Today the Supreme Court found an ambiguity in the Patent Act, reversing Apple’s $399 million infringement award against Samsung.

In the ongoing international litigation war between Apple and Samsung,  Apple prevailed at the trial court level on a design patent infringement case regarding Apple’s rounded corners and user interfaces. Apple was awarded $399 million, representing Samsung’s total profits from sales of the infringing smartphones. Samsung appealed that Apple was only entitled to the profits based on the infringing aspects (the corners and interfaces) not the profits from the entire phone. The Federal Circuit disagreed, affirming the Apple award. In its appeal to the Supreme Court, Samsung ridiculed the lower court’s ruling, arguing that under the Federal Circuit’s logic “profits on an entire car – or even an eighteen-wheel tractor trailer – must be awarded based on an undetachable infringing cup-holder.”

The Supreme Court Decision

Justice Sotomayor, writing for a unanimous court, agreed with Samsung, finding that “the term ‘article of manufacture’ [in Section 289 of the Patent Act] is broad enough to embrace both a product sold to a consumer and a component of that product.” The Court acknowledged that the parties asked “us go further and resolve whether, for each of the design patents at issue here, the relevant article of manufacture is the smartphone, or a particular smartphone component.” But the Court punted: “Doing so would require us to set out a test for identifying the relevant article of manufacture at the first step of the §289 damages inquiry and to parse the record to apply the test in this case.” Instead, the Court remanded the case back to the Federal Circuit.

What’s Next?

So the Federal Circuit is tasked with determining (A) the proper test for whether, with regards to Samsung’s smartphones, the “article of manufacture” are the infringing components or the entire smartphone, and then (B) to calculate the proper amount of damages associated with the article of manufacture.

Patent Infringement Litigants (Their Attorneys and Damages Experts) Must Hold Their Breath

Like gamblers on a sporting event over which they have no control, parties litigating patent infringement actions can only hold their collective breath and wait to see which test the Federal Circuit devises and whether the test is pro-plaintiff or defendant. Undoubtedly, the losing party (Apple or Samsung) will argue the Federal Circuit got it wrong, and ask the Supreme Court for a do-over.

This week, the Federal Aviation Administration (“FAA”) enacted regulations for routine non-recreational use of small Unmanned Aircraft Systems weighing less than 55 pounds or “drone” laws (Part 7 of Federal Aviation Regulations (“FAR”)). For now, this law only applies to commercial operation of drones. However, concerns relating to the operation of drones may require the government to pass laws relating to recreational use of drones in the near future.

The new law requires drones to maintain a visual line-of-sight with the remote pilot in command and the person manipulating the flight controls or the visual observer at all times so that the remote pilot and the visual observer are capable of seeing the drone with vision unaided by any device other than corrective lenses. Drones may not operate over any persons not directly participating in the operation, and also may not operate under a covered structure, and not inside a covered stationary vehicle. Drones can only conduct operations in daylight or civil twilight (30 minutes before official sunrise to 30 minutes after official sunset, local time) with appropriate anti-collision lighting and can only have a maximum groundspeed of 100 mph.

In addition, the new law prohibits drones from carrying hazardous materials. A person may not operate a drone if he or she knows or has reason to know of any physical or mental condition that would interfere with the safe operation of a drone. Also, a person operating a drone must either hold a remote pilot airman certificate, which requires the person to pass a test at an FAA-approved facility, or be under the direct supervision of a person who does hold a remote pilot certificate.

California has also enacted laws at the state level for the regulation of drones. Last year California enacted AB 856, which expanded the definition of physical invasion of privacy under California civil code §1708.8(a) to include “airspace above the land of another person without permission.”  AB 856 was enacted to regulate “paparazzi drones.” Assemblyman Ian Calderon, who wrote the legislation, said that the law was enacted when “we learned that the paparazzi have used drones for years to invade the privacy and capture pictures of public persons in their most private of activities — despite existing law.” It remains to be seen how the new FAA regulations will interact with the existing state laws on drone regulation, however, in general, Part 7 of the FAR appears to compliment AB 856.

