delicate balance, the court found the bank’s conduct was “at least negligence and reaches for willful blindness bordering on intentionality,” which warranted more than a “slap on a wrist.”

Sanctions must also be proportionate to the harm. Since the destroyed data hampered the commission’s ability to prove its case, but did not destroy it, entering summary judgment or a default judgment in favor of the Commission was too harsh. Yet, merely allowing a permissive adverse inference was insufficiently punitive given the possibility that one of the bank’s dispositive motions could prevent the Commission from reaching a jury. The district court also considered and rejected imposing attorneys’ fees and costs because that did not focus on restoring the “search for truth.”

Key takeaways:

If a company has reason to know of a particular potential lawsuit because it receives a charge of discrimination, a request for information, or a similar notice of a particular claim, it must promptly take steps to make sure it preserves, potentially relevant documents and other evidence. That means it must issue a legal hold notifying key employees to safeguard relevant records and immediately suspend automatic purging of relevant electronic information, even if a lawsuit has yet to be filed.

A company should err on the side of caution when deciding what to safeguard since “relevance” is very broad under the state and federal rules of civil procedure. Always consider a potential opponent’s theory of the case when preparing a legal hold notice and deciding what should be preserved. A company is obliged to preserve not only what it may need to defend itself, but also data and documents that may be helpful and relevant to the case of the company’s opponent.

Also remember that courts considering sanctions take a broad view of an alleged spoliator’s state of mind and may impose sanctions for knowing or negligent destruction of data, even if the alleged spoliator did not intend to breach its duty to preserve evidence.

Sixth Circuit Decides Trademark Rights In Dispute Arising After Two Asset Sales Involving An Unregistered Trademark

Jay Yurkiw — Mon, 04 Mar 2013 11:14:53 -0600

Stating that it “will not presume the creation of jointly owned or non-exclusively licensed trademark rights,” the Sixth Circuit Court of Appeals recently held that an individual defendant and his company did not retain any ownership rights in an unregistered trademark his company had acquired in an asset sale and then transferred in another asset sale. [See Yellowbook Inc. v. Brandeberry, No. 11-4267 (6th Cir. Feb. 27, 2013).] The Sixth Circuit reversed the district court’s finding of no trademark infringement and remanded the case to the district court to enter appropriate injunctive relief and determine damages for trademark infringement.

The Sixth Circuit’s holding reinforces the importance of:

Identifying all the trademark rights being purchased and by whom in a purchase agreement
Purchasing the goodwill associated with the trademark rights being purchased
Researching the chain of title of the trademarks being purchased and potential claims of ownership of those marks

It also illustrates why it is recommended that businesses register their trademarks with the U.S. Patent and Trademark Office and/or at the state level to secure a presumption of ownership of a mark.

Trademark Acquired
In reaching its holding, the Sixth Circuit closely analyzed the overall purpose and structure of an asset sale that happened in 1994, and a subsequent asset sale that happened in 2002. Both asset sales involved the individual defendant, Stephen Brandeberry, and his company, American Telephone Directories Inc. (“American Telephone”).

In 1994, a company named Area Marketing Telephone Directories sold its phonebook business in an asset-purchase agreement signed by Brandeberry in his individual capacity and in his corporate capacity as president of American Telephone. Under a contemporaneous license agreement, Area Marketing Telephone Directories agreed to license the mark “AM/TEL” exclusively to the “licensee,” then transfer full ownership of the mark to the “licensee” upon full payment of the agreed-to price of $50,000. The license agreement collectively referred to Brandeberry and American Telephone as the “licensee.” The agreement also noted that the mark was not registered. American Telephone subsequently dropped the slash in the mark and started marketing the phonebooks under the name “AMTEL.” American Telephone did not register either the AM/TEL or the AMTEL mark.

Trademark Transferred
In 2002, Brandeberry’s company American Telephone entered into an asset-purchase agreement with P.B.J. White Directories, LLC (“White”), selling the assets of the business “in their entirety.” White subsequently registered the AMTEL mark with the State of Ohio and then in 2007 sold its phonebook business to Yellowbook, a national publisher of yellow-pages directories. Yellowbook continued to use the AMTEL mark to publish phonebooks, but the trademark registration with Ohio expired in 2008 and was not renewed.

Trademark Infringed
In 2009, Brandeberry noticed that the registration had expired and decided to “revive” the “original” AMTEL phonebook to compete with Yellowbook in Ohio. In 2010, Brandeberry and American Telephone published a competing phonebook using the AMTEL mark.

Yellowbook filed suit against Brandeberry and American Telephone alleging trademark infringement, interference with business relations, misappropriation of trade secrets and unjust enrichment. Brandeberry counterclaimed for defamation.

The district court granted summary judgment against Yellowbook on the trademark infringement claim but ruled in Yellowbook’s favor on its tortious interference claim against American Telephone. At trial, a jury awarded $104,069 in compensatory damages and $10,406.90 in punitive damages against American Telephone for the tortious-interference claim, and it awarded Brandeberry $10 in nominal damages for his defamation counterclaim. The jury found that Yellow was entitled to attorneys’ fees, but the district court declined to award them because it found that the request for $209,009.30 in fees was not reasonable.

