EU Extends Copyright for Sound Recordings by 20 Years

In the European Union, popular music recordings from the 1960’s from acts such as the Beatles and the Rolling Stones were poised to enter the public domain as a result of the expiration of their 50-year copyright term.  In September 2011, however, the European Union voted to extend copyright protection for these works for another 20 years. 

 Perhaps to assuage critics who claim that record labels (and not struggling musicians) will benefit most from the extension, the new EU directive contains a number of accompanying measures to provide balance to individual musicians who may not directly benefit from the copyright extension, including the following:

•  rights to a sound recording may revert to the artist if the record label does not make the recording available for sale to the public (the “use it or lose it” clause);
• a “clean slate” provision that prevents the record label from making any deductions during the extended copyright term from the contractual royalties due to featured artists; and
• creation of a fund, financed by record labels with a percentage of benefits obtained from the copyright extension, for session musicians who signed away rights when a recording was made.

Details as to how some of these measures will be implemented or enforced is not clear from the language of the new directive.  Nevertheless, it seems likely that EU Member States will be expected to implement these accompanying measures in addition to the term extension. 

U.S. Supreme Court Restores Copyright Protection to Foreign Works

On January 18, the U.S. Supreme Court, in a decision watched closely by musicians, publishers, educators, orchestra conductors, upheld a federal law restoring copyright protection to millions of books, paintings, films and musical compositions by foreign artists that were previously in the US public domain.  In doing so, the Court rejected constitutional challenges to the law, holding that nothing in the Copyright Clause or the First Amendment “makes the public domain, in any and all cases, a territory that works may never exit.” 

 The case, Golan v. Holder (docket 10-545), involved a 1994 law enacted by Congress (which became Section 514 of the Copyright Act) to implement certain provisions of the Berne Convention for the Protection of Literary and Artistic Works.  Article 18 of the Berne Convention required member countries to accord other countries minimum levels of copyright protection and treat authors of other countries in the same manner as they treat their own with respect to that protection.  While the U.S. joined Berne in 1989, it did not implement Article 18, in effect, disregarding protection for foreign works.  In 1994, the Berne Convention specifically mandated implementation of Article 18, leading Congress to enact Section 514, which was challenged in Golan.  Section 514 granted copyright protection in the U.S. to foreign works on the same basis as enjoyed under foreign copyright law. 

 Since prior to the enactment of Section 514, the U.S. did not recognize the foreign copyright protection of these works, they were considered to be in the American public domain.  Thus, upholding the application of Section 514, with its equal treatment of works under foreign copyright law, has the effect of providing copyright protection to works that were previously in the public domain.  As noted by Justice Ginsberg, the law merely puts “foreign works on an equal footing with their U.S. counterparts.”

Other provisions of Section 514 take into consideration its impact and attempt to ease transition to the new regime.  In particular:

•  restored works will only be protected until the expiration of the full copyright terms, whether that expiration occurs in the U.S. or in the origin country;
• reanimation of copyright will be limited to only the remainder of the copyright term the work would have been entitled had it never entered the public domain;
•  “reliance parties” who used or acquired a foreign work in the public domain prior to the enactment of Section 514 will be allowed to continue to use the work until the copyright owner gives notice of an intent to enforce; and
• derivative works based on restored or reanimated work must only pay the copyright owner “reasonable compensation” to indefinitely exploit the derivation.

As the Supreme Court noted, unanswered questions remain about how Section 514 will be implemented, but the Court did not consider those questions significant enough to require rejection of the law.  In particular, the treatment of “orphan works” (when the copyright owners of the newly regulated foreign material cannot be identified or located), will likely be among the first issues for Congress to resolve next.

“Termination Rights” To Take Effect in the U.S.        

On January 1, 2013, the controversial “termination rights” provision of U.S. copyright law will be triggered, allowing authors (and their heirs) to begin regaining control of their original works from publishers and record labels to whom the works were previously assigned.  For works assigned in 1978 and thereafter, Section 203 of the Copyright Act of 1976 allows an original author to exercise an option to terminate the existing owners’ rights if 35 years have expired since the assignment. 

The wording of this provision suggests that termination rights are absolute for the original author or heirs, and thus would prevail over any written agreements assigning ownership, even if the agreements state that they are in perpetuity.  There is, however, an important exception for “works for hire,” which are deemed the property of the publisher or record label.     