Early this year California state legislators proposed another bill, Assembly Bill 1662, in response to an accident when an 11 month old baby was injured in the head by shrapnel from a falling drone at a public movie screening in Pasadena. The proposed Assembly Bill 1662 requires the operator of any drone involved in an accident resulting in injury to an individual or damage to property to immediately land the drone at the nearest location that will not jeopardize the safety of others. The bill also requires the drone operator to present his or her valid identification and his or her name and current residence address to the injured individual or the property owner.

In short, drone operators, especially individuals or companies intending to use drones for commercial purposes, should have knowledge of the existing laws relating to drone regulation. Also, the legal landscape of drone regulation is in flux and is undergoing rapid change. Therefore, drone operators should also be aware of the new and upcoming laws relating to drone regulation.

Guest Author: Mahima Kheterpal

Two years ago, a federal judge rocked the music industry in holding that pre-1972 recordings may be protected under state copyright laws and are protected by California copyright law.  This holding, in a case brought against SiriusXM, had vast potential ramifications, as it would mean that radio and internet radio stations playing such recordings would have to pay out millions of dollars in royalties that they had never anticipated paying. CBS Radio, however, just scored a legal victory that, if it stands up, would effectively eliminate any artist’s ability to recover royalties for pre-1972 recordings.

Seeking a way to shift the paradigm of the SiriusXM case and the string of similar suits that preceded and followed it, when ABS  Entertainment, which owns the pre-1972 recordings of Al Green and others, sued CBS, iHeartMedia, and Cumulus, CBS decided to throw something of a legal “Hair Mary.”  It argued that “CBS does not play vinyl sound recordings.”  Rather, it plays only re-issued or remastered versions of pre-1972 recordings.

United States District Judge Percy Anderson grabbed CBS’s Hail Mary in the end zone, finding that the sound engineering process in remastering an album constitutes “copyrightable originality.”  As such, CBS was permitted to treat the recordings as post-1972 recordings.

Judge Anderson’s ruling comes despite ABS’s warning that accepting CBS’s remastering argument would result in the owners of sound recordings trumping artists’ rights over their works in all cases.  The judge addressed this point in a footnote, distinguishing the “original expression added by a sound engineer during the remastering process” from the naked conversion between formats (i.e., vinyl to MP3).

The reason that this issue exists is that, on February 15, 1972, Congress brought sound recordings under federal copyright law, but not retroactively. Prior to 1972, musical recordings were protected only be state copyright laws, many of which are based in common law, court-made rules that are not codified in statutes and, at least in many instances, do not require registration in order to protect recorded material.  Works that are copyright protected by state common law are harder to track than those protected by a registered federal copyright.

[This post was written by Jason Horst.]

I previously wrote about two wage-fixing class actions, where some of the largest high-tech and Hollywood companies conspired not to hire one another’s employees to keep wages low.  Google, Apple, Intel and Adobe attempted to settle the high-tech class action for $324 million, but the Court found the amount too low.  They ultimately settled for $415 million.

Meanwhile, the Hollywood wage-fixing case against Pixar, Dreamworks, Disney, LucasFilm and other studios continued to move towards trial when the Court denied the studios’ motion to dismiss.

Initial evidence indicated that Sony was clean; it had rebuffed the other studios’ efforts to recruit Sony into the “gentlemen’s agreement” not to hire one another’s employees. But apparently there was sufficient evidence against Sony that it decided to settle. Sony, which has given us such animated classics as the Smurf franchise, Cloudy with a Chance of Meatballs, and Hotel Transylvania, agreed to pay $13 million to settle its portion of the wage-fixing claims and further agreed to cooperate with Plaintiffs in their action against the other studios.

It will be interesting to see whether Sony’s settlement will inspire the other studio defendants to cut their losses and settle or fight on.

It is a familiar issue. When should a consumer “be on the hook” for all of the terms and conditions in a company’s agreement accompanying its product or service?

