For an update from an article presented by Martin Medeiros at the annual Oregon Law Institute Business Law program. Click Here
For an update from an article presented by Martin Medeiros at the annual Oregon Law Institute Business Law program. Click Here
Originally posted on December 26, 2006
by Tichelle Sorensen
This depends on what you are posting or offering. Most website Terms address the following basic categories of information:
Introductory information and site overview.
The date of the last update.
Account specific terms (such as payment of fees and technical support.)
Intellectual property notices, and policies for compliance with the Digital Millennium Copyright Act.
Licensing information and conditions.
Warranty information and any service or product guarantees.
Disclaimers and limitations of liability.
General and technical rules and regulations for use of the site content and, if applicable, services.
Legal terms, such as governing law.
However, the content of each website should be carefully evaluated for compliance with specific legal requirements and risk.
Is necessary to read the Terms for every site?
Terms are usually framed as a contract between the company operating the website and the user, so it is always recommended. Additionally, there are circumstances where reviewing the Terms is especially important, including the following (1) any time you are relying on the information obtained from the site to be accurate; (2) if you are posting content, or using any content posted on the site; (3) if you are accessing any services or tools available on the site; (4) when any of your personal information or is collected by the site; and (5) whenever you are paying for the services or products offered on the site.
What if a site does not have Terms posted?
Originally posted on December 26, 2006
By Martin Medeiros 
Never before has the power of production and distribution of intellectual property been so great, and the related costs so low. The Internet is the distribution tool for the masses. This does not mean, however, that legal principles have been thrown out the door. Indeed, the intent of the founding fathers of America, and the western concept of intellectual property law that was forged on the anvil of Medieval Europe is almost identical to the one today. The facts have changed dramatically, and are much more interesting, but the right to incentives for a creative class of citizens is the hallmark of intellectual property.
There are important concepts regarding the choice of content such as using images of others, portrayal of images, libel, slander, defamation, privacy and its expectations and obscenity. All of these concepts are not addressed in this article, which is intended to be a brief discussion of the area of law.
A number of cases applying these new, fast-evolving facts are making this area of the law interesting although, perhaps, confusing to some producers and distributors as old laws, new laws and new facts collide. This distinction and many others, govern the nexus between copyright law and the Internet.
1.0 What is Covered by Copyright
Copyright exists the moment expressive ideas are affixed in tangible form. These tangible forms (such as writings, recording, still photographs and motion pictures) confer on the creator six exclusive rights: the rights to copy, make derivative works, display, perform, distribute and to perform audio works digitally.
The enabling right is found in the first part of the United States Constitution. The essence of the copyright law is exclusivity of control over one’s content. First, one should know what is protected. While ideas are not protected in copyright law, facts and ideas may be protected on free speech grounds under the First Amendment. Registration with the U.S. Copyright office affords various benefits, among them, it creates a presumption that the work is that of the registrant, allows more financial recovery in the form of damages and legal costs, and permits the Customs Service to seize infringing goods before they enter the stream of commerce.
2.0 Contracts Matters
2.1 A Bundle of Rights. In copyright law, well-drafted contracts can trump many ambiguous common law or statutory rights. We should think of the copyright as a bundle of rights that can be sold or licensed one at a time. A contract that conveys limited rights to the various “sticks” in the “bundle” of rights given to you at law is called a “license.” Gone are the days when copyright applied only to books, maps and charts, as in the formative years of the United States of America. Now, this bundle of rights has increased by statute to include motion pictures, sound recordings and, most recently, digital rights. Effective agreements must address all of the various rights in modern productions, such as synchronization rights, performance rights and others. The issue of what rights are conferred is important as some are afforded copyright protection, and others are not. There is a misconception that all rights are implied in a contract.
2.2 Some Limits to a License. A similar misconception is that general music licenses include synchronization rights to images and even different audio works. When you use music from others, you must know how you are permitted to use it. Litigation can result if the rights licensed are not clear. Synchronization licenses typically address two separate elements: permission to reproduce the music in connection with a particular visual work (e.g., a movie, a video recording of a concert); and limits on how the audiovisual work may be used. These limits may restrict the medium (e.g., Internet, broadcast, or cable), the territory (e.g., United States of America) and the duration of the license (e.g., one year). Sometimes, statues do fill gaps in terms, including royalties in the compulsory licensing dynamic. Other rights are left to the contract and the marketplace, for example, a synchronization license.
2.3 Synchronization Example Expanded. This license may be financially rewarding, as rights are set in the free market or between two bargaining parties, unlike a mechanical license, which permits reproduction of the music by using a mechanical device, which is set by federal statute. A mechanical license permits the reproduction of music in a form that may be heard with the aid of a “mechanical” device, without visual images.
2.4 Recurring Problems in Licenses Generally and Webcasters Specifically. Most cases that lead to litigation involve three scenarios between the copyright owner and the person using the copyright: (1) the license as drafted by the parties was not clear or precise enough to specifically involve digital copies, digital broadcasting, and data distribution; (2) one party regrets the transaction and seeks to get more or give less than stated in the license; or (3) someone is infringing, and has no agreement and no contractual right but relies on a statutory or common law right to infringe, such as fair use. Webcasters are no exception to these generalities. Often the first attack in a copyright case challenges the subject matter of the copyright. As mentioned above, ideas themselves are not copyrightable, but facts and legal allowances can complicate things. In this context, the question is whether the content is expressive, or just and idea or data?
3.0 Can Data on the Internet Be Protected if Pushed by Webcast?
Even if the data is in the public domain, meaning the intellectual property right expired or does not exist, the compiler of data can limit the dissemination of that information through contracts. Also, the investment made and time of delivery may confer additional rights depending on the facts and contractual relationships.
An example illustrating how data, facts or information are protected arises in certain “real time” data displayed on the Internet. In these cases, the proprietary compilation of data is evanescent. In one case, the investment and system management of a data-capturing network allowed the ownership of facts for thirty minutes exclusively (pursuant to a contract) or anytime before those facts went into the public domain when broadcast or published on the Internet. This right sprung not from copyright law, but from a proprietor’s right to control access to its private events at a private venue. While this right is similar to a trade secret there is no real “secrecy” component, but there is a market value and competitive advantage component. These laws are based on the “ticker cases” at the genesis of real-time stock quotations at the beginning of the twentieth century. The facts in those cases differ, but the controversy is the same: what is the right to one’s ownership of facts, or the right to publish those facts from private venues to the public. One of the most important public knowledge areas highlights the conflict between the rights granted by the First Amendment of the United States Constitution, conveying rights to the press, free speech and copyright law. Now that everyone can have a “press” in the form of a Blog, bulletin board or Web Site, what are the limits? What if the news is really important? Are you a “news” reporter?
4.0 Five Conditions of “Hot News” Claims
While the public good favors making facts available as soon as possible, the law does protect those who spend money and put effort into getting facts to the public. A “hot news” misappropriation claim may survive preemption by federal copyright law. There are generally five conditions central to allowing protection for those who accumulate facts, the so-called “hot news” exception. Those conditions are: the plaintiff generates or collects information at some cost or expense; the value of the information is highly time-sensitive; the defendant’s use of the information constitutes free-riding on the plaintiff’s costly efforts to generate or collect it; the defendant’s use of the information is in direct competition with a product or service offered by the plaintiff; and the ability of other parties to free-ride on the efforts of the plaintiff would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened. This exception is important on the Internet as many things are “shared” without notice or acknowledgement of the intellectual property rights of the creators.
5.0 Is Webcasting “Broadcasting”?
Again, the law steps in where contracts fail or are silent. The Supreme Court is clear in distinguishing the Internet from broadcasters. However, since that decision, much new legislation, and more new facts have come into the law. Since the Digital Performance Right in Sound Recordings Act of 1995, copyright owners enjoy the exclusive right in performances of their works by digital audio transmission. These rights were extended in 1998 by the Digital Millennium Copyright Act (DMCA) of 1998 to cover webcasters.
Like so many other agreements, the scope of the right matters. Generally, “non subscription broadcast transmissions” from digital audio transmission performance copyright coverage do not cover simultaneous Internet streaming of AM/FM broadcast signals. The issue here is the license granted to broadcasters by the Federal Communications Commission, does not license webcasters. Broadcast transmission is operated by what we think of as radio transmission facilities, and not webcasters.  Therefore, webcasting, even if simultaneous with a terrestrial radio broadcast of AM/FM, does not qualify under copyright law for an exemption from the digital audio transmission performance right.  So a contract that permits transmission via broadcast does not include webcasting, unless the contract specifically states otherwise.
6.0 Conclusion: What are My Webcasting Rights Worth?
Generally the free market will determine the rates – what people are willing to pay makes and controls the market. However, the DMCA promulgated a process to follow when parties cannot agree. After six months of negotiation, the Librarian of Congress may convene a Copyright Arbitration Royalty Panel (CARP) to set rates and terms. The parties may appeal the resulting terms. While the appeal deals with cases of reasonableness, unfortunately, the Librarian may ignore real market data, as was the case in a recent dispute. To limit this risk, and expense of the arbitration, parties may consider working out a deal is their best option.
