We had previously written about the original sanction order, in which the FCC found that Comcast had violated the non-binding net neutrality principles by examining users’ connections and routing them (in actuality, slowing them down) based on whether the connection was being used for P2P uploads.  In effect, Comcast was managing traffic connections not based on destination but on application.  Comcast appealed the ruling, asserting that the FCC did not have the appropriate authority to issue the sanction.

The Circuit Court’s decision rested, in large part, on where the regulations governing ISPs fall within the provisions of the Communications Act.  In 2002, the FCC defined ISP services as “information” carriers, subject to Title I of the Communications Act, rather than as “telecommunications” services governed by Title II.  That distinction proved fatal to its attempt to sanction Comcast. 

FCC itself conceded that it did not have the express authority under Title I to regulate an ISP’s network management practices.  The FCC was therefore compelled to rely on the broad provisions of Section 4(i) of the Act, which authorizes the Commission to “perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions.”  Under prior DC Circuit precedent, this “ancillary” authority may only be used if the FCC can demonstrate that its action, is “reasonably ancillary to the effective performance of its statutorily mandated responsibilities.”  The FCC relied on several Congressional statements of policy to show that regulating Comcast and other ISPs was within its “statutorily mandated responsibilities.”  But as the appeals court decision pointed out, Supreme Court and DC Circuit case law has held on numerous occasions that such statements of policy cannot create “statutorily mandated responsibilities.”  The Court went on to reject the FCC’s claim of “ancillary authority” and vacated the sanction order against Comcast.

So where does this leave the FCC’s net neutrality initiatives?  Several proponents of expanded FCC authority have suggested that the FCC reclassify ISPs as “telecommunications” services under Title II of the Communications Act.  Title II expressly makes it unlawful for common carriers “to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service”.  Such language would appear to provide solid footing for implementing and enforcing the net neutrality principles.

Indeed, immediately after the DC Circuit’s decision was handed down, FCC Commissioner Michael Copps released a statementurging the FCC to reverse its earlier 2002 determination and treat ISPs as telecommunications services saying “It is time that we stop doing the ‘ancillary authority’ dance and instead rely on the statute Congress gave us to stand on solid legal ground in safeguarding the benefits of the Internet for American consumers.” 

Congress may yet get into the action as well.  Last August, the Internet Freedom and Preservation Act of 2009 was introduced.  The Act expressly makes it unlawful to block, interfere with, discriminate against, impair, or degrade” access to any lawful content from any lawful application or device.”  However, no action has been taken on the bill since its introduction.

Stay tuned.

In its complaints against Smokewood Entertainment Group (the producers of Precious) and Cinetic Media, Inc. (which negotiated with The Weinstein Company on behalf of Smokewood), Weinstein Co. stated that several of its executives met with Cinetic and Smokewood during the 2009 Sundance Film Festival.  The complaint goes on to allege that on January 27, 2009, two days after Precious won three prestigious awards at the festival, Cinetic offered the distribution rights to Precious to Weinstein Co. provided that Weinstein Co. agree to several specific terms.  Weinstein Co. claims that it promptly and “unequivocally” accepted the deal.  Weinstein Co. also claims that Cinetic promised that it would provide the written licensing and distribution agreement detailing the terms of the deal. 

In an e-mail exchange with Cinetic regarding the delay the written agreement, Weinstein Co. indicated that it was “glad to confirm” the deal.  In response, an executive with Cinetic neither confirmed nor denied the deal but said that he was “explaining every detail” to the producers.  A few days later, on February 2, Smokewood and Cinetic announced an agreement with Lions Gate to distribute Precious.

On February 4, 2009, Weinstein Co. filed three separate suits in New York: one against Lions Gate, one against Cinetic, and one against Smokewood for breach of contract, alleging that Weinstein Co. had obtained the exclusive right to distribute the film.  (The Smokewood case was removed to Federal court on March 4.)  Smokewood responded with a motion to dismiss for failure to state a claim.  In response, Weinstein Co. filed an opposition to Smokewood’s motion asserting, amongst other things, that Weinstein Co. had acquired an exclusive license to distribute the film through either oral negotiations with Cinetic or the January 27th e-mail exchange.

