Primary Contact

Richard Raysman
Partner
New York

Richard Raysman concentrates on computer law, outsourcing, complex technology transactions, and intellectual property issues. He has significant experience in structuring technology...

View Full Profile

  • Printer friendly
  • Email this page to a friend
  • Generate a PDF version of this page

Digital Technology & E-Commerce Blog

'Jailbreaking' Smartphones One of Six DMCA Anticircumvention Exemptions Announced by Librarian of Congress

August 17, 2010
Edward A. Pisacreta

Every three years the Librarian of Congress is charged with determining whether there are any classes of works that will be subject to exemptions from the DMCA's prohibition against circumvention of technology that effectively controls access to a copyrighted work.

Under the final rule announced this past July, six classes of works will not be subject to the prohibition against circumventing access controls (17 U.S.C. § 1201(a)(1)), including: circumvention of copy-protected DVDs to incorporate snippets of motion pictures into educational or non-commercial videos; programs that enable used wireless telephone handsets to connect to a wireless telecommunications network; certain security testing of copyright-protected video games; programs protected by dongles that prevent access due to malfunction or damage and which are obsolete; literary works distributed in ebook format that prevent the use of a read-aloud function or specialized screen reader.

Beyond the aforementioned exemptions, the Librarian of Congress, in consultation with the Register of Copyright, most notably exempted computer programs that enable wireless telephone handsets to execute software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications (when they have been lawfully obtained) with computer programs on the telephone handset. This exemption permits the so-called practice of "jailbreaking," which is done primarily by users of the iPhone to download smartphone applications (or "apps") that had not been authorized for distribution by Apple's iPhone App Store. Any software or app to be used on the iPhone must be validated with the firmware that controls the iPhone’s operation.

Both the Electronic Frontier Foundation (EFF), a digital rights advocacy group, and Apple Inc. submitted comments during the Librarian's evaluation of the proposed jailbreaking exemption. In its comments, the EFF argued, among other things, that jailbreaking was a noninfringing, noncommercial activity protected by fair use, and to the extent jailbreaking requires copying the phone's existing firmware beyond the scope of the user license, it would fall under the exceptions of 17 U.S.C. § 1l7(a), which permit the "owner" of a copy of software certain rights. Regarding the latter argument, the EFF contended that iPhone owners are also owners of the copy of the iPhone's firmware and that jailbreaking qualifies as an "adaptation" authorized by § 117(a). In its responsive comments, Apple countered that its prohibitions against jailbreaking were necessary to protect consumers and Apple from harm and that iPhone customers were mere licensees, not owners of the computer programs contained on the iPhone such that § 117(a) of the Copyright Act was inapplicable. Apple further argued jailbreaking would not be a fair use under the Copyright Act.

Regarding the § 117(a) arguments, the Register of Copyright stated that while Apple "unquestionably retained ownership of the intangible works," the Register could not determine whether the various versions of the iPhone consumer contracts constituted a sale or license of a copy of the computer programs contained on the iPhone, particularly since "the state of the law with respect to the determination of ownership is in a state of flux in the courts."

However, the Register of Copyright concluded that when one jailbreaks a smartphone in order to make the operating system on that phone interoperable with an independently created application that has not been approved by the smartphone maker, such a modification is fair use under the Copyright Act. Reviewing the first fair use factor (the purpose and character of use), the Register of Copyright found that jailbreaking was "innocuous at worst and beneficial at best" and that Apple’s objections appeared to "have nothing to do with its interests as the owner of copyrights in the computer programs embodied in the iPhone…[but] relate to its interests as a manufacturer and distributor of…the iPhone." Addressing the fourth fair use factor (the effect of the use upon the potential market of the copyrighted work), the Register found that permitting jailbreaking will not adversely affect the market of the phone's firmware: "The harm that Apple fears is harm to its reputation…, [that] jailbreaking will breach the integrity of the iPhone’s 'ecosystem.' [S]uch alleged adverse effects are not in the nature of the harm that the fourth fair use factor is intended to address."