The permeations relating to this problem are extensive. Are all of the terms buried in the fine print enforceable?  Does the consumer ignore such terms at his or her peril when the consumer fails to read the agreement?  Is it enough that the customer was given a chance to read the terms at the time of purchase? What manner or degree of consent is enough to bind the consumer to the letter of the written terms?  These are all problems of contract formation.  The question of acceptance of terms and conditions is especially tricky in the context of online commerce.

The California Court of Appeal (Second District) recently considered this issue as it relates to the “terms and conditions” or “terms of use” to which users are often asked to agree as part of an online purchase. The court’s decision in Long v. Provide Commerce, Inc., dealt with an appeal by Provide Commerce, Inc., the operator of ProFlowers.com.  See Long v. Provide Commerce, Inc. (Cal. Ct. App. Mar. 17, 2016) 2016 WL 1056555, at *1.  After a customer sued over an online purchase, the Internet-based flower purveyor sought to enforce a clause in the company’s “Terms of Use” that required its customer to arbitrate disputes, including a waiver of the right to a jury trial.

The type of online terms and conditions used by ProFlowers is often known as a “browsewrap” agreement. With that type of agreement, a user does not have to affirmatively click anything to signal his or her consent to the terms of the company’s written agreement.  Rather, “a user’s assent is inferred from his or her use of the website.” Long, supra, at *1.

At the time the plaintiff placed his order, the website’s “Terms of Use” could be found by clicking on a capitalized and underlined hyperlink at the bottom of each web page on the ProFlowers.com site. The court noted that the “hyperlink was displayed in what appears to have been a light green typeface on the website’s lime green background, and was situated among 14 other capitalized and underlined hyperlinks of the same color, font and size.” Long, supra, at *2.  The “Terms of Use” were also accessible by a hyperlink embodied in an email order confirmation, though the link was in small grey font toward the very bottom of the email and relatively obscured by other information and links.

The court observed that while Internet commerce presents new issues, it does not fundamentally alter the key requirement that for a party to be bound by a contractual provision, there must be a sufficient manifestation of consent. In the context of a “browsewrap” agreement, the courts have held that “the determination of the validity of the browsewrap contract depends on whether the user has actual or constructive knowledge of a website’s terms and conditions.” Long, supra, at *4 (quoting the federal Ninth Circuit Court of Appeal’s decision in Nguyen v. Barnes & Noble Inc. [(9th Cir. 2014) 763 F.3d 1171]).  In the absence of actual notice, the validity of the browsewrap agreement “turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.” Id.

The court noted the elements that the courts have considered in deciding whether to conclude that a website design puts the user on sufficient notice of the company’s terms and conditions, including the proximity of the hyperlink (linking to the written terms) to the areas likely to be in view of the user as he or she interacts with the website and completes the transaction and whether the website design includes “something more to capture the user’s attention and secure her assent” to the terms and conditions. Long, supra, at *5.

Here, the court found that the hyperlinks and the overall design of the ProFlowers.com website failed to put a reasonably prudent Internet user on notice of the company’s Terms of Use. The court found that the placement, color, size and other qualities of the hyperlinks to the Terms of Use were too inconspicuous, relative to the overall website design.  Most of the user’s interactions were in a separate bright white box in the center of the page that contrasts sharply with the lime green background.  To find the Terms of Use hyperlinks on various pages, the user must look below the area that has the information fields and the buttons he or she must otherwise click to proceed with the transaction.  Even then, the hyperlinks themselves are buried below multiple other links and in a light green font that blends in with the lime green background of the website.

The lesson for the day is that conspicuousness means conspicuousness. If no affirmative user click is required demonstrating the user’s consent to the terms and conditions, the website design should ensure that a link to a terms and conditions page will be hard to miss.  The visual prominence of the link is key.  Avoid having the link situated in a submerged page (i.e., where the user must scroll down to see it).  Certainly avoid having the link be in a font difficult to distinguish from the webpage background.  The link should be in what one would expect to be the plain view of the user as he or she interacts with the site.