Termination rights are a particularly hot topic for the music business.  Once a master recording reaches its 35-year mark, it is “game on” for the artists and songwriters who wish to reclaim ownership of qualifying songs from publishers and record labels.  However, it is likely that any attempt to recapture rights will hinge on the language of the applicable contracts between the artists and songwriters, on one hand, and labels and publishers, on the other, specifically whether there is clear assignment language (which would be subject to termination) or “work for hire” language (which would leave ownership of the works with the applicable label or publisher). 

One concern with “termination rights” is the lack of clarity in this provision as it may relate to musicians.  For example, it is unclear who exactly can qualify as an “author” of a sound recording, casting some ambiguity over who can share the rights after they revert.  The law is also murky for non-U.S. artists and whether those artists can exercise termination rights on American recordings.  What is clear, however, is that to enforce termination rights, authors (or their heirs) must comply strictly with the law.  Some of the provisions to be aware of include:

•  a requirement to file termination notices as much as ten years in advance of the effective termination date, but no less than two years before the date an author hopes to recoup their work;
• a provision stating that once a song or recording qualifies for termination, the author has five years in which to file a claim or else the right to reclaim the work relapses;
• a rule that, for works created post-1978 with multiple authors or heirs, a majority must agree to terminate; and
• a caveat that the law only has effect in the U.S., so that a publisher assigned a worldwide copyright will still retain control in foreign markets.

For publishers and other existing owners of copyrighted works who face pending terminations, there are certain considerations to keep in mind:

• time is of the essence to reach out to songwriters or their estates to attempt to negotiate a new deal; 
• if a notice of termination has already been issued, only the current publisher may try to enter into a new deal with the songwriter or his estate before the termination takes effect;
• opportunities may exist for new copyright acquisitions from authors who seek to enforce their termination rights against existing copyright holders, but who may be in the market for a deal with a new publisher; and
• consider whether the “works for hire” exception applies. 

We will keep abreast of developments in these areas, particularly as the new implementation and enforcement schemes are developed.  And we are available to assist any copyright stakeholder seeking to assess how these changes in the copyright law may affect their rights.

**  Betsy Pierce, an associate with the Firm, assisted in the research and drafting of this post.

By way of background on the Hangover case, Whitmill created and applied Tyson’s tattoo in 2003.  At the time, Tyson signed a release acknowledging that Whitmill owned all artwork, sketches, drawings and photographs based on the tattoo.  Whitmill then registered a copyright in the tattoo in April 2011.  Whitmill’s copyright registration suggests that Whitmill registered Tyson’s tattoo, rather than the design for the tattoo, as the copyrighted work.  In the registration, Whitmill described the work as “Artwork on a 3-D Object” and registered it under the category of “Visual Arts”.  The Visual Arts category applies to designs where the work only exists in a single copy or in fewer than two hundred sequentially numbered and signed copies suggesting that Whitmill registered tattoo itself, rather than the design for the tattoo, as the copyrighted work.  This conclusion is further supported by the fact that Whitmill included a picture of Tyson as a copy of the work, rather than a copy of the design on its own.

The design of a tattoo is clearly copyrightable as a pictorial or graphic work under §102(a) of the Copyright Act.  However, the Copyright Act also requires a work be fixed in a tangible medium of expression in order for it to be copyrightable.  The novelty of Whitmill’s copyright claim is that it raises the question of whether a design is copyrightable when the medium in which it is fixed is the face of another person.

Recognizing copyright protection in a tattoo could grant the tattoo artist unintended control over the body of the recipient.  The Copyright Act grants certain exclusive rights to the copyright owner, which, in the case of a tattoo, could be interpreted as a form of ownership over the body and image of the tattoo recipient.  If Tyson changes the tattoo or adds to it without Whitmill’s permission, he could be violating Whitmill’s right to create derivative works.  Similarly, others who publish images or footage of Tyson could be held liable for violating Whitmill’s exclusive reproduction, distribution or performance rights, which may make Tyson liable as a contributory infringer if he authorized these uses of his image.  Because the tattoo is so famous, Whitmill may even be able to get a court order preventing Tyson from removing the tattoo under the additional protections works for works of visual art under § 106A (a)(3) of the Copyright Act.