 Martin Medeiros is a Partner at Swider Medeiros Haver LLP; Chairman of the Oregon State Bar Computer and Internet Law Section; and Board Member, Vice President and Treasurer of Portland Community Media. “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” U.S. Const., Art. I, sec. 8, cl. 8.  See, Video Pipeline, Inc. v, Buena Vista Home Entertainment, Inc., 192 F.Supp. 2d 321, 346 (D. N.J. 2002) citing, Harper & Row v. Nation Enters., 471 U.S. 539 (1985), at 559-569.  These rights are granted by the copyright holder, generally the songwriter, until those rights are given away. This involves the timing or synchronization of music with visual images.  See, e.g., Freeplay Music, Inc. v. Cox Radio, Inc. (S.D. New York 2005).  For example, a tape or compact disk.  Fair use “creates a limited privilege in those other than the owner of a copyright to use the copyrighted material in a reasonable manner without the owners consent.” Fisher v. Dees, 794 F.2d 432, 435 (9th Cir. 1986).  ProCD Inc. v. Zeidenberg, 86 F.3d 1447, 1451 (7th Cir. 1996).  In the Court allowed the exclusive holder of the publication rights in “real time” of golf scores to own the data, if only for thirty minutes, the time required in exclusivity of score publication. Morris Communications Corporation v. PGA Tour, Inc., 235 F.Supp.2d 1269 (M.D. Florida 2002).  Id. At 1281.  Trade Secret is a scion of unfair competition and is governed by state and federal law. The Uniform Trade Secrets Act (“U.T.S.A.”) was promulgated by the National Conference of Commissioners on Uniform State Laws. “Trade secret” means information, including a formula, pattern, compilation, program device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. U.T.S.A. § 1 (4) (1985).  See, e.g., Board of Trade of the City of Chicago v. Christie Grain and Stock Company, 198 U.S. 236 (1905); Moore v. New York Cotton Exchange, 270 U.S. 593 (1926).  See, National Basketball Ass’n v. Motorola, Inc. 105 F.3d 841, 852 (2d Cir. 1997).  Id. at 854.  The three distinctions include, (1) the Internet has not historically been regulated by an agency familiar with the medium, (2) available frequencies on the Internet are not scarce as they are on radio; and (3) affirmative steps are required to access information on the Internet. See Reno v. American Civil Liberties Union, 521 U.S. 844 (1997).  DMCA, Pub.L. No. 105-305; see 17 U.S.C. § 114(f)(2).  Bonneville International Corporation v. Peters, citing 17 U.SW.C. § 114(d)(1)(B).  17 U.S.C. 106(6).  17 U.S.C. § 114(f)(2)(A).  17 U.S.C. § 114(f)(2)(B).  Beetoven.com LLC v. Librarian of Congress, 394 F.3d 939 (D.C. Cir. 2005).
by Michael Moore
Originally posted on June 19, 2009
The October, 2008, case In re Bilski (“Bilski”) involved a determination of whether claims directed towards a method of hedging risks in commodities trading were patentable subject matter under 35 U.S.C. 101. The Federal Circuit, sitting en banc, decided on October 30, 2008 that those claims were not patentable. (In re Bilski, _____ F.3d _____ (Fed. Cir. 2008) (en banc).)
The pre-Bilski test was enunciated by the Federal Circuit in a case known as State Street Bank & Trust Co. v Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) (“State Street”). In State Street, the Federal Circuit asked whether the process was “useful, concrete and tangible” to determine whether the process was patentable. After Bilski, however, the “useful, concrete and tangible” test has been replaced by a two part test to determine patentability. First, something may be patentable if it is tied to a particular machine or apparatus. Alternatively, something may be patentable if it transforms a particular article into a different state or thing. It is worth noting that this test is a two part alternative test, in other words only one of those factors has to be true for something to be patentable, not both.
The Courts have given some guidance on the transformation prong of the test. For example, the Federal Circuit referred with approval to a holding in a 1982 case that a claim was patentable because it transformed raw X-ray data of a physical object into a visual depiction. Unfortunately, Courts have given very little guidance on what a “particular machine” is. The Board of Patent Appeals and Interferences (BPAI) has stated that a general purpose computer is not a particular machine, and additional opinions from the BPAI since then have involved Bilski, but there are still no clear patterns or further guidance from the Federal Circuit.
Because of the lack of guidance, several questions arise. For example, if a process changes the physical configuration of a memory chip in a computer (as almost all computer processes do), is that a physical transformation? How tied to a particular method does a computer need to be in order to count as a “particular machine”? More guidance on these topics may be given soon, because the United States Supreme Court granted certiorari to hear the Bilski case on June 1, 2009. The petition for certiorari specifically asked whether the Federal Circuit erred in its holding that:
a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing . . . to be eligible for patenting . . ., despite this Court’s precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas” [and,] [w]hether the Federal Circuit’s “machine-or-transformation” test . . . contradicts the clear Congressional intent that patents protect “method[s] of doing or conducting business” [under] 35 U.S.C. § 273.
Whatever the Supreme Court decides, what is known now is that computer software patent applications and claims should be carefully drafted with Bilski in mind while we wait for more guidance.
by Tichelle Sorensen
Originally posted on June 19, 2009
Social networking sites are an incredibly important marketing vehicle, especially for small companies or those whose model relies upon viral or similar marketing or promotion. Using sites such as Facebook, Myspace, and Twitter has become a key component of most marketing plans. Which makes it even more crucial for companies’ to be aware of changes in the laws relating to these activities, as well as any changes to the policies of those sites.
One prime example is the recent change to Facebook that allows users to claim a unique URL for their Facebook page. Beginning Saturday, June 13th current Facebook users had the opportunity to register unique URLs. (Those who were not current users as of June 9th, will not be able to register for a new URL until June 28th.) According to the company, the change allows users to create an easier way for them to share their Facebook page with other users; instead of a group of randomly assigned numbers, registrants can obtain a URL that includes their name or another identifier. While this may be good for companies who are able to register their name or trademark, it can pose problems for those that lost the race and are unable to obtain that URL. It may also increase the likelihood of trademark litigation where two companies have never run into one another in the marketplace if the result is consumer confusion.
Prior to opening the URL registration period, Facebook provided a mechanism by which trademark owners could register their marks with the site in order to prevent a user from obtaining that URL. However, now that the pre-registration period has passed, a trademark owner that didn’t pre-register will need to use the online reporting form for those who believe their intellectual property rights have been infringed by another user. (http://www.facebook.com/copyright.php?noncopyright_notice=1)
This change illustrates a couple of important points. First, you should always be aware of the terms of service or use of any site that you use as well as any changes to those policies that could affect your use of those services. Next, even if the so-called “new media” is not a component of your marketing plan it can still impact your business in unexpected ways. Finally, those trademark owners that rely on state or common law protection may want to reconsider their strategy. The internet will continue to increase the potential for marketplace confusion. In this case, trademark holders were required to include registration numbers in order to qualify for pre-registration protection. Those federal registrations, for those that qualify may be even more important than ever to provide the appropriate evidence to protect your rights.
By Martin Medeiros
Originally posted on October 30, 2009
The United States of America established a government by the people to “form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.” So where in the Constitution of the United States do we fit in “public outreach … communicate with citizens… encourage feedback” as the new federal Gov 2.0 guidelines mention as a primary goal? And who should government lawyers and employees “friend” on Facebook to meet this iconic goal? Answers: nowhere and everywhere; nobody and everybody.
The so called web 2.0, which goes beyond information utility and infrastructure of the internet to arrive at human networks and community, has brought great change in our society: the disruption if not marginalization of the traditional print periodicals; growth of importance of intellectual property; and the rapid efficiency of information flow. But it also has complexities that must be attended to and not overlooked by its ease of use and entertaining value. The most promising offspring of Web 2.0 is the so called “social media.” Consider a working definition of social media as any web presence that relies on a community of users as a primary operating function, and for content creation and communication. There are a number of examples, such as Scribd.com, Facebook.com, Twitter, Linked-In, etc. Observing this media and working with it can be entertaining for everyone, including public servants. However, the attorneys who serve the interest of the state must readdress the solemnity of their office and appreciate the risks in misuse of this powerful media whose story will not be fully written for years to come.
Recent changes in social media have presented certain fact patterns that neither our founders nor today’s government lawyers know how to easily deal with. Social media has become a great allocator of information, commonality, and may be a vehicle to “establish justice” or “promote the general Welfare.” But several governmental units have discovered its capacity to do the opposite of these seminal directives. Moreover as commercial operations such as YouTube, Facebook, MySpace, LinkedIn, Wikipedia, Twitter, RSS feeds, and Second Life have triggered multiple disputes in tort, contract, judicial and legislative issues, and public meetings, both government attorneys and the larger legal community must recognize that the laws still apply. The only difference is the fact patterns.
1.0 Contracting In The Social Media Context
The higher risk clauses that are litigated deal with issues such as consumer contracts that amount to unreasonable contracts of adhesion. Generally, the first thing litigated is the jurisdiction clause, followed by forum selection and venue clauses. If the transaction is minor, a significant right is waived, such as a jury trial, prior to knowledge of a dispute, and uneven bargaining power, these clauses will be attacked and in relatively rare cases, not enforced if the consumer is harmed.
Social media contracts and contracts between users can be made. So too can intellectual property rights be infringed. Intellectual property includes copyright, patent, trademark and trade secret. The use and misuse of these can lead to potential liability. One of the greatest risks for social media users is copyright infringement; governmental bodies seeking to use the medium are well advised to comply with the Online Copyright Infringement Liability Limitation Act (OCILLA) or the so-called notice and takedown provisions, where a specific process is followed in the event of alleged infringement. A safe harbor filing provides protection and is a filing that all entities should make with the United States Copyright office as the fees are relatively small, but the protections against copyright infringement are great. The registration fees for Online Service Provider designation (which is the recordation of an interim designation of agent to receive notification of claimed infringement under section 512(c)(2)) are minimal. Here, the “group” may qualify as an online service provider.
Torts can be committed online. These generally involve privacy torts, such as defamation or portrayal in a false light or use of image without permission; and economic torts, interference with business expectancy and contractual relations . Government lawyers must know that anything posted may trigger certain liabilities.
2.0 Public Records
The public records law in Oregon applies to every public body, as defined, which includes the governmental unit and any agency thereof, boards and commissions. A “Public Record” essentially is a writing that contains information regardless of form. All government employees must accept the fact that everything is potentially discoverable, and even if an exception is claimed, there is a very strong presumption in favor of disclosure, meaning the public or a judicial body can request, or order, disclosure. The identity, motive or need for disclosure is irrelevant. I major cities migrating to third party email systems as society moves to so-called “cloud computing,” arguments claiming privacy are more difficult. By necessity, the private email account that deals with anything involving policy should be presumed to be a public record.