In late September, District Judge Naomi Reice Buckwald ruled against Weinstein Co.  Specifically with regard to the claim of an exclusive license to distribute based on an oral agreement, the court held to the traditional rule that a writing signed by the copyright holder is required to transfer ownership interests, including an exclusive agreement for distribution rights.  The court also found the e-mail exchange, submitted by Weinstein Co. as evidence of an agreement, failed to meet the statutory requirements to transfer distribution rights.  The court noted that the intention of the copyright owner to transfer ownership interests “must be clear and unequivocal”  In this case, the court found that the friendly e-mail exchange did not endorse Weinstein Co.’s e-mail statements regarding confirmation of the deal and fell far short of the required unequivocal written intent to transfer.  In an attempt to bolster its case, Weinstein Co. asserted that it is entertainment industry custom to negotiate distribution agreements orally then follow-up with a note confirming the agreement.  But the court was unimpressed and remarked that “Congress did not exempt parties in the film industry from the requirements of the copyright act.”

It is also important to note that the court left open the possibility that an agreement involving a non-exclusive license to copyrighted material does not require a writing.  However, the court indicated that an “implied non-exclusive license” can be found only in a circumstance where one party created a work at the request of another and then delivered the work to the requesting party with the intent that the requesting party copy and distribute the work.  The court found that the facts alleged in this case did not warrant a finding of an implied non-exclusive license because Weinstein Co. clearly stated that negotiations for distribution rights began after Precious debuted at Sundance.

The court’s decision is consistent with many cases emphasizing the importance of protecting copyright interests through signed writings manifesting the clear intent of the copyright holder.  While the decision in this case, like all others involving copyright disputes, was based on its specific–and perhaps unique–set of facts, the lesson to be drawn is still useful.

*  Stuart Mitchell, who recently joined the Firm, assisted in the preparation of this article.

When it initially purchased Skype, eBay attempted to purchase Joltid as well but Friis and Zennstrom refused to sell, wanting instead to retain the intellectual property rights in GI.  They also refused to sell or directly license the GI source code to eBay.  eBay therefore purchased Skype subject to a license agreement for the GI code between Skype and Joltid.  That decision appears to be coming back to haunt eBay.

According to Friis and Zennstrom, the license agreement granted Skype the right to use an executable-only form of the GI code, known as the object code, which is un-editable.  Skype did not obtain any rights or license to the source code of the GI software.  This arrangement worked so long as Friis and Zennstrom remained with Skype because they were authorized to use and tinker with the GI source code.  However after their departure in 2007, Friis and Zennstrom began challenging eBay’s use of the GI technology, claiming that Skype (at that point owned by eBay) obtained unauthorized versions of the GI source code and breached the terms of its licensing agreement by continuing to modify and create derivatives of the source code.

In March of this year, Skype filed a claim in a U.K. court asking for declaratory relief and a finding that it is lawfully accessing, in possession of, using and modifying the GI code in accordance with the terms of the agreement.  Joltid disagreed, terminated the license agreement and filed defenses and counterclaims against Skype alleging that Skype had repudiated the license agreement, infringed upon Joltid’s copyright, and misused confidential information.  The case is scheduled for trial in June 2010.

A few weeks ago, Friis and Zennstrom opened another front in the dispute by filing a lawsuit in Northern California U.S. District Court against eBay that also names the investors as defendants.  These investors include private-equity firm Silver Lake, venture-capital firms Index Ventures and Andreesen Horowitz and the Canada Pension Plan Investment Board.  The suit claims that the investors were aware of Skype’s copyright violations during negotiations of the deal and seeks an injunction on Skype’s use of the GI technology in addition to damages and profits that Skype has made while using the technology in breach of its license. Such damages are allegedly “amassing at a rate of more than $75 million daily”.  The pair also filed another lawsuit shortly after which alleges that new software being developed by Skype incorporated confidential information that was misappropriated by a former executive at one of Friis and Zennstrom’s companies who recently joined Index Ventures, part of the investor group paying $1.9 billion for Skype.