It should be noted, however, that the Librarian of Congress's final rule concerns the legality of jailbreaking under the DMCA, but has no effect on contractual provisions that might void a user's warranty if his or her smartphone has been jailbroken. Indeed, as one commentator stated, jailbreaking can be a practice with many benefits—and many downsides.

Statutory Damage Award under Copyright Act Reduced on Constitutional Grounds

July 15, 2010
Charles D. Tobin

A Massachusetts district court has sharply reduced the damages recovered in a peer-to-peer music file sharing case, finding that the Constitution would not permit the jury's six-figure award against an individual infringer.

In Sony BMG Music Entertainment v. Tenenbaum, 2010 WL 2705499 (D. Mass. July 9, 2010), the defendant was accused of using file-sharing software to download and distribute thirty copyrighted songs belonging to the plaintiffs-recording companies. The defendant's liability for infringement was not seriously in question, and his defense of fair use was rejected by the court in a prior ruling. The only questions for the jury were whether the defendant's infringement was willful and what amount of damages was appropriate.

The plaintiffs opted for statutory damages over actual damages as the remedy. Under the relevant statute, 17 U.S.C §504(c), the jury's award could be no less than $750 for each infringed work and no more than $30,000 or $150,000, depending on whether the jury concluded that the defendant's conduct was willful. The jury found that the defendant willfully infringed the plaintiffs' copyrights and imposed damages of $22,500 per song, yielding a total award of $675,000. The defendant filed a motion for remittitur, raising both common law and constitutional grounds. The defendant raised the question whether the Constitution's Due Process Clause was violated by a jury's award of statutory damages against an individual who committed infringement for no financial gain.

After applying the principles from the Supreme Court's punitive damages jurisprudence, analyzing a sampling of statutory damage awards from copyright cases over the past two years, discussing the asymmetry between the relatively small harm suffered by plaintiffs and benefit reaped by the defendant, and reaffirming the defendant's willful, unlawful conduct, the court ruled:

"[I] conclude that the jury's award of $675,000 in statutory damages for Tenenbaum's infringement of thirty copyrighted works is unconstitutionally excessive. This award is far greater than necessary to serve the government's legitimate interests in compensating copyright owners and deterring infringement. In fact, it bears no meaningful relationship to these objectives. To borrow Chief Judge Michael J. Davis' characterization of a smaller statutory damages award in an analogous file-sharing case, the award here is simply “unprecedented and oppressive.” Capitol Records Inc. v. Thomas, 579 F.Supp.2d 1210, 1228 (D.Minn.2008). It cannot withstand scrutiny under the Due Process Clause.

[I] reduce the jury's award to $2,250 per infringed work, three times the statutory minimum, for a total award of $67,500. Significantly, this amount is more than I might have awarded in my independent judgment. But the task of determining the appropriate damages award in this case fell to the jury, not the Court. I have merely reduced the award to the greatest amount that the Constitution will permit given the facts of this case."

The court looked to another recent peer-to-peer filing sharing decision where another court ordered remittitur of a large jury verdict against a file-sharer. In Capitol Records Inc. v. Thomas-Rasset, 680 F.Supp.2d 1045 (D. Minn. 2010), the jury originally awarded $80,000 per song, for a total award of $1,920,000. The court subsequently ordered a remitted award of $2,250 per song, stating that although the plaintiffs "were not required to prove their actual damages, statutory damages must still bear some relation to actual damages.” The plaintiffs in the Thomas-Rasset case rejected the reduced award, opting instead for a new trial. Much like Thomas-Rasset, the Tenenbaum court reasoned that an award of $2,250 per song, three times the statutory minimum, "was the outer limit of what a jury could reasonably (and constitutionally) impose in this case."