It matters not whether the account of the record is a governmentally sponsored system or a private email account. Even home computers are subject to discovery. The issue is the conduct of use, if it in any way involves the conduct of the public’s business, consider even private home computers to be discoverable.
Exemptions are not determined by a bright line test, and the public records will be released unless the “public interest” requires non-disclosure. Conditional exemptions include things like trade secrets, civil rights investigations, locations of archeological sites, documents created pursuant to a litigation that may qualify as work product by the public entity, or exemptions related to public safety issues.
3.0 Public Meetings
Oregon favors that “decisions be arrived at openly” which means public debate by a Government body, which consist of two or more members, with authority to make decisions for or recommendations to a public body or administration.  Notice must be “reasonably calculated to give actual notice to interested persons including news media which have requested notice, of the time and place for holding regular meetings.”
The issue of notice is important as online notice is not as inclusive for public meeting standards as it may seem. There are many individuals who do not have access to the Internet, by choice or circumstance. For a government agency to think this is broad reach is a misconception. For example, there is some data on click through regarding banner ads which indicates 8% of Internet users click are responsible for 85% of all clicks. There may be certain justice requirements if individual rights are allocated or policy is made solely by electronic meeting or electronic notice of the meeting.
3.1 Inadvertent Quorum
If a governmental body forms a quorum, which could be two or more who can make recommendations on policy, the public meeting statues are triggered and policies arrived upon could be subject to attack on a number of grounds; as described above, lack of actual notice to the public may be one of them. The word “quorum” is a function of bylaws or organizational charters whereby the minimum number of governing body members is specified. In the absence of such specification, the “majority” may do, “in the absence of a special definition of ‘quorum’’ the statutory definition of “three or more persons” may apply according to the Oregon Attorney General’s Manual.
3.2 Archiving and Data Migration Issues
Government agencies must archive records. Social media, if meeting the requirements of public meetings or meeting the archive requirements, must be retained. One large problem with cloud computing is the data migration issue. For example, if one moves a group from one social networking site to another, those proprietary systems may be less able, or more likely, impossible to port data.
The essential nature of social media may be permanent or may be replaced by something else but what is important is the facts will shape the law. Whether or not this is the wave of the future, or our version of the Citizens Band radio fad of the 1970’s, or something in between, we will see as these cases wend their way through our judicial system.
 Preamble, United States Constitution.
 Guidelines for Secure Use of Social Media by Federal Departments and Agencies, Information Security and Identity Management Committee (ISIMC) Network and Infrastructure Security Subcommittee (NISSC) Web 2.0 Security Working Group (W20SWG)
 1 Promulgated by the National Conference of Commissioners on Uniform State Laws.
 States that have not accepted the uniform act but have chosen their own include: Georgia: Ga. Code Ann., § 10-12-1; Illinois: 5 ILCS 175/1-101; New York: NY CLS State Technology § 301 et seq.; Washington: http://apps.leg.wa.gov/RCW/default.aspx?cite=19.34
 Pub. L. No. 106-229, 114 Stat. 464 (2000) (codified at 15 U.S.C. § 7001 et seq.).
 Hotmail Corp. v. Van$ Money Pie Inc., No. C-98 JW PVT ENE, C 98-20064 JW, 1998 WL 388389 (N.D. Cal., 1998).
 17 USC § 512.
 Current fee schedule may be found at: http://www.copyright.gov/docs/fees.html
 ORS 192.410(3).
 ORS 192.410(4)(a).
 See, ORS 192.420(1).
 Smith v. School District No. 45, 63 OR App 685 (1983).
 ORS, 192.001(b).
 Nike v. City of Beaverton,
 ORS 192.501 et. seq.
 ORS 192.610(3).
 ORS 192.640.
 The results of an update to the comScore highly publicized “Natural Born Clickers” research, conducted two years ago with Starcom USA and Tacoda, indicate that the number of people who click on display ads in a month has fallen from 32% of Internet users in July 2007 to only 16% in March 2009, with an even smaller core of people (representing 8% of the Internet user base) accounting for 85% of all clicks. http://18.104.22.168/search?q=cache:E0bm9WAqyRsJ:www.mediapost.com/publications/%3Ffa%3Darticles.showarticle%26art_aid%3D115210+85%25+of+click-throughts&cd=2&hl=en&ct=clnk&gl=us
 ORS 174.30.
 ORS 192.005.
By Tichelle Sorensen
Swider Medeiros Haver LLP Microenterprise Practice Group
Originally posted on September 13, 2010
As the economy inches towards recovery, many businesses who have managed to navigate through the difficult last few years find themselves in need of additional assistance to expand their workforce or take advantage of new opportunities. Meanwhile, new businesses or aspiring entrepreneurs are also looking for information and resources to help launch their products or services.
One of the goals of our MicroEnterprise Practice Group is to provide information and education to such small businesses and individuals. We do so by offering seminars and informational events, and by providing information and resources in addition to legal services. In this and future versions of the newsletter, we will provide information and links to resources, programs, and services that may be of interest to existing small businesses or new enterprises. This month’s list, as follows,is dedicated to resources for loans or financial assistance to small businesses.
MercyCorps NW/MCNW Loan Program
MCNW provides small business loans to qualified individuals in amounts ranging from $500-$50,000. In addition to the loan program, MCNW offers advice and mentoring, business seminars and other informational resources.
The Oregon Business Development Fund BOOST Loan
The BOOST loan program is a fund providing financing for businesses that need capital for daily operations, such as marketing expenses, employee expenses, and small equipment purchases.
The Portland Development Commission (PDC) Business Support Resources List:
PDC resources include information about business finance and incentive programs, the Portland Business Handbook, and a New Business Checklist.
For more information, please visit the links provided or contact the organizations directly. This information should not be construed as a recommendation or legal advice about any of these programs or resources. For more assistance or information on our microenterprise practice, feel free to contact us at email@example.com.
by Robb Shecter, Law Clerk
Originally Posted on September 14, 2010
A new top-level domain (TLD), “.CO” has recently been created as a competitor to “.COM.” While it is currently more expensive (approximately $30.00 per year versus only $10.00 per year for the standard .COM), Google and other search engines will treat websites in this domain the same as any other. This means the .CO and the .COM will be ranked the same, based on both content and reputation.
The new .CO domain has several benefits. Because it is new, there are more available domain names available for consumer registration. The higher price should help preserve this increased availability by reducing speculators’ bulk purchases and website “parking.” Also, the .CO already has a meaning for non-U.S. residents, e.g. the BBC is found at www.bbc.co.uk. In addition, the shorter length and greater availability of the .CO mean that some surprisingly short and catchy names are available and ready for purchase. Finally, people looking for a website online are changing their method of searching. Increasingly, web visitors start their search at a search engine page instead of an “address bar.” Therefore, a highly ranked site (be it a .COM or .CO) will be found regardless of its domain name or ending.
Benefits aside, a new TLD still has its drawbacks. There is currently a lack of awareness in the marketplace regarding the .CO. A .CO address may look like a typo, as if the “m” was left off unintentionally, or potential visitors to a site might not trust a .CO address as much (or as little) as they’d trust the more widely used and longer available .COM’s. Another important potential drawback that will probably unravel as time goes on is the possibility of trademark disputes between different owners of a .CO and .COM with the same leader. It is something to keep in mind if you’re currently interested in buying a .CO. Whether or not this will develop into a trademark problem, we shall see in the (likely) very near future.
Consumer awareness of .CO will grow faster overseas due to its existing recognition, thus domestic recognition should not fall far behind. In the future, at least the short-term, the .CO will become a reasonable alternative to .COM’s that are either unavailable or too expensive to buy off of others.
By Martin Medeiros and Reiko Higuchi
A prospective client walked up to an attorney at a cocktail party and said, “I own a small retail boutique and I want to engage your firm for a class action law suit, it is a strong anti-trust case, perhaps a criminal conspiracy.” The attorney immediately wanted to issue-spot so he replied, “tell me more.” The prospective client said, “The Internet is putting me out of business, prices are too low, I want to sue the ecommerce.” Although fictionalized, this is based on an actual conversation. Surprisingly, this fictionalized conversation took place early in the evening.
Ecommerce has migrated from online ordering systems, such as France’s Minitel over thirty years ago, to today’s highly distributed electronic payment systems on “smart phones.” Earlier highly developed and high volume Internet ecommerce sites were by invitation only, such as the parts ordering and payment system of the Boeing Company offered to its parts distribution network. Then, in 1995 Amazon.com was launched. While the consumer generally wins in ecommerce, businesses who have been unable to adapt to the largest commercial information distribution network will continue to fail. Among the recurring legal themes in electronic commerce find themselves in include: jurisdiction; contracts; and management of intangible rights – the intangible stuff of which the Internet is made. Specifically, intellectual property. This paper presents those themes as well as current e commerce related cases.
I. Personal Jurisdiction
The issue with ecommerce perennially is “where” and “who” do I look to when enforcing rights? The right being challenged, claimed or alienated may depend on case law or statutory structures, but two general rules emerge: (1) the more dear the right being alienated, the more overt the act of assent must be; and (2) passive ecommerce users are less likely to be bound than active ones. Several themes emerge in answering the “who” and “where” of jurisdiction. These track typical lines of query ecommerce attorneys investigate prior to enforcing a right.
A. Information Availability
Making information merely available for review, which includes advertising without the ability to close an actual transaction, would fall into the passive website arena. Courts may not assert personal jurisdiction over a defendant in a trademark case if a website is “coming soon” but no contracts are closed. So the fact that a website can be viewed in a forum is not, in itself, purposeful avaliment.