With the benefit of hindsight, many have wondered why eBay would have paid $2.6 billion for Skype without better securing rights to its underlying technology in a manner that would not be interrupted.  While the precise reasons eBay structured the deal in this manner may not be clear, the opportunities it missed to protect itself are apparent.

First, by allowing Joltid to retain rights to the GI code, eBay’s use of the code was subject to the restrictions and limitations that Joltid and Friis and Zennstrom placed on such use as set forth in the license agreement. 

Additionally, without obtaining rights to the source code, eBay was at the mercy of Friis and Zennstrom, the two individuals who understood how the GI code functioned.  While eBay likely felt that having Friis and Zennstrom on its payroll would mitigate any concerns, perhaps additional thought should have been given to what would transpire if and when Friis and Zennstrom were no longer affiliated with eBay.

eBay also apparently did not acquire sufficiently clear rights to develop derivatives and modifications of the GI technology.  Therefore, any next generation versions of the GI technology that eBay wished to develop would have been subject to the restrictions of the original license agreement, including the rights that Joltid, Friis and Zennstrom had in the technology and source code.

While the intrigue and tangled nature of this dispute are in many ways unique, the lesson is clear: the treatment of IP rights in an M&A transaction involves consideration of multiple factors, contingencies and interests.  Careful and deliberate analysis of possible future scenarios–however likely or unlikely–is necessary to avoid losing the competitive advantage that is one of the foundations of the underlying transaction.

The suit, originally filed in 2001 by several labels owned by Sony BMG, including Arista, Bad Boy and Zomba, alleged that LAUNCHcast, a webcasting service run by Yahoo’s Launch Media unit, which enables users to create “stations” that play songs within a particular genre or similar to a particular artist or song, violated provisions of the DMCA that required payment of licensing fees for the use of sound recordings in an “interactive” service.” 

The DMCA defines an interactive service as one “that enables a member of the public to receive a transmission of a program specially created for the recipient, or on request, a transmission of a particular sound recording . . . which is selected by or on behalf of the recipient.”   The provision was intended to distinguish individual playbacks from transmissions “whose primary purposes . . . is to provide to the public such audio or other entertainment programming.” 

That distinction was critical.  The DMCA requires payment of royalties, based on a negotiated license, to the owner of a sound recording (in most instances, a record label) for use in an interactive service.  For non-interactive services, webcasters need only pay a compulsory or statutory licensing fees set by the Copyright Royalty Board, which are considerably lower than individual, negotiated license fees. 

The rationale behind the differing licensing schemes was to protect the recording industry from lost sales.  As the Second Circuit stated “If the user has sufficient control over the interactive service such that she can predict the songs she will hear, much as she would if she owned the music herself and could play each song at will, she would have no need to purchase the music she wishes to hear.” 

In affirming the jury’s finding that LAUNCHcast’s service is not “interactive” under the DMCA, the Second Circuit analyzed the functions and features of the service itself, focusing on whether a user can receive a transmission of a program “specially created” for him or her.  For the Court, the key issue was “predictability”–to fall within the provisions requiring payment of a sound recording license fee, a service must provide “a degree of predictability-based on choices made by the user-that approximates the predictability the music listener seeks when purchasing music.”  The appellate panel found that the LAUNCHcast service does not provide sufficient control to users such that the playlists selected are so predictable that users will choose to listen to the service instead of purchasing music. 

The court reached that conclusion based on three primary factors.  First, the rules governing what songs are pooled in a playlist ensure that the user has no ability to control–much less predict–which songs are pooled for selection.  The panel noted that at least 60% of the songs are generated by factors entirely beyond the user’s control. 

Second, the service’s rules prevent a user’s explicitly rated songs–presumably the ones he or she wants to listen to–from being anywhere near a majority of the songs on a playlist.  At a minimum, 20% of the songs are unrated.  In addition, when a user rates a particular song, the service “implicitly” rates all the other songs by that artist, subjecting the user to many songs the user may never have heard or may not like.

Lastly, the court noted that LAUNCHcast randomly orders playlists–taking into account the DMCA’s restrictions on the consecutive play of artists or albums–further restricting the user’s ability to choose artists or albums they wish to hear.