In its court papers, Warner Bros. argued that, if the tattoo is copyrightable, its use constituted a parodical fair use of the copyrighted work.  Fair use permits certain uses of a copyrighted work without the copyright holder’s permission and, though there are no presumptively fair uses, parody has traditionally been granted broader protection under the fair use doctrine than other protected uses.  Warner Bros. claimed that the film is poking fun at the toughness and outrageous lifestyle manifested in Tyson’s “warrior tattoo” by placing the same tattoo on Helms, who plays a “timid, frightened and milquetoast dentist with a decidedly conservative lifestyle.”

Despite avoiding an injunction which might have interfered with the film’s theatrical release, Warner Bros. still faced the uncertainty of a trial and the possibility of incurring significant and unexpected costs, including the cost of digitally altering the film prior to its home video release.  However, whether it would have actually incurred those costs or ultimately prevailed is now merely an academic discussion as the case was settled.  Details were not disclosed.

In another high profile case, Sony Pictures recently defeated a copyright infringement claim in the Second Circuit Court of Appeals over the copyrightability of blow dryers as weapons in promotional merchandise for the film “Don’t Mess with Zohan”.  Novel claims of copyright protection are becoming more prevalent as developments in technology push copyright law into novel and previously unrecognized forms of expression.  This brings us to the larger concern for content producers–how to ensure that there is an adequate clearing process in place to encompass these newly developed forms of protected expression.

In an earlier post, we looked at the copyright issues raised by motion capture-based games.  Motion capture-based gaming creates one of the first opportunities for large-scale exploitation and monetization of choreographed movement as a separate work.  Whether it is a popular dance, a distinctive martial art sequence or a creative yoga position, in order to incorporate it into a game, the game developer must determine whether the particular movement constitutes copyrightable choreography.  However, copyright law does not provide a clear line between the types of movements that rise to the level of copyrightable choreography and those that do not.  The courts have not provided much additional guidance either.  If the work is copyrighted, the developer must seek the necessary licenses, as it would for the music-based interactive games.  However, unlike in music, there is no established framework for licensing choreographed works, making the game developer’s job much more difficult.

Similarly, if tattoos are copyrightable expression, content producers might have to adjust their clearance processes to make sure they’re obtaining the necessary licenses.  Previously, it may have been sufficient to obtain permission from the individual whose image is being used.  Now, content producers may want to consider whether there might be third party rights in that person’s image before displaying, altering or even making reference to it, as Warner Bros. did with Helms’ tattoo.

On the other hand, content producers have also been using novel copyright claims to protect their rights in the new technologies that have been sprouting up around their content.  Todd Blatt, a mechanical engineer from Baltimore, created a digital replica of a cube featured in the J.J. Abram’s film “Super 8”.  Within 24 hours of uploading the design to a 3D printing website, Blatt had received a cease and desist letter from Paramount claiming that the design violated Paramount’s copyright.  Creating physical recreations of on-screen objects is not a new phenomenon, but new technology makes these replicas more accurate and easier to reproduce, which means there will probably be more litigation to come over who owns the rights in this digital merchandise.

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 monitor these and other ongoing developments in copyright and licensing law to keep our clients informed and protected.

**  Kate O’Donnell, an associate at the firm, assisted in the research and preparation of this post.

In dismissing the State’s arguments that the law was addressing a substantial need of parents which wish to restrict their children’s access to violent games but cannot do so, the Court stated that the ratings of the Entertainment Software Rating Board (ESRB) and video retailers’ efforts in not selling games rated “M” to minors helped ensure that children would not be able to purchase violent video games.   Thus, the “remaining modest gap” that the California law was intended to fill could not be deemed a “compelling state interest” that could overcome First Amendment protection for the games.

The full decision can be found here.  As noted previously, Hughes Hubbard & Reed represented the Entertainment Consumers Association in filing an amicus brief opposing the law.

While the most immediate impact of this litigation may be a delay in the development of iOS applications, there are several potential implications for Lodsys, iOS application developers and Apple. 

The technology at issue is the “In-App purchase” functionality, which allows connection to the App Store on the application’s behalf and secure processing of payments from the user. This is typically used to offer upgrades, subscription renewals and extended features to customers from inside the application and is instrumental in providing supplemental revenue for the application developer after the initial software purchase.  For example, some application developers may offer an initial or trial version of an application for a given period of time or provide free-to-paid subscriptions.