B. Server Location
The first test practitioners reach for when determining jurisdiction is where the act happened, where the contract was made, or, perhaps, where the act of infringement transpired. Secondarily, we tend to look for where the server or computer that provided the information giving rise to the claim was located. Courts have held that mere location of server may not be sufficient as if that were the case, jurisdiction may result in an unjust result. The act of uploading infringing content is often in a different state than the server’s physical location. Generally, the “act” of infringement is where the posting, uploading or authorship of infringement occurs. Where the act transpired or the location of the actor is a threshold question.
C. Repeated Solicitation
A pattern of solicitation for business may be sufficient when applying State law for out of state defendants. These lines of cases involve the “targeting of a forum” or what a business client may call a “target market” or territory or even demographic that has a geographical nexus. The location of where the act transpired or the location of the actor is a threshold question as is the quantity and quality of the act.
D. Interactive Sites: Directed At and Used By Defendant in the Forum
There are two major categories courts have examined regarding jurisdiction and the type of ecommerce site. A so-called “passive” site amounts to “brochureware;” basic information about the party is posted online to facilitate contact. However, the more interactive a site is (for example sites that require a login for use, solicit contact information for mailing lists, or allow posting or communications by users) the more likely personal jurisdiction will be found. Generally interactive sites, such as one getting subscribers , is sufficient for jurisdiction. However, mere availability is not universally sufficient; the interactive activities must be directed at the forum, targeted if you will. In Rannoch, Inc v. Rannoch Corporation the web site was accessible virtually everywhere, including Virginia, but general availability was an insufficient to base personal jurisdiction absent, first, evidence that the Internet activities were directed at forum specifically and, secondly, that no evidence of actual use by the site in the forum.
E. Telephone Numbers
Numbers to call for more information, may not be sufficient to exercise personal jurisdiction over a defendant. But some cases held that “nationally available” numbers are sufficient. The Inset Systems, Inc. v. Instructions Set, Inc. held that the providing of a 1-800 number was seen by the court to be a business solicitation in the forum state and personal jurisdiction extend to the defendant. Since Inset, anyone can get a number in any area code via voice over internet protocol (“VOIP”) telephony, therefore 1-800 numbers are no longer the only “nationally available” numbers if the court meant “toll free.”
F. Current Standard: Ecommerce adopts the Calder Test
In Calder, the Supreme Court held that a California court had personal jurisdiction over the Florida defendants based upon a libelous article written about the plaintiff, an actress who lived and worked in California. The Supreme Court determined that the minimum contacts analysis was satisfied because California was the “focal point both of the story and of the harm suffered. ” The Supreme Court concluded that the defendants allegedly committed an intentional tort with knowledge that the plaintiff would be injured in her home state, the location of the magazine’s largest circulation, and therefore they should have reasonably anticipated being haled into court in California. There are differences in this test, for example, the seventh circuit turned this into a three part test. But Calder is referred to in many ecommerce cases on the jurisdiction question.
G. Location of Domain Registration
Would there be a cause of action without a location on the Internet? This question, answered in the negative, supports the notion that the domain is the critical loci of the cause of action. So even if the website is visible everywhere, the server may be anywhere as well, but the registrar is a business with an address. Location of domain registration may be sufficient to establish jurisdiction on a national level.
H. Current Cases
1. Phoenix-Dolezal v. Lili Ni, 11 CIV. 3722 LAK JLC, 2012 WL 121105 (S.D.N.Y. Jan. 17, 2012).A District court applied New York’s long arm statute when a plaintiff sought the transfer of the domain name “phoenix.tv,” owned by a California defendant. The plaintiff Christopher Phoenix–Dolezal alleged that “phoenix.tv” is substantially similar to Phoenix TV, a mark he owns pending approval by the United States Patent and Trademark Office, and that defendant is a “cybersquatter” who had no productive use for the domain name when she registered it and has refused to sell it to him for less than $2 million with a “bad faith intent to profit,” in violation of the Anticybersquatting Consumer Protection Act (“The Act”). Proceeding pro se, the defendant moved to dismiss for lack of personal jurisdiction. The court determined that because The Act itself did not provide jurisdiction over the out-of-state defendant, the long arm statute of the forum state governed. In this case the defendant’s motion to dismiss was granted because her contacts with New York consisted of sending an email to the plaintiff.
2. Allcarrier Worldwide Services, Inc. v. United Network Equip. Dealer Ass’n, AW-11-CV-01714, 2011 WL 4425295 (D. Md. Sept. 22, 2011). A District Court applied Maryland’s long arm statute where a corporation provided access to a website in exchange for membership dues. Here the court decided such web activity was not a basis for specific personal jurisdiction because although the website itself was interactive in that members could solicit each other for business, the Nebraska corporation itself played only passive role in establishing and regulating membership and granted access to members internationally.
3. Verizon Trademark Services, LLC v. Producers, Inc., 8:10-CV-665-T-33EAJ, 2011 WL 3754654 (M.D. Fla. Aug. 25, 2011). A District court in Florida decided that the issuance of a press release by a Louisiana based domain name registration service provider announcing an intent to open a Florida office, was not a basis for personal jurisdiction absent evidence tending to show that the provider engaged in continuous and systematic contacts, sold goods, solicited business, or paid taxes in Florida.
4. Computer Stores Nw., Inc. v. Dunwell Tech, Inc., CV-10-284-HZ, 2011 WL 2413825 (D. Or. June 9, 2011). A Japanese computer company and its distributor located in Lake Oswego, Oregon, brought a claim against a Taiwanese company and its distributor Dunwell, located in California for infringing on its patent of a handheld microscope. A District court applied Oregon’s long arm statute, which confers jurisdiction to the extent permitted by due process, in consideration of the defendants’ contacts with Oregon. The Taiwanese company had direct email contact with various individuals across the United States, including three from Oregon. Each of the three Oregon contacts initiated communication by sending an email through the company’s website, but the company referred all three to its distributor Dunwell. Dunwell’s Customer & Job List contains twelve customers who have Oregon billing addresses. The twelve customers include both companies and individuals and represent approximately 1.4% of Dunwell’s 870 total customers in the United States. The court held that a company purposefully directs its conduct towards the forum state when it takes actions indicating an intent or purpose to serve the market in the forum state. Facts that could demonstrate this intent include advertising in the forum state and marketing the product through a distributor who has agreed to serve as the sales agent in the forum state, however 1.4% of sales is not enough.
II. Subject Matter Jurisdiction
A. Intellectual Property
The online world is managed by physical objects (people and computers) but is not physical itself. Leaving international issues aside, much of ecommerce involves intellectual property which may be exclusively a federal matter (patent, copyright) or may have only state law implications (trademark, and trade secret) or both (trade mark and trade secret). While some forms of property rights may be protectable online, others may not (such as trade secrets). A general understanding of these rights is essential to anyone in the ecommerce world. Some properties that may not fit into the goods and services buckets but may have protection include those in the following table:
B. Recent Cases
1. Gucci Am., Inc. v. Guess?, Inc., 790 F. Supp. 2d 136 (S.D.N.Y. 2011). The Lanham Act confers broad jurisdictional powers upon the courts of the United States. A District court in New York considered whether the Lanham Act reached infringing activity abroad when the infringer conducts decision-making activities in the United States and has facilities in the United States for shipping. The court decided that it does not because the presence of retail operations in Canada, the location of its “buying group” in Los Angeles, and the fact that products are advertised as shipped from a warehouse in the U.S. only establish that Guess’ Canadian operations are supported by domestic activity, not that those operations have a “substantial effect” on United States commerce as required for jurisdiction.
2. Adobe Sys. Inc. v. Kelora Sys. LLC, C 11-3938 CW, 2011 WL 6101545 (N.D. Cal. Dec. 7, 2011). A District court in California considered whether Adobe’s exposure to liability brought their question within the subject matter jurisdiction of the court. Adobe Systems Inc. brought this action against Defendant Kelora Systems, LLC seeking a declaratory judgment of non-infringement, invalidity and intervening rights as to all or part of U.S. Patent No. 6,275,821 (’821 patent). Kelora is the owner of the ′821 patent, which claims methods related to executing a guided parametric search. In an infringement suit, Kelora named more than ten defendants, including retailers whom Kelora alleged infringed the ′821 patent by using the patented search methods on their retail websites. Kelora did not name or refer to Adobe in the Wisconsin action. However, Adobe alleges that Kelora’s allegations against OfficeMax rest “at least in part” on OfficeMax’s use of technology provided by Adobe. The Declaratory Judgment Act, in accordance with Article III of the Constitution, requires an “actual controversy” before the Court “may declare the rights and other legal relations of any interested party seeking such declaration.” In order to establish an “actual controversy” based on enforcement activity by a patent holder, the plaintiff seeking declaratory judgment must show that the patent holder took some affirmative acts directed at that plaintiff, not just broad and widespread enforcement activity. Kelora moved to dismiss for lack of subject matter jurisdiction and the motion was granted.
3. Elsevier Ltd. v. Chitika, Inc., CIV.A. 11-10026-RGS, 2011 WL 6008975 (D. Mass. Dec. 2, 2011). The owners of copyrights in two books brought an action against an on-line advertising business for contributory infringement. Defendants moved for judgment as a matter of law and it was granted. In order for United States copyright law to apply, at least one alleged infringement must be completed entirely within the United States. Plaintiffs did not allege any act of direct infringement occurring within the United States. Plaintiffs used Arista Records, to allege that “test downloads” performed by their investigator constituted direct infringement. The court distinguished Arista where both the investigators and the alleged direct infringers were located in the United States. They determined that plaintiff’s investigator downloading unauthorized copies of plaintiffs’ books which were distributed by foreign or unidentified (and potentially foreign) actors does not constitute an act of direct infringement occurring entirely within the United States.