On appeal, the Sixth Circuit first rejected the argument that the license agreement signed in 1994 assigned joint ownership rights in the mark to both Brandeberry and his company. Based on “ordinarily principles of contract interpretation, in light of the particular nature of trademark rights,” the Sixth Circuit concluded that the parties intended to transfer a single, undivided ownership right in the mark to American Telephone because Brandeberry had no reason to retain any individual stake in the mark as a 100% owner of American Telephone, Brandeberry likely signed the agreement in his individual capacity only so he could be held personally liable for the $50,000 purchase price of the trademark, Brandeberry never used the AMTEL mark in his individual capacity or for other businesses, and Brandeberry did not receive any of the AMTEL goodwill.

The Sixth Circuit next rejected the argument that the 2002 asset-purchase agreement transferred only a non-exclusive right to use the AMTEL mark. Here, the Sixth Circuit concluded that when a business sells the “entirety” of its assets, including its goodwill, it passes title to the business’s trademarks. Moreover, the agreement was “not structured as an agreement to license or partially transfer the rights to the AMTEL mark.”

Even assuming that Brandeberry had acquired an individual right to the mark in 1994 that he did not transfer in 2002, the Sixth Circuit further ruled that Brandeberry abandoned any such right after 2002 because he stopped using the mark and did not demonstrate an intent to resume use. Here, the Sixth Circuit rejected the argument that abandonment may only be asserted as a defense: “Brandeberry’s abandonment-as-defense-only position would permit trademark users who abandoned their rights impunity from charges of infringement, regardless of the official registration and legitimate use in commerce of later users. Such a rule would be anomalous.”

Finally, the Sixth Circuit held that the district court abused its discretion by denying attorneys’ fees to Yellowbook and remanded to the district court for at least a partial grant of fees.

Facebook Posts Not "Solicitation" Under Former Employee's Restrictive Covenant Agreement

Jay Yurkiw — Tue, 26 Feb 2013 12:16:28 -0600

Describing it as a “rather novel issue,” a federal court recently held that a former employee’s public posts on his personal Facebook page did not constitute solicitation of his former co-workers under the terms of his non-solicitation agreement with his former employer. [See Pre-Paid Legal Services, Inc. v. Cahill, No. 12-CV-346, Doc. 31 (Jan. 22, 2013), Report and Recommendation affirmed and adopted, Doc. 32 (Feb. 12, 2013)] The court further noted that invitations sent to former co-workers to join Twitter were not solicitations under the agreement because the invitations did not request the co-workers to “follow” the former employee, they did not contain any information about the new employer, and they were sent by Twitter instead of as targeted email blasts by the former employee.

Though the court found that the former employee’s social networking activities did not constitute solicitation under his agreement, it did enter a preliminary injunction against the former employee based on his direct solicitation of one of his former co-workers through a private in-person meeting and follow up text messages sent to the co-worker. The court entered the injunction until the issues could be presented to an arbitrator pursuant to the parties’ arbitration agreement.

According to the court, the former employer did not present any evidence showing that the former employee’s Facebook posts, which touted his professional satisfaction with his new employer and his new employer’s products, resulted in the departure of any of his former co-workers, or any evidence showing that the former employee was targeting his former co-workers by posting directly on their walls or through private messages. The court then compared these facts to an Indiana state court case holding that a former employee’s posting of an employment opportunity with his new employer on LinkedIn did not constitute solicitation [Enhanced Network Solutions Group, Inc. v. Hypersonic Technologies Corp., 951 N.E.2d 265 (Ind. Ct. App. 2011)] and a Massachusetts state court case holding that a post announcing a former employee’s employment with a new company on her Facebook page did not constitute solicitation even though the former employee had become Facebook friends with eight of her former clients after leaving her former employer. [See Invidia, LLC v. DiFonzo, 2012 Mass. Super. LEXIS 273 (Mass. Super. Oct. 22, 2012)]

Before the preliminary injunction hearing in Pre-Paid Legal Services, the former employer sought expedited discovery. Among other things, the former employer requested forensic images of the former employee’s “cellular telephone(s), computer, iPad and/or any other electronic devices” used to conduct business, and all “e-mails, Facebook posting[s], Twitter postings or postings on any other social media” concerning his new employer or concerning employment with anyone other than his former employer. The parties apparently agreed to a third-party review of the former employee’s electronic devices, and the court granted the motion for expedited discovery to the extent the parties were conducting limited discovery by agreement. The court also ordered “that all evidence currently in existence be preserved” and reiterated during the preliminary injunction hearing that it “continues to enforce the order directing parties to preserve all the evidence.”