It remains to be seen whether the Tenenbaum opinion will be upheld on appeal, particularly given the court's reasoning that equated constitutional limits on Copyright Act statutory damages with punitive damages, and its selection of the $2,250-per-song damage calculation based upon three times the statutory damage minimum. Until an appeals court weighs in, it is likely that copyright infringers may seek to reduce statutory damage awards that appear to be out of proportion with the actual damages suffered by the content owner, particularly in cases where the infringer lacked a commercial motive. It is not clear, however, how much of the rationale behind the Tenenbaum decision is adaptable to other areas of copyright law. Over the past few years, the handful of major peer-to-peer music file sharing opinions have been described by some commentators as almost a separate sect of copyright law, with decisions based upon unique fact patterns and technology, and culminating in rulings that do not necessarily translate into mainstream copyright and content licensing disputes.

The Bilski Decision

June 30, 2010
Joshua Krumholz
Benjamin D. Enerson

In the Supreme Court’s decision in Bilski v. Kappos decided on June 28, 2010, the Supreme Court rejected the Federal Circuit’s “machine-or-transformation” test as the sole test for determining whether a given “process” constitutes patentable subject matter. The Court held that, while the “machine-or-transformation test” is a “useful and important clue, an investigative tool,” it “is not the sole test for deciding whether an invention is a patent-eligible ‘process.’” (Slip Op. at 8.) In this respect, the Supreme Court’s opinion in Bilski echoes its decision in KSR, in which it held that the “motivation to combine” test was too rigid, and instead, “motivation to combine” should be one of many factors to be considered when assessing obviousness under section 103. The Court did, however, repeatedly emphasize the usefulness of the "machine-or-transformation" test.

In reaching its conclusion, the Supreme Court also rejected the argument that a business method patent could not constitute a "process" under Section 101 (although note that the 4-justice concurring opinion disagreed with this conclusion). In reaching this conclusion, the Court looked to the plain language of the statute, in particular section 100(b), and its use of the term “method” to help define what constitutes a patentable process. The Court noted that it “is unaware of any argument that the ‘ordinary, contemporary, common meaning . . . of ‘method’ excludes business methods.” (See id. at 10.) The Court found further support in section 273(b)(1) and 273(a)(3), which concern prior inventorship. Section 273(a)(3) in particular describes a “method” as being “a method of doing or conducting business.” (See id. at 11.)

Business method patent owners, however, should not draw much comfort. The Supreme Court expressed a healthy skepticism for business method patents, and suggested that many, if not most or all, could be found unpatentable as "abstract ideas." In particular, the Supreme Court affirmed that the specific claims at issue, which covered a method for hedging against the risk of price changes in the energy market, were unpatentable under section 101 of the patent laws. In doing so, the Supreme Court relied on its prior decisions in Flook, Benson, and Diehr, holding that the claims at issue covered “abstract ideas.” (See id. at 13–16.) To the extent certain claims limited the idea to a particular field of use, the Supreme Court found, relying on its decision in Flook, that such post-solution activity or field of use restrictions did not render the claims patentable. (See id. at 15.)

Like in some recent Supreme Court cases, this decision brings some uncertainty back into the process. However, because the Court essentially endorsed the utility of the "machine-or-transformation" test and offered no alternatives, that test likely will still be the main determiner under Section 101. In addition, while the Court did not explicitly say so, it appears that any risk to software patents as a class has now passed.

Lower Court Rules in Favor of Google in Landmark Copyright Dispute

June 24, 2010
Marc S. Reisler

After more than three years of litigation, the court in the closely-watched Viacom-YouTube copyright dispute issued a decision granting summary judgment to YouTube (Google), ruling that the service provider was protected under the Digital Millennium Copyright Act (DMCA) safe harbor against all of the plaintiff's direct and secondary infringement claims.