It is an undisputed fact that the 90’s were the best.  The deadcade gave us some of the best television  (Buffy the Vampire Slayer), movies (Clueless), fashion (flannel), and music (Backstreet Boys).  Everything created since then has impaled in comparison.  In recent years, new technology has taken 90’s nostalgia to the next devil, starting with Tupac Shakur’s 2012 posthumous* performance at Coachella.  Michael Jackson’s hologram appeared at the 2014 Billboard Music Awards.  Whitney Houston’s apparition is set for a world tour in 2016.  Such performances bring up a ghost of legal (and obviously ethical) issues.  If ghosts aren’t real, who are the real stakeholders in a celebrity’s rights of publicity after death?  In other words, who may grim reap the rewards of using a celebrity’s image or likeness?

The existence and extent of a person’s posthumous publicity right depends on the terrortory.  In California, rights of publicity survive the person’s death, are considered property rights, and may be inherited or transferred via contracts, wills, and trusts.  Therefore, a person may specify during her lifetime who controls use of her image upon her death.  For example, in his trust, Robin Williams transferred ownership of his publicity rights upon his death to the Windfall Foundation, a charitable organization, with the caveat that his image or likeness could not be used for 25 years following his death.  In doing so, Williams may have saved his estate a significant amount of money.  After all, publicity rights, just like any other property, may create dhaunting tax liabilities for the estate upon a person’s death.

In the absence of a contract or other instrument transferring publicity rights, the California statute (Civil Code § 3344.1) determines the cryptkeeper(s) of those rights, including the person’s surviving spouse or children.  All publicity rights terminate 70 years after the person’s death.  Also worth noting is that the statute specifically targets use of a deceased person’s name or likeness for commercial purposes, such as advertisements and endorsements.  Posthumous publicity rights do not extend to protect the deceased celebrity’s identity in “a play, book, magazine, newspaper, musical composition, audiovisual work, radio or television program, single and original work of art, work of political or newsworthy value,” witch are used for “fictional or nonfictional entertainment, or a dramatic, literary, or musical work.”  Thus, people may write and act out a play aboot Janis Joplin, or add video clips of Fred Astaire in instructional dance videos for sale.

The “entertainment” hexemption to post-mortem publicity rights has not been extensively litigated, though a holographic music performance would seem to fall squarely into the exception as a musical or entertaining “audiovisual work.”  In any covent, it is more likely that a producer of any holographic performance would run up against copyright and trademark infringement claims (e.g. for use of songs, names, or other imagery) rather than right of publicity claims.

For the rest of us paranormals, it is unlikely that we will have to concern ourselves with our own rights of publicity during our afterlifetimes.  However, it will be interesting to see how the law and the entertainment industry evolve alongside celebrities’ newfound immortality.

*assuming without deciding that Mr. Shakur is, in fact, deceased.

As is obvious from our many posts on the subject, we here at IP Legal Forum are big fans of the show “Silicon Valley.” That said, its season finale could have used more Jared Dunn (can we give him a spin-off already?), as well as some legal real-talk, both of which I present to you now:

Hooli’s employment contract, including the clause assigning Hooli IP rights, is entirely unenforceable because of a bad non-compete clause. 

Really?  Standard “boilerplate” clauses in contracts are standard for a reason: they are often absolutely necessary. And one such necessary boilerplate provision is a saving/severability clause. This provision essentially says, “If any part of this contract is void or unenforceable under the law, that part can be ignored, but the rest of this contract is still enforceable and binding on the parties.” These clauses are ubiquitous, so I find it extremely difficult to believe that Hooli, with its huge team of lawyers, failed to insert a severability clause into its employment contracts. If the contract didn’t include the provision, it looks like Hooli needs to hire new counsel, and Hooli’s old counsel should contact their malpractice carriers. If Hooli’s employment contract did, in fact, include a severability provision and the arbitrator ignored it, well, this leads me to my next issue with this episode…

Arbitrators gonna arbitr-hate, and Hooli accepts that without pursuing any further litigation.