The published Lodsys patent portfolio consists of five issued patents, one of which is currently under Reexamination, and four applications.  While some bloggers contend that the claims of the Lodsys portfolio are directed towards “upgrade” products, this may be an overly narrow reading of the claims.  The claims may be broad enough to be construed to read on a variety of products offered by iOS developers, as well as other platform providers such as Google and Microsoft.  Broad interpretations, however, also leave these patents vulnerable to invalidity challenges.

Another interesting aspect to this dispute is the public nature of the communications.  Before filing the complaint, Lodsys sent letters to numerous iOS developers seeking to engage in a licensing negotiation.  Apple published its response to Lodsys stating that there is no basis for Lodsys’s infringement allegations since Apple is licensed to these patents and the application developers are protected by that license since Apple is entitled to offer these licensed products and services to its customers and business partners, who, in turn, have the right to use them. 

Apple contended that infringement could only be established based on the incorporation of Apple’s own components.  Accordingly, Apple asserts that Lodsys’s threats are based on the purchase or use of Apple products and services that are licensed under the agreement between Apple and Lodsys.  Consequently, Lodsys’s infringement contentions are barred by the doctrines of patent exhaustion and first sale.

Lodsys has been equally public with its contentions.  In addition to the blog posts on its website, Lodsys sent a letter on May 31, 2011 to Apples detailing Lodsys’s legal position on the license interpretation and has granted Apple permission to publish that letter to allow developers to review the dispute and evaluate the risks with their own counsel.  Lodsys contends that the application developers are infringing by not independently securing license rights for their applications.  Lodsys cautioned application developers that those relying on Apple’s letter do so at their peril. 

In an apparent attempt to appease the concerns of application developers, Lodsys has offered to pay $1,000 to each entity that receives an infringement notice in the event Apple’s existing license rights do extend to the application developers on Apple’s iOS.  Lodsys also provides an example of the licensing fee arrangement it is seeking from the third party application developers.  For an application performing an in-application upgrade Lodsys is seeking 0.575% of US revenue over for the period of the notice letter to the expiration of the patent, plus applicable past usage.

With the parties girding for battle, risks abound not only for Apple and the application developers, but for Lodsys as well.  In fact, an online customer satisfaction and marketing company, Foresee Results Inc., has joined the dispute on June 7, 2011  by filing a request  in the Northern District of Illinois for declaratory judgment of non-infringement and invalidity of the Lodsys patents, as well as an injunction to prevent Lodsys from interfering with Foresee Results or its customers.  The filing of this request for declaratory judgment based on the notice letters sent to its customers (Best Buy, WE Energies and Adidas AG) preempts any Lodsys litigation against these parties and allowed Foresee Results to seek resolution of this dispute in a venue of its choosing.  

Given the size of the application developer and merchant communities, and their common interest to avoid litigation, it is possible that the recipients of Lodsys’s letters will band together to pool resources in mounting a defense to the Lodsys portfolio.  The application developers may be in the best position to unearth potentially invalidating prior art given their technical proficiency, while the merchants may be able to bear a majority of the financial burden.  Additionally, or alternatively, the application developers may be able to leverage the invalidity arguments and any prior art asserted in the Foresee Results proceeding in their own defense.  Furthermore, Apple’s interests are aligned with the application developers given that a decrease in application development and sales would adversely affect Apple’s revenue stream.  While it is uncertain at this point what defense strategy Apple and the application developers will employ, their union of common interests provide a variety of options and the potential to combine resources to mount a strong validity challenge.

That challenge could take place in the courts, as evidenced by Foresee Results request for declaratory judgment,  as well as in the PTO.  Requesting the PTO to reexamine the Lodsys portfolio could be an attractive option, but only if the defendants in the litigation could prevail upon the court to grant a stay.  However, the Eastern District of Texas will infrequently stay an action in favor of a pending patent reexamination.  In the event that the Northern District of Illinois were to first find the Lodsys patents invalid, the proceedings in the Eastern District of Texas would likely be stayed pending any appeal from the Northern District of Illinois holding.

During Reexamination claims are reviewed under the lower standard of “broadest reasonable interpretation” and are not afforded a presumption of validity.  Given the breadth of experience that both Apple and the application developers have in this field, it is possible that they would be able to identify prior art which is material to the claims and not previously cited during prosecution of the Lodsys patents, thereby establishing the requisite substantial new question of patentability.  In this regard, the fact that Apple currently holds a license to the Lodsys portfolio does not necessarily indicate that the Apple has done an in depth analysis of the portfolio prior to obtaining the license, or that the patents are likely to withstand a validity challenge.  Furthermore, a licensee can challenge the validity of a patent without first breaching the license agreement.  See MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007).