The court concluded that the only thing a user can predict with certainty is that by rating a song at “zero” the user will not hear that song on that station again.

The decision is significant for several reasons.  It is the first time a federal appeals court has undertaken a careful, detailed and well-reasoned analysis of the DMCA’s provisions related to sound recording performance rights.  The decision clearly sets forth the rationale for the different licensing schemes for web transmission of music established by the DMCA, removing a considerable amount of uncertainty to webcasters and others who feared that their business models might be in jeopardy if they faced additional licensing fees.  And it parsed the features and functions of the LAUNCHcast service.  In doing so, the court has provided significant guidance on the legal, business and technical fronts which may enable future growth and innovation in the space.

This is yet another in a long list of cases brought by former athletes from the NFL, MLB, and NCAA seeking limits on the right to exploit players’ likenesses. In fact, just last year, a number of retired NFL players won a class action lawsuit against the NFL Players Association, arguing that the union conspired with Electronic Arts to use their likenesses in the Madden video game series without proper compensation, in which the retired players earned a $26 million settlement.

This time around, the league itself, not the union, is being sued by retired players who are challenging the exploitation of their images, names and likenesses in connection with the promotion of the league and the packaging, advertising and sales of products distributed by NFL Films–a division of NFL Properties which produces feature films, commercials, television programs, and documentaries on the NFL.

Each side is now preparing to do battle over both the scope (how broad) and term (how long) of the rights the players granted the NFL in the standard form player contracts and the corresponding collective bargaining agreements. The case will no doubt hinge on good old fashioned contract analysis and whether the NFL’s exploitation of the players’ likenesses falls squarely within the four corners of the documents. According to the players’ lawyer, “During [the players’] time in the league the players’ contracts gave the NFL authority to use their names and pictures for publicity and promotion in news, television and motion pictures, but they included no perpetuity clauses.” The players’ attorney also stated that beginning in 1993, the NFL’s collective bargaining agreement with the NFL Players Association altered the standard form player contract to contain broader rights to use the players’ names, images, and likenesses, apparently plugging the loophole.

The court’s contract analysis will have its own share of intricacies. First, the statute of limitations for right of publicity violations and other contract-based claims will bar a considerable amount of the alleged infringements and possibly reduce the amount of the “fair share of the revenue the NFL has earned”, which the players demand in their complaint. Second, the provisions granting the NFL a license to the players’ images, names, and likenesses may not have expired when the individual contracts themselves expired, as the plaintiffs claim, since the license grants incorporated therein may have been perpetual or drafted to survive any termination or expiration of the contract.

The court will also have to address another thorny issue.  Specifically, even if the players granted the NFL a perpetual license to their likenesses, was that grant broad enough to encompass distribution across platforms and media, such as the internet, wireless devices, and other technologies that did not exist at the time the grants were made?  This is an especially tricky issue because the grants were made in connection with what amounts to the players’ employment or services agreements with the league.  

We will keep an eye out for developments in this case which, regardless of its outcome, will likely provide useful and interesting guidance on drafting similar license grants in the future.

The program enables individuals and companies to register a Facebook URL with an address format of www.facebook.com/[username].  Applicant for usernames are generally allowed to choose them freely, without need to prove any connection or ownership to the name itself.  This wide-open nature raises potential concerns for intellectual property rights holders, particularly trademark owners, worried about unauthorized use of their trademarks in connection with the service. 

Facebook has sought to maintain as much of control over the usernames as possible, including the right to remove or reclaim a username at any time for any reason.  This strong proactive stance is probably partially motivated by a desire to preempt and prevent widespread buying or selling of usernames, and the cyber-squatting practices that follow.  (Such concerns are not unfounded; Facebook usernames are already up for sale on Assetize, an online website specializing in the buying and selling of online accounts.)

But back to the ownership issue–Can Facebook actually “own” a username that contains a registered and widely used trademark owned by someone else?  And if Facebook “owns” the username, what happens when a trademark owner seeks to register the username containing its mark?  Is “ownership” (i.e., title) to the username conveyed?  Or does Facebook license the username?  Take for example the username “facebook.com/burgerking”.  As of the date of this posting, Burger King has not yet registered the username, but if it does choose to register it, is it accurate to say that Facebook is transferring ownership over the username to Burger King?  Or is it licensing it?  Either way, how can Facebook transfer to Burger King something Burger King already owns?