Takeaways

The Pre-Paid Legal Services case has some important takeaways. First, in this era of social media, there is a risk that language used in existing contracts and policies to prohibit certain types of conduct may not adequately protect a business from actions that can be taken through social networking websites. For example, based on the reasoning in Pre-Paid Legal Services, an employee may be able to establish contacts with clients and co-workers through social networking sites and then attempt to circumvent his non-solicitation restrictions after the termination of his employment by communicating information to his former clients and co-workers through public posts on those sites. Accordingly, businesses may need to revise restrictive language they use in contracts and company policies so they can better deal with the risks presented by social networking.

Second, as previously reported in articles about discovery of social media information and e-discovery trends, information posted on social networking websites can be relevant to the parties’ claims and defenses and, therefore, discoverable. This means that parties may have a duty to preserve social media information when litigation arises or is reasonably anticipated and that parties should think about requesting such information depending on the nature of the case. It also means that the law on social media discovery will continue to develop as more parties request social media information and more discovery disputes arise relating to the preservation, relevance, formatting, and production of such information.

Third, by entering a preliminary injunction against the former employee, the court effectively reaffirmed the principle that courts may enter injunctive relief in disputes that are otherwise referable to arbitration on the merits to preserve the status quo and ensure that the arbitration is not rendered “meaningless or a hollow formality.” [See, e.g., Performance Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373, 1380 (6th Cir. 1995).] Interestingly, the court in Pre-Paid Legal Services entered the preliminary injunction even though the parties had incorporated the American Arbitration Association’s Optional Rules for Emergency Measures of Protection, which provide for the appointment of an emergency arbitrator within one business day of receiving notice of the requested emergency relief. [See Pl.’s Response to Def.’s Motion to Stay Pending Arbitration, Doc. 15 (Aug. 27, 2012)]

Social Media Privacy Makes Its Way to Capitol Hill

Colleen Marshall — Tue, 26 Feb 2013 10:28:15 -0600

Editors' Note: Colleen Marshall, a Senior Attorney in Porter Wright's Litigation Department, is also a widely-recognized, award-winning news anchor for Columbus' NBC-affiliate, WCMH – 4. In a detailed interview with Porter Wright's Sara Jodka last week, Colleen reports on the use of social media by employers: "You Can't Delete Your Way Out Of Social Media."

As noted in a recent blog post and in the news report mentioned above, 21 states have social media privacy legislation pending. But, social media privacy could soon be governed by an act of Congress.

Representative Elliot Engel (D-N.Y.) just introduced H. R. 537, the "Social Networking Online Protection Act" that he says will protect both employees and job applicants from employer efforts to obtain passwords to private social media accounts. Unlike most laws currently being considered on the state level, Engel's bill would also protect passwords to email accounts. The bill is currently in the House Committee on Education and the Workforce, and makes a critical distinction between private accounts and social networking accounts owned by employers but maintained by employees in the course of employment.

Ohio Senate Bill 45, the Social Media Privacy Protection Act, is the most recent state effort to prohibit employers from gaining access to private electronic accounts, such as Facebook. Ohio 15th District Senator Charleta Tavares (D-Columbus) introduced the bill in an effort to prohibit employers, employment agencies, personnel placement services, and labor organizations from requiring an applicant or existing employee to surrender their personal password to a social media account. Senator Tavares says she views any effort to obtain an employee's passwords as an invasion of privacy. Similar bills were passed in 2012 in six states: California, Delaware, Illinois, Maryland, Michigan and New Jersey.

It is vital to note that none of the proposed legislation, either on the federal or state level, would stop employers from monitoring the electronic profile of employees and applicants by viewing publicly available social media. As we discussed previously, social media is broadly accepted as a legitimate tool to screen job applicants and make judgments about character and personality. Additionally, social media passwords would still be accessible through discovery in instances of litigation or during wage and hour disputes. Social media passwords are proving to be invaluable tools for discovery, especially in the labor and employment context, as explained to me by Porter Wright attorney Sara Jodka in a recent television interview.

Lawmakers are grappling with employers' right to know versus employees' right to privacy. And, as previously noted, you can't always delete your way out of the mess you create on social media. Additionally, some employees use their private electronic accounts as networking tools or to communicate with clients and vendors. Courts are currently being asked to decide whether executives or employers own Linked-in accounts that were created on company-owned computers. Disputes over passwords and twitter accounts are also making their way through the courts.

The outcome of these cases will be noted in future blogs because alerts will be sent to my personal phone, that is linked to professional calendars and email accounts owned by two employers, that are also available on my personal iPad, which is linked to my husband's business account that is connected to his phone and the laptop used for his S-Corporation. Wouldn't that make for interesting discovery?

Read a list of other states considering legislation to restrict employer access to private social media.

First-to-File Patent System Arrives March 16, 2013

Martin Miller — Fri, 22 Feb 2013 07:33:27 -0600

With significant changes to law governing how the U.S. grants patents taking effect next month, Porter Wright recommends that all clients consider filing any contemplated patent applications by March 15. This includes filing non-provisional patent applications, and in some cases Patent Cooperation Treaty (PCT) patent applications, that are based upon any provisional or non-U.S. patent application filed since March 2012. Though there are some exceptions to this advice, waiting until after March 15 may be problematic.