The application developers may also seek to obtain a license to the Lodsys portfolio.  The 0.575% royalty rate, as advertised by Lodsys, is expressly limited to an “in-application upgrade” embodiment.  Thus, additional licenses and/or higher royalty rates may be required for applications offering additional functionality.  Further, the 0.575% royalty rate may only provide a license to a single patent, though a particular application may necessitate a license to the entire Lodsys portfolio.  Application developers interested in settling or avoiding litigation should consider how a settlement might spur other patent holders to file claims.  Conversely, settling may provide Lodsys a war chest to litigate with competitors.  In any event, looking to Apple for indemnity is likely a fruitless endeavor: in at least one publicly available license agreement, Apple has a limitation of liability of $50 total.

Application developer s working on other operating systems are no doubt watching the litigation intently.  The infringement contentions in this litigation appear to apply equally to other platform providers (e.g. Google, Microsoft) as Lodsys contends that these providers have similar license agreements.  The entire application development community would be well-advised to monitoring the situation closely.

 **  Stephen Kenny, an associate at the Firm, assisted in drafting this post.

Sony is not the first, and unfortunately will likely not be the last, to be subject to such attacks.  To date, the largest data breaches include up to 130 million credit card numbers stolen from Heartland Payment System in 2009, up to 100 million accounts from retailer TJX in 2005 and 2006, and more than 4.2 million credit and debit card numbers from the grocery chain Hannaford Bros. in 2008. Recently, at e-mail marketing firm Epsilon, there was a significant data breach which affected about 50 of its business customers.  And just this week it was revealed that a software flaw may have enabled third party applications operating within Facebook to leak user account information.

These incidents have renewed concerns on Capitol Hill about how companies are responding to data breaches, especially in connection with notifying customers that their information may have leaked.  Both Sony and Epsilon sent written responses to questions posed by a House subcommittee on their handling of the breaches. 

Lawmakers appear to recognize that, although security measures may be in place, they are not always fully implemented. House Energy and Commerce Committee members have questioned whether U.S. businesses are taking the necessary steps to protect their data. According to Pablo Martinez, a deputy special agent in charge of the Criminal Investigative Division at the U.S. Secret Service, in nearly all data breaches, the subject company had not taken reasonable precautions. A 2010 report found that 96% of breaches were, in fact, avoidable through simple or intermediate controls”. 

In determining how to begin drafting a comprehensive and effective bill to regulate data breaches, several lawmakers said they planned to use the Data Accountability and Trust Act (2009)(DATA Act), as their starting point. Although introduced and passed by the House, the DATA Act was put to a vote in the Senate. If passed, the Act would have required organizations holding personal data to maintain security policies and to notify affected consumers after a data breach. It addressed the following three major concerns: information security requirements for personal information in general; information security requirements for personal information for ‘information brokers’; and breach notice obligations.

Although the majority of states have enacted data breach laws, the DATA Act proposed an allowance for civil penalties of up to $11,000 per violation (up to $5 million) and each failure to send the required notification to an affected individual would be treated, under the Act, as a separate violation. The risk of such considerable penalties set forth in the Act would surely encourage compliance. On the other hand, there seemed to appear to be certain clauses within the DATA Act that could have lead to even less breach reporting. With regard to breach notice obligations, the bill required that potential victims of identity theft be notified whenever their electronically stored personal information was exposed. Had it been passed, the law would preempt all state laws (not just state laws that are less stringent or contrary to the Act) and would be the first of its kind. All competing state law standards would therefore be eliminated, ultimately leading to less forum shopping. Furthermore, the standard (“risk of harm”) set forth in the DATA Act falls on the higher end of the spectrum as compared to the standards set forth in some state laws which would most likely lead to less frivolous lawsuits.

A major concern with the DATA Act was that it could only be implemented by the FTC. This was problematic as there are numerous companies and organizations that the FTC does not have jurisdiction over including banks, common carries and nonprofits. In order to be effective and worthwhile, the new bill will have to be drafted so that it is not only enforceable by the FTC but by other governmental entities as well. Other apprehension stemmed from the fact that the bill provided that breaches would not have to be reported if the organization in question determined that “there is no reasonable risk of identity theft, fraud, or other unlawful conduct”. The bill also granted an exemption if the breached information was encrypted or protected by any other technologies that, according to the FTC, renders data unreadable.