III. Online Contracts
A. Contracts Generally
Our commercial laws evolved primarily around the sale of goods and services – not intangible rights like intellectual property (copyright, trade secret, trade mark, patent and moral rights.) However, a basic understanding of contract is required to grasp the focus of many risks in e-commerce. Contract law varies with the jurisdiction and subject matter. Additionally, because new laws involving online existence are created or interpreted every day, it is often unclear where practitioners can look to find current information economy law.
Contract formation requires the manifestation of the intent of both parties to be bound by the contract. Their assent is dependent on signatures, or equivalent acts showing the parties are objectively manifesting their assent. Some transactions require greater levels of assent and certain terms may require greater conspicuousness or disclosure.
In the United States, various factors may undermine the enforceability of a contract. The contract may be so unfair it is against public policy or unconscionable. The relevant considerations include procedural matters, such as the way the contract was entered into (e.g. being induced to an online rebate and having to click through endless screens to get the rebate); or substantive matters, including the terms of the contract and quality of property (e.g., a service offering to sell stolen property).
Moreover, in every contract, a duty of good faith is implied. This means the parties to the contract will act honestly and perform the contract pursuant to the reasonable commercial standards of fair dealing for that industry.
Finally, any remedy offered must be adequate to limit the risk of the parties. Otherwise, the contract may “fail in its essential purpose.” For instance, if there is breach, does the non-breaching party receive the benefit of the bargain? Alternatively, if the contract is not performed, can the performing party get what they bargained for returned?
While damages at law involve making the harmed party whole through money, in some circumstances, money may be inadequate. In these cases, a remedy at equity is required to right the wrong. Equity demands an action is taken, such as restraining someone from disclosing a trade secret.
Contractual construction and enforceability concepts enter into ecommerce as they do in other contexts. Some considerations include construing a contract against the drafter, holding a contract invalid if a party is coerced into the transaction, holding a contract invalid if made under duress, and holding a contract invalid if entered into by mistake or fraud. The concept of estoppel is an equitable device where a position taken by a party earlier in time cannot be changed later, as the opposing party may have relied on the first party’s earlier action.
B. Contract Formation
The primary contractual issue in e-commerce is contract formation, and the relevant areas of contract law include the following: the common law of contracts (non-UCC contracts and services); UCC Article 2 for sales of goods, and UCC Article 2A for leases of goods; and consumer protection laws promulgated by the various states and the Federal Trade Commission. Finally there are various electronic contracting statues based on the Uniform Electronic Transactions Act (UETA) in the states and the E-Sign act on the federal level. The Uniform Computer Information Transactions Act (UCITA) is also applicable, but only in the two states in which it was enacted (Maryland and Virginia.)
These laws cover formation and what is reasonable for contracting parties to expect. For example, the right to maintain a record of the transaction, to print out the terms and conditions, electronic errors (which may be similar to “scriveners” errors), assent (e.g., electronic signatures) and notice requirements. Generally, people have a right to review a contract and the right to print it at the time of the disclosure of the right being granted or alienated.
C. Acceptance and Clickwrap: An Intent to be Bound
Acceptance in contract law involves the intent of the parties to be bound by an agreement. In online transactions, what objective manifestation do parties on-line display? Perhaps clicking “I Agree” is sufficient. There are various areas of the law that are helpful in defining what we look to in order to show acceptance. UCC Article 1 defines what is meant by “sign”; generally, “signed includes any symbol executed or adopted by a party with present intention to authenticate a writing.” The Electronic Signatures in Global and National Commerce Act (“E-Sign Act”) includes broader tolerance for what it means to sign something: “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.”
E-commerce companies must create a trail of evidence demonstrating that customers intend to be bound by contract. Intent means consumers need knowledge. Some companies attempt to trick visitors to assent to terms without having them click “I Agree” or a similar overt act. However, the E-Sign Act is clear in this respect: the parties are “intentionally engaging in conduct with reason to know that the other party or its electronic agent may infer from the conduct or statement that the person assents to the record or term.” The parties must be informed that the contact is being made. Unfortunately, many approaches will fail, and lack of a signed writing will not be persuasive in trying to defeat the existence of a contract.
1. Recent Cases
a. One Beacon Ins. Co. v. Crowley Marine Services, Inc., 648 F.3d 258 (5th Cir. 2011). In a dispute between a ship repair contractor, barge owner, and insurance company over the terms of a ship repair service contract and a maritime insurance policy, the Fifth Circuit held that an oral contract can incorporate a document containing terms and conditions that were not discussed orally but had been part of prior agreements between the parties because they were implied by their course of dealings. The court also held that where an oral contract attempts to incorporate terms and conditions found on the internet when they are clearly and unequivocally incorporated by the oral contract proposal and readily available on the website the terms and conditions are incorporated even if the accepting party did not read them first.
b. Crabb v. GoDaddy.com, Inc., CV10-00940-PHX-NVW, 2011 WL 4479043 (D. Ariz. Sept. 27, 2011). A district court in Arizona came to a similar conclusion when determining whether GoDaddy had contractual authority to “park” customers’ domain names on GoDaddy-created web pages full of advertising. The court held that as a matter of law, the Terms of Service did not clearly and unequivocally inform plaintiffs that the Parked Page Service Agreement was among those agreements incorporated by reference when Plaintiffs purchased domain name registration from GoDaddy. Although the Parked Page Service Agreement stated: “If You are using any of GoDaddy’s Parked Page services, You agree that Go Daddy may point the domain name or DNS to one of Go Daddy’s or Go Daddy’s affiliates’ webpages, and that they may place advertising on your webpage and that Go Daddy specifically reserves this right,” under the “Domain Names” subheading in their contract, “Domain Registration Agreement” was listed as the sixth of eight agreements and “Parked Page Service Agreement” as the seventh.
c. New Century Bank v. Open Solutions, Inc., CIV.A. 10-6537, 2011 WL 780773 (E.D. Pa. Mar. 7, 2011)Under a service contract with data processing service provider BISYS Group Inc., New Century Bank processed customers’ debits, credits, transactions, and personal information using proprietary software loaded on bank computers. The bank did not lease or own this software but had a license from BISYS. All processing and storage of such data occurred at BYSIS’s data center, located on BISYS property. Transactions executed by a customer on the bank’s website were also processed at BISYS’s data center. The files were stored in a format that is incompatible with any other processing system and therefore when the bank attempted to switch to a different system, the data could not be loaded into another company’s data processing program without first translating those files into a different format. The service agreement stipulated that BISYS would deliver the bank’s files and provide reasonable and necessary assistance with the deconversion at a price in accordance with their Deconversion Rate Schedule. However according to the agreement the file transfer would not happen until payment for deconversion along with all amounts due were paid to BISYS. BISYS wanted $1.2 million to perform the deconversion. The bank brought a suit for conversion and replevin of the files and the court held that BISYS was not liable. The court reasoned that the bank could perform a manual deconversion on their own and that therefore the price for deconversion assistance should be freely negotiated if not part of the contract.
E. Higher Level of Assent
Certain transactions require greater evidentiary level of the objective manifestation of assent. If a seller is said to have “induced” or “deceived” the consumer into entering the contract, evidence of the purchaser checking each box to provide knowledge of the transaction may defeat claims of lack of consumer knowledge. E-commerce must conspicuously reveal material facts to the transaction. The knowing failure to reveal something of material importance is ‘deceptive’ within the Consumer Protection Act. Timing is critical as knowledge must be prior to the assent. A practice is unfair if it induces contract through deceptions, even if the consumer later becomes fully informed before entering into the contract. In Robinson, subsequent knowledge may not right the first wrong.
Issues involving health care have very high scrutiny, not only the restrictions on disclosing private information in the Heath Insurance Portability and Privacy Act, but also when educating consumers on pharmaceuticals, under the rationale that “advertisements for certain products, such as prescription medications, may not be appropriate for wireless devices at all because the necessary disclosures are so lengthy.” Other terms that must be conspicuous include those that involve valuable property transfers, software with kill-switches, warranty disclaimers, indemnity obligations, liability limitations.
1. Recent Cases
a. Google, Inc. v. United States, 10-743C, 2011 WL 17619 (Fed. Cl. Jan. 4, 2011). Preliminary injunction was warranted to prohibit the United States and the Department of the Interior from proceeding with or awarding a contract to implement a department-wide email messaging system or any related procurement, solicitation, task order, or activity. Google established a likelihood of success on the merits of its claim that the process by which Interior restricted competition exclusively to a competitor for messaging and collaboration solutions violated the Competition in Contracting Act and relevant FAR (Federal Acquisition Regulation) provisions and that such violations would cause it irreparable harm by achieving an “organizational lock-in” for a competitor, and costing protestor the opportunity to compete.
IV. Intellectual Property and The Domain
A. Domain Name
One of the first rights one obtains when going on-line is the domain name. A domain is not a trademark but a domain may be used as a trademark. The largest problem many people come in contact with is trademark rights. If one sells a good or service that someone else also sells under that mark, or a similar mark, a trademark infringement action may result.
Selecting a trade name, trade mark and business name should be viewed as different tasks and serious considerations should be made before one builds a web presence based on a mark or business name that may confuse customers. Additional legal issues surround unfair trade practices, which is essentially trading on the good name of another, with a resulting likelihood of confusion for consumers. Likewise, using the name of another person should also be avoided.