Also, Facebook claims that when a Facebook account is cancelled, that account’s username will not become available to anyone else.  If Burger King registers for the user name, and then cancels it, can Facebook prevent Burger King from re-registering the user name if it later changes its mind?  In the end it is not clear or likely that Facebook can legitimately assert power over trademark holders when it comes to the use of their trademarks in the Usernames program. 

Facebook’s terms of service do not help to clarify the matter.  They make no mention of the Usernames program.  On the other hand, Facebook’s “Help Center” does have a section devoted to answering common questions about the program.  When the program was launched, the Help Center materials contained a few scant paragraphs of information.  Since that time, it has become much more developed, but that initial lack of clarity exemplifies the legal ambiguity with which the initiative got off the ground.  The uncertainties surrounding the Usernames program may be of particular concern for businesses in light of their increasing reliance on Facebook as an avenue through which to connect with customers (and concerns about businesses’ dependence on Facebook are not new).

We will eventually see if Facebook’s experience with the Usernames program proves a cautionary tale as to the pitfalls of rolling out new programs without fully anticipating the potential legal issues.  As the Username feature develops and more companies become aware of it, Facebook may see both disputes and angry markholders multiply. 

This may turn into yet another cyber-battleground over trademarks.  Numerous trademark infringement claims have been brought against Google in connection with its search ad business.  The claims are based on Google’s sale of trademarked keywords through its AdWords program.  In large part, the plaintiffs have asserted that such sales constitute trademark infringement because consumers could be confused by links to competitors’ ads that pop up alongside a search for the plaintiff’s marks.  While Google suffered a litigation setback in April when the Second Circuit reversed a dismissal of a suit brought by Rescuecom Corp., two separate actions against Google, one by Daniel Jurin and the other by Ascentive LLC, were both recently dismissed.

We will continue to monitor these matters and keep an eye out for developments.  In the meantime, our group would be happy to discuss any specific questions you might have about the impact of Facebook’s Usernames program on your trademark portfolio and help you develop strategies to protect your intellectual property rights.

*  We would like to thank Yoshinori Sasao, a summer associate at the Firm, who assisted in preparing this article.

The question of retroactive licensing has been considered in a number of district court cases, however, Daviswas the first time the issue had been considered by an appellate court.  The case centered around two songs written by Mary J. Blige, Bruce Miller and others, all of whom were defendants in the case.  The plaintiff, Sharice Davis, claimed that Blige’s songs infringed her copyright in two songs she co-authored with Bruce Chambliss, the step-father of Blige and father of Miller.  Miller however, claimed that Chambliss, who was not a party to the case, wrote the disputed compositions on his own and orally agreed to give all rights in the music to Miller.  However, the crux of the case turned on a written agreement between Miller and Chambliss, created two days before Chambliss’ first deposition.  The agreement purported to retroactively transfer all rights in Chambliss’ works to Miller from the date of their composition.  This would make Miller a co-owner in the two disputed compositions and validate the licenses he gave to Blige to use the works.  If the Court of Appeals had upheld the agreement, as the District Court did, Davis would have lost all of her claims for past infringement against the other defendants. 

The Second Circuit overturned the District Court decision, holding that a co-author cannot immunize a third party for past infringements by retroactively issuing a license for the infringed work.  To support its decision, the Court of Appeals used the property theory of joint tenancy as a model for the rights of copyright co-owners.  Each copyright co-owner had independent rights to use and license the work, subject only to a duty to account to the other co-owners for any profits that are made.  A co-owner can only convey as much as he possesses and cannot, therefore, transfer or assign the rights of other co-owners.  The court held that a retroactive transfer would effectively allow a co-owner to assign away another co-owner’s right to sue for accrued infringements.  While Chambliss could release Miller and the others from liability from him for past infringements, he could not transfer or assign any rights Davis had against the defendants for accrued causes of action. 