As expected, lawsuits over the Japanese electronics giant’s breach have started to come out of the woodworks. The first suit came a day after Sony acknowledged the breach. The complaint, filed in the Northern District Court of California, alleges that Sony failed to take “reasonable care to protect, encrypt and secure the private and sensitive data of its users” which prevented PlayStation Network users from being able to “to make an informed decision as to whether to change credit card numbers, close the exposed accounts, check their credit reports, or take other mitigating actions”.  The suit seeks monetary compensation and free credit card monitoring.

A second suit, which claims damages in excess of $1 billion (Canadian dollars), was filed by a Toronto-based law firm on behalf of a 21-year-old plaintiff and names Sony Japan, Sony USA, Sony Canada and other Sony entities as defendants.

The aftermath of these recent incidents may prove to be a useful lesson and may expedite the development of better security technology and practices in the private sector and perhaps even force Congress and the FTC to finally pass a bill that will afford sufficient protection to consumers’ personal data.  We will continue to monitor the ongoing developments in privacy and security legislation and its potential impact on our clients.

OpenLogic reviewed 635 leading mobile Apple iOS and Google Android apps in a license compliance assessment.  The results show that about 10 percent of the apps contained code that was subject to an open source license (either the General Public License, Lesser General Public License (GLP/LGPL) or Apache license), and over 70% percent of these were apparently using the open source code in a manner that violated key obligations required by the open source licenses. 

While certain of the violations found by OpenLogic related to requirements for attribution and/or provision of copies of the underlying open source license with the new works, in certain instances some of the apps may have required the developers to provide the source code for the app itself (that is, the open source code caused the app to go “viral”).  OpenLogic did not identify specific apps in its review but states that it targeted the “top paid and free apps for iPad, iPhone and Android across a variety of categories,” including apps from the top 20 companies in the Fortune 500.  The apps at issue included banking, sports and game applications, as well as apps from household brands and media organizations.

Perhaps this result isn’t surprising.  Many developers–and the publishers that retain them–often don’t have a complete understanding of the open source license requirements and how they may impact the actual use of the code in a specific app.  Other confusion may arise from the proliferation of outsourcing or the inadvertent bundling of original source code with protected source code.  Even when developers were aware that their app contained open source, the End User License Agreements or documentation accompanying the apps may not have been properly drafted to fully comply with the open source license requirements.

It is unclear what the ultimate impact of these findings will be.  Violation of an open source license can form the basis of a copyright infringement claim (exposing the entity using the code to statutory damages, as well as the possibility of an injunction).  Jacobsen v Katzer, an open source copyright infringement case, established that violators of open source software may be subject to claims under copyright law, including statutory damages up to $150,000 per infringing work and injunctive relief.  Injunctive relief was granted in Software Freedom Conservancy, Inc. and Erik Anderson v Best Buy Co., Inc. et al., a case where the defendant allegedly sold and distributed electronic products embedded with firmware that contained either a copy or derivative work of the plaintiff’s open source software, BusyBox, without complying with the open source license.  In addition to awarding treble statutory damages ($90,000) for willful copyright infringement and attorneys’ fees and costs, the court entered a permanent injunction against the defendant prohibiting distribution of its infringing HDTVs and ordered the forfeit of infringing HDTVs in its possession to the plaintiff, to be donated to charity.

While it is difficult to assess the litigation risk in the app space, a more critical concern for commercial application developers is the potential diminution of value that might result from the use of open source code (i.e. non-proprietary components) that might be included in their apps.  Strategic partners or potential acquirers might become concerned about hidden claims (either with respect to ownership of the app or for violation of an open source license).  Prudence would seem to compel developers and publishers to carefully scrutinize the code being incorporated into newly-developed apps and gain mastery over any open source license requirements.

As we suspected, the response from the entertainment community has been swift, and the company has since received a barrage of cease and desist letters from television networks, movie studios, sports leagues, broadcasters, syndicators and others in the entertainment industry alleging that the operation of the service as currently conducted amounts to copyright infringement. In response, the company has now filed a complaint for declaratory judgment in Seattle district court alleging that by complying with the Act’s compulsory licensing scheme in Section 111 “it has not infringed any of the copyrights owned by the any of the Defendants.”

We will obviously keep an eye on future developments as this complaint now moves its way through the court system and the entertainment industry’s forthcoming response.

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.