In brief: For patent applications having any claim with an effective filing date after March 15, it will no longer be possible to overcome prior art by showing an earlier date of invention. Thus, the prior art for purposes of patentability will include: 1) third-party public disclosures of any kind, anywhere in the world, prior to your effective filing date; and 2) issued U.S. patents and published U.S. or PCT patent applications that were effectively filed before your effective filing date. In addition to not being able to "swear behind" a prior art reference by proving an earlier date of invention, the prior art date for patents and published patent applications may be as much as 18 months earlier than under current law because of foreign priority claims.

It is also important to note that inventors will not lose the benefit of any earlier provisional or non-U.S. patent application should they wait until after March 15 to file. Any claims that are adequately supported in the earlier filing will be entitled to that earlier filing date for purposes of patentability. However, if even one claim in the post-March 15 application is new (i.e., includes subject matter not disclosed in your earlier application) the new first-to-file rules will apply to all claims — and there will be no way to alter this scenario through actions such as deleting claims containing the new subject matter.

A Porter Wright Law Alert describes these patent law changes in greater detail.

Ohio Appellate Court Disallows Forensic Imaging of A Non-Party Witness's Computers Because Witness's Privacy Interests Outweighed Need For Imaging

Jay Yurkiw — Tue, 19 Feb 2013 09:36:03 -0600

An Ohio appellate court recently overturned a trial court’s order that compelled the production and forensic examination of a non-party witness’s computers, hard drives, and cell phones because “a trial court abuses its discretion when it permits forensic imaging of electronic devices without first a showing that there has been a background of noncompliance with discovery and the need for forensic imaging outweighs the party’s privacy interests.” Scott Process Systems, Inc. v. Mitchell, 2012-Ohio-5971, ¶38 (Ohio Ct. App. Dec. 17, 2012). Because forensic imaging (or “mirror imaging”) of a hard drive replicates “bit for bit, sector for sector, all allocated and unallocated space, including slack space,” on the drive, a non-party witness’s privacy and confidentiality concerns must be carefully balanced against the requesting party’s discovery interests and need for the imaging. Id. at ¶¶28-29.

Other courts also have applied a balancing test in the context of civil discovery to determine whether the forensic imaging of a party’s electronic devices is justified under the circumstances. See, e.g., Wynmoor Community Council, Inc. v. QBE Insurance Corporation, 280 F.R.D. 681, 687 (S.D. Fla. 2012) (ordering forensic examination of the plaintiffs’ computers because they were either unwilling or unable to conduct a search of their computers systems for responsive documents); Musket Corp. v. Star Fuel of Oklahoma, LLC, No. CIV-11-444 (W.D. Okla. Sep. 21, 2012) (disallowing forensic examination of hard drive after stating that “[d]irect inspection of an opponent’s hard drive is not routine and may be justified only in certain circumstances,” and that when ordered such inspections must be done under “specific protocols that would preserve claims of attorney-client privilege and protection of the confidentiality of personal information”); Nithiananthan v. Toirac, 2012-Ohio-431 (Ohio App. Feb. 6, 2012) (overturning order for forensic examination of a party’s personal computers because the record failed to support a finding of “a history of discovery violations” by the party); see also Scentsy, Inc., v. B.R. Chase, LLC, No. 1:11-cv-00249 (D. Idaho Oct. 2, 2012) (denying motion to compel forensic examination of the plaintiff’s computer system because of the undue burden and cost of the examination even though the plaintiff implemented an insufficient litigation hold).

In Scott Process Systems, the plaintiff served a subpoena duces tecum on a non-party witness in a non-compete case that required the witness to produce for forensic imaging all computers, computer hard drives, and cell phones he used during a seven-month period. After the trial court denied the non-party witness’s motion to quash and granted the plaintiff’s motion to compel, the witness appealed.

The appellate court found as a threshold matter that it could review the trial court’s order as a final, appealable order in part because it involved the discovery of confidential information. The appellate court then agreed with the non-party witness that the trial court improperly ordered him to produce his electronic devices for forensic imaging. “Generally, courts are reluctant to compel forensic imaging, largely due to the risk that the imaging will improperly expose privileged and confidential material contained on the hard drive.” Scott Process Systems, 2012-Ohio-5971, ¶29 (quoting Bennett v. Martin, 928 N.E.2d 763 (Ohio Ct. App. 2009)). Accordingly, in order to “guard against undue intrusiveness to a party’s privacy and confidentiality,” a court must conduct a two-part analysis to determine whether forensic imaging is warranted as opposed to other discovery procedures. Id. at ¶¶28-29.