1. Recent Cases
a. In re Forchion, 198 Cal. App. 4th 1284, 130 Cal. Rptr. 3d 690 (2011). A California resident Mr. Forchion has a national reputation as a marijuana advocate and is popularly known as NJweedman. He operates a Web site, “NJweedman.com,” which discusses his efforts to legalize the drug. Forchion unsuccessfully petitioned state courts to change his name to “NJWeedman.com” and in 2011 his appeal was denied by a California Court of Appeal. The court held that a domain name is not property, but the product of a contract for services between the registrant and the registrar, and even went so far as to hold that “[i]ndividuals and Internet domains, respectively, should not share the same names.”
b. Ground Zero Museum Workshop v. Wilson, CIV.A. DKC 09-3288, 2011 WL 3758582 (D. Md. Aug. 24, 2011), reconsideration denied (Nov. 4, 2011). Museum and its founder brought action against website designer, alleging inter alia, trespass to chattels, defamation, and tortious interference in business relationship. The court considered whether the Museum website or the specific pages in the site qualified as “chattels” and decided that they do by analogizing to domain names, servers, and computer networks.
When designing a copyright, the content it circumscribes is an important consideration. Content must not infringe on the intellectual property rights of others including copyrights, patents, or trademarks, but must also be designed to protect one’s own intellectual property. Trade secrets should not be posted, as they are no longer offered protection if they are published. But if trade secrets are used as part of the site, code or functionality, they must be given very high security. Content is also crucial to online businesses that run websites. Those in the web business must know the origin of each and every piece of content on your site. This includes copy written materials, patent functionality, and trade marks.
1. Digital Millennium Copyright Act
Copyright law as applied to ecommerce itself provides a proactive mechanism for to avoid liability for copyright infringement in cases where the infringing activity is caused by a third party poster or commenter. Think of a product review or uploading a photograph. This “safe-harbor” or “notice-and-takedown” provision of the Digital Millennium Copyright Act (DMCA) and can be found in Section 512 of the Copyright Act.
Four different DMCA safe-harbor provisions exist but most often we see the “Information Residing on Systems or Networks at Direction of Users” as critical to the way ecommerce works. This provision protects online service providers, hosts of an ecommerce site, against causes of action when infringing content is “stored on a system or network controlled or operated by the service provider at the direction of a user.” If the provider themselves infringed, that would be direct infringement. Section 512 deals with third party posting, generally users and customers of the site.
In order to qualify for protection under the DMCA safe-harbor provision in subsection 512(c), the online service provider must comply with administrative rigor and also meet the following four criteria:
1. Lack of Actual Knowledge. The online service provider must not have actual knowledge that the content is infringing, or be aware of facts or circumstances that would indicate infringing activity, without promptly removing or disabling access to the infringing content;
2. Clean Hands. In cases where the online service provider has the right and ability to control infringing activity, the online service provider must not receive a financial benefit directly attributable to the infringing activity;
3. Immediate Removal. Upon notification of claimed infringement, the online service provider must promptly remove or disable access to the infringing content.
4. Notification Agent. The online service provider must designate an agent to receive notifications of claimed infringement, whose contact information must be provided to the Copyright Office and made publicly available through the service;
5. Black Ball Policy. The online service provider must adopt and reasonably implement a policy that provides for the termination of subscribers and account holders of the service provider’s system or network who are repeat infringers, and must inform subscribers and account holders of the policy.
2. Recent Cases
a. Ground Zero Museum Workshop v. Wilson, CIV.A. DKC 09-3288, 2011 WL 3758582 (D. Md. Aug. 24, 2011), reconsideration denied (Nov. 4, 2011)After a web designer removed improvements that he donated to the Ground Zero Museum Workshop including shopping cart services and a donations page, a District Court in Maryland held that the use of a password or security code to access a copyrighted work, even without authorization, does not constitute “circumvention” under the DCMA. “Circumvention” requires descrambling, decrypting, avoiding, bypassing, removing, deactivating, or impairing a technological measure. Additionally, the designer falsely claimed that his trademarks constituted copyrighted material and requested that the company hosting the Museum’s website take down portions of it. The court held that these false claims did not violate § 512(f) of the DCMA because that section requires “knowing” and “material misrepresentation.” “Knowing” means knew or should have known (had it acted with reasonable care or diligence). A “material misrepresentation” is one that affected the infringer or service provider’s response to a DCMA letter. The Museum also claimed trespass to chattels. The court held that although the Copyright Act confers ownership rights on the designer, those rights do not thereby preclude torts such as trespass to chattels in part because the designer’s ownership rights are in the copyright not the website itself. They used a two part inquiry to determine whether these torts are precluded by the Copyright Act:
1) Is the work within the scope of the “subject matter of copyright” as specified in 17 U.S.C. §§ 102, 103; and
2) Are the rights granted under state law equivalent to any exclusive rights within the scope of federal copyright as set out in 17 U.S.C. § 106?
If the state law requires an extra element instead of or in addition to the acts of reproduction, performance, distribution, or display then the right is not within the scope of copyright. The court also held that the designer did not circumvent copyright protections in violation of the CFAA because of the $5,000 qualifying loss requirement.
b. Getty Images (US) Inc. v. Advernet, Inc., 797 F. Supp. 2d 399 (S.D.N.Y. 2011), reconsideration denied (Nov. 22, 2011)A stock photography agency brought a copyright infringement action against website production company, seeking monetary damages and injunctive relief for company’s alleged unauthorized use of its photographic images. The court granted defendant’s motion to dismiss based on insufficient pleadings. The court explained that Getty Images did not sufficiently allege ownership of the images because although they own a valid copyright, several of their licensing agreements with photographers transferred only non-exclusive rights. Where a work is co-authored, one copyright owner may not convey the interests of his fellow co-owners without their express written consent.
c. Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296, 180 L. Ed. 2d 166 (2011). The Supreme Court recently held that hosting a document on a web site does not indicate that the hosting entity adopts the document as its own, nor does it indicate that it exercises control over the content. Securities and Exchange Commission Rule 10b–5 forbids “any person … [t]o make any untrue statement of a material fact” in connection with the purchase or sale of securities. This complaint alleged, inter alia, that Janus Capital Group and its wholly owned subsidiary, Janus Capital Management LLC (JCM), made false statements in mutual fund prospectuses and that those statements affected the price of JCG’s stock. The court reasoned that although JCM, like a speechwriter, may have assisted Janus Investment Fund with crafting what Janus Investment Fund said in the prospectuses, in hosting the document, JCM did not “make” any of the statements in Janus Investment Fund’s prospectuses for purposes of Rule 10b–5 liability, just as the SEC “makes” the statements in the many prospectuses available on its Web site.
d. Holomaxx Technologies v. Microsoft Corp., 783 F. Supp. 2d 1097 (N.D. Cal. 2011). Holomaxx Technologies, a provider of email marketing services, brought action against internet service provider (ISP) Microsoft, alleging that the ISP’s spam filter technology and procedures wrongfully filtered and blocked its marketing e-mails. The court ruled that an ISP has immunity for its spam-filtering decisions under the Communications Decency Act. The section of the CDA governing blocking and screening of offensive material provides immunity where ISP qualifies as an “interactive computer service” under the CDA in that it provided e-mail services, it reasonably concluded that provider’s e-mails were harassing and otherwise objectionable, and there was no evidence that it acted in bad faith.
e. Wolk v. Kodak Imaging Network, Inc., 10 CIV. 4135, 2012 WL 11270 (S.D.N.Y. Jan. 3, 2012). Artist Sheila Wolk alleged, inter alia, seven counts of copyright infringement, contributory copyright infringement by Photobucket, vicarious copyright infringement by Photobucket, direct infringement by Photobucket, and direct liability for infringement by the Kodak Defendants. A District court in New York followed Cartoon Network. In Cartoon Network, the court analogized Cablevision to a store proprietor who charged customers to use a photocopier on his premises. The proprietor did not ‘make’ any copies when his machines were actually operated by his customers. Summary Judgment was granted to Defendants.
f. UMG Recordings, Inc. v. Shelter Capital Partners LLC, 09-55902, 2011 WL 6357788 (9th Cir. Dec. 20, 2011). A Music publishing company brought an action against the operator (and investors) of a publicly accessible website that enabled users to share videos, alleging direct and secondary copyright infringement. The court held that when a website operator provides video-sharing software the site, it falls within the meaning of “by reason of the storage at the direction of a user,” as required for the website operator’s safe harbor protection under the DCMA. The website operator had established a system whereby software automatically processed user-submitted content and recast it in format that was readily accessible to its users. The website operator did not actively participate in or supervise file uploading, and did not preview or select files before upload was completed.
Business method and software patents were either extremely rare or unheard of before 1980, then grew after a number of decisions and now seem to be on the wane after the Bilsky case, where the United States Court of Appeals for the Federal Circuit (CAFC) essentially sent the message regarding the patenting of method claims, and the appeal in Bilski v. Kappos , essentially said the machine or transformation test is one of the issues in the patent eligibility test under section 101 of the patent act.