In Viacom International, Inc. v. YouTube, Inc., No. 07-02103 (S.D.N.Y. June 23, 2010), the district court held that general knowledge that copyright infringement is "ubiquitous" on a video sharing website does not impose a duty on the service provider under the DMCA safe harbor to monitor or search its service for infringements. Relying primarily on Ninth Circuit precedent and the DMCA's legislative history, the court granted summary judgment in favor of the video sharing website, ruling that it qualified for protection under the DMCA safe harbor, 17 U.S.C. §512(c) and was not liable for direct or contributory copyright infringement. The plaintiff had alleged that the video sharing website was responsible for copyright infringement "on a massive scale" for hosting thousands of videos containing the plaintiff's content. The defendant had countered that after it received a takedown notice from the plaintiff concerning the presence of 100,000 infringing videos on its site, it removed virtually all of them by the next business day in compliance with its obligations under the DMCA. The court ruled that if a service provider knows from a takedown notice from the owner or a "red flag" of specific instances of infringement, the provider must promptly remove the infringing material (which occurred in this case). If not, the court stated that the burden is on the content owner to identify the infringement. The court further stated that the DMCA safe harbors do not condition protection on a service provider monitoring its service or affirmatively seeking facts indicating infringing activity, particularly when, as was the case here, the infringing works are a "small fraction of millions of works posted by others on the service's platform, whose provider cannot by inspection determine whether the use has been licensed by the owner, or whether its posting is a "fair use" of the material, or even whether its copyright owner or licensee objects to its posting." Notably, the court rejected the plaintiff's reliance on the recent P2P music file-sharing decisions, stating that "the Grokster model does not comport with that of a service provider who furnishes a platform…and…identifies an agent to receive complaints of infringement, and removes identified material when he learns it infringes."

Can a Website's "Look and Feel" be Protected via a Trade Dress Claim under the Lanham Act?

May 28, 2010
Edward A. Pisacreta

What is the "look and feel" of a website and how can it be protected? Two possible intellectual property regimes exist in the context of protecting a web site's "look and feel" - the Copyright Act and the Lanham Act.

Copyright Law

Copyright law will protect an "original work of authorship fixed in any tangible medium of expression." To be "original" the work must not be copied from another's work and must possess a modicum of creativity. Those works without this modicum of creativity do not qualify for copyright protection, i.e., are not "copyrightable subject matter." Copyright infringement claims and trade dress claims are mutually exclusive and, if an adequate remedy lies under the Copyright Act, any remedy under the Lanham Act is preempted. When no copyright protection is available, a Lanham Act claim is not preempted.

While some courts and the Copyright Office have stated that copyright law will generally not protect the overall format and layout of a Web page or website (though text, software code and certain creative graphic elements may be protectable), a number of courts in recent years have indicated a willingness to extend trademark law protections to distinctive website design and features. In fact, this spring, two district courts waded into the debate and ruled that a website's look and feel could be protectable trade dress that would not interfere with copyright law interests, albeit with varying results for the plaintiffs.

Trade Dress Generally

Trade dress includes the arrangement of identifying characteristics or decoration connected to a product, whether by packaging or otherwise, intended to make the source of the product distinguishable from another and to promote it for sale. It refers to the "total image and overall appearance" of a product, and like trademark, is meant to protect consumers from confusion between a product from an expected source and one from another, unexpected source. Protectable trade dress can include a wide range of features, including the color and shape of pill capsules, the look of a greeting card line, the design and format of magazine covers, the distinctive décor of a restaurant, and the color and tropical depictions on liquor bottles.

However, a website is a multi-layered, non-static, changing "product" with both original and functional elements, thereby making a trade dress determination more difficult. The “look and feel” of a website is a concept which is difficult to define. In general, the “look” comprises aspects of a website's visual design including the colors, shapes, layouts, fonts, and shapes, items not so dissimilar from traditional trade dress. The "feel" describes what lies beneath the “visual design”, that is, the “interface design.” These are the recognizable, familiar elements that help the user navigate the site, such as through the use of tabs, boxes, menus, and hyperlinks. The "look" and the "feel" of a website also include an "overall mood, style and impression." All of these produce an intuitive association with a company's or brand's reputation. In summary, for trade dress infringement, the question is, as with a trademark, does the public associate the "look and feel" of the plaintiff's website with the plaintiff or its products to the point that the defendant's website causes confusion as to the source of the site?