Pursuant to the two-part analysis, a court must first weigh a responding party’s significant privacy and confidentiality concerns against the necessity of the imaging. In balancing these interests, a court should consider whether the responding party has improperly withheld requested information, whether the responding party is unable or unwilling to search for the requested information, and the extent to which the responding party has complied with discovery requests. The appellate court found that these factors weighed against imaging because there was no “history of continuous and blatant discovery violations” that tipped the scales in favor of compelling it. Id. at ¶¶32-33.

The second part of the analysis requires a court to “protect the party’s confidential information, even if the party’s misconduct in discovery makes forensic imaging appropriate.” Id. at ¶35. Here, the appellate court found that the trial abused its discretion by failing to “set forth a protective protocol to ensure forensic imaging was not unduly intrusive” and to preserve any private and privileged information. Id. at ¶35. Based on these findings, the appellate court concluded that the trial court abused its discretion in ordering the non-party witness to submit his electronic devices for forensic imaging without first conducting the two-part analysis and therefore reversed the trial court’s decision. Id. at ¶43.

$12.4 Million in Fees Awarded for Patent and Trade Secret Claims Brought in Bad Faith, Including Fees For "Computer-Assisted Algorithm-Driven Document Review"

Jay Yurkiw — Fri, 15 Feb 2013 06:51:59 -0600

A federal district court recently awarded more than $12.4 million in attorneys’ fees to the defendants as “prevailing parties” based on its finding that the plaintiffs had pursued objectively baseless patent and trade secret misappropriation claims in bad faith. [See Gabriel Technologies Corp. v. Qualcomm Inc., No. 08 CV 1992, 2013 U.S. Dist. LEXIS 14105 (S.D. Cal. Feb. 1, 2013)] As part of the award, the court awarded $2,829,349.10 in fees “attributable to computer-assisted, algorithm-driven document review” developed and employed by H5, which is an e-discovery vendor that obtained a patent last year on certain aspects of its technology-assisted review process. The court found that the method of document review used in the case reduced the overall fees and attorney hours incurred by the defendants and, therefore, found the requested amount of fees to be reasonable.

In Gabriel Technologies, the plaintiffs brought suit in 2008 against Qualcomm Inc. and an individual defendant asserting ownership rights in numerous Qualcomm patents related to GPS technologies. The suit arose out of events related to technology licenses and joint ventures between the plaintiffs, and their predecessor in interest, and the defendants dating back to 1998. The plaintiffs initially asserted 11 claims for relief, including breaches of a 1999 license agreement and a 2006 license agreement, fraud, tortious interference with contract, correction of patent inventorship, declaration of patent ownership, equitable patent infringement, trade secret misappropriation, conversion, unfair competition and unjust enrichment, and sought more than $1 billion in damages. Most of the plaintiffs’ claims were dismissed early in the litigation.

After obtaining summary judgment on the plaintiffs’ three remaining claims, the defendants filed a motion for attorneys’ fees against the plaintiffs and their counsel. The plaintiffs’ lead counsel in the case separately settled with the defendants. The court then granted the motion as against the plaintiffs and their local counsel.

The court first ruled that the defendants were entitled to attorneys’ fees pursuant to 35 U.S.C. § 285, which permits a court in “exceptional cases” to award “reasonable attorney fees to the prevailing party” in a patent case. The court found by clear and convincing evidence that the case was “exceptional” because the plaintiffs’ claims were objectively baseless and brought in subjective bad faith. Here, the court noted among other things that emails between the plaintiffs’ former employees suggested that they knew they had no case but pursued the claims anyway, the plaintiffs did not know and could not prove the identity of inventors allegedly omitted from the defendants’ patents, and the plaintiffs pursued the case even after the court required them to post an $800,000 bond pursuant to Cal. Civ. Proc. Code § 1030 to proceed with the case.

The court next ruled that the defendants were entitled to attorneys’ fees pursuant to Section 3426.4 of California’s Uniform Trade Secret Act, which permits a court to award reasonable attorneys’ fees to the prevailing party if “a claim of misappropriation is made in bad faith.” Cal Civ. Code § 3426.4. The court found that the plaintiffs’ trade secret misappropriation claims were objectively specious and maintained in subjective bad faith. Here, the court noted that the plaintiffs made the decision to pursue their claims “despite their inability to sufficiently articulate the alleged trade secrets or overcome Defendants’ statute of limitations argument.”

Having found that the defendants were entitled to an award of attorneys’ fees, the court awarded $10,244,053 in attorneys’ fees attributable to the work performed by defendants’ lead counsel and $391,928.91 in attorneys’ fees attributable to the document review performed by a third-party vendor, Black Letter Discovery.

In addition to these fees, the defendants also sought fees for “document review performed” by a “complex computer algorithm” generated by H5. The defendants supported their request by stating that over the course of the litigation they had collected almost 12 million records, mostly in the form of electronically stored information (ESI). The parties agreed to a set of search terms and the defendants applied those search terms to the ESI that was collected to create a data set of potentially responsive documents. Rather than manually review this entire data set, the defendants paid H5 to use its proprietary technology to sort the data set into responsive and non-responsive documents, thereby reducing by more than 1 million documents the number of documents that had to be reviewed by attorney reviewers. H5 charged $2,829,349.10 for “developing and employing a first-level document review algorithm.” The defendants argued they were entitled to recover H5’s charges from the plaintiffs because the defendants would have incurred additional time and money if they had employed attorneys to review those documents instead of using H5’s technology.