1. Recent Cases
a. CLS Bank Int’l v. Alice Corp. Pty. Ltd., 768 F. Supp. 2d 221 (D.D.C. 2011). CLS Bank International moved for summary judgment contending that all patent claims asserted by Alice Corporation Pty. Ltd. in this case are invalid for lack of patentable subject matter. Alice moved for partial summary judgment, arguing that its asserted claims are directed to patent-eligible subject matter. The patent covered a method of verifying payments through an intermediary to minimize the risk of online financial exchanges. The Court found each of the claims at issue to be directed to unpatentable subject matter and granted summary judgment in full to CLS. The Court reasoned that employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk is a fundamental abstract concept.
b. CEATS, Inc. v. Cont’l Airlines, 6:10CV120, 2011 WL 2971243 (E.D. Tex. July 21, 2011). This case applies the ordinary meaning of “verification of the successful approval of the payment submission.” CEATS asserted patents related to an electronic means by which people can select the exact seat or seats they want for events, venues, or on airplanes over the internet. Data is transmitted to a remote user’s computer allowing the computer to display an interactive seating map of the venue, event, or airplane. The user can then “mouse over” a seat causing additional information about that seat to be displayed. The user can select seats and purchase his selected seats. The court was asked whether the language “returning over the wide area network to the end user verification of the successful completion of the payment” was ambiguous. The court held that the ordinary meaning encompassed the normal process of e-commerce, namely that verification is the successful approval of the payment submission, not that the funds have actually been transferred and cleared by third parties, and a lay jury would understand the term without formal construction since its meaning is consistent with ordinary e-commerce transactions.
c. ePlus, Inc. v. Lawson Software, Inc., 3:09CV620, 2011 WL 2119410 (E.D. Va. May 23, 2011). This case addresses equitable remedies for patent infringement. ePlus alleged that Lawson had infringed, and was continuing to infringe, on ePlus’s patents through Lawson’s manufacture, use, sale, offer for sale, and/or importation into the United States of infringing products, methods, processes, services, and systems that are primarily used or primarily adapted for use in electronic sourcing and procurement software applications, services, systems, and methods. At issue were three ePlus patents related to enterprise procurement software. These two products, which embody the asserted claims of the patents-in-suit, provide to users an electronic sourcing and procurement system with which they can search for items in multiple vendor catalogs, compare those items, build requisitions for selected items, check the availability of selected items in vendors’ inventories, and generate multiple purchase orders from the requisitioned items for transmission to suppliers. The court granted ePlus’s motion for Permanent Injunction against Lawson reasoning that whether a patentee has an adequate remedy at law inevitably overlaps with whether a patentee has suffered irreparable harm. Here, damages at law would not be an adequate remedy for the irreparable harm ePlus has suffered, and will continue to suffer, as a result of Lawson’s infringement.
d. Discovery Patent Holdings, LLC v. Amazon.Com, Inc., 769 F. Supp. 2d 662 (D. Del. 2011). The owner of patents related to electronic books brought infringement action against a competitor. Competitor counterclaimed alleging patent infringement. Parties sought claim construction of the terms “broadcast,” “book,” “encrypting the selected electronic book,” and “decrypting the encrypted selected electronic book.” The court held that “broadcast” means sent to multiple recipients; “book” means an electronic version of the textual or graphical information contained in a work such as a novel, encyclopedia, article, magazine, newspaper, catalogue, periodical, manual, speech, law, court decision, or testimony; “encrypting the selected electronic book” means encrypting data representing the text and graphics of an electronic book; and “decrypting the encrypted selected electronic book” meant decrypting the encrypted data representing text and graphics of an electronic book.
D. Trade Secrets
1. Recent Cases
a. Int’l Bus. Machines Corp. v. Visentin, 11 CIV. 399 LAP, 2011 WL 672025 (S.D.N.Y. Feb. 16, 2011) aff’d, 437 F. App’x 53 (2d Cir. 2011). International Business Machines Corporation sought a preliminary injunction against Giovanni Visentin, a former IBM executive, to enforce a noncompetition agreement by restraining Mr. Visentin from working for Hewlett-Packard Company for a period of twelve months. Early in the morning of January 19, 2011, Mr. Visentin notified IBM of his intention to leave IBM to work for HP. On January 20, 2011, IBM filed a complaint including claims for breach of contract and misappropriation of trade secrets. The court denied the injunction, stating that the modern prevailing common-law standard of reasonableness for employee agreements not to compete applies a three-pronged test. A restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public. A violation of any prong renders the agreement invalid. The court reasoned that the agreement imposed an undue hardship on Mr. Visentin and that IBM had not demonstrated that the agreement was no greater than required for the protection of its legitimate interests. New York courts limit “legitimate” employer interests “to the protection against misappropriation of the employer’s trade secrets or of confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary. The clawback provision, which cancels all of the violating employee’s unvested and unexcercised equity grants and requires those employees to repay IBM for the equity options he has used in the last two years, appears to be punitive.
b. E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 3:09CV58, 2011 WL 4625760 (E.D. Va. Oct. 3, 2011). DuPont claimed conversion of trade secrets when Kolon acquired paper copies of DuPont documents and a CD containing copies of DuPont documents. The court held that conversion actions are available even when the allegedly converted property is intangible property not merged into a document of title or ownership. Virginia recognizes a property right in confidential information of the sort that Kolon obtained, and the conversion claim is not barred because the confidential information was embedded in another medium. This Court concluded that, in this technology-driven world, the value of intangible property cannot be disputed, and a decision to limit conversion to tangible property or intangible property merged in a document symbolizing ownership would leave domain name users, satellite programmers, owners of telephone networks and internet servers, and others similarly situated unable to use an action for conversion for substantial interference with their rights. Therefore an action is permitted for converted intangible property of the sort here at issue: confidential business information about the manufacturing process and about a company’s business plans.
1. Recent Cases
a. Maremont v. Susan Fredman Design Group, Ltd., 772 F. Supp. 2d 967 (N.D. Ill. 2011). An interior designer brought action against her former employer, alleging violations of the Lanham Act, employer moved to dismiss for failure to state a claim upon which relief can be granted. The court ruled that the designer stated a claim under the Lanham Act when she alleged that, as she was well known in the metropolitan design community and had a popular following on social networking websites related to her work in commercial interior design when her employer wrongfully used her name and likeness to promote its business by authoring articles and blogs under her name. The Lanham Act covers false representations concerning the origin, association or endorsement of goods or services through the wrongful use of another’s distinctive mark, name, trade dress or other device. False endorsement occurs when a person’s identity is connected with a product or service in such a way that consumers are likely to be misled about that person’s sponsorship or approval of the product or service. More specifically, a false endorsement claim based on the unauthorized use of a person’s identity is a type of false association claim, for it alleges the misuse of a trademark, i.e., a symbol or device such as a visual likeness, vocal imitation, or other uniquely distinguishing characteristic, which is likely to confuse consumers as to the plaintiff’s sponsorship or approval of the product.
b. Firefly Digital Inc. v. Google Inc., CIV.A. 10-0133, 2011 WL 4454909 (W.D. La. Sept. 23, 2011). Firefly registered “GADGET” and “WEBSITE GADGET” with the Federal Patent and Trademark Office. A certificate of registration with the PTO is prima facie evidence that the mark is registered and valid, that the registrant owns the mark, and that the registrant has the exclusive right to use the mark in commerce. As a result, when a plaintiff sues for infringement of its registered mark, the defendant bears the burden to rebut the presumption of the mark’s protectibility by a preponderance of the evidence. If sufficient evidence of non-distinctiveness is produced to rebut the presumption, the presumption is ‘neutralized’ and essentially drops from the case, although the evidence giving rise to the presumption remains. The court held that the terms “gadget” and “website gadget” were unprotectable generic terms; the term “website gadget” was an unprotectable descriptive term that had not acquired secondary meaning; and that factors weighed against finding of likelihood of confusion in relation to terms “gadget” and “website gadget.”
c. Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., 658 F.3d 936 (9th Cir. 2011). Luxury goods distributor Louis Vuitton brought a claim for contributory copyright and trademark infringement against web-hosting businesses that hosted infringing websites. A jury returned a verdict in favor of distributor and awarded $10,500,000 in statutory damages for willful contributory trademark infringement against each defendant and $300,000 in statutory damages for willful copyright infringement against each defendant. Defendants moved for judgment as a matter of law and the District court denied motion, awarded statutory damages and entered a permanent injunction against the remaining business and manager. To prevail on a claim for trademark infringement based on provision of services to a third party, plaintiff must establish that defendant continued to provide its services to one who it knew or had reason to know was engaging in trademark infringement, and that defendant had direct control and monitoring of the instrumentality used by third party to infringe. Therefore liability exists if it is supported by “substantial evidence” that web hosting business had reasonable means to withdraw web hosting services to infringers. The court found that hosting an infringing website does constitute “material contribution” as required for a showing of contributory copyright infringement. “Material contribution” turns on whether defendant’s activity substantially assists direct infringement. The physical hosting of the infringing sites and the routing of internet traffic to and from the sites constituted direct control. Hosting an infringing website constitutes “willful” infringement as required for a showing of contributory copyright infringement. A finding of “willful” can be based on behavior that is either intentional or merely reckless. However the plaintiff may not recover damages for each infringement from each defendant. There is a statutory maximum of $1,000,000 per infringement. Defendants are jointly and severally liable not separately liable. Statutory damages can be applied to contributory infringement because the term “use” in that section does not require defendant to use the counterfeit mark, but requires the case to involve such use. A counterfeit mark does not create a presumption of confusion that shifts the burden to the defendant. No matter how poorly executed, copying someone’s mark weighs heavily on intent, but not confusion.
a. VOOM HD Holdings LLC v. EchoStar Satellite L.L.C., 5121N, 2012 WL 265833 (N.Y. App. Div. Jan. 31, 2012). This case upholds an order granting plaintiff’s motion to impose sanctions against defendant for its spoliation of evidence. When a satellite television provider wrongly failed to implement a proper litigation hold after it should reasonably have anticipated litigation for four months after opposing party filed suit, they were at least grossly negligent, if not guilty of bad faith conduct. The court held that once a party reasonably anticipates litigation it must suspend its routine document retention/destruction policy and put in place a “litigation hold.” Because defendant failed to do so, the relevance of the destroyed emails could be presumed.
b. Liberty Media Holdings, LLC v. Protected Domain Services Customer NCR-3356109, 11-CV-02754-MSK-KMT, 2011 WL 5439874 (D. Colo. Nov. 9, 2011). The court held that plaintiffs are entitled to early discovery to determine the identity of the defendants pursuant to Fed.R.Civ.P. 26(f) for the limited purpose of discovering the defendants’ identities, which constitutes good cause in cases involving infringement and unfair competition.
G. Sweepstakes and other unique considerations
The states regulate sweepstakes, and compliance with each jurisdiction’s laws is required for every state in which the sweepstakes, giveaway or lottery operates. Special areas of the law that require more scrutiny include: (1) Consumer Advertising; (2) Insurance; (3) Tax Issues; (4) International and export laws; (5) Privacy; (6) Children; (7) Collection; (8) Medical; (9) Corporate Securities; (9) Disable Access; and (10) Loans.