Recent Decisions

In Conference Archives, Inc. v. Sound Images, Inc., 2010 WL 1626072 (W.D. Pa. Mar. 31, 2010), the parties' partnership broke down and the defendant copied a portion of the plaintiff's HTML/Javascript code to develop a new product that would mimic the "look and feel" of the plaintiffs' product. Among other intellectual property-related claims, the plaintiff brought trade dress claims under the Lanham Act. The court denied the defendant's motion for summary judgment on the plaintiff's Lanham Act claim and found that the plaintiff stated a cognizable trade dress claim.

The court applied the two-part test for trade dress infringement:

  • The claimed trade dress infringement must survive copyright preemption. While certain elements of a website would clearly fall within the subject matter of copyright, including the text of the page, software code, and certain creative graphical elements, the court found that the look and feel of the plaintiff's website fell outside the subject matter of the Copyright Act and thus escaped preemption.
  • Beyond the preemption analysis, the next step involves a three-factor test, requiring that the plaintiff prove that: (1) the trade dress at issue is distinctive and indicates the source; (2) the trade dress is primarily nonfunctional; and (3) the trade dress of competing goods is confusingly similar. After comparing several elements of the plaintiff's and defendant's websites such as the spacing between table cells, font and background colors, cell height (in pixels), none of which would be protectable under copyright, and noting the defendant's admittedly willful copying of some of the elements of the trade dress of plaintiff's website, the court concluded that the plaintiff had adequately pleaded its trade dress claim.

Interestingly, this month, a California district court also recognized the viability of a trade dress claim based upon the copying of a website's look and feel, though the end result for the litigants was different. In Sleep Science Partners v. Lieberman, 2010 WL 1881770 (N.D. Cal. May 10, 2010), the plaintiff alleged that the defendant, its former business associate, started a competing medical enterprise and used the same format, design and feel as the plaintiff's website and other media. The court found the plaintiff's claims were underdeveloped and vague: "Although it has cataloged several components of its website, Plaintiff has not clearly articulated which of them constitute its purported trade dress. […] Without an adequate definition of the elements comprising the website's 'look and feel,' [the defendant] is not given adequate notice." As a result, the court dismissed, among other claims, the plaintiff's trade dress infringement claim, with leave to amend to articulate its alleged trade dress with greater detail.

Some Lessons from the Recent Rulings

  • While certain website elements may receive copyright protection, generally a website's interface elements are beyond the scope of the subject matter of the Copyright Act. As the Conference Archives court stated, in order to withstand copyright preemption, the elements of a trade dress elements should be "specifically identified and painstakingly selected." The above shortcoming was the principal reason that the plaintiff's claim in Sleep Science Partners did not survive the defendant's dismissal motion. Thus copyrightable elements such as text and creative graphic designs that have been infringed should be pleaded in a copyright infringement claim.
  • In order to prove its cause of action, a plaintiff should offer a comprehensive comparison of the websites in question and delineate what trade dress elements have been copied, going beyond a mere conclusory statement that the defendant's website is "visually similar." For example, in Conference Archives, the plaintiff produced a report that broke down the visual similarities arising from use of the same colors (noting identical hexadecimal color notations), screen orientations, arrangement of codes and tags in HTML language, and pixel heights for shaded areas.
  • A trade dress infringement case can be bolstered by evidence that the defendant committed willful copying or copied the material for the express purpose of emulating the plaintiff's website.

Free Speech in the Blogosphere: Do Bloggers Enjoy The Offline Journalist's Coveted Privilege To Refuse To Disclose Sources?