The court agreed with the defendants, stating:

After [H5’s] algorithm determined whether documents were responsive or unresponsive to discovery requests, Black Letter attorneys reviewed the responsive documents for confidentiality, privilege, and relevance issues. (Id. at 26, n. 11.) For this reason, the review performed by H5 and Black Letter accomplished different objectives with the H5 electronic process minimizing the overall work for Black Letter. Again, the Court finds [the] decision to undertake a more efficient and less time-consuming method of document review to be reasonable under the circumstances. In this case, the nature of Plaintiffs’ claims resulted in significant discovery and document production, and [Defendant's counsel] seemingly reduced the overall fees and attorney hours required by performing electronic document review at the outset. Thus, the Court finds the requested amount of $2,829,349.10 to be reasonable.

Interestingly, in ruling on the defendants’ motion for the plaintiffs to post a bond earlier in the case, the court had ruled that other e-discovery costs related to “collecting, searching, identifying, managing and producing electronic documents in response to [the plaintiffs’] discovery demands” were not recoverable as taxable costs pursuant to 28 U.S.C. § 1920(4). There, the court reasoned that the fee to engage a consultant to assist with e-discovery productions is not recoverable as costs under § 1920(4) because the Ninth Circuit Court of Appeals “has limited recoverable exemplification fees to those for the physical preparation and duplication of documents, not the intellectual effort involved in their production.” [See Gabriel Technologies Corp. v. Qualcomm Inc., No. 08cv1992 (S.D. Cal. Sept. 20, 2010)]

Why You Can't Delete Your Way Out of Your Social Media Mess

Colleen Marshall — Tue, 12 Feb 2013 15:06:51 -0600

Naked pictures? Drunken celebrations? Sexist comments? A click of a button and all evidence of your "Weekend at Bernie's" can disappear. Job seekers know to scrub clean their Facebook pages before they connect with potential employers, to remove all trace of their off-color on-line life. But here in Ohio you can't delete your way out of the mess you created through social media. Employers can legally ask employees and recruits to surrender their social media passwords, and thanks to Facebook's newly expanded access program, the result is a stunningly deep portal into private messages, deleted posts, photographs and everything you ever posted on your Facebook wall.

Where does an employer's right to screen applicants and monitor employee behavior end and personal privacy begin? It's a murky line drawn so far by only six states — and Ohio isn't one of them. After failing to win support for Senate Bill 351 in 2012, Ohio Senator Charleta Tavares will this month reintroduce her proposal to make it illegal for an employer to require an employee or potential employee to surrender their social media passwords. Tavares argues that employers should not be able to access personal thoughts and messages that employees never intended to be broadly distributed.

Tavares' legislation would not restrict employers from inspecting the social media that is readily available to an applicant's network of friends, and can legitimately help employers determine if a prospective employee would be a good organizational fit. Employers, for example, could still inspect your Facebook page, but they would do so without the personal password that gives them expanded access to your history and hidden files.

As our sister blog, the Employer Law Report, has noted in the past, whether such legislation really is necessary, however, is subject to debate. Few employers need — think law enforcement, finance and child care industries that require more in-depth screening — or want to delve deeply into their applicants’ or employees' personal lives, but employers and recruiters rightfully argue that social media is a valid screening method that can reveal both negatives and positives about potential hires. A recruit who is not on LinkedIn and has no professional social media presence can appear to be not relevant. Your social media profile can paint a flattering picture of your volunteer efforts, your professional affiliations and your networking capabilities. Conversely it can expose your poor grammar and your lack of judgment. What exactly were you thinking when you posted that picture of yourself, half-naked, with a beer bottle in one hand, a joint in the other, wearing a ball-cap that says "Female Body Inspector?" We've all seen such pictures.

Beyond the hiring process, however, employers should know that a wealth of information is available to them if they obtain that magic password for other purposes, particularly during discovery in matters involving disputes with current or former employees. Employers can use social media to great advantage in such cases. It is difficult to sustain a claim for disabling injuries, for example, when the employer displays recent photographs of your weight-lifting workout at the gym. One manager who denied a personal relationship with a subordinate happily posted romantic pictures and glowing descriptions of their encounters.

By obtaining the personal password of a volunteer, a recent test of the new Facebook access program provided an astounding amount of personal information, hidden files, private conversations, and remarkably every item ever posted on the user's Facebook wall dating back to her original sign-on date in 2008. In a printed format (with small font) the wall posts were nearly one thousand pages long. Surprisingly, even the private conversations the volunteer typed into pop-up message boxes, directed at individuals, were recorded and stored and resulted in 200 printed pages of "private" conversations. Every photograph the volunteer ever posted, every person the volunteer had deleted from her friend list, and all files the volunteer thought to be "hidden" were readily available. Specific devices used by the volunteer to log-on, the time spent on Facebook, and a list of every ad viewed by the volunteer over the past five years were also accessible. It is a stunning amount of information that can provide undisputable evidence, particularly in the labor and employment context.