H. Data Extraction
Data extraction is the compelling value proposition in social media, which has made the issue a contractual one. However, protecting an ecommerce site from data extraction precedes the popularity of social networking sites. If protecting the site from data extraction is important, one should consider using “no trespass” notices to protect data from extraction by spiders and crawlers. In the eBay, Inc. v. Bidder’s Edge, Inc. case, the court noted evidence to the effect that early robots were careful to check “the robots.txt file on every site and desist if asked,” and that “well-behaved robots are still expected to check the robots.txt file.”
As the law surrounding ecommerce develops, its roots in traditional ideas of justice become more clearly outlined. The threshold question is jurisdiction, and we answer it as we have traditionally by applying non-ecommerce cases, however, courts seem to alternatively disregard the new technology or focus on it in odd ways. If practitioners distill ecommerce to acts, actors and damages, strong cases are made. The issue is communicating these simplicities to the client and court. The atom versus electron distinction is artificial. The legal issues involved in ecommerce are largely contractual and secondarily, intellectual property rights driven.
By Eric van Naerssen
How does one comply or file under the Madrid protocol? Commercial marks—such as trademarks, trade names, service marks or “brands”—are how a business gains recognition and trust in the marketplace. The mark indicates the source of goods or services within a geographic area. Most nations have built institutions, such as the United States Patent and Trademark Office (USPTO) in the US, to protect the interests of businesses in their commercial marks. Filing marks with the USPTO can be relatively straightforward work for the experienced, whether alone or in association with legal counsel. But when a US business looks to overseas markets, protecting its commercial marks under several different sets of laws, languages, and cultures poses a planning and execution challenge. This short article introduces one mechanism many business owners and brand managers are using to streamline the registration of marks in many jurisdictions at once: The Madrid System for the International Registration of Marks or Madrid Protocol (the “Protocol”). It is effective for some and not for others. The contents of this article are not to be considered legal advice but will be useful to companies planning international expansions or to lead discussions with their legal counsel.
By way of background, the World Intellectual Property Organization (WIPO), who administers the Protocol, reports a record 36,471 applications filed under the Madrid system for the international registration of commercial marks in 2006, an 8.6% growth over 2005. German-based companies accounted for the largest share (18%) followed by French-based companies (10.7%). US-based companies, after only three years as a contracting party to the Protocol, came in third with 8.6% of the total. For the second consecutive year China was the most “designated” country, reflecting businesses’ interests in extending protection to marks registered under Madrid to that market. The rapid growth in the use of the Madrid system likely reflects improvements made by the Protocol to the original Madrid Agreement, such as accepting international applications based on just filing of an application in a contracting party’s (a contracting party is a member state or an organization, like the European Union, that has acceded to the Protocol) trademark office, rather than requiring a completed registration, which many believe lead to accession to the Protocol by the US and the European Union (EU) in 2003 and 2004, respectively.
The Protocol provides international registration that can be extended by request to any of the Protocol’s seventy-two contracting parties. This means that a US business seeking trademark or service mark protection in the EU, China, and Japan for example, can file a single application through the USPTO (the office of origin for US-based applicants) to WIPO’s International Bureau, and thereby extend protection of the mark to all three jurisdictions. Generally speaking, this route can lead to savings in translation costs, legal costs and application fees that would be required to navigate the application process in each of these jurisdictions individually, and thereby lowers one of the barriers to global market entry. Filing a mark under the Madrid system is not, however, the most effective approach for all businesses. Costs associated with clearance and prosecution, for example, are not always eliminated in foreign markets. Companies focused on South East Asia or Latin American markets do not benefit as much from the Madrid system since many nations in these areas have not yet joined the Madrid Union. Finally, companies that localize branding as part of their business strategy are not yet able to “tweak” their international registration, but must be prepared to register anew with each change in the mark. A company should clearly understand its own its marketing plans for each intended market and calculate the costs and benefits with these specific plans in mind.
Extending the protection of a member state or organization to the international mark starts with designating them on the international application or on a subsequent designation form. If the designated contracting party does not provide notice of refusal to the International Bureau within a fixed time, the member state or organization loses the right to contest the mark and protection is provided. The nature of the protection afforded under this extension is that which an applicant would have had they registered with the contracting party’s relevant offices directly.
A very basic international application under the Protocol can cost as little as US$700 (payable in Swiss Francs, not inclusive of legal fees) plus approximately US$60 for each country or organization under which extension of protection is sought. In addition, most applicants require assistance of legal counsel in the planning, filing of the application and maintenance of rights, and therefore budget for competent legal advice. In some cases additional fees are required by the office of mark protection in the particular nation or organization where the protection is sought. It is important to remember that the contracting parties can still oppose or reject a request for an extension of protection to an applicant’s mark, so in some cases foreign counsel may be necessary. Finally, some countries, like the US, still require mark owners to take affirmative actions to maintain the mark (such as the affidavit of use between the fifth and sixth year), in addition to the ten year renewal of the mark on the international register.
Early international filing is important because the priority date assigned to a mark is strong evidence of rightful ownership of a mark. Most nations grant ownership to either the first user of the mark or the first party to register the mark. Under the Protocol, international registration takes the priority date of the day the international application was received by the USPTO as long as the international application is received by WIPO’s International Bureau within two months of this date. For this reason, it is important to plan for international registration at the same time as the filing of the application in the US in order to take advantage of the earliest possible priority date.
One twist in US trademark law narrows protection for US businesses’ under the Protocol. Trademark registration in the US is granted only based on a relatively narrow description of goods or services. Meanwhile, the scope of protection extended by the contracting parties is limited to the scope of the basic application or registration. Therefore US-based applicants for international marks often end up with a narrower scope of protection under the Madrid system than it could get from filing directly with the trademark protection office in the target market, and also compared to their counterparts filing for international marks under the Madrid system from most other jurisdictions. Most other countries permit relatively broad descriptions of goods or services that applicants intend to use under the mark. In spite of this drawback, the rapid growth in US-based filings indicates this issue is not stopping US companies from taking advantage of the Madrid system. Also, one implication of this quirk is that if a US business can qualify to apply for a registration of a mark through a contracting party other than the US (by establishment, domicile, or nationality), it may be in a position to protect a broader scope of goods.
The dependence of the international application on the basic application also leads to the risk that a successful opposition, cancellation or withdrawal of th
e mark in the US within five years will trigger cancellation of the international mark and any extensions of protection. After five years, the basis of the international registration becomes independent of the basic registration. Cancellation of the international registration in this way has only occurred in small numbers (less than 1%). Fortunately, the Protocol mitigates the effects of cancellation by providing for a process of “transformation,” by which a single international registration can be transformed, by a timely application, into individual registrations in each of the designated contracting parties and still retain the priority date of international registration.
The Madrid Protocol is a relatively simple and cost-effective way to build brand protection internationally. Whether it is the right tool for any particular business depends on that business’ particular international market strategies, which foreign states it plans to market to, its intellectual asset budget and the industry in which it is operating. This summary article covers only the basic mechanisms, and a summary of pros and cons of the Protocol. The best advice for a business is to start to plan for international protection of the mark early in the branding process, to read the rules carefully, and to seek advice from experts who can understand how your particular needs fit efficiently into existing international mark protection systems. Remember commercial mark protection is about survival of the fittest: Those companies that are adequately capitalized to protect the mark, and rely on competent legal advice, win.
 Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks, June 27, 1989, as amended October 3, 2006, at http://www.wipo.int/madrid/en/legal_texts/trtdocs_wo016.html, last visited April 15, 2007. [Hereinafter Protocol];  Germany Holds its Lead in a Year that sees Record Number of Trademark Filings, Geneva, March 15, 2007, WIPO/PR/2007/480, at http://www.wipo.int/pressroom/en/articles/2007/article_0017.html, last visited April 15, 2007. Note that the Madrid system encompasses both the Madrid Protocol and the Madrid Agreement;  Id.;  Id.;  Id.;  Protocol, Article 2(4);  Guide to the International Registration of Marks, Part B, Chapter 2, Section 03.03, at http://www.wipo.int/madrid/en/guide/, last visited April 15, 2007;  United States acceded to the Madrid Protocol on November 2, 2003.  http://www.wipo.int/madrid/en/members/, last visited April 15, 2007.  Applicants are required to submit their international application through an Office of Origin. Protocol Article 2(2). The Office of Origin is the office of the nation or organization responsible for mark registrations where the applicant is qualified to file. Protocol, Article 2(3). An applicant is qualified to file in a jurisdiction by establishment, domicile or nationality, where establishment means a real and effective commercial establishment in the jurisdiction. Protocol, Article 2(1)(i), (ii). The Protocol provides guidance as to the meaning of these terms, but the contracting party’s laws determine their interpretation. Guide to the International Registration of Marks, Part B, Chapter 2, supra, Section 02.04-02.08.  SME’s or Micromultinationals? Leveraging the Madrid System for International Branding, Roya Gafele, at http://www.wipo.int/sme/en/documents/madrid_system_branding.html, last visited April 15, 2007.  http://www.wipo.int/madrid/en/members/, supra.  SME’s or Micromultinationals? Leveraging the Madrid System for International Branding, Roya Gafele, supra.  Protocol, Article 3ter.  Protocol, Article 5(1), (2) and (5). It is still possible for a member state or organization to invalidate the mark at a later date.  Protocol, Article 4(1).  The USPTO, for example, requires mark owners to submit an affidavit of use of the mark between the fifth and sixth year following registration and within the year before the end of every ten year period after registration.  Protocol, Article 3(4).  Protocol, Article 6(3).  Protocol, Article 6(2).  SME’s or Micromultinationals? Leveraging the Madrid System for International Branding, Roya Gafele, supra.  Protocol, Article 9quinquies.