By holding that licenses can only be issued prospectively, the court drew a line between a co-owners right to sue for past and future infringements.  A copyright co-owner can unilaterally issue a non-exclusive license which prevents a co-owner from suing the licensee for any future use.  However, a co-owner cannot issue a retroactive license that would prevent a co-owner from suing for infringements that have already occurred.  This holding, the court believed, provides certainty for co-owners dealing with infringement actions and discourages infringement by ensuring that retroactive licenses aren’t used to lower the cost of infringement.   

In Sybersound, the Ninth Circuit dealt with the question of a co-owner’s right to license their copyright from a different perspective.  Where Davis dealt whether a co-owner could unilaterally issue a retroactive license in order to cure past infringements, the question in Sybersound was whether a co-owner can unilaterally grant an exclusive license that gives the licensee co-ownership in the copyright. 

Sybersound had brought claims of infringement against five of its competitors in the karaoke industry for allegedly infringing Sybersound’s copyrights in nine songs.  Sybersound had acquired its rights in these songs by way of agreement with TVT, a co-owner the copyrights along with other publishing companies.  The agreement stated that TVT was making Sybersound the “exclusive assignee of TVT’s copyrighted karaoke use interest and of TVT’s right to sue,” purportedly making Sybersound a co-owner in the copyright.  The Ninth Circuit held that the agreement was invalid because TVT could not exclusively assign what it did not exclusively possess.  TVT was only a co-owner of the copyright, and therefore, “as a co-owner of the copyright, TVT could not grant an exclusive right interest.”  For Sybersonic to acquire an exclusive license, each of the co-owners of the copyright would have to agree to the transfer.  Since TVT could only unilaterally grant a non-exclusive license, Sybersonic did not have standing to sue and the infringement claims were dismissed.    

It had been a common practice in the media industry to obtain licenses after the fact.  However, after Davis, that practice has become much more uncertain.  The Sybersound decision might have a dampening effect on similar transactions as it seemingly makes it impossible for a copyright co-owner to grant an exclusive license of his proportional share in a copyright without the consent of his fellow co-owners.   

Left undiscussed in these decisions was the issue of the representations made by the co-owner of the copyrights in the underlying license agreements.  One can assume that the licensees sought and obtained a representation that the licensors had the authority to grant the underlying rights and that use by the licensee of the copyrighted works would not infringe or violate any third party’s rights.  Obviously these rulings have rendered those representations false, exposing the co-owners to potential claims under the license agreements, including claims for indemnification.

In confronting the commercial landscape created by these rulings, it is critical for licensees to carefully consider the rights they are obtaining in copyrighted works with multiple owners, particularly when rights are being granted on a retroactive or exclusive basis, to ensure that they will be able to exploit the rights as intended.  For copyright co-owners, it is important that any representations they make be tailored to reflect their limitations on the rights they can grant so that they are not promising more than they can deliver.

Our New Media, Entertainment and Technology practice group has extensive experience assisting our clients in understanding and analyzing the impact of new developments in the law on the design, development, implementation and operation of their respective business initiatives across all new media platforms, and we will continue to stay apprised of and routinely report on further developments in the treatment of co-ownership by the courts in this regard.     

* We would like to thank Kate O’Donnell, a Summer Associate at the Firm, for her assistance in preparing this article.

The ruling came in a class-action against Simon & Schuster.  Laci Satterfield, the class representative, claimed that an unsolicited text message sent by Simon & Schuster to her son’s cell phone, which promoted the Stephen King novel, appropriately entitled Cell, violated the TCPA, which prohibits individuals from making calls using any automatic telephone dialing system (”ATDS”).

Back in 2004, Satterfield signed up for a free ringtone from Nextones.com, at the request of her six-year old son. In order to receive the ringtone, Satterfield had to click through many sign-in pages and consent to a general terms of use agreement, and ultimately opted-in to receive promotions from Nextones and its “affiliates” and “brands” (next to the opt-in box was a “warning” that the free ringtone may not be available if the user did not opt in to such promotions).  However, Satterfield claimed she did not believe she was consenting to receive text messages by agreeing to receive promotions from Nextones or its affiliates.  A year later, Satterfield received a text message from Simon & Schuster, advertising its publication of Stephen King’s novel. 