A recent survey by Jobvite, a company that provides applicant tracking software, shows that 92% of employers are using or planning to use social networks as a recruiting tool this year. Careerbuilder.com reports roughly 40% of employers are using social media as a screening tool, but there are no statistics that show how many employers require social media passwords to be surrendered.

Employers can establish a clear process that allows for legitimate inspection of a prospective employee's social media profile — without asking for personal passwords. A successful social media review process is one that minimizes the employer's chance for a charge of discrimination while allowing the employer to determine whether an applicant possesses reviewable, legal characteristics that make the applicant a good or bad fit for the company. You might wonder why the concern for a charge of discrimination comes in to play. Well, by just scanning an applicant's social medial profile, an employer can uncover a lot of information, and some of it is unlawful information for an employer to use or consider in the hiring process. This information includes an applicant's race, age, religious affiliation, national origin, gender, veteran status, pregnancy status, genetic information, sexual orientation (in some states and localities), and gender identify (some states and localities).

Successful policies usually include the following:

Layout Search Criteria: A standard written search policy that defines for the employer and the applicant what social medial sites will be searched and what information reviewed; e.g., engaging in hate speech, discriminatory conduct, criminal activity.
Put a Wall Between Reviewer and Ultimate Decision Maker: A two-tiered approach that provides for an initial screening of the social media before information is presented to the person who will make the actual hiring decisions. In turn, the reviewer will forward on to the ultimate decision maker only the information about the applicant that hit the employer's defined search criteria. This ensures that the person who makes the ultimate employment decision has never actually viewed the applicant's social media profile. This eliminates even the appearance that the applicant was hired or rejected on the basis of inadvertent access to legally protected information.
Document, Document, Document: You have a strict policy in place. Now prove it. Keep uniform records about what disqualifying information was obtained through the social media sites for use in the event a lawsuit ensues.
Stay True To Your Policy: Again, you have a strict policy in place — abide by it. Do not attempt to circumvent an applicant's privacy settings to collect more information about the applicant. This includes creating a false profile to gain access to the applicant's information or impersonating a "friend" for the same reason.

With proper guidance your social media policies can reflect the culture of your company, and will enhance — not ensnare — your workforce.

SHOCKING NEWS!! We Are Spending Too Much Time Surfing The Web For Personal Reasons at Work. What To Do About These Cyberloafers??

Brian Hall — Fri, 08 Feb 2013 09:47:47 -0600

According to a news release issued by the university, a Kansas State University study to be published in the journal Computers in Human Behavior concludes that between 60% and 80% of the time spent by people on the internet at work has "nothing to do with work." The study, which was profiled yesterday on The Today Show, suggests that "cyberloafers" come in all ages. According to one of the researchers, "Older people are doing things like managing their finances, while young people found it much more acceptable to spend time on social networking sites like Facebook."

Certainly, while the estimated percentage might be unexpectedly high to some, there is no doubt that workers are spending more time on the internet for personal reasons. The study goes on to note that employer electronic monitoring policies do little to change behaviors unless the policies are enforced. According to the news release announcing the study, "Researchers discovered that the only way to change people's attitudes is to provide them with information about other employees who were reprimanded."

The question I have is whether enforcement of these policies really discourages employees from surfing the web or whether it merely drives the behavior underground. My bet is that many — I won't say most — employees who fear discipline as a result of electronic monitoring at work will simply resort to using their personal electronic devices, which the employer will not be able to monitor. In my mind, the best way for an employer to ensure that workers are actually working is to monitor their actual work performance, both quantity and quality, and in the process it will catch most, if not all of its cyberloafers.

I'm not suggesting that electronic monitoring policies are bad or even ineffective; just don't ask them to cure more problems than they are capable of doing. Indeed, such policies are invaluable in making sure that employees are not accessing pornography or other material at work that may subject an employer to liability. These policies also can help prevent trade secret leakage or outright misappropriation. But to think that enforcing these policies, without more, will deter most employees from shopping on Amazon.com or checking Espn.com for the latest trade rumor in my opinion is a bit naïve and maybe even somewhat counterproductive.

Even the researchers noted that the strategy can have negative consequences in the workplace and can lower morale. Indeed, in many work environments where employees are one dinner time cell phone call away from being back on the clock, it is not entirely unreasonable to think that some employees will conduct some personal business while at work. In addition, some studies have suggested that occasional personal use of the internet while at work might help recharge employees' batteries and keep them more focused on their jobs.

I'm all for enforcing electronic monitoring policies at work; let's just not ask them to do too much. Now, if you don't mind, there is this set of golf clubs that I saw on the internet last night….