As Gavin Belson found out the hard way, even if you think your case is a slam dunk, the decision to submit a matter to binding arbitration is always a risky one, as you generally have no recourse if the arbitrator screws up; even if the arbitrator’s decision is factually or legally flawed. Unlike a bad decision by a judge or jury, an arbitrator’s decision is final and the courts will not second guess the decision unless (A) the arbitration agreement expressly permits it, or (B) extreme circumstance, like fraud or misconduct by the arbitrator. Not having read the arbitration agreement here, it’s hard to know whether Hooli could have persuaded the court to disregard or set aside the arbitrator’s decision. Maybe Gavin ultimately thought it would have been futile, but given his arrogance and deep pockets, I’m surprised he, or his lawyers, didn’t even try.

Lessons to be learned:

-Make sure your contracts include the necessary “boilerplate” language, especially a saving/severability clause.

-Final binding arbitration is almost always final and binding, so when you draft your contract, think long and hard about whether you are ready for that kind of commitment.

As I mentioned in a prior post on real estate investment vehicles’ use of intellectual property, the real estate industry is not immune from legal disputes arising from that “other” type of property: intellectual property – specifically trade secrets.

A recent case involving Zillow in the federal Northern District of California illustrates the point. In that case, Zillow, one of the nation’s most recognizable online real estate information marketplaces, was accused of trade secret misappropriation by Top Agent Network, Inc., a competing online real estate information dissemination service.

Score the early rounds of this battle to Zillow.

The complaint

Top Agent is a private online community and web application available to the top ten percent of real estate agents in certain local markets, focusing on “Upcoming Listings” – properties for sale that do not yet appear on the Multiple Listing Service (MLS), which is available to all registered real estate agents.

Top Agent’s complaint accused Zillow of misappropriating Top Agent’s trade secrets. According to the complaint, executives from Top Agent and Zillow began communicating in early 2014. Top Agent expressed interest in Zillow’s potential investment in the company. Zillow’s executive verbally assured Top Agent that all information provided by Top Agent would be kept confidential and used solely to evaluate a potential investment, but no non-disclosure agreement (NDA) was signed.

Top Agent set up an account for Zillow’s executive, allowing him to access Top Agent’s member-only content, including its “Upcoming Listings,” and the executives discussed Top Agent’s features, membership model, and business strategy. Through its account access, Zillow viewed dozens of pages within Top Agent’s private web application and opened more than a hundred member posts.

But Zillow eventually informed Top Agent that it would not be investing in the company. Soon after, Zillow launched its own “Upcoming Listings” product, which Top Agent alleged  contained all of the core features of Top Agent’s service.

In addition to trade secret misappropriation, Top Agent also asserted claims under the federal Computer Fraud and Abuse Act, California’s Computer Data Access and Fraud Act, and an assortment of other claims.

The District Court’s Order

On Zillow’s motion, the District Court dismissed all but one claim – breach of oral contract.

Top Agent’s complaint failed to state a trade secret misappropriation claim, the court held, because Top Agent failed to adequately identify the alleged trade secrets.

The court started with the familiar statutory definition of a trade secret under the California Uniform Trade Secrets Act:

1. information, including a formula, pattern, compilation, program, device, method, technique, or process, that
2. derives independent economic value, actual or potential, from not being generally known to the public or to other persons who could obtain economic value from its disclosure or use, and
3. is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

The court found that Top Agent only described its alleged trade secrets in “broad strokes,” without sufficient detail. Top Agent’s complaint alluded to the manner in which its “Coming Soon” feature was developed and implemented, the strategy behind the feature, and the identity of Top Agent member agents who made listing posts. Nothing in the complaint, the court held, showed how Top Agent’s information amounted to more than non-protectable ideas, features, and functions of design and operation (as opposed to protectable facts or “empirical data”). The court also held the complaint failed to describe Top Agent’s reasonable efforts to maintain the secrecy of its web content.

The court dismissed the Computer Fraud and Abuse Act claim on the ground that Top Agent had plainly given Zillow “authorization” to access its site (noting that how Zillow used information gained from that access was beyond the scope of the statute). The court likewise dismissed the Computer Data Access and Fraud Act because Zillow had “permission” to access Top Agent’s site.