The District Court, without ruling on whether a text message constitutes a “call” under the TCPA, initially granted summary judgment for Simon & Schuster, holding that it had not used an ATDS and that Satterfield had consented to the message.  On appeal, the Court of Appeals reversed and remanded the District Court’s decision in a three part holding which concluded that (1) there was a genuine issue of material fact as to whether the system used by defendants constituted an ATDS, (2) text messages fall within the scope of TCPA’s regulation of “calls” and (3) Satterfield had not provided express consent to receive the promotional text messages. 

The primary focus of the Court’s decision was the one issue the District Court did not address, namely, whether a text message constitutes a call under the TCPA. The Ninth Circuit first noted that TCPA was designed to “regulate the use of an ATDS to communicate or try to get in communication with any person by telephone.”  The purpose was to protect the privacy of individuals from the invasion posed by an ATDS.  The FCC had previously stated that text messages did fall within the purview of the TCPA’s wording “to make any call.” Since the FCC inclusion of text messages was a reasonably included within a regulation of telephone communication, and was not contrary to the purpose of the statute, the Court deferred to the FCC’s decision (as well as examined the broadest dictionary definition of the word “call”). 

The Court also held that Satterfield had not expressly consented to receive the text message when she consented to receive promotions from Nextone affiliates and brands.  The Court noted that express consent must be “clearly and unmistakably stated,” which it found was not the case here, given that Satterfield agreed to receive promotions from Nextones, not Simon & Schuster.  The Court determined that Simon & Schuster was not an “affiliate” of Nextones, since Nextones neither owned nor controlled Simon & Schuster, and did not consider them a subsidiary. 

Given that text messages fell within the TCPA and Satterfield had not consented to the text, the case was remanded for consideration whether the equipment used by Simon & Schuster had the requisite capacity to be considered an ATDS.    

While this ruling is not a final determination of this issue, and the battle in court will continue, it raises quite a few interesting issues and questions to navigate.  Notably, this ruling will have a significant impact on any business that plans to run a promotional campaign via text messaging – such entities must ensure that any such promotion will be compliant with all applicable laws and regulations, including the consistently evolving standards that favor consumer protection and privacy.

In addition, Simon & Schuster’s exposure is noteworthy.  While the Court ruled that Simon & Schuster could not take advantage of Nextone’s defense based on “consent”, it may still be liable as the source of the text, sent via Nextone’s marketing partner, which was also named as a defendant.

The lesson for entities like Simon & Schuster seems to be that they must take heed when entering into similar types of arrangements to ensure that agreements with marketing companies include the appropriate protections (e.g., representations and warranties, indemnity obligations, etc.) to avoid financial exposure.  The ever-evolving interpretation of existing statutory and regulatory schemes makes such prudence vital, especially when launching initiatives involving new technologies or existing technologies in a new way.

We will keep an eye on the progress of this and similar cases to keep our clients informed and protected.

*Special thanks to Kathleen O’Donnell for her assistance in preparing this article.

While consumer DVRs have been used for years, Cablevision sought to launch a service for the remote storage of shows recorded by consumers.  Cablevision’s argument in favor of such service was that, as long as consumers were still in control of the recording, playback and deletion process, the location of the hard drive on which the content was stored didn’t matter.  Broadcasters disagreed, however, claiming that by archiving and retransmitting the content, Cablevision was engaging in copyright infringement.

A district judge initially agreed with the broadcasters and, in March 2007, entered an injunction preventing Cablevision from rolling out its program.  Cablevision appealed and in August 2008, the Second Circuit reversed the district court ruling in a sweeping opinion.  The circuit court found that, while Cablevision employed a 1.2 second storage buffer, that “embodiment” of the work was only transitory and failed to constitute copyright infringement.  The circuit court also found that Cablevision did not own the copies on its servers, which were controlled by the users and therefore fell within the scope of the fair use doctrine.

The Supreme Court’s denial of cert brings to an end the litigation.  Cablevision announced that it plans on beginning a roll-out by the end of the summer.