May 10, 2010
Ieuan Mahony

Internet speech is broad and robust, and bloggers fight to preserve this wide-open "exchange of news and views" by relying on, among other legal protection, First Amendment guaranties of "freedom of the press." The journalist's privilege is designed to preserve this freedom by allowing a journalist to refuse to disclose his or her sources -- or to use a derogatory term, "informants" – for a news report. From the lonely pamphleteer to the major metropolitan newspaper publisher, a large range of individuals can be considered "journalists." In a broad range of "brick and mortar" circumstances, these individuals have obtained protection under the journalist's privilege, and courts have permitted them to refuse to disclose their confidential news sources. Proponents of the privilege applaud these court decisions, and argue that if a journalist's information sources could not remain confidential, the required free flow of information to the public would effectively dry up.

Yet with the explosion of news, information, opinion, and invective on the Internet, courts have found it difficult to define who is entitled, under the journalist's privilege, to refuse to disclose information sources. Thankfully, near "hot off the press" court decisions now provide key guidance on the scope and effect of the journalist's privilege: (i) to the participant in online reporting and in other less formal information-sharing; and (ii) to the "target" of an online exchange, who believes he or she has been wronged by the exchange, either through disclosure of confidential information, or through untrue and reputation-disparaging statements.

One notable example of these decisions is O'Grady v. Superior Court, 44 Cal. Rptr. 3d 72 (Cal. App. 2006). In O'Grady, the defendants allegedly posted information from Apple insiders disclosing trade secrets about unreleased Apple products. When Apple demanded the identity of these anonymous insiders, the California Court of Appeals refused, ruling that the defendants' Internet publications were sufficiently similar to traditional news publications to qualify them for the journalists' privilege. The Court then "quashed" Apple's subpoenas and protected the identity of the defendants' sources. As the Ninth Circuit reasoned in a similar case, the journalist's privilege is not limited to traditional news media; instead the privilege "is designed to protect investigative reporting, regardless of the medium used to report the news to the public .... [W]hat makes journalism journalism is not its format but its content." Shoen v. Shoen, 5 F.3d 1289, 1293 (9th Cir. 1993).

The second of these decisions is the recent New Jersey appellate case of Too Much Media LLC v. Hale, 2010 WL 1609274 (N.J. Super. Ct. App. Div. Apr. 22, 2010). There, a claimed news reporter had conducted an investigation of – and posted on Internet sites her "findings" concerning – claimed participants and wrongdoing in the online adult entertainment industry. The target of her claimed investigative reporting disagreed with her facts and conclusions, sued the reporter for defamation and other claimed wrongs, and demanded the identity of her sources, likely to show (among other points) that these sources were untruthful or ill-informed. The defendant responded by claiming she was an "investigative reporter" enjoying protection under the New Jersey Shield Law, and entitled to withhold the identity of her sources. On appeal, the Court rejected these arguments. While recognizing that the journalist's privilege provides broad protection, and includes protections to Internet publications beyond traditional news media, the court stressed that "new media should not be confused with news media." The court then examined what it means to be involved in "news media," and ruled that the claimed reporter in fact had not engaged in any activities traditionally associated with news reporting or news media. For example, she had not undertaken fact-checking, had not retained notes of conversations, meetings, or interviews with her claimed sources; admittedly did not identify herself to her sources as a reporter; and admittedly did not promise anonymity to her sources. The court, therefore, ruled she enjoyed no protection under the journalist's privilege, and was required to disclose her sources, and in fact support the alleged veracity of her Internet postings through these sources.

Although these two cases do not provide "binary rules" for predicting whether the journalist's privilege will protect specific online activity that you may contemplate, the cases provide important factors to consider in your online endeavors:

    • Given the broad range of topics that might be considered newsworthy, courts will generally avoid inquiry into whether the content of your post qualifies as "news."
    • You may qualify for protection under a particular state's journalist's privilege even if you are not a member of the institutionalized press. The privilege protects the activity of investigative reporting, and not simply "official" newspaper or television reporters.
    • To qualify for the privilege, you must to do more than simply assert "I am a reporter" and "I have a hard-hitting journalistic website." Instead, you must show that you are actively engaged in a substantive, real news process.
    • To determine whether your activities meet this requirement, a court would likely examine: (i) the process you employed in preparing your post; (ii) the nature of your connection (if any) to recognized traditional or online news services, and (iii) the nature of the website and where your work is posted.
    • For example, courts draw a distinction between (a) an open and deliberate blog, on a news-oriented website, that concerns news you've gathered specifically for the purpose of making that contribution; and (b) the casual "deposit" of information, opinion (or fabrication) to an open and "all-welcoming" newsgroup or other online forum. If your posting is akin to item (a), above, it is more likely your conduct will qualify for the journalist's privilege.
    • Courts also draw a distinction between (i) personal diaries, opinions, impressions and expressive writing; and (ii) news reporting. Information you post that tends toward the forms outlined in item (i), above, is more likely to disqualify you from the privilege.
    • The privilege is more likely to attach where you have an understanding with your information source that you will not disclose his or her identity. This understanding can be express (you have said so to your source, in words or in writing), or even implied (you did not actually say this to your source but, given the circumstances, your source would have believed you were giving assurances of anonymity).
    • You will increase your chances of enjoying the privilege where you follow general professional journalism standards, such as editing, fact-checking, and disclosure of conflicts of interest.
    • You should identify yourself to interviewees and other information sources as a reporter or journalist.
    • You should take and retain notes of conversations, meetings, and interviews with contacts or sources that underlie – whether favorably or unfavorably – the information you post.
    • You should seek to create independent work product, and should not simply assemble posts and writings by others. If you wish to include postings and quotes from others, you should work to make an interesting, substantive contribution to the dialogue, and not simply parrot the opinions and writings of others.

Congress may clarify this area further. There is a federal bill pending, U.S. Senate (S.448) entitled the "Free Flow of Information Act," designed to codify the journalist's privilege at the federal level.

While waiting for this potential development, understand in your blogging and other online work that you may qualify for the highly coveted privilege enjoyed by "brick and mortar" journalists. Only remember: if you want protection like a journalist, you've got to act like a journalist.

Discussion Draft of Internet Privacy Bill Released by House Subcommittee

May 4, 2010
Marc S. Reisler

On May 4, 2010, Rep. Rick Boucher, Chairman of the House Subcommittee on Communications, Technology, and the Internet, and Cliff Stearns, Ranking Member of the Subcommittee, released a discussion draft of privacy legislation that would cover the personal and sensitive information of consumers both on the Internet and offline. There are currently several fronts in the push for online privacy controls: privacy watchdog groups that are advocating for stronger regulation, most recently in the form of a complaint with the FTC over certain companies' behavioral advertising practices; the online advertising industry that favors self-regulation, most recently releasing technical specifications that would offer a method to provide website users with notice regarding behavioral advertising; and the FTC, which last year released its own online and behavioral advertising self-regulatory principles and has hosted several public roundtable discussions this year to explore the privacy challenges posed by the vast array of 21st century technology and business practices that collect and use consumer data.

Representative Boucher's discussion draft bill would, among other things, cover a number of online privacy concerns:

  • Privacy Policy Disclosures: Companies that collects individuals' "covered information" (which included traditional "personally identifiable information" as well as persistent identifiers such as a user's IP Address) would have to conspicuously display a clearly-written, understandable privacy policy that explains how information about individuals is collected, stored, used, disclosed, comingled with other collected personal information, and if applicable, disposed or rendered anonymous.
  • Opt-Out Consent: Under the bill, websites with adequate privacy policies would be able to collect information about individuals unless an individual affirmatively opts out of that collection. If an individual declines consent at any time subsequent to the initial collection of the covered information, the website could not collect covered information from the individual or use covered information previously collected. While a covered entity would be prohibited from selling, sharing, or otherwise disclosing covered information to an unaffiliated party without first obtaining a user's express affirmative consent, opt-out consent would still apply when a website relies upon another service provider to effectuate a first party transaction, such as the serving of ads on that website, and the service provider agrees to use the information solely for the purpose of providing the contracted service.
  • No Consent: No consent would be required to collect and use operational or transactional data—the routine web logs or session cookies that are necessary for the functioning of the website—or to use aggregate data or data that has been rendered anonymous.
  • Opt-In Consent: Websites would need an individual’s express opt-in consent to knowingly collect sensitive information (SSN, financial, medical, geolocaton data) about an individual.
  • Behavioral Advertising: Many websites work with third-party advertising networks to create a profile and target ads based on a user's Web activity. The bill would apply opt-out consent to the sharing of an individual’s information with a third-party ad network if there is a clear, easy-to-find link to a webpage for the ad network that allows a user to edit his or her profile, and if he chooses, to opt out of having a profile, provided that the ad network does not share the individual’s information with anyone else.
  • Data Security: Under the bill, a covered entity or service provider that collects covered information about an individual would be required to implement and maintain appropriate administrative, technical, and physical data security safeguards that the FTC determines are necessary to ensure the security, integrity, and confidentiality of collected information and protect against anticipated threats and unauthorized access.
  • Enforcement: The FTC would adopt rules to implement and enforce the measures. While there is no private right of action under the bill, state attorneys general or state consumer protection agencies could enforce the FTC’s rules.

'Hot News' Doctrine Back in the News

April 19, 2010
Richard Raysman

Ever since (and likely long before) the famous Paul Revere's "Midnight Ride" of 1775, breaking news has been a hot commodity. And given the ease of distribution of information in the digital age, news organizations and content providers have found it increasingly difficult to prevent its wide release over the Internet, particularly uses that do not necessarily constitute copyright infringement. It seems, however, that the old "hot news" misappropriation doctrine—first outlined by the Supreme Court in its almost century-old International News Service v. Associated Press, 248 U.S. 215 (1918) decision—may offer a limited remedy against websites that "free-ride" on content providers' costly efforts to collect and generate time-sensitive news and materials.

As I wrote about last year, the Southern District of New York reignited the 90-year old “hot news” doctrine and applied it in the Internet context. In The Associated Press v. All Headline News Corp., 2009 U.S. Dist. LEXIS 11816 (S.D.N.Y. Feb. 17, 2009), the district court found that a newswire’s “hot news” misappropriation claim against a news aggregation website that collected news stories on the Internet and repackaged them under its own banner was valid under New York law.

Most recently, this past month, the Southern District issued another opinion upholding the hot news doctrine in Barclays Capital Inc. v. TheFlyOnTheWall.com, 2010 WL 1005160 (S.D.N.Y. Mar. 18, 2010). In Barclays, a financial newsfeed website that posted key information from proprietary, time-sensitive equity research reports distributed by several Wall Street investment firms to subscribing investors prior to the opening bell was liable for hot news misappropriation. Following a bench trial, the court, among other things, issued a permanent injunction barring the defendant from publishing information culled from research reports for a specific amount of time after the investment firms release their reports to top investors (i.e., the defendant must wait until one-half hour after the market's opening bell (10:00am) for equity research reports released while the market is closed, and two hours for reports released while the market is open for trading). The court found that the plaintiffs satisfied the five-part test for hot news misappropriation, namely that: (1) the plaintiffs produced the equity research at great expense; (2) the value of the information was highly time-sensitive; (3) the defendant’s use of the information constituted "free-riding"; (4) the defendant was in direct competition with the plaintiff in disseminating equity research to investors; and (5) the defendant's continued conduct would reduce the plaintiffs' incentive to produce equity research reports and would threaten the continued viability of plaintiffs’ research business.

The Barclays decision was certainly a notable victory for the investment banks, though, not all commentators agree on the beneficial result in limiting the disclosure of such reports. While this decision involved financial reports, the AP announced this month that it would pursue legal action against news aggregators that reprinted its materials without permission. Going forward, it remains to be seen whether other news outlets will seek to use the hot news doctrine to prevent online certain news aggregators and other similar websites from collecting headlines and displaying snippets of article text underneath, particularly in light of the recent financial woes of news publishers that are struggling to find the right balance of free and paid content on the Internet.