The court dismissed all the remaining claims (other than breach of oral agreement) on the grounds of preemption, since they were all based on “the same nucleus of facts” as the trade secret claim.

Moving forward

The court’s dismissal order was “with leave” to amend, meaning Top Agent will have a chance to amend its complaint to more specifically describe its trade secrets and to show how its other claims arise from rights separate from trade secret law.

This early victory for Zillow, however, reinforces two lessons:

• Companies should have a very clear understanding of their trade secret inventory, and should be able to articulate how the information meets the statutory requirement of a trade secret as well as the reasonable efforts undertaken to protect them. There is a lot of “gray” in this area of the law, and it helps to have clarity before dealing with potential business partners or adversaries.
• Companies possessing trade secrets should always enter into a written NDA before sharing trade secrets with an outsider as part of any business relationship. Failing to obtain an NDA might constitute a per se failure use reasonable efforts to protect the trade secrets.

As discussed in my initial blog post on the topic, Google, Apple, Intel and Adobe stand accused of conspiring not to poach one another’s employees in order to keep wages down. And as discussed in my update, the Court rejected a proposed $324 million settlement as too low.

At the earlier hearing, one of the plaintiff’s objected and the Court agreed that the settlement was too low. At the most recent hearing there was no objection and the Court appeared to approve the settlement. However, there is still disagreement among the various plaintiffs and their respective counsel regarding allocation of the settlement. While it appears that the size of the pie has been decided, there question of how big the pieces will be is on the table.

The lessons for the defendants are (1) don’t conspire with your competitors not to poach one another’s employees and (2) don’t be dumb enough to refer to such conspiracies in writing.

Sure, there are lots of viral YouTube videos.  There’s Katy Perry’s left shark, the owls dance off  and of course the kitten sup-purr bowl, but it might surprise you to learn that YouTube removed a video for being too popular.

That’s right, YouTube removed a music video of “Luv Ya Luv Ya Luv Ya” (“Luv Ya³”) by the alternative rock group Rasta Rock Opera, claiming it had become too popular through nefarious means.  A search for the video now results in the YouTube equivalent of  Microsoft’s blue screen of death.

YouTube alleged that Rasta Rock Opera’s distributor, Song Fi, gamed the music video’s “view count” by using robots or spiders (sounds like a David Bowie song) to ring up more views more quickly than was humanly possible.

Song Fi denied gaming the system and sued YouTube, and its parent Google, in the Federal Court for the District of Columbia.  Song Fi later amended its suit, adding a six year old who appeared in the music video, N.G.B., as a named plaintiff.  N.G.B. and his musical posse alleged breach of contract, libel, tortious interference with business relationships.  Plaintiffs’ Complaint alleges that YouTube discriminates against small, independent artists, while allowing major music labels to use spiders and robots to inflate view counts for “artists” like Psy (Gangnam Style) and Justin Bieber.  Plaintiffs sought a preliminary injunction ordering YouTube to restore Luv Ya³ along with its prior view count of over 23,000 views.  YouTube responded with motions to dismiss or to transfer the case to the Federal Court in Northern California.  The D.C. Court granted YouTube’s motion to transfer pursuant to the venue selection clause on YouTube’s terms of use, but denied, without prejudice, Plaintiffs’ motion for a preliminary injunction and YouTube’s motion to dismiss.

While not ruling on the merits of Plaintiffs’ claims, the D.C. Court showed some sympathy to Plaintiffs’ libel claim regarding YouTube’s posting that “[t]his video has been removed because its content violated YouTube’s Terms of Service.” While recognizing that YouTube’s terms of use prohibit the use of spiders and robots, the Court stated that “it seems to me that [false counts] are not content.”   In fact, the Court told the YouTube attorney she thought he should “take this back to your client and your client should rewrite the contract.”  If the California court agrees, YouTube may not be able to hide behind its current terms of use.

Of course, N.G.B. and the other Plaintiffs may have already won, as they stand to gain as much or more notoriety by suing YouTube/Google and having bloggers blog about it, as they do by posting music videos featuring six year olds.