Changes to Children's Online Privacy Protection Act (COPPA) Rule Become Effective July 1, 2013

Robert J. Morgan — Thu, 07 Feb 2013 09:12:55 -0600

The amendments to the rule implementing COPPA have been met with varying degrees of celebration, skepticism, disappointment and confusion. The amendments change all aspects of the rule, though some to a greater degree than others. While a full understanding of the impact of the amendments will likely have to wait until we see how they are enforced, a review of the amendments is, nonetheless, helpful in preparing for the July 1, 2013 effective date of the amended rule.

Adopted in December by the Federal Trade Commission (FTC), to keep up with changing technology, the amendments were designed to "strike the right balance between protecting innovation that will provide rich and engaging content for children, and ensuring that parents are informed and involved in their children's online activities," according to FTC Chairman Jon Leibowitz, who has since announced his intention to resign effective mid-February. (Read the text of the Federal Register notice.)

COPPA was enacted in 1998 for the purpose of protecting the online privacy of children, and mandated the creation of rules for that purpose (the "COPPA Rule" or "Rule"). The most significant provisions in the COPPA Rule required operators of websites or online services to give notice to parents and get their verifiable consent before collecting, using or disclosing personal information from children when either (a) the website or online service is directed to children who are younger than 13 years of age, or (b) when operators of websites or online services have actual knowledge that they are collecting personal information from children younger than 13. The COPPA Rule also prohibits conditioning children’s participation in online activities on the collection of more personal information than is reasonably necessary for them to participate, and contains a “safe harbor” provision that allows industry groups or others to seek FTC approval of self-regulatory guidelines.

Operators

What has been and remains the case is that if an operator collects information that reveals a user's age (birth dates, for instance), the COPPA Rule applies if the operator collects information from anyone who has indicated their age to be 12 or younger. Of course, such sites can also avoid COPPA (if they are not otherwise deemed to be directed to kids) by bouncing anyone who has indicated themselves to be 12 or younger.

The amended COPPA Rule has expanded the definition of operators under the Rule to include "sites or services that target children only as a secondary audience or to a lesser degree," which some commentators view as meaning the Rule now more clearly applies to ad networks or application plug-ins which provide services to websites dealing with kids.

The FTC has stated that its intention is not to expand the reach of sites covered under COPPA, but rather to "create a new compliance option for a subset of websites and online services already considered directed to children under the Rule's totality of circumstances standard." There remains some potential for confusion because of the new definition, which discusses sites "directed to children" but that do not target children as their "primary audience." Historically, the FTC has brought COPPA enforcement actions against operators who have actual knowledge that they are collecting information from children or against operators of sites clearly aimed at children. The new language adds an element of ambiguity with respect to which operators should consider themselves covered by the COPPA Rule.

Personal Information

Before the amendments to the COPPA Rule, "Personal Information" included:

a first and last name
a physical address
an email or instant messaging address
a telephone number
a Social Security number
a persistent identifier or a combination of information that allows contacting or information concerning a child or his parents that the operator collects online and combines with a persistent identifier

Now, "Personal Information" also includes:

photos, videos or audio files that contain the child's image or voice
geolocation information
persistent identifiers used to "recognize a user over time and across different websites or online services"

An important caveat has been added to the Rule with respect to the persistent identifiers. Such identifiers are considered personal information only to the extent they are not used to support the internal operations of the site or service. The FTC's intention is that sites using tracking tools to follow children across websites for behavioral advertising purposes will fall under the COPPA Rule because of that activity; sites using the same tools to track users, including children, for the purpose of effectively providing their own services — including offering advertising content based on the user's activity within the site — will not.

The practical difference between whether tracking activity will or will not fall under COPPA is the difference between what has become known as "contextual advertising" as compared with "behavioral advertising." Contextual advertising, deemed not the collection of personal information under COPPA, provides ad content to users based on the site visited (e.g., if you are on a car enthusiast site, you will be presented with advertisements for sports cars). Behavioral advertising, deemed to qualify as the collection of personal information under COPPA, provides ad content based on the tracking of a user's Internet browsing activity (e.g., if you run a search for mortgage interest rates, you might be presented with ads for mortgage or home refinancing offers when you visit unrelated sites the next day). The FTC makes clear in its comments in the Federal Register that it is specifically addressing behavioral advertising with the amendments.

Parental Notice and Consent

The amendments to the Rule require a notice aimed at making it easier for parents to get the most important details about the information being collected. The notice must include:

what information has already been collected
the purpose of the notice
actions the parents must take
description of how the information will be used
a hyperlink to the website privacy notice

Further, in addition to the already approved methods of obtaining consent, operators can now use:

"scan and send" forms
video conferencing consent
government-issued identification
alternative payment systems as long as they meet certain criteria

To encourage the development of new consent methods, the FTC has established a voluntary 120-day notice and comment process so parties can seek approval of a particular consent method. Operators participating in a FTC-approved safe-harbor program may use any consent method approved by the program.